COURT FILE NO.: 5245/11 (Chatham)

DATE: 20191211

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Cheryl Anne McInerney & Bruce McInerney Plaintiffs

– and –

RJM Holdings Limited, Chilled Cork Inc. & Robert Joseph Myers Defendants

Raymond G. Colautti and Anita Landry, for the Plaintiffs

Angus T. McKinnon and John B. Brennan, for the Defendants

HEARD: September 13, 20 and 21, 2018; January 7, 8, 9, 10 and 11, 2019; May 13, 14, 15, 16, 17, 21 and 22, 2019

REASONS FOR JUDGMENT

VERBEEM J.:

(I) THE NATURE OF THE PROCEEDINGS

(a) Nature of the Action

[1] Cheryl McInerney (“Cheryl”), a former employee and a current 50 percent shareholder of the defendant Chilled Cork Inc. (“CCI”), asserts that she was wrongfully dismissed in the summer of 2010. She also claims that she is entitled to remedies pursuant to s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”), as a result of the defendants’ “oppressive” conduct both before and after her termination. She seeks damages and compensation, together with an order that her shares in CCI be purchased at an enhanced value.

[2] Bruce McInerney (“Bruce”) also maintains a wrongful dismissal claim, based on his express dismissal, in 2010, from his 13-month period of employment as a part-time, minimum wage employee of CCI.

[3] Some context is warranted.

(b) Background

[4] In 2008, Cheryl and the defendant, Rob Myers (“Rob”), agreed to become “partners” in a restaurant business. Rob solicited Cheryl’s participation in the venture – a casual fine dinning restaurant, with catering and banquet services, located within the Retro Suites Hotel in downtown Chatham, Ontario. Rob indirectly owned the hotel, through the defendant RJM Holdings Limited.

[5] They agreed that they would be partners and split the profits “50-50”. They also agreed that in exchange for her ownership interest in the business, Cheryl, who had experience in operating her own restaurant, would be employed to manage the restaurant on a day-to-day basis and serve as a chef, for which she would be paid a salary.

[6] Rob, whose other business interests kept him away from Chatham for most of the year, would largely be an absentee owner. In accordance with financial estimates and projections made by Cheryl, the parties agreed that Rob would contribute all the capital required to build out, equip and furnish the restaurant and cover its initial start-up costs and its initial losses. The parties agreed that the monies advanced by Rob would be fully repaid before any profits were distributed. They also agreed that since he would make all of the financial contributions, Rob would retain ultimate control over its financial aspects.

[7] The “partnership” was ultimately structured in a corporate form, with Cheryl and RJM Holdings Limited, each being a 50 percent shareholder of CCI. Cheryl was appointed as CCI’s president. Rob and Cheryl comprised CCI’s board of directors.

[8] On behalf of themselves and CCI, Rob and Cheryl executed a number of documents that gave effect to the terms of their agreements with respect to CCI, including: a lease between CCI and Retro Suites; a general security agreement made by CCI in favour of RJM Holdings Limited; an asset purchase agreement between CCI and Cheryl/her sole proprietorship restaurant, the Natural Food Emporium (NFE); and a Contract of Employment between CCI, Cheryl and Rob, in his capacity as a shareholder of CCI.

[9] In accordance with the asset purchase agreement, CCI assumed NFE’s liabilities, which totaled over $102,000, and it acquired its assets for the stated consideration of one dollar.

[10] The Contract of Employment did not specify a fixed term for Cheryl’s employment, which began on January 1, 2009. Pursuant to the contract’s terms, among other things: Cheryl was to be employed in “the position of management”, for an annual salary of $50,000; Cheryl agreed that in carrying out her employment duties, she would comply with all reasonable instructions as may be given to her by Rob, on behalf of CCI; Cheryl agreed that she would work with the “representatives” retained by CCI to assist in its operations; and Cheryl’s employment could be terminated for specified cause.

[11] Through the employment contract, Cheryl agreed that her “reporting relationships, duties and responsibilities” could be changed by Rob, on behalf of CCI, as he deemed appropriate, and that any such changes would not affect or change any other part of the employment agreement.

[12] CCI commenced operations in 2009. Things did not go well. The actual costs to build out, equip and furnish CCI exceeded Cheryl’s estimates. As a result, by January 1, 2009, CCI had incurred related-party debt (owed to one of Rob’s other corporations) in excess of $350,000.

[13] CCI consistently operated at a loss throughout 2009 and, ultimately, incurred an annual net operating loss of nearly $200,000, which was far in excess of Cheryl’s projections and Rob’s corresponding expectations. Rob was required to make significant monetary advances to CCI during 2009, to cover its ongoing losses. As a result, CCI’s related-party debt grew to nearly $545,000 by December 31, 2009.

[14] Despite CCI’s poor financial performance, Cheryl indicates that Rob was kind, and treated her fairly throughout 2009.

[15] Unfortunately, CCI’s financial performance remained sub-optimal in 2010. Despite Rob and Cheryl’s common interest in achieving profitability and Cheryl’s efforts in that regard, CCI continued to suffer operating losses, month after month. Cheryl became increasingly stressed over CCI’s losses, which she and Rob discussed, on a periodic basis.

[16] Cheryl concedes that by mid-2010, CCI’s losses were unsustainable and “something had to be done”.

[17] Similarly, by May 2010, Rob concluded that it was necessary to “bring in” another individual to assist Cheryl in managing the financial aspects of the restaurant. Ultimately, Greg Kazarian was retained to assume CCI’s bookkeeping duties and aspects of its financial controls. Mr. Kazarian did not replace Cheryl as CCI’s general manager and Cheryl continued to “run the restaurant”. Cheryl acknowledges that she understood the rationale for hiring Mr. Kazarian, but his presence made her feel “useless” and “demeaned”.

[18] After reviewing CCI’s financial aspects, Mr. Kazarian determined, among other things, that its “wages and salaries” expenses were too high. He made recommendations with respect to salary reductions, and the termination of certain employees that he determined were redundant, including Cheryl’s husband Bruce, who worked on a part-time, minimum wage basis.

[19] Rob maintains that until Mr. Kazarian made his recommendations, he was not aware that Bruce, whom Cheryl hired in June 2009, was an employee of CCI. He posits that during their discussions in 2008, he and Cheryl specifically agreed that Bruce was not to be involved in CCI. Cheryl disputes that assertion.

[20] Mr. Kazarian also recommended the imposition of tighter financial controls in CCI’s day-to-day operations.

[21] Throughout June 2010, Rob, Cheryl, Mr. Kazarian, and CCI’s head chef, Michel Bonnot, met a number of times to discuss CCI’s financial position and Mr. Kazarian’s recommendations. During their meetings, Cheryl consistently appeared upset and emotional, particularly in response to the suggestion that Bruce be terminated.

[22] Bruce was terminated on June 28, 2010, with three weeks pay in lieu of notice. Subsequently, Cheryl was distressed by his absence from CCI. She continued to attend work until July 9, 2010, when she “blew up” at Mr. Kazarian, accused him of “trying to take her job”, and left the restaurant. Cheryl has never returned to active employment at CCI, or active participation in its business and operations, despite remaining its president and a member of its board of directors.

[23] With Rob’s approval, Mr. Kazarian corresponded with Cheryl on July 14, 2010, suggesting that she take two weeks off from work with pay, and that they meet, thereafter, to determine if she was ready to return to work. Cheryl did not respond directly. Instead, through Chef Bonnot, she provided CCI with a brief note from her family doctor indicating that she was “off work for medical reasons for at least one month”. Cheryl indicates that at the time, she felt depressed.

[24] Unfortunately, Cheryl then misapprehended an advertisement placed by CCI in a local newspaper in late July for, among other things, a Red Seal chef. The advertisement was designed to find a replacement for Chef Bonnot, who, to Cheryl’s knowledge at the time, had announced his intent to retire from CCI in September 2010. Cheryl, who did not have a Red Seal, believed the advertisement was designed to replace her. Without speaking with anyone at CCI, including Rob, she concluded that she had been – or was being – forced out of CCI.

[25] On a few occasions in July 2010, Rob attempted to contact Cheryl to discuss her absence from, and anticipated return to, work, without success. He never received a response. Eventually, Chef Bonnot advised him that Cheryl had a prior history of depression, she was experiencing depressive feelings and she wanted her old restaurant (NFE) back. Cheryl previously advised Rob, that she missed her old restaurant.

[26] As a result, Rob unsuccessfully attempted to contact Cheryl in early August 2010, to propose a solution to their circumstances. When he was unable to reach her directly, he left her a voicemail message, in which he suggested that CCI would pay her three months salary and he would provide her with additional financial assistance to “set up” her old restaurant. He invited her to contact him. Cheryl did not respond.

[27] Cheryl attended a scheduled assessment with a nurse practitioner on August 30, 2010, during which she reported that she had been “pushed out of her restaurant business”, together with subjective symptoms of anxiety, which were improving. She appeared slightly depressed. She was diagnosed with an adjustment disorder. The nurse did not opine that she was incapable of engaging in active employment, at any time.

[28] Cheryl’s salary continued to be paid by CCI throughout July and August 2010. During that time: she did not return to active employment; she did not communicate a desire or intent to return to active employment; she did not respond to CCI’s numerous attempts to contact her, with respect to her absence from employment and her intentions to return to work; and she did not indicate that she needed more time off work. Cheryl concedes that she never advised CCI that she intended to return to work, at any time.

[29] In early September 2010, Rob’s corporate counsel forwarded documents to Cheryl that, if executed, would give effect to the terms of Rob’s August 2010 proposal, including a document titled “Termination of Employment”. The terms of that document reflect, among other things, that: Cheryl resigned her employment; she was to be paid three months salary; and she would transfer her shares in CCI to RJM Holdings Limited, for one dollar. The defendants posit that Cheryl’s shares had no value at the time, because: CCI had, to that date, continuously operated at a substantial loss; and the value of its liabilities (including related-party debt) exceeded the value of its assets. In her evidence, Cheryl concedes that until CCI became profitable, the value of her 50 percent ownership interest was nil.

[30] Cheryl did not sign the agreement and she did not respond to it, either directly or through counsel, even if to: advise that she had not resigned; posit that she had been expressly or constructively dismissed, at some point; or to communicate a desire or intention to return to work.

[31] Cheryl attended on a psychiatrist for assessment at the end of September 2010, who opined that she had suffered a “narcissistic injury” and offered a formal diagnosis of “adult life with mixed emotions”, with no evidence of a major depressive disorder. He did not identify any restrictions on her ability to work, at any time. He recommended limited counselling, which Cheryl did not pursue.

[32] In October 2010, Bruce commenced a catering business as a sole proprietorship. Cheryl was active in its operations from its inception, cooking and making deliveries. After several months of involvement in that business, Cheryl purchased an existing restaurant, which she has operated as Zee’s Bistro, to the present.

[33] CCI continued to operate after Cheryl’s departure in July 2010. It also continued to incur operating losses up to and including 2015, which were subsidized by its related parties (Rob’s other corporations). In 2012, Pete Tsirimbis became CCI’s general manager. He implemented a stage-based strategy to improve CCI’s menu, service model and atmosphere. He has also overseen: CCI’s addition of a private dining area and various renovations and upgrades to the restaurant’s interior; an improvement in the quality of CCI’s menu; and increased promotion and advertising.

[34] CCI first achieved profitability in 2016, which has continued to date. Nonetheless CCI’s related-party debt has not been retired. According to its audited financial statements, CCI still owed a net related-party debt in excess of $450,000, as of December 31, 2017. No portion of CCI’s annual net income in 2016 and 2017 was distributed to its shareholders.

[35] CCI has never held director or shareholder meetings. Although Cheryl remains CCI’s president and a member of its board of directors, she has never called or requisitioned such meetings. Neither has Rob.

[36] Apart from 2009, no resolutions have been passed exempting CCI from the audit requirements of the OBCA. Nonetheless, CCI did not produce audited financial statements to its shareholders. In the context of this proceeding, Cheryl secured an interlocutory order in 2014, appointing BDO as CCI’s auditor, dating back to 2009, and mandating the preparation of audited financial statements from 2009 to present, and ongoing.

[37] After its appointment, BDO raised a concern over the disorganization and lack of completeness that plagued CCI’s storage of historical financial records and source documents. It also raised concerns over the general lack of consistency in CCI’s method of recording transactions in its books, which resulted from a turnover of six different bookkeepers in the five-year period pre-dating BDO’s appointment. As a result, BDO was unable to produce any financial statements for 2009-2011. BDO prepared draft financial statements for 2012-2015, and final audited statements for 2016 and 2017.

(c) Cheryl’s Wrongful Dismissal Claim

[38] In the context of the foregoing, Cheryl asserts that she was expressly or constructively dismissed from her employment. She seeks damages for wrongful dismissal based on a lack of reasonable notice, and aggravated damages based on the manner in which she alleges she was dismissed.

[39] Cheryl testifies that beginning in 2010, Rob became a “devil”. She says that during their infrequent meetings in 2010, which were held in the presence of other staff members of both CCI and Retro Suites, Rob would demean and insult her and, generally, act in an aggressive manner. He then retained Mr. Kazarian, without notice to her, and “wrongfully demoted” her, by stripping her of financial reporting and control duties. Despite Rob’s assurance that she would continue to “run the restaurant”, she felt like she was “just an employee”.

[40] Cheryl asserts that her depressive feelings increased in June 2010. When she raised certain concerns with Rob, he told her that she would have to personally fire Chef Bonnot, his wife Leslie (who was CCI’s bookkeeper at the time) and Bruce, or she herself would be fired.

[41] Cheryl varyingly posits that she was terminated through: the change in her financial controls and reporting duties; the implementation of financial controls; the Red Seal newspaper ad; Rob’s early August 2010 proposal; and/or the documentation sent to her in early September 2010.

[42] Cheryl was employed for approximately 18 months. She claims she was entitled to 24-months notice of termination and seeks damages in lieu thereof, together with aggravated damages.

[43] Rob asserts that by her conduct, Cheryl clearly and unequivocally resigned from her employment in the summer of 2010. He denies that he ever engaged in threatening or demeaning behaviour towards her. He never directed her to terminate anyone, including Bruce. He consistently interacted with Cheryl in an appropriate manner.

[44] Rob asserts that in accordance with the Contract of Employment, Cheryl’s duties with respect to financial management and controls were changed in June 2010, but Cheryl remained in a position of management. The decision to change Cheryl’s duties was made only after CCI’s exceptional losses in 2009 and its continuing losses in the first half of 2010, and after he and Cheryl had discussed the need to address CCI’s losses. Mr. Kazarian was retained to assist Cheryl, not to replace her.

[45] After Cheryl left CCI in July 2010, Rob never heard from her again, despite numerous attempts to contact her. He never instructed anyone to terminate Cheryl and he did not do so himself. Cheryl never advised CCI that she intended to return to work and she refused to respond to its attempts to address the issue with her. Rob made his August 4, 2010 proposal because he did not know what else to do, in response to Cheryl’s silence. Rob posits that he did not attempt to unilaterally impose his proposal. Documents were prepared in accordance with the proposal, but Rob appreciated that they would not gain effect unless Cheryl signed them. Cheryl never responded to any of the foregoing.

[46] From a subjective perspective, Cheryl testifies that when she left CCI, she had determined that she “did not want to try anymore”, in relation to its operations. By early August 2010, she determined that she could not go back to CCI. Finally, by the end of August 2010 (before she received the termination agreement), she determined that she did not want to be Rob’s partner anymore.

(d) Cheryl’s Oppression Claim

[47] In her capacity as a shareholder, Cheryl also asserts an oppression claim pursuant to s. 248 of the OBCA. She claims her reasonable expectations as a shareholder were violated because, among other things: CCI did not employ her on a long-term basis; she did not participate in director and shareholder meetings; through the recording of management fee transactions, RJM Holdings secured a tax advantage that she did not share in; she has not shared in CCI’s profits; CCI began to produce audited financial statements, only after it was ordered to do so in the context of this proceeding; she was excluded from the management of CCI; and Rob did not deal with her in good faith.

[48] Cheryl contends that Rob’s oppressive conduct commenced in 2009 and continues to date.

[49] In her pleadings, Cheryl claims, among other things: a variety of orders, effectively, ousting Rob as an officer and director of CCI and appointing herself as sole officer, director and signing officer; an order extending the term of CCI’s lease with Retro Suites; and compensation for loss of profit, disgorgement of profits, and oppressive conduct in the amount of $5,000,000.

[50] At trial, Cheryl submits that the appropriate remedy for any oppression ought to include an ordered purchase of her shares at an enhanced value. She suggests a valuation date of December 31, 2017 (essentially, a date of judgment valuation). She has produced expert evidence valuing the shares under three different scenarios, premised on varying assumptions that, to a large extent, conflict with the content of CCI’s annual financial statements.

[51] Depending on which scenario is used, the plaintiffs’ expert calculates the value of Cheryl’s shares to fall within one half of a total amount ranging from a low of $690,000 to a high of $1.5 million, as of December 31, 2017.

[52] The defendants assert that: Cheryl has failed to evidence the reasonable expectations that she asserts as a shareholder; many of her expectations are not “reasonable”, when measured against the parties agreements, past practice, reasonable commercial practice, and the availability of preventative steps; the defendants did not engage in conduct that falls within the scope of the oppression provisions of the OBCA; and to the extent that the failure to provide audited financial statements unfairly prejudiced Cheryl’s interests, that prejudice has already been address through the appointment and efforts of the court appointed auditor. Further remedial awards are, therefore, unnecessary.

[53] To the extent that a remedial order is made pursuant to s. 248(3) of the OBCA, the defendants agree that it should include an order that Cheryl’s shares be purchased. They submit that, in all of the circumstances, the fairest valuation date would either be the date of the original alleged oppressive conduct (December 31, 2010) or the date the proceeding was commenced (December 31, 2011) (CCI’s year-end dates are used for convenience in valuation).

[54] The defendant’s adduced evidence from an expert business valuator that indicates the shares of CCI were worth nil on either December 31, 2010 or December 31, 2011. She also opines that en bloc, the shares of CCI have a fair market value between $9,900 and $97,900, with a mid-point of $53,900, on December 31, 2017. Therefore, she estimates the value of Cheryl’s shares to be $26,950, as of that date. Unlike the plaintiff’s expert, she assumes the value of CCI’s related-party debt is consistent with the amount recorded in its 2017 audited financial statements, and that the best evidence of its historical revenue and wages expenses are its annual financial statements.

(e) Bruce’s Wrongful Dismissal Claim

[55] Bruce asserts a claim for damages for wrongful dismissal based on the termination of his 13-month period of employment, as a part-time minimum wage employee of CCI. He claims to have been entitled to a three to six month notice period.

(f) Other Claims Advanced by the Plaintiffs

[56] Cheryl pleads a claim in unjust enrichment based on CCI’s acquisition of NFE’s assets, as part of her deal to become Rob’s partner. She maintains that CCI not only gained NFE’s assets and goodwill, it eliminated a source of major competition.

[57] Cheryl also pleads a claim for damages premised on Rob’s alleged fraudulent misrepresentations during their 2008 negotiations, that she would be an equal partner in the restaurant.

[58] Bruce alleges that as a result of Rob’s fraudulent misrepresentations in 2008, he was induced to provide unpaid labour to CCI.

(g) The Defendants’ Counterclaim

[59] In submissions, although not in his pleadings, Rob claims to be entitled to $50,000 as a result of defamatory comments made by Cheryl, after she left CCI. The pleaded aspects of the defendants’ counterclaim are not pursued at trial.

(h) Structure of these Reasons

[60] Below, I will explain my reasons for dismissing the plaintiffs’ wrongful dismissal claims, together with the balance of the action, excepting Cheryl’s claim pursuant to s. 248 of the OBCA, as well as, my reasons for dismissing Rob’s submitted counterclaim. I will also explain why I am persuaded that Rob and CCI engaged in certain conduct that both violated Cheryl’s reasonable expectations qua shareholder and fell within the scope of s. 248(2) of the OBCA and, as a result, a purchase of her shares should be ordered, as the parties mutually request. Finally, I will explain why the fairest valuation date for Cheryl’s shares is December 31, 2010, CCI’s year-end date in the year the original oppressive conduct, as found, occurred and as a result, the value of the shares is nil and the transfer should occur at nominal consideration.

[61] I will begin my reasons by detailing the evidence adduced at trial, followed by a summary of the parties’ respective positions.

[62] Thereafter, I will determine the issues by first resolving the conflicts in the evidence and making the necessary factual determinations concerning: the formation of the parties’ deal; the validity and quantum of CCI’s related-party debt; and the contextual circumstances leading to Cheryl’s withdrawal from CCI.

[63] I will then explain why, in my view, Cheryl was not expressly or constructively dismissed, but rather, through her conduct she resigned from her employment. I will also provisionally assess Cheryl’s damages for wrongful dismissal, including her claim for aggravated damages. Finally, I will assess Bruce’s damages for wrongful dismissal.

[64] Next, I will dispose of Cheryl’s oppression claim by first determining the reasonableness of her asserted expectations as a shareholder, and whether any of them were breached by the defendants’ conduct in a manner consistent with s. 248(2) of the OBCA. I will explain why certain conduct by Rob, as found, does so. In determining the appropriate remedy, I accept the submission, by all affected parties, that a share purchase of Cheryl’s shares should be ordered. I will explain my determination that December 31, 2010 is the fairest valuation date and why I accept the opinion evidence that the shares have no value as of that date. I will also explain, in a provisional assessment, why I accept the defendants’ expert evidence that Cheryl’s shares in CCI have a value of $26,950, if December 31, 2017 is selected as the valuation date.

[65] Finally, I will explain my reasons for dismissing the balance of the plaintiffs’ claims and the defendants’ counterclaim.

II) THE EVIDENCE

The Nature of the Evidence

[66] The plaintiffs called evidence from four witnesses: Cheryl; Bruce; Ferruccio Da Sacco; and James Tracey. Mr. Da Sacco is a member of the court appointed auditor, BDO. Mr. Tracey is, among other things, a certified business valuator who was qualified to provide expert opinion evidence with respect to the fair market value of CCI’s shares as of December 31, 2017.

[67] The defendants adduced evidence from six witnesses: Rob; Greg Kazarian (CCI’s financial controller from 2010 to 2012); Stephanie Temesy (CCI’s bookkeeper from 2015 to present); Peter Tsirimbis (CCI’s general manager from 2012 to present); Gerry Hockin (CCI’s former accountant and current consultant to the RM group of companies); and certified business valuator Lindsay Campbell, who was qualified to provide expert opinion evidence on the fair market value of CCI’s shares as of December 31, 2010, 2011 and 2017, respectively.

[68] Below, I will summarize the evidence of Cheryl, Bruce and Mr. Da Sacco, together with aspects of a number of the documentary exhibits to which they referred in their respective evidence. Following that, I will summarize the non-expert evidence adduced by the defendants. Finally, I will summarize the reports and viva voce evidence of both Mr. Tracey and Ms. Campbell.

The Evidence Adduced on Behalf of the Plaintiffs

Evidence of Cheryl Anne McInerney

[69] Cheryl is married to her co-plaintiff, Bruce. Prior to her involvement with CCI, she had experience in the restaurant industry, in which she has worked intermittently, in varying capacities, since she was a teenager.

[70] In July 2001, Cheryl purchased a cafeteria-style restaurant in downtown Chatham, known as the Natural Food Emporium (“NFE”), which served a lunch and a bistro dinner service. She operated NFE as a sole proprietorship. Bruce consistently provided unpaid labour services to NFE, performing various tasks on an as needed basis, including bookkeeping.

[71] From a financial perspective, Cheryl indicates that NFE had “good years and bad years” in the seven-year period in which it operated. Bruce’s handwritten calculations of NFE’s net annual income in the years 2004 to 2008, inclusive, indicate that NFE had: a net loss of $420.42 in 2004; a net income of $48,000 in 2005; a net loss of $2,072 in 2006; a net loss of $2,739 in 2007; and a net income of $11,459 in 2008.

[72] Cheryl enjoyed operating NFE, which she did until December 31, 2008. On January 1, 2009, she commenced employment as “the manager” and one of the chefs at a Chatham restaurant known as the Chilled Cork Inc. (CCI). Cheryl was also a 50 percent shareholder of CCI, together with RJM Holdings Inc., a corporation owned by Rob. Rob actively solicited Cheryl’s participation in the ownership and operation of CCI.

[73] Cheryl and Rob first met in April 2008, when he walked into NFE’s kitchen, introduced himself and asked Cheryl if she wanted to open a restaurant at the Retro Suites, a hotel that he had developed in Chatham’s downtown core. She was intrigued. They met at the Retro Suites later that night, where Cheryl, Bruce and three of NFE’s other employees toured the empty restaurant shell. At the conclusion of the tour, the NFE employees left and Cheryl, Bruce and Rob discussed the nature of Rob’s proposed venture, which according to Cheryl’s original evidence, included, among other things, the following:

1. Rob and Cheryl would be 50/50 partners in a restaurant business located in the Retro Suites. They would share the profits of the restaurant on an equal basis. Cheryl was aware that there would be no profits in the first few years of the restaurant’s operation and she advised Rob accordingly.

2. Cheryl would be employed as the restaurant’s manager and she would be paid an annual salary of $50,000.

3. Cheryl asked Rob if he required an executive chef for the restaurant because, in her words, she was only a cook. He responded in the affirmative and approved the hiring of a chef, at an annual salary of $60,000.

4. Cheryl identified all of the kitchen equipment that needed to be purchased for CCI. Rob wanted her to personally select the kitchen equipment, as well as, the fixtures, furnishings and other capital assets, that the restaurant required.

5. Rob wanted Cheryl to personally recruit and hire a chef.

6. Rob advised Cheryl that he wanted her to oversee the restaurant’s “build out” because NFE was a clean restaurant and she was a hard worker.

7. Rob described himself as Cheryl’s “angel investor” and told her that he intended to be a silent partner. He would not be involved in the restaurant’s day-to-day operation because he had no experience in that regard and he was otherwise too busy. He said they would be “rich”.

8. Rob indicated that he would: financially contribute $50,000 for the restaurant’s start up; finance the purchase of CCI’s capital equipment; and maintain a $100,000 line of credit for the restaurant’s operation.

[74] At the conclusion of the meeting, Rob and Cheryl shook hands and Rob said: “It’s a done deal”; “My handshake is my bond”; “I never go back on handshakes”; “We will be 50/50 partners”; and “I don’t want to run the restaurant”.

[75] After the meeting, Cheryl continued to operate NFE at its original location until the end of August 2008. In September 2008, she moved NFE’s equipment to CCI’s planned location in the Retro Suites and began to operate NFE there. At that time, there were still four years left on a five-year lease of NFE’s original operating premises. Rob did not assist her in terminating that lease.

[76] The restaurant opened at the Retro Suites as “NFE/Chilled Cork”, in September 2008. Cheryl continued to run the business as a sole proprietorship until the end of 2008. CCI commenced operations on January 1, 2009.

[77] Cheryl was not required to financially contribute to CCI’s development or its operation. She was CCI’s only general manager. She hired all of CCI’s original employees, including Bruce, whose job duties were similar to those he held with NFE, and included cleaning, stocking the bar, setting up the banquet room, and making purchases. Later in her evidence, Cheryl clarified that Bruce was originally not a paid employee of CCI. She did not discuss hiring Bruce with Rob because she thought Rob knew that Bruce had worked at NFE. Cheryl also hired her friend, Michel Bonnot, a Red Seal chef, as CCI’s executive chef. Before he was hired, Chef Bonnot met with both Rob and Cheryl. Cheryl also hired Chef Bonnot’s wife, Leslie, as CCI’s original bookkeeper.

[78] In August 2009, the Retro Suites’ “business manager”, Ron LaRoche, provided Cheryl with correspondence dated August 17, 2009, from Rob’s lawyer, Dennis Asher, which enclosed several documents for Cheryl’s execution, including: an asset purchase agreement between Cheryl (as sole proprietor of NFE) and CCI; a commercial lease between CCI and Retro Suites; a resolution of CCI’s board of directors; a stock transfer register showing, among other things, that Cheryl received 50 class A shares in CCI and that she was elected CCI’s President as of August 17, 2009; a Directors Register that listed both Cheryl and Rob as directors; a Contract of Employment between Cheryl, Rob and CCI; a general security agreement made by CCI in favour of RJM Holdings Limited; and an Unanimous Shareholders Agreement (USA).

[79] The relevant terms of the foregoing documents include:

(a) The Commercial Lease

“2. The term of this lease commences on January 1, 2009 and ends of December 31, 2014.

4. (a) The Tenant shall pay the Landlord a “base rent” of forty eight thousand dollars ($48,000) plus GST per year in equal monthly installments of Four Thousand dollars ($4,000) …

5. The following services and expenses are at the sole responsibility and expense of the Tenant: (a) any and all upgrades to facility to enable and/or increase productivity to the business. …

6. The Tenant shall also be solely responsible for repairs or improvements to the structure and to the exterior and interior of the building for business purposes.”

(b) The Contract of Employment

Between Chilled Cork (Employer), Cheryl McInerney (Employee) and Rob Myers (Shareholder)

“1. Employment and Term

(1) The Employee is employed by the Employer in the position of management effective the 1^st day of January, 2009 … In carrying out her duties the Employee will comply with all reasonable instructions as may be given by the Shareholder on behalf of the Employer. … (3) The Employee agrees that her reporting relationships, duties and responsibilities may be changed by the Shareholder on behalf of the Employer as he deems appropriate. The Employee agrees that any of the changes which may occur pursuant to this paragraph will not affect or change any other part of this Agreement. The Employee will work with the representatives retained by the Employer to assist in the operation of the Employer.

2 Remuneration and Benefits:

(1) In consideration of your performance of the obligations contained in this Agreement, the Employer will:

(a) pay the Employee a salary of $50,000 per annum subject to the normal statutory deductions commencing January 1, 2009 based upon full-time employment. …

(4) Termination: The Employee covenants and agrees that the Shareholder on behalf of the Employer may terminate this contract of employment without notice or pay in lieu of notice for cause. For the purposes of this agreement “cause” shall include:

… (b) consistent poor performance on her part, after being advised as to the standard required, as determined in the sole discretion of the Shareholder on behalf of the Employer;” …

[Emphasis added.]

(c) The General Security Agreement

“Chilled Cork Inc. (the “Debtor”) RJM Holdings Limited (the “Secured Party”)

1. The creation of security interest

(1) for value received and as a general and continuing collateral security for the payment of Indebtedness (as defined below or as set out in Schedule “A”) … The Debtor hereby grants to the Secured Party a security interest in all of the Debtor’s personal property … and in the undertaking of the Debtor.

Schedule “A”

This agreement is to secure the liability of the Debtor to the Creditor in the amount of One Hundred Fifty Thousand Dollars ($100,000) [sic].”

(d) The Unanimous Shareholders Agreement

Article 3 – Operation and Control of the Corporation

3.1 The parties hereto shall cause such meetings of Directors and Shareholders of the Corporation to be held, votes to be cast, resolutions to be passed, by-laws to be passed, documents to be executed and all things and acts to be done to ensure the following continuing arrangements with respect to the operation and control of the Corporation:

(a) The Board of Directors of the Corporation shall be composed of two (2) members namely Cheryl and Rob …

(c) without the prior written consent of Shareholders holding, in aggregate, not less than 51% of the total number of issued shares;

(i) there shall be no change in the number of Directors of the corporation; …

Article 4 – Restrictions on the Issue and Transfer of Shares

4.1 Restrictions

… (b) no shareholder shall sell, assign, transfer, dispose of, gift, donate, grant, mortgage, pledge, hypothecate, charge or otherwise encumber or deal with any Shares now or hereafter owned or held by such Shareholder or any interest in any such Shares.

Article 5 – Buy/Sell Arrangements

5.1 The purchase and sale provisions of section 5.2 hereof shall apply on the happening of any one of the following events:

… (b) The death of any Shareholder; … (d) The insolvency or bankruptcy of any Shareholder (at the option of the Board of Directors of the Corporation exercised by giving written notice to such Shareholder);

(e) In the case of Cheryl, if Cheryl for any reason whatsoever, ceases to be an employee of the Corporation (at the option of the Board of Directors of the Corporation exercised by the giving of written notice to Cheryl)

… and the Shareholder, who has given notice, who has died or been found incompetent, become insolvent or bankrupt, or Cheryl upon ceasing to be an employee of the Corporation and having received written notification from Rob, shall hereinafter in this section be referred to as the “Retiring Shareholder …” …

5.2 The Corporation shall purchase all the Shares of the Corporation held by Retiring Shareholder on the following terms and conditions: (a) the aggregate purchase price for such Shares (the “Purchase Price”) shall be:

• an amount equal to the Prescribed Value of the Corporation (as defined in annexed Schedule “A”) multiplied by the number of Shares held by the Retiring Shareholder and divided by the total number of Shares outstanding on the Termination Date. …

[Emphasis added.]

Schedule “A” to the proposed Shareholders Agreement provided that the “Prescribed Value of the Corporation” for the purposes of a buyout would be:

“(b) if there is no written agreement as to the Prescribed Value of the Corporation or if such written agreement has elapsed as foresaid, then an amount equal to the fair value of One Hundred Percent (100%) of the Common Shares as determined by Corporation’s Accountant whose determination shall be final and binding upon the surviving Shareholders, the Retiring Shareholder, the Corporation and their respective heirs, legal personal representatives, successors and assigns.

[80] Cheryl did not sign the documents immediately upon receipt because she was “always too busy to look at them”. Both Mr. Asher and Mr. LaRoche repeatedly followed up with her in that regard. She did not read any of the documents, but she eventually signed all of them, except the USA. Cheryl explains that she did not receive legal advice before she signed the documents because when she originally met with Rob in 2008, he told her that: she did not need to retain a lawyer; she could trust him; and a lawyer would just cost her money.

[81] Cheryl originally testified that she eventually signed the documents (except the USA) despite not reading them or understanding their content because Rob and Mr. LaRoche kept “bugging her to sign”. Anytime that she talked about getting a lawyer, Rob told her that she did not need one. Cheryl maintains that she needed someone to “walk her through” the documents, but she did not contact Mr. Asher to advise him that she did not understand the documents.

[82] On November 9, 2009, Cheryl read and signed a “waiver and acknowledgment”, that was prepared by Mr. Asher and directed to Mr. Asher, RJM Holdings Limited, CCI, and Rob. That document confirms that she transferred her restaurant business (NFE) to CCI in exchange for 50 percent of CCI’s shares, as well as Cheryl’s understanding that: CCI would pay rent to RJM Holdings Limited in the amount of $4,000 per month; she would enter into an employment agreement with CCI; she and Rob would enter into a USA with respect to CCI; and CCI would grant a security interest over all of its assets in favour of RJM Holdings Inc.

[83] Finally, through the “waiver and acknowledgement”, Cheryl confirmed that Mr. Asher had advised her to obtain independent legal advice with respect to the CCI transaction and she declined to do so. In her evidence, Cheryl states that she never spoke with Mr. Asher about obtaining independent legal advice. When she read that portion of the waiver and acknowledgement, she reasoned that she had already signed the documents that were enclosed with Mr. Asher’s August 2009 correspondence, so she signed the waiver and acknowledgment and returned it to Mr. LaRoche.

[84] Cheryl allows that during the course of their ongoing discussions in 2008, she advised Rob that she projected that CCI could generate a million dollars in revenue in 2009. Ultimately, it did not do so. CCI incurred a substantial loss in its first year of operation. Rob was angry that the business was not profitable. Eventually, Rob began to hold staff meetings with Cheryl, Nancy Labadie (the general manager of Retro Suites), Ron LaRoche and Chef Bonnot. Cheryl’s evidence concerning the commencement of those meetings and Rob’s demeanour during the meetings evolved over the course of her evidence.

[85] Originally, Cheryl testified that the meetings, which were held approximately once every three months, made her nervous. During the meetings, Rob would rant and rave, throw papers around, and “talk down” to the other attendees. He refused to listen to any of Cheryl’s “cost cutting” suggestions and he dismissed all of the efforts that Cheryl had made to reduce CCI’s expenses. He consistently reiterated that he wanted them to “make money”, but he never offered any suggestions of his own, in that regard.

[86] In order to address Rob’s concerns, Chef Bonnot voluntarily reduced his salary from $60,000 to $45,000 and Cheryl reduced the number of CCI’s staff, while increasing the number of hours that she worked from 55 hours per week to 70 hours per week. Working with Retro Suites marketing director Mr. LaRoche, Cheryl engaged in various efforts to increase CCI’s sales. Some of her ideas worked and some did not. Rob remained unsatisfied. He never made Cheryl feel that she was improving in her management of CCI.

[87] CCI continued to suffer operating losses throughout the first half of 2010, prompting Chef Bonnot to voluntarily reduce his annual salary further, to $35,000. Cheryl believed that the restaurant was showing some financial improvements in the period from April to June 2010. She presented the numbers to Rob, who laughed at her and told her that she was stupid.

[88] Sometime in mid-2010, an individual named Greg Kazarian began to work as a bookkeeper for the Retro Suites Hotel. A few weeks after he started, Mr. LaRoche advised Cheryl that Rob wanted her to arrange for Leslie Bonnot to train Mr. Kazarian on CCI’s bookkeeping system. Cheryl acknowledges that Mr. LaRoche asked her to do so on a number of occasions and she consistently refused. She felt that it was unfair that Rob decided to have someone else engaged in CCI’s bookkeeping, without involving her in the decision.

[89] Cheryl then testified to the content and circumstances of correspondence that she authored to Rob in mid-2010. She maintains that when she was originally asked to have Ms. Bonnot review CCI’s bookkeeping system with Mr. Kazarian, Rob was out of the country and she did not know how to reach him. As a result, she wrote correspondence to Rob, which she originally testified she mailed to his residence on July 8, 2010 (the letter bears a handwritten date of “July 8”). Later, she conceded that that aspect of her evidence was inaccurate. She then suggested that she forwarded the correspondence to Rob at the end of June 2010.

[90] In her correspondence, Cheryl, among other things:

(a) discloses that Rob has never made her feel like a “partner” and her belief that he “probably never will”;

(b) alleges that at each of their meetings, Rob said that he felt like he had been “fucked”;

(c) discloses that she feels like she has been “fucked”;

(d) discloses that she “jumped way too fast” at Rob’s proposal; that she trusted Rob, despite people telling her not to do so; and reiterating that he said he was her “angel”;

(e) asserts that she received nothing in exchange for moving her restaurant and client-base to CCI’s location and she was left with nothing;

(f) particularizes her debt, related to the lease of NFE’s former operating premises;

(g) discloses her ongoing efforts to make CCI a success;

(h) alleges that the parties agreed that CCI would make payments with respect to a truck that Bruce and Cheryl owned;

(i) disclosed that when Bruce works for CCI, he “only charges for some of his hours and only gets minimum wage”;

(j) confides that she missed her old bistro restaurant, where she and Bruce were happy and “the stress was all ours”;

(k) attributes CCI’s 2009 financial losses to a recession;

(l) confirms that she wanted CCI to become profitable;

(m) discloses that at each of their meetings, Rob destroys “more and more” of her self esteem;

(n) expresses that she and Rob did not talk like “real partners” about CCI’s issues and reasonable solutions to them;

(o) identifies CCI’s “salary costs” as its biggest issue and that its sales needed to increase;

(p) accepts Rob’s rationale for involving Mr. Kazarian in CCI’s operation, but expresses concern that she was not advised, in advance, of his intended role;

(q) confirms that in 2009, CCI paid her a salary in excess of the $50,000 amount set out in her employment contract, and justifies the additional amount as being the difference between the salary that she ought to have been paid by CCI for the period of September 2008 to December 2009, less NFE’s net annual income in 2008;

(r) acknowledges that some of her personal expenses were paid by CCI in 2009, which she attributed to the failure of CCI’s bookkeeper to properly segregate personal receipts that Cheryl provided to her;

(s) acknowledges that CCI’s financial performance in 2009 was “bad” and worse than she thought, but expresses her belief that its performance in 2010 was improving;

(t) expresses her hope that Mr. Kazarian would be able to determine other ways to improve CCI’s financial performance, without affecting quality and service;

(u) expresses her desire to work together with Rob, “as partners”.

[91] In recounting the content of the letter during her evidence, Cheryl testified that in every meeting that she had with Rob, he told her that he “felt like he was being fucked” and he would not listen to her. He would also tell her that: she was dumb; she did not know what she was doing; and he could not believe that she owned a restaurant. In some of the meetings, Rob told Cheryl that she was not worth her pay. He threatened that if she did not start showing a profit, he would “get rid of her”. She felt like she could never make Rob happy. During the meetings, she often cried in front of Rob and other staff members. Despite what he told her in their initial meeting in April 2008, Rob was never her angel and he did not treat her well. If she had known “how Rob truly was” she would never have gone into business with him.

[92] Shortly after giving the foregoing aspects of her evidence, Cheryl testified to a differing narrative concerning Rob’s demeanour. Specifically, during CCI’s initial operations and throughout 2009, Rob was always “nice” and “kind” towards her. His demeanour only changed in 2010, after CCI did not achieve profitability in its first year of operation.

[93] Cheryl deposed to a number of other issues that she experienced while operating CCI, including the following. When she left NFE’s former location, she ultimately found a tenant to sublet that premises for four years but she continued to service a loan associated with renovations at the former premises. She also had to pay a lawyer to assist her in “getting out” of her lease. She asked Rob for help with her lease-related issues and he told her that she should offer the landlord $10,000.

[94] Cheryl personally owned a truck that CCI used in its business, for liquor pick-ups and deliveries. Initially, she caused CCI to make all of the payments related to the truck. Eventually, she resumed personal payment of the truck expenses, in an effort to assist CCI achieve profitability.

[95] Based on the number of hours that she worked and her $50,000 annual salary, Cheryl estimates that she was paid approximately $12 per hour while she was employed by CCI. In addition, Bruce worked a number of hours that were not recorded and for which he was not paid.

[96] Cheryl authored the “July 8” correspondence, because she wanted Rob to understand that she felt like she was losing her self esteem. She expected that after he received it, he would talk to her “one on one”. She wrote it to ask Rob for a “chance” and to advise him that she was trying to make things better, and that she was striving to achieve profitability. Through a patently leading question, Cheryl confirmed that she felt “vulnerable”, in relation to Rob.

[97] Cheryl’s correspondence also refers to Mr. Kazarian’s arrival. Cheryl explains that Mr. Kazarian was on site at the Retro Suites for a couple of weeks before she met him. After two weeks, Mr. LaRoche introduced him to Cheryl as an “overseer” and indicated that Rob wanted him to “take over” CCI’s financial books. Cheryl testifies that Mr. Kazarian’s arrival made her feel “useless and demeaned”.

[98] Cheryl explains that in her correspondence, the statement, “I don’t steal”, refers to “an accusation” by Rob that CCI had paid some of her personal expenses.

[99] Cheryl acknowledges that the total amount of the salary that CCI paid her in 2009, exceeded her contracted annual amount of $50,000. She reasons that she was entitled to compensation from CCI for the period of September to December 2008, when she operated NFE at the Retro Suites location. As a result, in 2009, she caused CCI to pay her an additional $4,443.

[100] As soon as Rob received Cheryl’s correspondence in early July 2010, he summoned her to a meeting at the offices of the RM group of companies. When she arrived, Rob advised her that as a result of her correspondence, she was personally required “to fire” Chef Bonnot, Bruce, and Leslie, and if she did not do so, she would lose her job. Rob also advised her that Mr. Kazarian was now going to assume control over all aspects of CCI’s management and if she “did not like it, she could leave” and he would “even throw a little money” at her. Cheryl cried and told Rob that she needed to keep her job. He told her to make a decision by the following day.

[101] Later that day, Cheryl met with Bruce, Chef Bonnot and Leslie Bonnot and advised them about her meeting with Rob. The following day, Chef Bonnot, Leslie and Bruce went to work at CCI. Cheryl spoke with Rob and convinced him to retain Chef Bonnot at a wage rate of $17 per hour. However, Rob imposed a “new rule” that spouses were no longer permitted to work together at CCI. As a result, he told Cheryl that Leslie Bonnot and Bruce had to be terminated within two weeks.

[102] The following day, Cheryl met with Rob, Mr. Kazarian and Chef Bonnot in CCI’s banquet room. Rob announced that effective immediately, Bruce and Leslie were terminated and Mr. Kazarian was “taking over the business”. Rob took Cheryl’s CCI “credit card” and removed her cheque signing authority. He advised her that Mr. Kazarian would provide her with $100 float that could be topped up, if she submitted receipts for expenditures. Rob advised Cheryl that he wanted her to continue “cooking food” and “running the restaurant”. Cheryl’s office was relocated to a smaller desk in an office/storage room. Mr. Kazarian was to assume responsibility for purchasing supplies.

[103] Leslie and Bruce were fired immediately after the meeting. Cheryl began losing sleep and crying all the time. She felt that she had been reduced to “just an employee”.

[104] In the days that followed, Cheryl eventually “lost it” and confronted Mr. Kazarian in the restaurant during its operating hours. She yelled at him and accused him of trying to take her job. He advised her that was not the case. She began to cry and ran out of the restaurant. She testified that after she confronted Mr. Kazarian, she could not “go back” to CCI. She was sad and constantly crying. She felt that “everything had been taken away from” her. CCI was “all she had” but Rob made her feel that her efforts to operate it were “terrible”. She “just didn’t want to try anymore”. She felt that “they were trying to take [her] life away”.

[105] Eventually, Mr. Kazarian sent Cheryl correspondence, dated July 14, 2010, in which he reiterated that she had stated that she was “depressed” and “needed time”. Mr. Kazarian suggested that she take two weeks off work with pay. He also proposed meeting with her on or about July 28, 2010, to discuss whether she was ready to return to work.

[106] As Mr. Kazarian suggested, Cheryl remained off work for two weeks, during which she “mostly stayed in bed”. She eventually attended on her family physician who prescribed medication for “depression” and sleep difficulties. On July 20, 2010, her family physician wrote a note endorsing that she was “off work for medical reasons at least a month”.

[107] On July 21, 2010, Cheryl read an advertisement placed by CCI in a local newspaper seeking, among other positions, a Red Seal chef, to supervise cooks and kitchen staff. Cheryl concluded the purpose of the advertisement was to find someone to replace her at CCI. She became more depressed and felt worthless.

[108] On August 4, 2010, Cheryl received a voicemail message from Rob, which she transcribed as follows:

Hi Cheryl Rob Myers here. I’ve talked [with] Michél [Chef Bonnot] & I believe I’ve come up [with] something as a solution so I’ll give you three months pay & if you need some help setting up your old Restaurant I’ll help you out a little. Obviously this is not going to work between us. So I’ve got Dennis Asher drafting up some paper work you’ll have to sign off on. If you have any questions since I can’t get a hold of you give me a call at [phone number]. Talk to you later.

[109] Cheryl did not respond to Rob’s proposal.

[110] On August 30, 2010, Cheryl attended on registered nurse practitioner Joan Brisley at the Chatham-Kent Health Alliance Mental Health and Addictions Program, who subsequently authored a report to consulting psychiatrist Dr. Fairburn. In her report, she recorded Cheryl’s subjective report that she started feeling depressed six weeks earlier after, among other things, a “wrongful demotion” at CCI and a “loss of investment in her restaurant business”. She had previously been prescribed paxil by her family doctor, which was helping. She had specified anxiety, but no panic. Her past psychiatric history was noted to include the loss of a child at a young age, which resulted in feelings of loneliness and depression. She also had a family history of depression. The nurse practitioner diagnosed Cheryl with an “adjustment disorder”. Cheryl was not diagnosed with a depressive disorder. Cheryl did not follow the nurse’s recommendation that she engage in a “few sessions” of counselling, reasoning that she had strong support from her family. No limitations on Cheryl’s ability to work were expressly endorsed.

[111] Cheryl maintains that she provided copies of all the medical documentation that she received to Chef Bonnot, with the expectation that he would provide it to Mr. Kazarian.

[112] At the end of August or beginning of September 2010, Cheryl received a package of documents through Chef Bonnot, which were prepared by Mr. Asher and included: a “Termination of Employment” agreement; a Resolution of CCI’s Shareholders; and a Share Transfer Agreement – all dated August 31, 2010. The documents, which required Cheryl’s signature to gain effect, essentially record that she resigned as an employee of CCI and affected a transfer of all of her shares in CCI to RJM Holdings Limited for consideration of one dollar. Cheryl neither requested nor executed the documents.

[113] On September 24, 2010, Cheryl was assessed by psychiatrist Dr. Fairburn at the request of her family physician, who authored a report dated September 24, 2010. The parties agree that Dr. Fairburn is qualified to express the opinions set out in the report. Dr. Fairburn formally diagnosed Cheryl with “adult life with mixed emotion”. He did not diagnose an adjustment disorder and he expressly opined that there was no evidence that Cheryl presented with a major depressive disorder. He opined that her prognosis was excellent. Cheryl accepted a referral for some counselling, but she ultimately did not attend for same.

[114] After attending on Dr. Fairburn, Cheryl continued to feel depressed. She did not leave her home until October 2010. She never returned to CCI and eventually, CCI stopped paying her salary.

[115] In October 2010, Bruce started a business, as a sole proprietor, under the name Healthy Choice Catering. From its inception, Cheryl actively participated in the business by cooking and engaging in “prep work”. She continued to work in that capacity until she opened a new restaurant in Chatham at the end of July 2011, under the name “Zee’s Bistro”, which she has continued to operate, up to the present.

[116] Since July 2011, Cheryl has acted as the sole proprietor and main cook at Zee’s Bistro. She is also responsible for all employee hiring, firing, and scheduling. In order to start that business, she purchased an existing restaurant in April 2011, which she fully renovated. After sustaining a net loss of $79,515 in 2011, Zee’s Bistro has achieved profitability in each year of its operation.

[117] Zee’s Bistro does not “compete” with CCI. CCI is a fine dining restaurant. Zee’s Bistro, which is located approximately eight kilometres from CCI, is a small bistro-style restaurant that serves pita sandwiches and soup for lunch and fresh homemade food for dinner.

[118] Cheryl confirms that Bruce was unable to drive, owing to a licence suspension, while the Healthy Choice Catering business was active. As a result, she not only performed all of the cooking for that business, she also did all of the driving associated with its deliveries and catered events. She concedes that that business “made some money” and continued to operate until she opened Zee’s Bistro. She confirms that neither she nor Bruce have produced or disclosed any financial information for the Healthy Choice catering business in the context of this litigation.

[119] After the commencement of this action, Cheryl received two letters from Rob. The first, dated July 19, 2012, and addressed to both Cheryl and Bruce, provides as follows:

I want to extend a courtesy to the both of you, along with your lawyer, to notify you that I, my family, and the RM group of companies, have every intention of fully defending your lawsuit, and will also pursue a counterclaim against the both of you. Be aware that I will not make any settlement offer since I find this lawsuit to be totally unjustified.

Cheryl, you were a very hard worker but please refer back to our original agreement and you will see that Bruce was never to be a part of the business. When it came to my attention that The Chilled Cork was losing money due to late government payments and penalties, extremely high food and labour costs and a multitude of issues, I reviewed our business operations with my CFO Gerry Hockin, along with our accountants from Deloitte. This is when I discovered the self-imposed increase in your personal salary, the unapproved addition of Bruce onto our payroll, along with many other operating issues that proved to me that we would not have a viable business if you were allowed to continue operating it like this.

The business paid out several months of your salary even though you did not come into the restaurant for an extended absence. Further, I personally paid out over two-hundred thousand dollars ($200,000) in losses at The Chilled Cork while under your management. Until now, I have never asked you to assume your half of the responsibility for your share of these losses. At this point, I will now pursue our counterclaim against you for a breach of contract, and I insist that you immediately stop slandering me and my family’s good name in your restaurant! Several friends and clients have been engaged in some of your libelous discussions in your new establishment and then reported back to us to make us aware of your defamatory comments. This needs to stop now!

Please take my notice very seriously. If you continue with your lawsuit and your slanderous comments about me and my family, I will get very active in pursuing compensation from the both of you for losses and the damage you are attempting to cause to the Myers family. It would also be a shame if the local media were to catch hold of details about this lawsuit and counterclaim as I can’t imagine it would be good for your reputation and business.

Cheryl, please understand that I am not in any way wishing to put personal pressure or hardship onto you but you will leave me little choice but to take actions of my own if you continue moving forward with your lawsuit. I will expect your reply within 15 days of this date and I recommend that you obtain very sound advice when making your decision. I have copied both of RM’s in-house counsel on this memo, as well, as they are handling this situation on my behalf.

[120] In response to the content of that correspondence, Cheryl testifies that: she never agreed that Bruce would not be involved in CCI’s operations; she never unilaterally increased her salary at CCI; she met with Gerry Hockin once in 2009; she never defamed Rob or his family – she was upset with Rob but did not say anything defamatory about him; and she has no knowledge concerning the $200,000 losses that Rob described. Cheryl viewed Rob’s correspondence as a “threat” which made her feel “horrible”.

[121] Rob wrote a second undated letter which he delivered to Zee’s Bistro in August 2017. That correspondence provides as follows [paragraph breaks inserted for ease of reading]:

Cheryl,

I have been monitoring this foolish lawsuit brought by you and Bruce, along with your shameless lawyers who have taken this contingency case on your behalf in order to try to extort some money from me. Now that you all have received the final audited BMO [sic] report, you know that due to your management of the Chilled Cork and all of the games that you and Bruce played while in charge, it caused a loss to the Chilled Cork of $202,485, of which you owe half.

As has always been the fact, while you were in charge of running the Chilled Cork, this restaurant continually lost significant money from your operational guidance. I’ve been told of client purchases that were never deposited into the company bank account! Bruce, who by the way was never to be an employee or any type of associate with the Chilled Cork as you originally agreed to, was purchasing all types of wine and other items that you allowed him to purchase even though he was never allowed to; as a result, all kinds of money was wasted. I believe we will be able to get old staff and even relatives of yours to testify that I was abused financially by you, Bruce, and high-paid friends that you hired without any type of approval from me.

I frankly don’t care how you are currently operating your business now, but at some point I will most likely need to inform the CRA and an accounting firm to investigate your current operation in order to confirm for me your ability to pay me back money that will be due from you.

You and the lawyers, who you obviously have had working on a contingency fee, have caused me serious damage, both to my reputation in town and in legal costs that I will insist to my lawyers that I recover. I am sure at that point you will not be able to have your lawyers defend you on a contingency basis, and in fact you will have to pay the same type of legal fees that I have been paying all along in defending my innocence.

As the latest report will confirm from BDO and as has been stated from day one by the nationally recognized accounting firm Deloitte, the operations from Chilled Cork until 2015 show a deficit of $202,485, which you as a shareholder are responsible for half of, i.e. $101,242. This very clearly shows that the shares of the Chilled Cork are not worth any money and in fact are a liability that you currently are responsible for.

The gamble that your lawyers have taken in hopes of extorting me has backfired on both you and them, and you will be left with the consequences to bear. In order for you to end this frivolous lawsuit and move on with your lives at Z’s potentially without an investigation, I am prepared to make you a final offer to end this foolishness. This offer is good for five days only from the date of this letter or I will aggressively pursue monies owing to me from both you and Bruce, and I will aggressively go out to prove that these Windsor lawyers have never been paid any type of fee from you to date, which could make for some interesting press. The terms of the offer are as follows:

#1. You immediately drop this case;

#2. You pay the Chilled Cork $30,000 to cover a small portion of the legal costs that it has incurred;

#3. You pay half of the BMO [sic] auditing fee of $23,500; and

#4. You immediately stop your comments about myself, the Chilled Cork, the Retro Suites and any of my family members and sign a gag order.

If you do not accept this offer within the next 5 days, I will instruct my internal and outside legal counsel to take the following actions in a lawsuit against you and Bruce personally to the fullest outcome possible.

#1. We will seek repayment of $101,242 from you to pay for your responsibility of your portion of the deficit [owing] to Chilled Cork.

#2. We will also seek to recover $101,242 from you to pay for some of the damages caused by you for you opening Z’s, as this is in direct competition with the Chilled Cork and is in breach of your employment contract with the Chilled Cork. You have damaged the Chilled Cork’s ability to run a profitable restaurant, both by direct competition and by harming both its reputation and my own lawsuit rumors you have circulated within our community.

#3. We will also recover the thousands of dollars you have forced me to spend in legal fees to date to defend my innocence.

As I have seen many times in the past, legal firms find people like you and see people who appear to be fairly wealthy and believe that with enough hassle, innocent people like myself will pay some money out just to settle an issue and make it go away. If I had been unfair to you or mistreated you in any way, I would have settled this long ago, but this is not the case. In fact with all that happened in the past and the large amount of money that you lost of mine, I feel that it has been kind of me not to pursue you for some of the losses that you caused me as the BDO report shows. This report directly contradicts your lawyers’ position, and hopefully your lawyers will finally realize that they have no chance of winning any money out of this suit and that at this point, if this is not settled, we will become very aggressive in seeking the amounts outlined above even if you are forced into bankruptcy.

I am totally disgusted by this situation and refuse to be extorted by you or your lawyers ever. My justice will prevail. I recommend you proceed cautiously, and I hope that both you and your lawyers will realize that I refuse to pay them any money, so get some good advice.

Rob Myers

[122] Cheryl viewed the foregoing correspondence as an attempt to scare and intimidate her.

[123] As a shareholder of CCI, Cheryl was never provided with annual audited or unaudited financial statements, on a contemporaneous basis. She has never agreed to exempt CCI from its obligation to produce audited financial statements to its shareholders. She has never attended a CCI shareholder meeting. She has never requested a shareholder meeting because she feels intimidated by Rob.

[124] In cross-examination, Cheryl concedes that she is not a chef and she does not have a “Red Seal”. She has no formal training in restaurant management. Despite her evidence that based on “her experience” in the restaurant industry, start-up restaurants usually lose money in their first few years of operation, Cheryl concedes that she had never been involved in a start-up restaurant before CCI. She also confirms that NFE lost money in three out of four years of operation during the period of 2004 to 2007. She does not recall advising Rob about NFE’s historic lack of profitability, during their 2008 meetings.

[125] Unlike Cheryl, Bruce does not have a long history working in restaurants. When Cheryl first met Bruce, he worked as a massage therapist. Following that he worked in a factory setting. Eventually, he was laid off and began to help out at NFE.

[126] Cheryl confirms that in her initial 2008 discussions with Rob, he described the type of restaurant he wanted to open and the type of food he wanted to serve. From their discussions, she understood that CCI would offer a “finer” dining experience than the one offered by NFE and that CCI would be located in a boutique hotel. CCI was a larger restaurant than NFE and its service and presentation were intended to be “upscale”. Unlike NFE, CCI would serve breakfast, in addition to lunch, and dinner. CCI’s seating capacity was greater than NFE and, unlike NFE, it had a separate bar area and separate banquet facilities.

[127] In the context of the foregoing, Cheryl acknowledges that she knew that managing CCI’s operations was going to be a challenge, but she viewed it as an opportunity to “up her game and to make more money”. Her potential involvement with CCI also afforded her an opportunity to become a 50 percent owner of the restaurant, without making any financial contribution or guaranteeing any loans. Instead, her “knowledge and services” would earn her 50 percent of the business. She acknowledges that until CCI became profitable, the value of her 50 percent ownership interest, was nil.

[128] Cheryl then re-visited her evidence concerning her first meeting with Rob, which changed to some extent. Specifically, she testified that she advised Rob that the restaurant would not be profitable in its first year of operation and may not be profitable in its second year of operation. She did not say anything about expected profitability in its third year. During their initial meeting, Cheryl and Rob did not discuss: what would happen if the restaurant was unprofitable and Rob was required to advance additional funds to cover its losses; or what would happen if Cheryl became sick and was unable to work. Cheryl concedes that Rob never guaranteed that she would remain employed with CCI for a period of ten or 15 years. However, Cheryl felt that their “partnership agreement” would bind her to the restaurant.

[129] During her first meeting with Rob, Cheryl had no means to estimate: the revenue or losses that CCI would likely generate in its first year; the costs of the build out of the restaurant; or the estimated costs for the restaurant’s furnishings and equipment. She maintains that during that meeting, Rob advised her that: she did not need a lawyer; he trusted her; and she should trust him. She agrees that nothing was finalized between them during their initial meeting, but they shook hands.

[130] Throughout the spring and summer of 2008, Rob and Cheryl had several other meetings concerning CCI, during which she never advised him about NFE’s general lack of profitability. As CCI’s operating premises were being built out, Cheryl was aware that the “costs of the build out” and the kitchen equipment and furnishing necessary for CCI’s operation would be financed through Rob, at first instance and repaid by CCI. She acknowledges that at some point Rob set up a $100,000 line of credit, but she is uncertain if it was through a financial institution or one of his other companies.

[131] Sometime after their initial meeting, Cheryl advised Rob that CCI could generate a million dollars of revenue in its first year of operation. She also provided him with projections for the anticipated expenses associated with CCI’s active operation. Despite Cheryl’s first year revenue projection, CCI recorded a total revenue of $778,125 in 2009 and $722,427 in 2010. Further, CCI’s 2010 revenue included “management fees” payable by RJM Holdings, recorded in the amount of $150,000. As a result, its actual revenue from operations in 2010, was approximately $572,427.

[132] Cheryl “believes” that in 2008, she provided Rob with a projection that CCI would “lose” approximately $50,000 in its first year. She concedes that she understood that to the extent that CCI operated at a loss and the loss was “covered” through Rob (or one of his companies), CCI would eventually have to repay Rob (or one of his companies). She also understood that CCI would have to repay Rob for the costs of its build out, equipment, fixtures and furnishings.

[133] As a 50 percent “partner”, Cheryl testifies that she expected to receive one-half of CCI’s profits, but if the restaurant failed she did not expect to pay one-half of its losses. She expected that if the business failed she would lose her job.

[134] Cheryl indicates that she and Rob discussed all of the foregoing issues over the course of various meetings held between them in 2008. It was only after those discussions that Cheryl accepted Rob’s proposal, which was some time in the mid-summer of 2008. In so doing, she agrees that she and Rob proceeded with their deal on the understanding that: based on her estimates and projections, the restaurant could be built out, equipped and furnished for $100,000; and they anticipated a combined total of $50,000 in start-up costs and operating losses, in CCI’s first year of operation.

[135] Prior to Cheryl accepting Rob’s proposal to be a “50 percent” partner in the restaurant, she and Rob did not discuss: the specific repayment terms for capital expenditures that he made on behalf of CCI; who would be responsible for “covering” any of CCI’s losses in excess of $50,000, during its first year of operation; whether Rob would share in NFE’s losses or profits during the period of September 2008 to December 2008; who would be responsible for NFE’s lease obligations related to its former operating premises; who would be responsible for payments associated with the truck that Cheryl and Bruce owned; or whether CCI would assume NFE’s liabilities. Cheryl denies that in 2008, Rob clearly advised her that Bruce was not permitted to work at CCI.

[136] Cheryl maintains that when she accepted Rob’s proposal, he advised her again, that she did not need to consult a lawyer with respect to their business transactions.

[137] Between September 2008 and December 2008, Cheryl continued to operate NFE (under the name “The Chilled Cork”) as a sole proprietorship from CCI’s intended operating premises at the Retro Suites Hotel. In that period, on behalf of CCI, she hired Chef Bonnot and his wife Leslie, both of whom were over 60 years old at the time. Leslie Bonnot and Bruce jointly maintained NFE’s financial books and records during the period between September 2008 and December 2008.

[138] Cheryl endorsed as accurate, documentation prepared by Bruce, indicating that NFE’s net annual income for 2008 was $11,459.85 and its gross revenue was $526,345. Cheryl attributes NFE’s substantial growth in sales during 2008, to its move to the Retro Suites premises, where it enjoyed a greater seating capacity and higher meal prices. NFE’s expenses correspondingly increased after the move because it hired more staff, and spent more money on groceries and other sundry matters. Cheryl agrees that NFE did not pay rent to Retro Suites Hotels or Rob for the use of its operating space from September 2008 to December 2008. Beginning January 1, 2009, CCI was obligated to pay Retro Suites $4,000 per month, for that space.

[139] Cheryl concedes that Rob did not share in any of NFE’s net income of $11,459 in 2008 because, in her view, their “50/50 deal” did not apply to NFE.

[140] Cheryl agrees that Retro Suites advanced $35,000 to NFE in 2008, to be used as start-up capital for CCI. She also concedes that the $35,000 loan made by Retro Suites to NFE does not appear in NFE’s “financial statements” for that year. Similarly, NFE’s 2008 financial statements do not record any liability for amounts that NFE owed on account of its 2008 unremitted employee source deductions, which totalled in excess of $36,000.

[141] In November of 2008 Cheryl sublet NFE’s old operating premises, but the subtenant did not pay rent. As a result, Cheryl retained a lawyer to assist her with her lease issues.

[142] Cheryl agrees that as of January 1, 2009, when CCI commenced its operations, she and Rob had still not had discussions with respect to: the re-payment of the $35,000 loan made by Retro Suites to NFE; who was responsible for payments on Cheryl’s and Bruce’s truck; who was responsible for payment of NFE’s liabilities; and who would be responsible for covering CCI’s losses in the event that they exceeded $50,000, in its first year.

[143] Beginning on January 1, 2009, both Leslie Bonnot and an “outside bookkeeper” named Denise Brouwer were responsible for CCI’s bookkeeping functions. Ms. Brouwer periodically attended CCI to make entries and prepare month-end statements, which she continuously did during the period from January 1, 2009 to May 2010. Cheryl had full access to CCI’s financial records throughout 2009, she received monthly financial reports, and she had access to a computer, through which she could review specific journal entries.

[144] Contrary to an assumption made by the plaintiffs’ business valuation expert, (which I will review later in these reasons), Cheryl testifies that it would be wrong to assume that CCI’s 2009 annual recorded sales were inaccurate. She denies that CCI made an additional $189,000 in unrecorded sales in 2009.

[145] Cheryl confirms that from the commencement of its active operations, on January 1, 2009, CCI operated with a point of sale (“POS”) system, whereby information with respect to “restaurant sales” of food and beverages were inputted immediately into the restaurant’s accounting software, whenever an order was placed. Similarly, credit card payments, which accounted for 55 to 65 percent of the payments for CCI’s food and beverage sales, were inputted directly into its POS system, in real time. All of CCI’s sales and expenses were recorded in its books and records in 2009. During her evidence, Cheryl also reviewed CCI’s 2009 financial statements (Notice to Reader) prepared by its then accountant, Horne LLP, and confirmed that to the best of her knowledge, those financial statements accurately record all of CCI’s sales (revenue) and expenses in 2009, which reveal among other things a total gross annual revenue of $778,125.

[146] Throughout 2009, Cheryl received monthly financial reports and an annual financial report prepared by CCI’s accountant, which she contemporaneously reviewed. The reports always appeared to be accurate. She confirms that CCI incurred an operating loss of $195,001 in 2009, which she acknowledges is “way more” than the $50,000 loss that she says she estimated in 2008.

[147] In this proceeding, Cheryl challenges the validity and quantum of CCI’s recorded debt owed to its related parties (Rob, Retro Suites and RJM Holding Inc.). During her cross-examination, Cheryl reviewed a copy of CCI’s financial records that record the opening balances of its related-party debt as of January 1, 2009, specifically: a $188,439 debt associated with related-party funded purchases of CCI’s kitchen equipment in 2008; an approximate $56,000 debt associated with related-party funded purchases of CCI’s furnishings and fixtures in 2008; and a debt of $97,938 for related-party expenditures to build out CCI in 2008. Cheryl verified the accuracy of the kitchen equipment and furnishing costs, noting that she was personally involved in those purchases. Cheryl initially disputed CCI’s obligation to pay for the build out of the restaurant, reasoning that the improvements were made to “Rob’s building”. However, she did not dispute the accuracy of the recorded amount spent to affect the build out.

[148] Cheryl confirms that as of December 31, 2009, she was aware that CCI was indebted to its related parties in the amount of $544,000. Although she states that she does not think that the value of the build out costs ought to have been included in CCI’s 2009 related-party debt (approximately $100,000), she never shared that position with Rob in 2009 or 2010. Cheryl agrees that even excluding the amount of the debt related to the restaurant’s build out, CCI owed at least $444,000 in related-party debt as of December 31, 2009, which she concedes had to be repaid to Rob.

[149] Further, in addition to the amount of $35,000 that was advanced by Retro Suites to NFE in 2008, Cheryl accepts as accurate, financial records that indicate that Retro Suites advanced additional amounts of $50,000 to CCI on March 30, 2009, $25,000 to CCI on March 31, 2009, and $25,000 to CCI on April 23, 2009, to fund its ongoing operating losses. As a result of the foregoing, she agreed that CCI owed Retro Suites a total additional amount of $135,000.

[150] Finally, Cheryl does not dispute the accuracy of CCI’s financial records that indicate that Rob advanced, by way of loan, a further $16,000 to CCI on June 30, 2009 to cover its “payroll” expenses.

[151] Turning to the documents prepared by Mr. Asher in 2009, in cross-examination, Cheryl originally reiterated that she did not read any of them before she executed them in October 2009. Bruce may have read the documents before she signed them. Contrary to her original evidence that Rob kept “bugging her” to sign the documents after she received them, in cross-examination Cheryl concedes that she did not speak to Rob from the time she received the documents in August 2009, until the time she, ultimately, signed them, in October 2009. Instead, her communication with respect to the status of her execution of the documents was only with Mr. LaRoche. Similarly, contrary to her original evidence, Cheryl concedes in cross-examination that she could not recall if Rob told her not to get a lawyer after she received the documents that Mr. Asher prepared in 2009.

[152] Although she originally testified that she did not read the Asher documents because she was “too busy”, she modified her evidence in cross-examination and indicated that she tried to read the documents, but they were too complicated, so she set them aside. Despite her difficulties with the documents’ complexities, she never considered: contacting Rob or Mr. Asher for an explanation; or contacting the lawyer who assisted her with the lease issues, or any other lawyer, for legal advice.

[153] In reviewing the asset purchase agreement during the course of her cross-examination, Cheryl concedes that although the initial “purchase price” payable to the vendor (Cheryl) of NFE’s “assets” is expressed as $102,238, elsewhere in the agreement, the purchase price for NFE’s assets is specified as $1. She agrees that NFE’s balance sheet, as of December 31, 2008, reflected its total current liabilities as $102,348.25, which is consistent with the stated purchase price payable in the asset purchase agreement. Cheryl acknowledged her understanding that the effect of the asset purchase agreement was that CCI acquired all of NFE’s (Cheryl’s) liabilities as of December 31, 2008 and purchased its actual “assets” for $1.

[154] Prior to August 2009, Cheryl understood that CCI was required to sign a lease with the Retro Suites Hotel, for a five-year term. She also understood that if the lease was not renewed, CCI would either have to move its location or close its business at the end of the lease term.

[155] Cheryl understood that she and Rob were required to execute a shareholder agreement (i.e. the “partnership agreement”) with respect to CCI. Mr. Asher provided Cheryl with a draft shareholder agreement in August 2009, which contained, among other things, a buy/sell provision with respect to the shares held by RJM Holdings and Cheryl, as well as, specific restrictions on persons eligible to purchase CCI shares from the shareholders. During her cross-examination, Cheryl reviewed those provisions and agreed that “it makes sense” that the shares of a CCI shareholder would be purchased in the event that the shareholder became a bankrupt, died or was mentally incompetent. She also agreed that as the “partner” directly involved in CCI’s operation, it made sense that her shares would be purchased in the event that she was permanently incapacitated from operating CCI because of injury. However, Cheryl “did not know” if it made sense for her shares to be bought out in the event that she ceased to be an employee of CCI. Cheryl has no specific recollection as to why she did not sign the USA at the time she signed all of the other documentation prepared by Mr. Asher.

[156] During 2009 and the first half of 2010, Cheryl worked with the Retro Suites’ manager, Nancy Labadie, and the Retro Suites marketing director, Mr. LaRoche to develop strategies to increase CCI’s revenue and decrease its expenses. Despite their efforts, CCI remained unprofitable.

[157] Cheryl continued to manage CCI’s operations during the first half of 2010. During that time, all of its sales were appropriately reported and recorded in its accounting software. She disputes any suggestion that CCI had unrecorded sales during the first half of 2010. Cheryl continued to receive and review monthly financial statements during the first half of 2010. They always appeared accurate and she had no concerns that they understated CCI’s sales.

[158] CCI continued to consistently lose money in the first half of 2010. During that period of time, CCI’s sales were low and its wages and costs of goods were “too high”. Cheryl did not have the financial resources to cover any of CCI’s losses herself. Instead, all of its losses were “covered” by Rob.

[159] In the foregoing context, Cheryl testifies that Rob went from being her “angel” in 2009 to a “devil”, beginning in January 2010. Contrary to her original evidence, in cross-examination Cheryl confirms that Rob did not engage in demeaning, insulting or aggressive behaviour until 2010. She agrees that by the first half of 2010, CCI’s losses were not sustainable. She understands why Mr. Kazarian “had to be brought into” CCI’s operation in mid-2010, to address its financial issues and she agrees that “something had to be done”, at that time to address CCI’s ongoing losses.

[160] Cheryl asserts that prior to June 2010, she had good ideas about improving the restaurant and she thought the business would have improved, but none of her ideas worked out. Cheryl had meetings with Rob in the first quarter of 2010. She perceived that he did not support her ideas or efforts. Cheryl asserts that part of the reason that she became depressed in 2010 was CCI’s mounting losses and her perception of Rob’s criticism, in response.

[161] Cheryl had no issues with accessing CCI’s financial records up until June 2010. She never requested audited financial statements for CCI prior to June 2010. She had no access to CCI’s financial statements or records after June 2010. She had no personal knowledge of CCI’s income and expenses from June 2010 to December 2018. She has no personal knowledge that CCI engaged in any unreported or unrecorded sales in the period between 2010 and 2018.

[162] Originally in her cross-examination, Cheryl maintained that she mailed her correspondence dated “July 8” to Rob sometime in July 2010, before she met with him at the RM group offices. Cheryl was then directed to correspondence, dated June 28, 2010, addressed to Bruce, advising him of his termination (signed by Mr. Kazarian) and a record of employment for Bruce recording his last day of work as June 28, 2010. At that point, Cheryl conceded that her own correspondence was likely written prior to June 28, 2010. However, she does not believe that it was written subsequent to a meeting that she had with Rob, Chef Bonnot, and Mr. Kazarian, in which issues including her 2009 salary and corporate payment of her personal expenses were discussed, even though she acknowledges that her correspondence appears to respond to those issues. She believes that the meeting in which those issues were discussed, occurred after she met with Rob alone at the RM group offices.

[163] Cheryl does not specifically recall the last day that she worked at CCI but she believes it may have been “around” July 1, 2010. Once she left CCI in July 2010, she did not contribute any further ideas or effort to its operation or business. She has no knowledge of the various and extensive renovations that have occurred at the restaurant, over the course of time, since 2010.

[164] After Cheryl left CCI in early July 2010, Mr. Kazarian sent her correspondence dated July 14, 2010, suggesting that she take two weeks off work. By that time, Cheryl was aware that Chef Bonnot planned to retire in September, 2010. She then attended on her family physician who recommended that she take a further month off work, which extended her absence from CCI to the end of August 2010. Despite knowing that Chef Bonnot’s retirement was imminent, Cheryl agrees that she did not mail her doctor’s notes for time off to Mr. Kazarian or Rob. Instead, she provided copies to Chef Bonnot and assumed that he provided them to either Mr. Kazarian or Rob.

[165] Cheryl agrees that she never contacted Rob or Mr. Kazarian to advise them that she was too depressed to return to work at CCI or that she was taking further time off work. Cheryl concedes that between the time that she left CCI in early July 2010 and August 30, 2010, she never expressed an intention to return to employment at CCI, to anyone on behalf of CCI, or at all.

[166] At the end of July 2010, someone showed Cheryl a copy of CCI’s newspaper advertisement, soliciting applicants for various positions including “a chef with a Red Seal”, which she did not have. She does not recall if she specifically read the “Red Seal” phrase in the advertisement.

[167] Cheryl acknowledges that in the letter that she forwarded to Rob in June 2010, she stated, among other things, that she missed her old bistro. She agrees that through his August 4, 2010 message Rob offered to help her set up her old restaurant, however, she never responded to him.

[168] At the time Cheryl saw nurse practitioner Brisley on August 30, 2010, she had already consulted with her current litigation counsel. She advised the nurse practitioner that she was angry at Rob and that she felt that he had demeaned her and that he had “pushed her out” of CCI’s operations. She agrees that by August 30, 2010, from a mental perspective, she no longer wanted to be Rob’s partner.

[169] Cheryl subsequently attended on psychiatrist, Dr. Fairburn, on September 24, 2010. Prior to commencing this litigation, Cheryl did not advise either Rob or Mr. Kazarian that she had done so. Cheryl agrees that when she attended on Dr. Fairburn, she reported that her depressive symptoms had improved with the use of medication and they were less severe. Overall, she reported an approximate 50 percent improvement. Dr. Fairburn ruled out a diagnosis of major depressive disorder and stated that she had suffered a “narcissistic injury”. Cheryl did not know what that term meant, when she reviewed his report. Dr. Fairburn also changed her medication and arranged a follow-up two weeks later.

[170] Cheryl returned to Dr. Fairburn, as scheduled, and reported further improvement (a report of that attendance was not adduced as evidence). Although Dr. Fairburn recommended that Cheryl participate in counselling, she declined because she had a strong supportive network. She acknowledges that according to Dr. Fairburn, her prognosis was excellent. Dr. Fairburn then returned her to the care of her family physician. Cheryl cannot recall if she attended on Dr. Payne for any further psychological issues.

[171] Cheryl acknowledges that she was angry over the manner in which she perceives she was treated by Rob and she disclosed her feelings to her friends, family members and CCI’s employees. Cheryl also agrees that she told CCI’s employees that Rob was a “cheat”.

[172] By the time Zee’s Bistro was operating in 2011, Cheryl had recovered from her depressive feelings, but she remained angry at Rob and she did not want to be part of CCI.

[173] Cheryl has been represented by legal counsel in respect of her dispute with Rob since mid-2010. Yet, she never requested audited financial statements for CCI prior to 2014 and she was not aware of her ability to call shareholder or director’s meetings for CCI, nor her ability to have a proxy attend such meetings.

[174] With respect to Bruce’s status as an employee of CCI, Cheryl confirms that, like any other employee, his hours were scheduled by her. Bruce was required to confirm, on a time sheet, that he worked the hours for which he was scheduled and for which he was subsequently paid.

[175] In re-examination, Cheryl indicates that Bruce actively worked at CCI and Rob was present, at times, while Bruce was working. Rob never expressed an objection to her, in that regard.

[176] Cheryl believes that NFE’s 2008 unremitted employee source deductions accrued during the period of time that it was operating at the Retro Suites. Bruce and Leslie Bonnot were responsible for making source deduction remittances at that time.

[177] CCI’s monthly financial statements from January 1, 2009 to May 2010 were prepared by Denise Brouwer. Cheryl did not review them before they were finalized. She believes that Rob also had access to CCI’s financial records and that he also received monthly statements.

[178] CCI’s POS system was not used for CCI’s room service sales or its banquet sales. Sales of that nature were manually added to CCI’s records. A percentage of all banquet sales had to be paid to Retro Suites because banquets were held in the Retro Suites’ operating premises, rather than CCI. Generally, one-third of CCI’s revenue was derived through banquet sales and two-thirds of its revenue was derived through restaurant sales.

Evidence of Bruce McInerney

[179] Bruce’s post-secondary education includes three years of university study. He has worked intermittently in the restaurant industry since he was a teenager, including in a managerial capacity. Eventually, he secured employment at a Navistar plant. Cheryl purchased NFE in August 2001 and took over its operation in September 2001. Bruce was laid off from Navistar at the time. Cheryl consistently acted as NFE’s owner, manager, and cook throughout its operation. Bruce performed various unpaid tasks for NFE, including cleaning, some cooking, bar stocking, deliveries, and bookkeeping functions.

[180] Cheryl financed the purchase of NFE through a loan. Bruce anticipated that NFE would become profitable within three to five years of its acquisition, once the loan was repaid. NFE first became profitable in 2005 (with a net income of $48,344.98), which Bruce attributes, in part, to increased catering sales and a reduction in its expenses. In 2006, NFE’s expenses grew and its sales dropped. As a result, the business suffered a net loss in 2006, as well as in 2007.

[181] During the period from September 1, 2008 to December 31, 2008, NFE operated from CCI’s planned location at the Retro Suites Hotel. NFE’s sales increased significantly at the new location and its gross revenue for 2008 totalled over $500,000. NFE earned a recorded net income of $11,459 in 2008.

[182] Cheryl became involved with Rob in April 2008. While attending NFE for lunch, Rob walked into its kitchen and, in Bruce’s presence, asked Cheryl if she wanted to move her business down the street. Prior to that time, Bruce did not know Rob. That evening, Bruce and Cheryl met with Rob in a restaurant shell located in the Retro Suites Hotel. Rob explained the general layout of the kitchen and his concept for the restaurant, which would seat 50 to 60 people. Rob indicated that he would be a “silent partner” and Cheryl would act as its “operating partner”. If required, Rob would help out financially. At the end of the meeting, Rob asked if they had a deal and Cheryl and Rob shook hands. Rob and Cheryl had several subsequent meetings in 2008, some of which Bruce attended.

[183] Bruce continued to work for NFE after it moved to the new location in 2008. Beginning on January 1, 2009, he “worked” for CCI. He did not have an official title and simply did “whatever was needed”, including washing dishes, tending bar, cleaning the restaurant, ordering for the bar, and some cooking.

[184] Bruce maintained NFE’s financial records for the period from September 1 to December 31, 2008. He attempted to maintain CCI’s financial records for January and February 2009, utilizing the same practices that he used at NFE. He was, in his words, “over [his] head”, in attempting to do so and “[he] had no idea what [he] was doing”. During the course of a meeting held in January 2009, Rob advised him that he needed to engage in more detailed bookkeeping, to which Bruce replied, “I don’t know how to do anything more.” Rob then arranged for Denise Brouwer to perform CCI’s bookkeeping duties.

[185] Bruce did not receive any remuneration for the initial work that he performed for CCI. He maintains that he worked 60 to 80 hours a week from September 1, 2008 until the time he tendered his “resignation” from CCI in April 2009. He testifies that he was not “fired” from CCI in April 2009, but he was not willing to remain there because Rob was belligerent. Bruce did not condone the manner in which Rob treated the staff members of CCI and Retro Suites, respectively, whom he would routinely “yell at” and demean during staff meetings. Rob became upset that CCI was not making any money, despite assurances from both Cheryl and Chef Bonnot that it took time for a restaurant to do so.

[186] Shortly before he resigned in April 2009, Bruce attended a meeting with Rob, Rob’s wife, the manager of the Retro Suites, Denise Brouwer, Gerry Hockin (Rob’s financial advisor), Cheryl, Chef Bonnot and Leslie Bonnot. The night before the meeting, Bruce advised Cheryl that he had to leave CCI because he did not have a good feeling about Rob.

[187] During the meeting, Denise Brouwer presented a revised version of CCI’s financial statements for February 2009, which Bruce had originally prepared. Bruce thought the recorded financial results were good. Rob did not. Rob yelled at the Retro Suites staff. He then turned his attention to CCI’s staff and yelled and complained that the restaurant was losing money. Cheryl and Bruce advised Rob that it typically took three to five years for a restaurant to become profitable. Gerry Hockin agreed and estimated that profitability, usually, requires a two to four year time-frame. Eventually, during the meeting, Bruce told Rob that effective immediately he would no longer be at CCI and because he was never paid, it would not cost Rob anything. Cheryl did not testify to any of these events.

[188] By the end of June 2009, both Cheryl and Chef Bonnot advised Bruce that they needed him to return to CCI, on a periodic basis, to perform unspecified tasks. Accordingly, Bruce agreed to return to CCI on an “as needed basis”. He was formally hired by Cheryl as an employee of CCI and he was paid $15 per hour. He performed various tasks including: cooking; waiting tables; bussing tables; cleaning; bartending; washing dishes; and doing some deliveries and catering.

[189] Initially, Cheryl and Bruce used their own vehicle to make deliveries on behalf of CCI. During the first five months of CCI’s operation, Rob and/or CCI made all the payments related to the vehicle, including insurance. However, after the April 2009 meeting, Rob decided that he did not want Bruce and Cheryl to use their personal vehicle in the business. As a result, Cheryl and Bruce resumed making the necessary vehicle-related payments, themselves. This aspect of his evidence conflicts with Cheryl’s evidence that she decided to take over the payments to increase CCI’s profitability.

[190] Bruce believes that he continued to be paid $15 per hour into the early part of 2010. At that time, he agreed to reduce his wage rate to $10.25 per hour because CCI was losing money. He worked a total of 551.25 recorded hours between June 2009 and June 28, 2010, the date that he was terminated. Rob justified his termination on the basis of a policy that family members could not work together. To Bruce’s knowledge, the policy did not exist before his termination and Rob’s wife, daughter, and son-in-law all worked for the Retro Suites Hotel.

[191] Cheryl experienced significant difficulty after Bruce’s June 2010 termination. Without consulting Cheryl, Rob “took over” CCI’s operation. He hired Mr. Kazarian to manage CCI. Together, they stripped Cheryl of her signing authority on CCI’s cheques and confiscated her CCI debit card. Cheryl’s emotional distress was compounded by Bruce’s absence from CCI because she relied on Bruce “to do everything”. Eventually, Cheryl became sad and depressed. She told Bruce that she felt like she was “losing a child”. Cheryl eventually attended on her family doctor who referred her to a specialist.

[192] Chef Bonnot left CCI in September 2010. Thereafter, he engaged in renovation work for hire. Bruce assisted Chef Bonnot with his renovation work, for which he was paid. He offered no further details in that regard.

[193] In the fall of 2010, Bruce and Cheryl opened a catering business, which they originally operated from their home. The business, Healthy Choice Catering, was put solely in Bruce’s name. After two months, Bruce rented an operating premises for Healthy Choice Catering. Chef Bonnot and Leslie Bonnot assisted them with that business.

[194] In April 2011, Cheryl purchased a building housing a restaurant, which she intended to renovate. Her restaurant, Zee’s Bistro, opened at that location in July 2011. Since that time, Bruce and Cheryl have both worked at Zee’s Bistro in the same capacities that they did when they operated NFE.

[195] In cross-examination, Bruce indicates that “Healthy Choice Catering” was put in his name because Cheryl was not sure if she could run the business, based on the way she felt. Bruce also agrees that putting the business solely in his name ensured that no income from the business was attributed to Cheryl, beginning in October 2010. Bruce is not aware that in the context of their wrongful dismissal actions, he and Cheryl were required to disclose all of their sources of income during the period of time that they were obligated to mitigate their damages. Bruce agrees that neither he nor Cheryl disclosed any documentation with respect to the Healthy Choice Catering business in their affidavit of documents. He explains that they only ran that business for a year and it was not something that he thought about.

[196] Bruce agrees that between 2001 and 2008 he did not earn any personal income. Although he performed services for NFE, he was not paid. He confirms that NFE lost money in 2004, 2006 and 2007. He originally denied that NFE actually lost income in 2008, and he continued to assert that he accurately recorded its net income to be slightly in excess of $11,000. He then conceded that NFE’s financial records, which he prepared, did not include its liability arising from the $35,000 loan made to it by Retro Suites Hotel in 2008.

[197] Bruce also agrees that in the fall of 2008, he was responsible for ensuring that all source deductions for NFE’s employees were remitted to the government. After NFE moved to the Retro Suites premises, its employee salaries increased by approximately $120,000. Bruce agrees that he failed to make monthly employee remittances totalling over $36,700 during the months of September to December 2008, inclusive. He deducted those amounts from NFE’s employees’ cheques, but he did not render payments to the government.

[198] When he calculated NFE’s net income for 2008, he did not record or take into account its liability, in excess of $36,000, on account of unremitted employee deductions. He agrees that if that liability was considered, NFE would have a calculated net loss of at least $25,000 in 2008. Eventually, Bruce conceded that NFE did not make a profit in 2008. Finally, he conceded that contrary to his prior evidence, during the entirety of its operation (2001 to 2008), NFE only made a profit in one year, 2005.

[199] Bruce’s licence to drive was suspended in February 2010. He remained involved in delivery services for CCI after that time, but he did not drive. His licence suspension was still in effect in October 2010, when he started the Healthy Choice “catering business”. He was involved in catering deliveries on behalf of Healthy Choice Catering, but other individuals drove.

[200] After he was hired in June 2009, Cheryl and Chef Bonnot scheduled the hours that he worked at CCI. Bruce denies that he was paid for every hour that he was scheduled to work at CCI, but on specific inquiry he could not recall the number of hours for which he was not paid. Bruce then testified to the accuracy of his record of employment from CCI, disclosing that he worked an average of 27 hours per week in his last six months of employment in 2010. Bruce agrees that until he commenced this litigation, he never complained that he worked hours at CCI for which he was not paid.

[201] In cross-examination, Bruce reaffirmed that beginning in January 2009, Rob held monthly meetings with respect to CCI’s operation, in which he exhibited a poor demeanour and demanded CCI become profitable. Bruce was referred to Cheryl’s evidence that meetings of that nature first occurred in 2010. Bruce disagrees with Cheryl’s evidence and reiterated that Rob’s hostile conduct began in 2009. Bruce also disagreed with Cheryl’s evidence that it was only at the beginning of 2010, that Rob went from being an angel to being a devil. Bruce maintains that Rob consistently demonstrated a belligerent demeanour towards him, Cheryl and CCI staff, beginning with a meeting held on January 31, 2009. After that time, Rob consistently yelled at staff and demanded they make money. As a result, Bruce privately told Cheryl that she could not trust Rob.

[202] Bruce is not aware of any evidence that CCI made any unrecorded sales, at any time. He does not suggest that the amount of $778,125 recorded as CCI’s annual revenue in its 2009 financial statements, is inaccurate. He is not aware of any misallocation of wages between CCI and Retro Suites, at any point in time.

[203] Bruce has never met Dennis Asher. Bruce believes that he saw a copy of Mr. Asher’s correspondence addressed to Cheryl, contemporaneous with its date of August 17, 2009. He confirms that Cheryl received that correspondence after he told her that she could not trust Rob. Bruce believes that he may have discussed the correspondence with Cheryl and he confirms that both he and Cheryl read the correspondence and the enclosures that Mr. Asher sent, but they did not understand the documentation.

[204] Bruce did not suggest that Cheryl obtain independent legal advice concerning the documents, even though he had already told her that she could not trust Rob. Bruce explains that in April 2008, Rob told Cheryl that she did not need a lawyer and that she could “trust him”, and nothing had changed since that time. Bruce’s evidence then shifted on the point and he acknowledged that something had changed since April 2008, specifically based on meetings that he had attended, he had cautioned Cheryl that she could not trust Rob.

[205] Bruce agrees that in 2008, Rob and Cheryl made a deal by which she would manage CCI and provide cooking services in exchange for an annual salary in the amount of $50,000. She would not be required to financially contribute to the business. Instead, Rob would pay all of the costs associated with establishing and operating the restaurant, and he would eventually be repaid by the business for the amounts he paid. Bruce agrees that the employment contract Mr. Asher forwarded to Cheryl provides that Cheryl would be paid $50,000 per year, consistent with the terms to which Rob and Cheryl agreed.

[206] Bruce confirms that during their 2008 discussions, Rob and Cheryl agreed that CCI would pay the sum of $48,000 per year to Retro Suites as rent for the operating premises it was leasing from Retro Suites. He agrees that the lease forwarded by Mr. Asher in August 2009, is consistent with that amount.

[207] Bruce confirms that Cheryl and Rob agreed that Rob would be repaid for any amount that he invested for the start-up of CCI.

[208] Bruce agrees that he saw the draft USA after it was sent to Cheryl. He understood that it dealt with share allocation and buy/sell arrangements for Cheryl and Rob’s (RJM Holdings) shares. He does not recall whether that was the only document that Cheryl did not sign.

[209] Bruce does not know why he was listed as a vendor on the original asset purchase agreement that Mr. Asher forwarded, but his name was struck out before it was signed.

[210] When Bruce worked at CCI, he enjoyed free meals and occasionally free alcoholic beverages. He agrees that on a social basis, he regularly attended at CCI more often than his scheduled hours.

[211] Through Cheryl, Bruce may have been aware that CCI was continuously losing money in 2009. He was not aware that Rob was “covering” CCI’s operating losses. He was aware that CCI was continuously losing money in 2010, but he did not consider whether those operating losses were “covered” by Rob.

[212] During the first six months of 2010, Cheryl became more and more stressed by CCI’s continuing losses because she was accustomed to success as a restauranteur. Cheryl suffered additional stress as a result of Bruce’s termination and the mid-2010 change in her duties. Ultimately, her stress led to depression. Cheryl was upset by the loss of Bruce’s job, Rob’s assertion that she was overpaid in 2009, and Rob’s assertion that she was using CCI money to pay for her personal expenses. He does not know whether Cheryl and Rob discussed the latter points during a meeting.

[213] Cheryl did not return to CCI after her departure in July 2010. Bruce does not know if Cheryl ever responded to inquiries from Mr. Kazarian concerning her return to work.

[214] Cheryl’s condition began to improve in September of 2010 and by October of 2010 she was “doing more”. Even so, she remained angry with Rob and felt that she was “cheated” by him. Bruce was also angry with Rob, but not to the same extent as Cheryl. He denies that he told other people that Rob cheated Cheryl or stole her restaurant.

Evidence of Ferruccio Da Sacco

[215] In November 2014, Cheryl moved for the appointment of BDO as CCI’s auditors and an order compelling the completion of audited financial statements for CCI dating back to 2009. By order dated November 25, 2014, Carey J. granted that relief and further directed, among other things:

This Court Orders that any accountants who are employed or contracted for by ‘RM Auctions’ or RJM Holdings and related companies, including Gerry Hockin and Deloitte LLP be disqualified as the auditor for Chilled Cork Inc.

[216] The order contemplated that audited financial statements for the years 2009 to 2014 would be provided by January 30, 2015.

[217] Mr. Da Sacco, who is both an accountant and a designated “assurance specialist” oversaw BDO’s audit efforts. He was summonsed as a witness by the plaintiffs. He did not discuss his anticipated evidence with counsel for the plaintiffs or the defendants, prior to trial.

[218] BDO Senior Manager, Annette Fletcher, who was not called as a witness by any party, was responsible for planning the CCI audit and performing the majority of the work with respect to same. Her work was consistently subject to Mr. Da Sacco’s review and approval.

[219] As CCI’s court appointed auditor, BDO was responsible for expressing an opinion on its financial statements. Its audit efforts were designed to provide a reasonable assurance that CCI’s financial statements were free of material misstatement, whether caused by error or fraud.

[220] After BDO’s appointment, the plaintiffs rejected BDO’s initial suggestion that it conduct its audit efforts through specified audit procedures, directed at any specific areas of concern held by the plaintiffs. Instead, the plaintiffs sought a complete historical audit of CCI dating back to 2009.

[221] In preparation for CCI’s audit, BDO developed an audit plan informed by a risk-assessment approach, in which CCI’s historical financial statements (including any anomalies therein) and its financial “controls” (or lack thereof), among other things, were examined to determine respective “levels of risk of material misrepresentation”, across various aspects of CCI’s financial reporting.

[222] In arriving at an audit plan, auditors typically utilize “preliminary” analytical tools to identify possible areas of concern, which can include industry “rules of thumb”. In that regard, it is generally expected that, as a rule of thumb, one-third of a restaurant’s sales will equal its kitchen-related wages and salaries and one-third of its sales will equal its food-related costs. The remaining one-third of sales consists of gross profit from which management and “front of house” salaries and all other operating expenses are deducted. “Rules of thumb” are developed from experience and relevant industry data. The available industry data for restaurants is predominantly generated from the United States, where both food and labour costs are, typically, lower than they are in Canada.

[223] Mr. Da Sacco cautions that: “rules of thumb” are only a starting point in identifying potential audit-risk areas; when rules of thumb are used, the data should be based on industry comparators that are similar to the entity being audited, which in the case of restaurant would include a consideration of its location and its type business; and an individual restaurant’s financial performance may deviate from a “general rule of thumb”, in the absence of fraud or error.

[224] After its appointment, BDO quickly determined that it was not possible to complete an audit for all of the years contemplated by Carey J.’s order because the availability of source documentation related to CCI’s several thousands of financial transactions in 2009 and 2010, was “spotty at best”. Some of that documentation was not available because it was damaged in a fire at the Retro Suites Hotel (where the records were stored) in September 2010. BDO also determined that it could not perform an audit for CCI’s 2011 fiscal year because of the absence of adequate source documentation.

[225] One of the most significant challenges that BDO faced in its attempt to produce audited financial statements for the years specified in Carey J.’s order, arose from the high degree of turnover in CCI’s bookkeeping personnel from 2011 to 2015, which led to a lack of consistency in the manner in which transactions were recorded in CCI’s financial records (even in the same fiscal year).

[226] BDO’s audit efforts with respect to CCI’s years 2012 to 2014 were also impaired by the lack of availability of certain source documentation and the disorganized manner in which CCI’s available source documentation was stored (with documentation related to several years being mixed and stored together).

[227] Mr. Da Sacco concluded that audited financial statements for the years 2012 to 2014 could not be produced until CCI properly organized its records. As a result, he “pulled” his staff from the field (“CCI’s operating premises”) and Ms. Fletcher forwarded correspondence to CCI and the parties’ respective counsel, in which she advised that BDO would not proceed with any further audit-related efforts until CCI provided certain records that she specifically identified. Those records included documentation related to revenue recorded outside of CCI’s POS system, most notably for revenue generated from CCI’s banquet sales, which was traditionally collected, at first instance, by the Retro Suites Hotel.

[228] The production of the organized records sought by BDO, was delayed as a result of another change in CCI’s bookkeeper position, in early 2015.

[229] In February 2015, BDO again proposed to the parties’ counsel that specified auditing procedures be undertaken to address the parties’ specific concerns with respect to CCI’s financial statements. In response, the plaintiffs indicated that they wanted the audit to proceed in the manner ordered by Carey J.

[230] By January 2017, BDO had not yet completed its audit with respect to the years 2012 to 2015, despite what Mr. Da Sacco describes as the very helpful and consistent efforts of Stephanie Temesy, who has been employed as CCI’s bookkeeper since October 2015. As a result, in January 2017, Desotti J. directed BDO to produce draft correspondence setting out BDO’s expectations about the type of statements it could produce, based on the information that it had received to date. In response, Mr. Da Sacco delivered draft correspondence dated April 7, 2017, in which he appended draft financial statements for the years 2012 through 2015, inclusive, together with draft qualified audit reports (which did not express audit opinions) for those respective years. Neither the financial statements nor the audit reports were ever finalized.

[231] Mr. Da Sacco testifies that through its audit work, BDO did not discover any evidence of fraud, related to CCI’s historical financial statements. BDO also did not find any evidence of: intentional destruction of documentation related to CCI’s financial transactions; evidence that CCI’s computer files had been “wiped clean”; evidence that banquet events occurred without revenue being recorded to CCI; or evidence that “someone was running a second set of books”. Instead, most of BDO’s concerns as expressed in his April 2017 correspondence, arose from irregularities in CCI’s bookkeeping procedures.

[232] Mr. Da Sacco also confirms that CCI’s accountant Deloitte LLP, did not report any fraud or suspected fraud to BDO, in circumstances in which it would have been expected to do so, had it been aware of any such activity. In addition, no person involved in the operation of CCI, reported any fraud or suspected fraud to BDO. In the result, the only individuals who expressed a concern about possible fraud, in this instance, were the plaintiffs’ counsel.

[233] In both his April 2017 correspondence and his evidence, Mr. Da Sacco summarized the difficulties that BDO experienced in conducting its audit. First, CCI employed five different bookkeepers during the period of 2012 to 2017. BDO was provided with explanations for the various changes in CCI’s bookkeeping staff, none of which caused Mr. Da Sacco concern. However, the turnover in CCI’s bookkeepers led to a lack of consistency in the manner in which transactions were recorded in CCI’s financial records, with each bookkeeper using their own method to post entries.

[234] Second, BDO’s progress was also slowed as a result of difficulty it experienced in obtaining a “backup” of CCI’s bookkeeping software, which was mainly a function of the amount of time that had elapsed between the original contemporaneous completion of CCI’s annual financial statements and BDO’s subsequent audit efforts. Eventually, BDO developed a “work around” by exporting the requisite data to spreadsheet software.

[235] Third, the volume of CCI’s financial transactions in each of the subject years was “vast” (i.e. thousands of annual transactions and associated documentation) and required BDO to engage in substantial efforts to set up testing for each respective year end. Mr. Da Sacco observes that Ms. Temesy was very helpful in responding to BDO’s requests for assistance, including locating specific information that BDO required to verify historical bookkeeping entries.

[236] Fourth, based on the historical nature of its engagement (i.e. auditing several past years at once), BDO was not physically present to observe CCI’s inventory count at the end of each of the years subject to audit. As a result, it was necessary to qualify its statement for each year, on that basis.

[237] Finally, BDO’s audit-related efforts were slowed and influenced by missing and disorganized source documents. In his April 2017 correspondence, Mr. Da Sacco observes that there were numerous items posted in CCI’s bookkeeping records that BDO was unable to verify, as there was no supporting documentation or the documentation differed from the posted entries (i.e. during data entry there were transposition errors, omissions, etc.).

[238] However, in his evidence, Mr. Da Sacco agrees that in his experience it is quite unusual for a small, privately held restaurant business to request retroactive multi-year audited financial statements, or audited statements at all. In his experience, small, privately-controlled restaurant businesses, typically, maintain less organized records and have less financial controls in place than entities that maintain segregated accounting departments and are otherwise “set up” to be audited on an annual basis.

[239] Mr. Da Sacco confirms that in circumstances in which a small, privately held restaurant business is subject to a retroactive multi-year audit, it is foreseeable that: there may be missing source documentation; there may be missing reconciliations; there may have been a change in the entity’s accounting system; a former bookkeeper may no longer be employed by the entity; and there may be difficulties with management recalling explanations for past variations in the entity’s financial records.

[240] Turning to the results of BDO’s audit work, it identified an issue related to CCI’s reported revenue from banquet sales that was common in each of the years that BDO originally reviewed (2012-2015). Specifically, CCI’s banquet sales involved inter-company transactions between the Retro Suites Hotel and CCI, in which Retro Suites collected all revenue, at first instance, and all food and beverage sales related to the banquet events were, subsequently, to be paid by Retro Suites to CCI.

[241] BDO was able to review inter-company invoices related to banquet events, which broke down CCI’s portion of the revenue. BDO was also able to reconcile that stated revenue with CCI’s recorded receivables due from Retro Suites. However, BDO was not able to verify if Retro Suites received more, the same, or less “cash” than the amounts disclosed on the “banquet event contracts” related to such sales. In his April 2017 correspondence, Mr. Da Sacco indicates that as a result of BDO’s inability to verify if cash was received by Retro Suites for banquet transactions, the risk of unreported revenue, as a result of subsequent adjustments to the sale was high (because it was not possible to verify the amount of the sale to the actual payment made to CCI).

[242] At trial, Mr. Da Sacco clarified that BDO was able to verify the amounts that CCI invoiced to Retro Suites for the food and beverage supplied at banquets and it was able to verify that Retro Suites actually paid CCI the invoiced amounts, which were, typically, premised on the customer’s contract for the event. However, Retro Suites (as distinct from CCI) did not provide BDO with copies of cheques, credit card statements, or other documentation evidencing that the amount that the customer actually paid to Retro Suites, at first instance, to ensure that it was the same as the original contract amount. Therefore, BDO was unable to confirm that CCI was ultimately paid the amount it was entitled to receive for the event. Although CCI was correctly paid the invoice price, BDO could not rule out that Retro Suites did not charge more or less for the event.

[243] In his evidence at trial, Mr. Da Sacco states that the significance of the foregoing issue, together with each of the other areas of concern expressed by BDO, was the subject of judgment, and the result of the issue could range from understated revenue, to accurately stated revenue with a poor audit trail, to overstated revenue. BDO was unable to provide any further clarification in that regard.

[244] On a different issue, in his April 2017 correspondence, Mr. Da Sacco correctly observed that in the years 2010 to 2013, inclusive, CCI recorded as revenue, management fees payable to it, by its related party, RJM Holdings ($150,000 in 2010; $285,000 in 2011; $100,000 in 2012; and $50,000 in 2013). From BDO’s perspective, it was unclear whether the fees were for services rendered or an adjustment for tax purposes. In order to normalize CCI’s revenue in those years, BDO did not include any management fee income in its calculations of CCI’s revenue.

[245] Mr. Da Sacco confirms that over the course of the period from 2012 to 2015, CCI’s annual cost of sales as a percentage of revenue, ranged from a low of 84.95 percent (2014) to a high of 88.1 percent (2015). Mr. Da Sacco did not believe that those percentages caused any audit concern, even when considering the “1/3 - 1/3 - 1/3 rule of thumb”. Mr. Da Sacco states that the “one-third” general benchmark for “wages” is only premised on direct wages and salaries related to kitchen staff. In the benchmark analysis, front of house wages and salaries, indirect management expenses, and all other operating expenses have to be deducted from the remaining one-third of the restaurant’s revenue. In the result, he did not view CCI’s historical recorded cost of sales to be an audit concern.

[246] BDO prepared financial statements for CCI for 2012, but it did not express an opinion on them. In his April 2017 correspondence, Mr. Da Sacco identified issues concerning BDO’s attempt to provide an audit opinion for 2012, which included: missing invoices for certain inventory; identified difficulties with CCI’s controls related to inputting POS summary data into its bookkeeping system (which could have resulted in understated, accurate, or overstated revenue); some missing invoices with respect to CCI’s expenses, which were otherwise verified through ledger entries and evidence of payment; BDO’s inability to review Retro Suite Hotel’s source documentation with respect to banquet sales; lack of documentation and proper segregation in a “Chilled Cork’s sales discounts” account (which did not constitute proper audit evidence); and lack of monthly reconciliations for related-party balances, which resulted in an inability to verify the balances.

[247] Mr. Da Sacco confirms that as at December 31, 2012, CCI’s financial statements showed a receivable owing from RJM Holdings in the amount of $356,916 (for booked management fees) and an amount payable by CCI to Retro Suites Hotel in the amount of $586,874. The general ledger details obtained by BDO from Retro Suites Hotel, as at December 31, 2012, supported most of that final balance, but it did not fully reconcile with the amount recorded in CCI’s financial statements. BDO was unable to obtain RJM Holdings’ general ledger details prior to its April 2017, correspondence. Mr. Da Sacco also observed that the relevant related parties had different year ends, which could have resulted in unreconciled balances, as at CCI’s year end.

[248] In his April 2017 correspondence, Mr. Da Sacco observes that in its preparation of CCI’s financial statements for 2013 to 2015, it encountered similar issues to those it encountered with respect to 2012, specifically, among other things: BDO was not present for CCI’s respective year-end inventory counts; certain source documentation related to BDO’s revenue and expense entry testing was not available; and BDO did not have access to Retro Suites Hotel’s records to confirm the total amounts that it received for banquet sales, and whether it varied from the event contract amounts.

[249] On the issue of related-party transactions, the financial statements prepared by BDO record that CCI maintained a receivable from RJM Holdings in the amount of: $462,704 in 2013; $408,464 in 2014; and $354,224 in 2015. Further, CCI owed a payable to Retro Suites Hotel in the amount of: $755,899 in 2013; $720,694 in 2014; and $755,524 in 2015. Mr. Da Sacco indicates that BDO did not find any material errors in testing transactions related to those accounts relative to the years 2013 to 2015, inclusive. In April 2017, BDO did not have supporting documentation available to verify the opening balances of the respective related-party accounts in 2013, which were carried forward to subsequent years.

[250] As a result of the foregoing, BDO was not able to express an opinion with respect to CCI’s financial statements for the years 2013 to 2015 inclusive. In addition, the financial statements for the years 2012 to 2015, which accompanied Mr. Da Sacco’s April 7, 2017 correspondence, were prepared in draft form only.

[251] Mr. Da Sacco testifies that he authored his April 7, 2017 correspondence in an effort to solicit additional information and explanations from CCI’s management on the issues raised therein. However, he concedes that his letter does not contain a specific request that management provide any additional information or explanations. Further, the correspondence is only addressed to counsel for the parties in the litigation (not CCI management). By its terms, it does not request a response. Instead, the correspondence concludes by inviting counsel to contact Mr. Da Sacco, if they have any questions with respect to its content.

[252] BDO did not receive a response to its April 7, 2017, correspondence from CCI management. There is no evidence that Mr. Da Sacco or other members of BDO engaged in any follow-up communication with CCI management to obtain further information or explanations addressing the issues set out in the correspondence. Rather, Mr. Da Sacco testifies that he had little to no communication with CCI after May 1, 2017, until some time in May 2018. As a result, the 2012 to 2015 financial statements that BDO prepared, remain in draft form.

[253] Notably, in relation to CCI’s years 2012 to 2015, Mr. Da Sacco did not identify: the existence of any sales made by CCI that were not recorded in its financial statements; any portion of CCI’s labour costs that were improperly allocated between CCI and its related parties, including Retro Suites; or any aspects of CCI’s recorded related-party debt that were appropriately calculated as being nil.

[254] In August 2018, BDO delivered draft audited financial statements for CCI’s fiscal years 2016 and 2017. The final version of each set of financial statements was provided to CCI’s management in mid-December 2018 (after the commencement of trial). In both instances, BDO opined that the audit evidence that it obtained was sufficient and appropriate to provide an audit opinion.

[255] In his evidence, Mr. Da Sacco confirms that no “audit issues” arose with respect to CCI’s sales, cost of sales, or expenses in 2016 or 2017. Further, after April 2017, BDO had satisfied itself that the related-party balances recorded in CCI’s 2016 and 2017 financial statements were accurate and had originated from transactions occurring in the normal course of business. Specifically, in preparing CCI’s 2016 and 2017 audited statements, BDO was able to work with Deloitte LLP to fully reconcile the previously unverified amounts set out in CCI’s journal entries concerning its related-party indebtedness. In that process, BDO examined the ledgers of both CCI and its related parties (Retro Suites and RJM Holdings), and thereafter, it received signed confirmations attesting to the amounts owed between CCI and its related parties.

[256] Subject to a single qualification that BDO was not physically present to verify, CCI’s year-end inventory counts in 2016 and 2017 (and the possible effects arising therefrom), BDO opined that the 2016 and 2017 financial statements “presented fairly, in all material respects, the financial position of CCI as of December 31, 2016 and December 31, 2017, respectively, and the results of its operations and the statement of cash flows for the years then ended” (in accordance with Canadian accounting standards for private enterprises). Mr. Da Sacco agrees that the 2016 and 2017 audited financial statements provide the best and most reliable evidence of CCI’s actual sales/revenue in those years.

[257] The main difference between BDO’s ability to perform auditing functions related to CCI’s fiscal years 2016 and 2017, and its ability to do so with respect to former years, was the overall improvement in the quality of CCI’s bookkeeping. Ms. Temesy maintained accurate and proper accounting systems, which were reconciled on a daily basis. BDO observed a year over year improvement in the quality of CCI’s bookkeeping even before Ms. Temesy was hired in 2015, however, she was meticulous in daily reconciliation. Mr. Da Sacco concedes it is possible that CCI’s bookkeeping improved once its management became aware that the company was subject to audit.

[258] Mr. Da Sacco confirms that CCI’s recorded “wage expenses” rose from $610,000 in 2015 to $714,000 in 2016, and subsequently to $819,000 in 2017. He confirms that during the course of the audit process, members of BDO had discussions with CCI’s management that satisfied BDO that all of the “wages expenses” reflected in CCI’s financial statements in 2016 and 2017 were related to work performed on behalf of CCI, as opposed to related parties, including Retro Suites Hotel.

[259] Mr. Da Sacco was also referred to an increase in the amounts recorded for CCI’s “repairs and maintenance expenses” from $22,560 in 2015 to $28,401 in 2016, and subsequently to $44,195 in 2017. Mr. Da Sacco confirms that an analysis was performed during the audit process to ensure the appropriateness of amounts being claimed as expenses, as opposed to capital expenditures, together with an analysis of the basis for the year-over-year increases in the amount of recorded repairs and maintenance expenses. He remained satisfied that the 2016 and 2017 financial statements, in that respect, fairly presented the financial position of CCI.

[260] The 2016 and 2017 qualified audited financial statements also provide greater clarity with respect to the amounts of the related-party balances owed to and by CCI. Specifically, in a note to its 2016 financial statements, BDO indicates that CCI owed RJM Holdings: $378,848 at the end of 2015; and $426,848 at the end of 2016. Further, the statements indicate that CCI owed Retro Suites Hotel $6,452 at the end of 2015, and Retro Suites Hotel owed CCI $124,356 at the end of 2016. BDO also determined that at the end of both 2015 and 2016, CCI owed $16,000 to Rob Myers, personally. All of the related-party amounts owed to and by CCI were determined by BDO, to have arisen from transactions occurring in the normal course of business.

[261] Similarly, BDO determined that at the end of 2017, CCI owed RJM Holdings $450,343 and it owed $16,000 to Rob Myers, personally. Further, the Retro Suites Hotel owed CCI $9,271, at the end of 2017. All of the foregoing amounts were verified by BDO, and Mr. Da Sacco confirms that they were accurately recorded.

[262] Mr. Da Sacco was questioned on what appeared to be a “wide swing” from an amount that was recorded as a receivable owed by RJM Holdings to CCI in prior year financial statements, to a payable owed by CCI to RJM Holdings in 2015 and afterwards, and a corresponding swing from a payable owed by CCI to Retro Suites Hotel in earlier years, to a receivable owed by Retro Suites Hotel to CCI in 2016 and afterwards. Mr. Da Sacco acknowledged the apparent “variance” in related-party account balances, but he observed that the net totals with respect to CCI’s related-party obligations remained the same.

[263] He further explained, with reference to e-mail correspondence that he forwarded to counsel for the parties in this litigation, on September 12, 2018, that prior to CCI’s 2016 audit, BDO engaged in further efforts to confirm the recorded inter-company balances between CCI and Retro Suites Hotel and CCI and RJM Holdings. Working with RJM Holdings’ financial officer, and RJM Holdings’ external accountant Deloitte LLP, BDO was able to reconcile the related-party balances with the appropriate related-party companies (i.e. RJM Holdings and Retro Suites Hotel). Through that process, BDO determined that as a result of a corporate reorganization, the amount of $749,722.24 that was previously recorded as owing to the Retro Suites Hotel and owed by CCI was appropriately owed to RJM Holdings.

[264] It remains that although there was a “swing” in individual related-party balances, once BDO worked with Deloitte LLP to reconcile the previously recorded but unverified amounts (including the opportunity to examine the ledgers of both RJM Holdings and Retro Suites Hotel), BDO was able to group the appropriate related-party accounts together for financial statement presentation purposes. Importantly, after that exercise was complete, the net totals of CCI’s related-party indebtedness remained the same.

[265] As a result of its ability to liaise with Deloitte LLP and confirm the appropriate allocation of related-party balances, BDO issued revised draft financial statements for CCI’s year-ended December 31, 2015, in which the grouping/presentation of related-party balances was consistent with the allocation set out above. Specifically, once BDO verified the related party balances and attributed them accordingly, it determined that at the end of 2015, CCI owed: $378,848 to RJM Holdings; $6,452 to Retro Suites Hotel; and $16,000 to Rob Myers, personally, still yielding a total related-party balance net payable by CCI in the amount of $401,300, consistent with the amount recorded in the original 2015 draft financial statement prepared by BDO.

[266] Mr. Da Sacco indicates that “confirmations” of related-party balances were executed on behalf of RJM Holdings and Retro Suites Hotel and by Rob Myers, personally. Confirmations of that type are common and designed to ensure that the individuals executing them accept and assume responsibility for the accuracy of the amounts set out, therein.

[267] In Mr. Da Sacco’s view, subject only to an inventory scope limitation, BDO’s audited financial statements for CCI for 2016 and 2017 provide a reasonable assurance of CCI’s financial position, as set out therein, including all related-party balances.

The Evidence Adduced by the Defendants

[268] Below, I will summarize the evidence of the non-expert witnesses called by the defendants and aspects of the exhibits to which they referred.

Evidence of Robert Meyers

[269] Rob, who was born in Chatham-Kent, is 63 years old. He owns the defendant corporation, RJM Holdings Limited. In addition, he actively operates an international classic car restoration business, through the corporation RM Auto Restoration Ltd. and an international classic car auction business, through the corporation RM Sothebys. He also owns and operates a Harley Davidson dealership, in the Chatham-Kent area. Rob has enjoyed exceptional success in his classic car-related businesses, which are highly regarded on an international scale. Indirectly, through RJM Holdings, he is also the former owner of the Retro Suites Hotel. In 2013, Rob’s daughter, Jessica Myers, acquired ownership of the Retro Suites Hotel from RJM Holdings.

[270] Rob has consistently maintained his principal residence in the Chatham area, where he is heavily involved in local charities. Nonetheless, owing to the nature of his “classic car” businesses, Rob is required to travel away from the Chatham area for approximately 35 to 40 weeks a year, a schedule that he has maintained for the past 30 years.

[271] Turning to the development of the Retro Suites Hotel, in the early 1990’s, Rob purchased a series of 12 buildings, in poor repair, that formed a city block in the downtown Chatham core. He substantially renovated those properties and developed them into a boutique hotel, named The Retro Suites Hotel. The hotel, which opened with only a few rooms, in approximately 1993, served as both an anchor and a catalyst for the revitalization of the Chatham downtown core. By 2008, the hotel featured 22 unique suites, which grew to approximately 50 suites by the time of trial. By 2008, Rob had invested approximately six to eight million dollars to renovate and develop the Retro Suites. That amount had grown to approximately 13 to 15 million dollars by the time of trial.

[272] CCI is located in the Retro Suites Hotel. RJM Holdings Inc. and Cheryl each own 50 percent of CCI’s shares. Rob first met Cheryl in 2008, as a result of periodically attending her “sandwich shop” for lunch. He felt that she ran a clean shop, and as a result, he approached her in the spring of 2008, and asked her if she was interested in opening a restaurant in the Retro Suites’ facilities. She expressed her interest and discussions between them followed.

[273] During the summer of 2008, Rob and Cheryl had approximately eight to ten meetings about the proposed restaurant. Early in their discussions, Rob advised Cheryl that they would be partners in the business, he took her on a tour of the hotel and he showed her the restaurant’s proposed operating space. Cheryl provided Rob with an estimate of the anticipated costs to build out a kitchen and dining area in the existing restaurant shell. Cheryl also advised Rob that: she estimated the restaurant would generate one million dollars in revenue in its first year of operation; and although she did not expect that the restaurant would generate a profit in its first year, she did not expect it to run at a loss.

[274] Cheryl also provided Rob with a budget of $150,000 to “open the restaurant”, which included the costs associated with the purchase of new kitchen and dining room equipment, fixtures and furnishings. Rob was prepared to advance that amount, with an expectation, of which Cheryl was aware and to which she agreed, that he would be fully repaid by the business. Rob also expected that he would fund the costs of the restaurant’s build out, at first instance, and that, similarly, he would be repaid. Cheryl agreed to the foregoing and it became part of their business plan. Cheryl was not expected to make any financial contributions towards the costs associated with building out and opening the restaurant. Rob and Cheryl also agreed that the restaurant would pay $4,000 per month for rent to the Retro Suites.

[275] In his evidence, Rob confirmed the accuracy of the aspects of CCI’s financial records that record the various amounts that he advanced, through his other corporations, to or on behalf of CCI, in order to build out, equip, and furnish the restaurant in 2008, all of which total approximately $353,000.

[276] Pursuant to an agreement he made with Cheryl in 2008: Cheryl was supposed to operate the restaurant; be its chef; and receive an annual salary of $50,000; Rob and Cheryl were to be partners in the restaurant and split its profits, on an equal basis, after the costs associated with building out, equipping and furnishing the restaurant were repaid. They did not discuss her anticipated tenure as an employee.

[277] Since Rob was making all of the financial contributions that the business required, he and Cheryl agreed: that in the event of a future disagreement, he would have the “final say”; he would have the “final say” over all of the business’s financial aspects and expenditures; and he would retain control over the venture. Cheryl would be responsible for operating the restaurant. Before they reached their “deal”, Rob advised Cheryl that he did not want Bruce involved in the proposed restaurant because he had previously observed Bruce “drinking”, instead of working at Cheryl’s restaurant (NFE).

[278] Cheryl and Rob shook hands on a “deal” consistent with the foregoing, in the late summer or early fall of 2008. From Rob’s perspective, their handshake signified that they had a “deal”.

[279] At the time they reached their agreement in 2008, Rob held an expectation that if Cheryl left the restaurant within a couple of years of its initial operation and he had not been fully repaid for his initial investment, their deal would be “cancelled”. Rob never committed to funding CCI’s operating losses on an indefinite basis.

[280] In 2008, Rob also expected that NFE would be responsible for its own liabilities. In the fall of that year, Cheryl moved NFE’s operation to the Retro Suites Hotel premises where she continued to operate it, until CCI obtained its liquor licence in early 2009. RJM Holdings Limited advanced a substantial amount of money to NFE in 2008.

[281] In January 2009, CCI commenced operations in the Retro Suites Hotel. Rob’s lawyer, Dennis Archer, prepared documentation to formalize the “deal” that Cheryl and Rob agreed to in 2008. Owing to “lawyer delays” the documentation was not ready for execution until August 2009. Cheryl never indicated that she wanted to make changes to any of the documents prepared by Mr. Asher.

[282] Rob testifies that he never advised Cheryl that she did not require a lawyer or legal advice with respect to the documents that Mr. Asher prepared, nor did he engage in any efforts to dissuade her from obtaining a lawyer. Cheryl never advised him that the documents that Mr. Asher prepared were inconsistent, or did not reflect, the terms of the deal to which they had previously agreed.

[283] Rob was directed to various aspects of the documentation prepared by Mr. Asher including Cheryl’s Contract of Employment, to which he was also a party in his capacity as a “shareholder” of CCI. Cheryl never indicated that she disagreed with any of the terms of the employment contract, which she ultimately signed. Rob assumed that Cheryl also signed the USA that contained “buy/sell provisions” with respect to CCI’s shares. He later learned that she had not done so. Cheryl never indicated that she disagreed with the terms of the USA and she never expressly sought to change its proposed terms.

[284] Once it began to operate, CCI continuously incurred monthly operating losses and RJM Holdings was required to advance additional monies to CCI, to fund its expenses. Although Rob was unable to obtain specific information with respect to CCI’s financial performance in 2009, on a contemporaneous basis, he knew that it “lost a lot of money”. Based on Cheryl’s representations in 2008, CCI’s operating losses in 2009 were beyond Rob’s expectations.

[285] Owing to his travel schedule, Rob rarely attended CCI in 2009. Cheryl managed the restaurant on a day-to-day basis and they had occasional meetings throughout the year. Rob denies that during a 2009 meeting, he yelled at a bookkeeper and other staff members and slammed things on a table. Rob concedes that he has a “loud voice” and, at times, people think that he yells. Nonetheless, Rob has never: yelled at Cheryl; insulted her; or called her silly or stupid.

[286] Early in CCI’s operation, Rob learned that without discussing the issue with him, Cheryl hired her friend, Michel Bonnot, as CCI’s chef, at a salary of $75,000 per year. Rob was puzzled by her decision because Cheryl was supposed to be the restaurant’s chef.

[287] During the times that Rob periodically visited CCI, he would often see Bruce drinking at the bar. He did not believe that Bruce was employed by CCI because he and Cheryl had previously agreed that Bruce would not be an employee.

[288] In 2010, Rob continued to occasionally visit CCI and he received monthly financial reports evidencing its ongoing losses. In early 2010, he had discussions with Cheryl about CCI’s losses and asked her how they were going to “fix the problem”. Cheryl did not propose any immediate solutions. In their subsequent meetings, Cheryl always appeared “panicky” and “upset”. Rob did not yell at her or demean her during their 2010 meetings.

[289] As CCI’s losses continued to grow, Rob eventually concluded that Cheryl did not have the requisite knowledge to successfully operate CCI and “something needed to be done”. Ultimately, Rob determined that he needed to retain an individual with experience in the restaurant business to address CCI’s continuing losses.

[290] In May 2010, Rob hired Greg Kazarian to assume bookkeeper responsibilities for CCI and to provide additional services in the Retro Suite’s accounting department. Rob also asked Mr. Kazarian to assess CCI’s financial operation and make recommendations for improvement. Mr. Kazarian was not hired to be CCI’s “new manager” or to replace Cheryl. Cheryl resisted Mr. Kazarian’s presence at CCI.

[291] Eventually, Mr. Kazarian made various recommendations designed to reduce CCI’s operating expenses. He advised Rob that the costs associated with CCI’s food and wine purchases were too high, as were certain employee salaries. Mr. Kazarian characterized CCI’s “wages and salaries expenses” as “out of control”. He suggested that Chef Bonnot’s salary be reduced. He also suggested terminating some of CCI’s redundant employees, including Leslie Bonnot and Bruce. Rob was not aware that Bruce was an employee of CCI at the time. Mr. Kazarian also recommended “scaling back” on a policy that allowed employees to drink and eat at CCI, solely at the restaurant’s expense.

[292] Throughout June 2010, Rob attended a series of meetings with Mr. Kazarian, Cheryl, and Chef Bonnot. During those meetings, they discussed CCI’s expenses and the potential termination of Leslie and Bruce. Chef Bonnot agreed to take a reduction in salary. During the course of the meetings, Cheryl appeared to be very upset and unstable. At the time, Rob was not aware of Cheryl’s mental health history. During their meetings, Cheryl stated that she did not know what to do. Rob denies that he yelled during the meetings, or that he threatened to fire Cheryl. The specific meeting in which Bruce’s termination was discussed, ended with Cheryl leaving CCI. She never returned to work. Rob was not aware that Cheryl was depressed, at the time.

[293] Rob does not recall meeting with Cheryl at the RM offices, but he concedes that it is possible that he did so, before the last meeting he had with Cheryl in June 2010.

[294] Rob acknowledges that after the meeting in which Bruce’s termination was discussed, he received correspondence from Cheryl. Prior to receiving that correspondence, Rob did not know that Chef Bonnot planned to retire in September 2010. Through her correspondence, Cheryl advised Rob that she missed her old bistro restaurant, which Rob understood to mean NFE. Cheryl also asserted that she did not charge personal expenses through CCI. However, Rob had been advised by Mr. Kazarian that some of Cheryl’s personal expenses had been “put through” CCI. Contrary to the content of Cheryl’s correspondence, Rob never advised Cheryl that he would “get rid of her” if the restaurant did not show a profit.

[295] Rob did not authorize Mr. Kazarian to terminate Cheryl in 2010. Instead he hoped things would work out between them and he felt sorry for her.

[296] After receiving her correspondence, Rob attempted to contact Cheryl in July 2010, but he was unable to reach her. He believes that Mr. Kazarian also tried to contact her, without success. Later in July 2010, Chef Bonnot advised Rob that Cheryl had a relapse of a “breakdown” and was under a doctor’s care. Cheryl’s salary continued to be paid throughout July and August, 2010.

[297] Rob acknowledges that he left a voicemail message for Cheryl on August 4, 2010. He does not dispute the accuracy of her transcription of his message, which has been previously set out above. By the time he left his voicemail message, Rob had concluded that Cheryl no longer wanted to be his partner in their restaurant business. Rob agrees that in his message, he advised Cheryl that he would provide her with some money so that she could get back into her “sandwich shop”. Rob was prepared to give Cheryl whatever amount she needed in order to re-establish her business. Although Rob indicated that he would have Mr. Asher prepare appropriate documentation, he never advised Mr. Asher that he had terminated Cheryl’s employment and he never instructed Mr. Asher to terminate Cheryl’s employment.

[298] Cheryl did not respond to his August 4, 2010 voicemail message. Rob never heard from Cheryl, or a representative on her behalf, again until this action was commenced. Rob acknowledges that he was upset when he was served with the Statement of Claim in this proceeding. He felt that it was unfair that Cheryl had sued him, without ever talking to him, after she walked out of the business in June 2010.

[299] Rob confirms that director and shareholder meetings with respect to CCI have not been held since Cheryl “walked out” in 2010. Similarly, meetings of that nature were not held before she “walked out”. Rob reasoned that there was no point in calling director and shareholder meetings after she left because Cheryl never attended anything.

[300] Audited financial statements were not prepared with respect to CCI before Cheryl’s departure in June 2010. Instead, the accounting firm Horne and Co. prepared CCI’s financial statements on a Notice to Reader basis. Similarly, audited financial statements were, initially, not prepared with respect to CCI after Cheryl’s departure because, in Rob’s view, “it was not necessary”. Eventually, audited statements were prepared pursuant to an order made in this proceeding.

[301] After the court ordered the preparation of audited financial statements, Rob instructed the staff of both Retro Suites and CCI to co-operate fully with the auditors and to provide them with as much information as possible. During the audit process, some of CCI’s records were not available because they sustained water damage during a major fire in the Retro Suites Hotel, in 2012. Rob has never instructed the staff of either the Retro Suites or CCI, to destroy or alter CCI’s financial records and source documentation.

[302] Rob denies that CCI has ever engaged in sales or earned revenue that was not recorded in its financial statements, or that the amount of its sales has been under-reported in its annual financial statements. He has never instructed CCI staff to under-record CCI’s actual sales/revenue.

[303] The Retro Suites and CCI operate as two separate business entities and they maintain separate accounting records. There is little opportunity to “misallocate” labour costs between them.

[304] Jessica Myers’ husband, Peter Tsirimbis, is currently employed as CCI’s general manager. Mr. Tsirimbis has substantial experience in the restaurant industry. Mr. Tsirimbis is not the general manager of the Retro Suites hotel.

[305] Rob confirms that he wrote the two pieces of correspondence that were identified by Cheryl, in her evidence (one dated July 19, 2012 and the other undated). Rob confirms that he wrote the July 19, 2012 correspondence, because he was upset, in part, after he received information from friends, that Cheryl was making defamatory statements about him and his family, at her new restaurant. He also wanted Cheryl to “end her lawsuit” because he felt that it was an attempt to extort him. He wrote the second correspondence in an attempt to stop what he perceived to be a frivolous lawsuit.

[306] Rob describes CCI as his worst business experience in 40 years. He explains that in mid-2010, Cheryl left CCI and did not return in the immediate wake of their discussions about the several hundreds of thousands of dollars that he had paid to cover CCI’s expenses and losses. He continued to pay her salary for a period of time after she left. Despite his efforts to contact her, he heard nothing further from her, until she sued him. He is no longer angry with Cheryl.

[307] When asked why he did not cause RJM Holdings to call CCI’s loan after Cheryl left and thereby, bankrupt it, Rob explains that: he did not want to cheat CCI’s suppliers; he felt sorry for Cheryl; and if he bankrupted CCI and started a new restaurant, he would have to reapply for a liquor licence.

[308] Rob did not engage in any attempts to buy Cheryl’s shares, after she left CCI, because her shares had no value.

[309] In cross-examination, Rob agrees that through experience, he is a sophisticated business man with a relatively large presence in the municipality of Chatham-Kent.

[310] Rob disagrees with the suggestion that CCI is an “attraction” for the Retro Suites Hotel. He agrees that having a restaurant in the hotel makes sense. When customers of RM Restoration come to Chatham, they often stay at the Retro Suites Hotel and can elect to eat at CCI. Rob denies that CCI is essential to the Retro Suites’ business.

[311] Rob does not deny that in 2008, when he initially approached Cheryl in NFE’s kitchen, Bruce was doing dishes, although he has no specific recollection in that regard. Typically, however, when he saw Bruce at NFE, Bruce was sitting at the bar. He does not know whether Bruce performed NFE’s catering deliveries.

[312] Years before building out CCI, Rob attempted to establish a “bar” in the Retro Suites Hotel, called “The Blind Dog Bar and Grill”. Rob disliked the business and consequently, he sold it to a tenant. Eventually, the space occupied by The Blind Dog was repurposed as the hotel’s lobby.

[313] Rob agrees that during his interactions with Cheryl, she did not appear to know much about financial matters or contracts. He agrees that the employment agreement that she signed gave him the right to change the scope of her employment duties and the right to terminate her employment for cause. He also agrees that he was the ultimate authority for all of CCI’s financial decisions.

[314] Rob identifies Gerry Hockin as a trusted financial advisor, with whom he has been associated for the past 25 years. Mr. Hockin was originally a member of Horne LLP, which among other things, was CCI’s original accountant. Shortly thereafter, Horne LLP was acquired by Deloitte LLP, which assumed responsibility for the preparation of CCI’s financial statements. In 2011, Mr. Hockin became the Chief Operating Officer of RM Auctions for a short period of time, and he remains a financial advisor to the RM group of companies.

[315] Rob identified Mr. Kazarian as an individual who responded to an ad placed for a bookkeeper. Mr. Kazarian was 25 years old at the time and had prior experience at a roadhouse franchise restaurant. Mr. Kazarian reported financial information with respect to CCI. He was not involved in the management of the Retro Suites Hotel. Eventually, Mr. Kazarian recommended that Bruce and Leslie Bonnot be terminated and, ultimately, Rob instructed him to do so.

[316] Rob denies that he failed to advise Mr. Kazarian that Cheryl was a part owner of CCI. He believes that he told Mr. Kazarian about Cheryl’s ownership interests when he hired him. To the extent that Mr. Kazarian says that he did not know that Cheryl was an owner of CCI, Rob indicates “he should have”.

[317] Mr. Kazarian worked for CCI for a couple of years and then returned to school. Rob last spoke with Mr. Kazarian several years ago. After that, Rob hired a manager on a short-term contract, which was not renewed. He then hired his son-in-law, Pete Tsirimbis, as CCI’s General Manager. Rob assumes Mr. Tsirimbis’ salary was (and is) paid by CCI.

[318] Rob agrees that audited financial statements for the years 2009 to 2015, inclusive were not produced to CCI’s shareholders. Rob believes that it is rare for small businesses to obtain audited financial statements. He is not aware of a corporation’s requirement to obtain audited financial statements, as prescribed by the Ontario Business Corporations Act. Rob agrees that in the context of this litigation, he opposed Cheryl’s motion for the appointment of an auditor and the production of historical and ongoing audited financial statements for CCI because he anticipated the costs of such an exercise would exceed $100,000.

[319] Rob agrees that in the context of the motion to produce audited financial statements, he swore an affidavit indicating that in July 2010, Cheryl chose to leave her position at CCI and that she chose not to be part of the restaurant. He confirms that is also his evidence at trial. He has not seen Cheryl since she left CCI in 2010. He confirms that Cheryl did not resign her employment in writing, however, she was not dismissed by him or CCI. Instead, Rob feels that by leaving CCI and never coming back, Cheryl abandoned her role as an employee and shareholder of CCI. The defendants agree that Cheryl remains an officer and director of CCI.

[320] By order dated November 25, 2014, Carey J. appointed BDO as CCI’s auditors effective as of 2009, and he ordered the production of audited financial statements from 2009 to 2015, and onward. Rob is aware that the costs of the audited financial statements were to be paid in full by CCI. Rob is not aware that, ultimately, BDO was only able to produce two sets of qualified final audited financial statements, specifically, for the years 2016 and 2017.

[321] Rob was then directed to various documents, including Mr. Da Sacco’s April 7, 2017 correspondence that described BDO’s difficulties in compiling the necessary information to produce audited financial statements for CCI’s 2009 to 2015 years. Rob was aware of the difficulty in obtaining some documentation because of the records that were destroyed or damaged in the fire. Rob was not aware that BDO felt that CCI’s 2011 records were in disarray. Rob assumes that he tasked someone to look for the documentation that BDO required. Rob agrees that BDO wrote several letters in 2015, requesting outstanding documentation to complete its audit work. He does not know when the documents requested by BDO were assembled.

[322] During his cross-examination, Rob was confronted with other specific aspects of Mr. Da Sacco’s April 7, 2017 correspondence. Consistent with its content, Rob confirms that during the period from 2012 to 2016, CCI employed five different bookkeepers. He also agrees that over the course of those years there were some problems with CCI’s record-keeping, but he denies that it was “on his watch”. He describes himself as an absentee owner of CCI, who was not involved in its day-to-day operation. Rob deferred to Mr. Hockin on a number of questions posed to him, concerning specific aspects of BDO’s April 7, 2017 correspondence and various aspects of CCI’s annual financial statements.

[323] Rob confirms that once management fee revenue was removed from CCI’s annual financial statements, its net loss in: 2012 was $112,000; 2013 was $90,000; 2014 was $36,000; 2015 was $31,000. As a result of the losses, RJM Holdings kept putting money into CCI. He agrees that CCI’s losses continued after Cheryl left, but he asserts that a lot of recovery time was required after the fire. Nonetheless, he took both Mr. Kazarian and Mr. Tsirimbis to task for CCI’s ongoing losses, after Cheryl’s departure. He confirms that he did not terminate Mr. Tsirimbis when CCI suffered losses, but he adds that he did not terminate Cheryl either.

[324] Eventually, at the request of BDO, Rob and Jessica Myers confirmed the recorded amount of CCI’s indebtedness to RJM Holdings and Retro Suites, respectively. Their confirmations were subsequently relied upon by BDO.

[325] In cross-examination, Rob denies that Cheryl’s correspondence (“July 8”) followed a meeting between the two of them at the RM offices in June 2010, in which he stated, among other things, that Bruce, Chef Bonnot and Leslie were to be fired, and that if Cheryl did not like it, he would throw a little money at her and she could go too. He denies that Cheryl was crying and begging for her job, or that he gave her a day to decide what she wanted to do.

[326] In response to the specific content of Cheryl’s “July 8” correspondence, Rob states that Cheryl was his partner, and he does not understand why she stated that she felt like she was “fucked”. He agrees that in 2008, he may have told her that he was her angel. He does not recall ever telling Cheryl “we’re going to be rich”. When Cheryl expressed, through her correspondence, that she felt better off before she became involved with CCI, Rob offered to put her back into her old business, in his August 4, 2010 proposal.

[327] At the commencement of CCI’s operation, the only equipment that Cheryl brought with her from NFE were “pots and pans”, which were all returned to her. Rob agrees that as part of the asset purchase agreement, CCI obtained NFE’s “goodwill”.

[328] Rob does not understand why Cheryl claims that her self-esteem was affected as a result of her dealings with him. He has over 200 long-term employees with whom he interacts, without difficulties. He cared about the way Cheryl felt, and he paid her salary for a period of time, after she left and did not return to work.

[329] Rob believes that before he hired Mr. Kazarian, he advised Cheryl that they needed to make a change. He does not believe that he failed to provide Cheryl with notice that Mr. Kazarian was being hired.

[330] Rob never accused Cheryl of stealing money, and he left it to Mr. Kazarian to deal with the issue of whether she was paying her personal expenses through CCI.

[331] Rob made a few attempts to contact Cheryl before his August 4, 2010 voicemail. In his voicemail, he offered to pay her three months’ salary and to help her set up a new restaurant. He observed that it was not going to work out between the two of them. He made the offer because he did not know what else to do, since he had been unable to contact Cheryl since the end of June 2010. He instructed Mr. Asher to prepare documentation in respect of a share transfer and a release, in exchange for three month’s wages. The share transfer contemplated a purchase price of $1.00. At the time, Rob would have accepted $1.00 for his shares in CCI because the business was a “loser”. He has never taken any money out of CCI and, therefore, he cannot say that CCI is valuable to him.

[332] Rob agrees that after he was served with the plaintiffs’ Statement of Claim he threatened to commence a counter-claim against Cheryl. He did so because he was attempting to dissuade her from “getting a lawyer on a contingency fee”. His original correspondence to Cheryl was designed to put a stop to a frivolous lawsuit. He denies it was an attempt to “bully Cheryl into submission”. He explains that he was attempting to stop the lawsuit by letting Cheryl’s lawyer know that he was not going to accept her claim. He also wrote the correspondence because he had received information that Cheryl and Bruce were saying derogatory things about him and his family, to their customers at Zee’s Bistro.

[333] Rob recalls that in 2008, he and Cheryl specifically discussed that Bruce was not to be part of CCI. He recalls that Chef Bonnot was hired by Cheryl without his knowledge and he does not believe that he met with Chef Bonnot before the restaurant was open, to discuss equipping the kitchen. Rob confirms that he eventually discovered that in 2009, Cheryl had unilaterally increased her salary beyond the $50,000.00 amount set out in her employment contract.

[334] Rob was also cross-examined on the content of his second correspondence to Cheryl. Echoing the content of that letter, Rob confirms that he believes that the claim against him is frivolous and the plaintiffs’ lawsuit is designed to extort him. In his correspondence, Rob raised the prospect of a lawsuit against Cheryl, the possibility of involvement of the Canada Revenue Agency and the possibility of “bad press” against Cheryl. He denies that he was aggressively threatening to pursue a counter-claim. Rather, he maintains that the intent of his correspondence was to create an opportunity to negotiate a resolution of the proceeding that was “sensible” rather than the “$500,000 to $1,000,000” that plaintiff’s counsel sought. Rob confirms his view that this litigation is a contest between himself and plaintiffs’ counsel.

[335] Rob confirms that according to the audited financial statements for CCI, it generated a combined profit of approximately $90,000.00 in the years 2016 and 2017.

The Evidence of Greg Kazarian

[336] Mr. Kazarian is currently 38 years old and employed as a controller at a technology-based company in Windsor, Ontario, while simultaneously working towards his “CPA” designation.

[337] In 2010, Mr. Kazarian responded to a newspaper advertisement for a job in the accounting department of the Retro Suites Hotel. At the time, he had completed an accounting program at a local community college. He also had experience as a cook, a manager and a kitchen manager at a roadhouse restaurant franchise. He participated in multiple interviews including “one with Rob” and was ultimately, offered a position. Mr. Kazarian was not hired as a manager of CCI. Through his employment at Retro Suites he came to work indirectly for CCI.

[338] Eventually, Mr. Kazarian was asked by Rob to analyze CCI’s financial performance and make suggestions for improvement. When he was initially hired by Retro Suites, he did not know Cheryl’s role at CCI, but he eventually learned that she was a partner and its manager.

[339] Shortly after he was hired, Mr. Kazarian was introduced to Cheryl, who was advised that he would be taking over CCI’s bookkeeping functions and assessing the financial aspects of the restaurant. At the time, CCI operated with an “outside” bookkeeper. From an emotional prospective, Cheryl seemed fine when he met her. He does not recall her reacting negatively to him, at that time.

[340] In examining CCI’s books, it was obvious that it was not profitable and its record keeping was not optimal. After assessing the financial aspects of CCI’s operations, his biggest concern was its labour costs, particularly for kitchen staff. At the time, CCI employed two chefs – Chef Bonnot and Cheryl. Mr. Kazarian also determined that Chef Bonnot’s wife was engaged in some bookkeeping functions on behalf of CCI, which he felt was unnecessary because CCI also used an outside bookkeeper. In addition, he felt that Bruce’s role was unnecessary and that he was performing a lot of “errand”-type functions that could be done by other existing employees. He was not aware that Bruce’s driver’s license was suspended. Finally, he felt that Chef Bonnot’s salary ought to be reduced because many of his duties were capable of being discharged by a “line cook”.

[341] Mr. Kazarian shared his conclusions and recommendations with Rob. He is clear in his evidence, that as a result of his recommendations, Rob authorized him to terminate Bruce and Leslie, not Cheryl. From Mr. Kazarian’s perspective, it appeared that Rob wanted Cheryl to remain involved in CCI’s operations.

[342] Mr. Kazarian recalls attending at least one meeting and maybe more, together with Rob, Cheryl and Chef Bonnot, in which CCI’s sales and expenses were discussed. During that meeting, Mr. Kazarian shared his views that: CCI did not require two full-time chefs; and all of the functions that Chef Bonnot performed could be performed by a line cook. Chef Bonnot was offended by his suggestion. Cheryl did not like anything that Mr. Kazarian proposed. During that meeting, the actual amount of Cheryl’s 2009 salary (which was greater than $50,000.00) and CCI’s ostensible payment of certain of her personal expenses were also discussed. Throughout the meeting, Rob’s demeanour remained appropriate. He did not yell or insult anyone. He does not recall Rob saying that anyone was “stupid”. He recalls that Cheryl appeared upset about what was being discussed.

[343] Cheryl continued to attend work after their final meeting in 2010, but she did not remain at CCI for much longer. He does not specifically know the last day that she worked.

[344] Mr. Kazarian believes that he signed a letter dated June 28, 2010 terminating Bruce’s employment. His signature appears at the bottom of Bruce’s record of employment, which reveals that Bruce worked a total of 551.25 hours in the first six months of 2010, at a wage rate of $10.25 per hour (earning approximately $205.00 per week). On termination, Bruce was paid $680.82 (which included 4% vacation pay) in lieu of notice of termination, which equates to approximately three weeks of pay in lieu of notice.

[345] After their June 2010 meetings, Cheryl’s behaviour “progressed downward” and she ended up taking time off of work. Mr. Kazarian recalls that she received medical care, at some point, but he can not recall whether it was before or after her last day at CCI. He was not aware that Cheryl had a prior history of depression.

[346] Mr. Kazarian authored correspondence dated July 14, 2010, in which he advised Cheryl that in the circumstances, he felt that it was best for her to take two weeks off work with pay. He suggested that they get together during the week of July 28, 2010 “to discuss your progress and to see if you feel you are ready to return to work”. He never took steps to terminate Cheryl’s employment and Rob did not instruct him to do so.

[347] Cheryl did not respond to Mr. Kazarian’s correspondence and she did not arrange to meet with him. Instead, she communicated with him indirectly through Chef Bonnot, who picked up Cheryl’s pay cheques, on her behalf, and provided Mr. Kazarian with a copy of Dr. Payne’s note dated July 20, 2010. He does not recall receiving any other medical notes or reports concerning Cheryl’s health.

[348] Mr. Kazarian agrees that in July 2010, he placed an advertisement in a local newspaper for three positions at CCI including a: “Chef with a Red Seal Certificate” – which Cheryl did not possess. That advertisement was designed to find a replacement for Chef Bonnot, who had advised Mr. Kazarian of his imminent retirement. The advertisement was placed with Chef Bonnot’s knowledge. Cheryl never contacted Mr. Kazarian about the advertisement, nor with respect to her plans to return to work, to the extent that she had any. Mr. Kazarian ultimately hired a replacement for Chef Bonnot, before he retired as planned, in September 2010.

[349] Mr. Kazarian was responsible for both the Retro Suites and CCI’s bookkeeping functions, from the spring of 2010 until the spring of 2012. During that time, his salary was paid entirely by Retro Suites. In carrying out his CCI-related bookkeeping duties, he had all of CCI’s source documentation available to him, and he posted corresponding journal entries in CCI’s records, in the ordinary course of business. CCI used external accountants to prepare its year end financial statements.

[350] CCI utilized a POS system to track its sales. To the best of his knowledge, all of CCI’s sales were accurately recorded. Monthly and annual statements were routinely prepared. In some instances, Mr. Kazarian was required to determine whether specific expenses should be recorded as current expenses or capital expenditures, and he believes he did so accurately. The monthly statements that he prepared from 2010 to 2012 inclusive, accurately reflected CCI’s income and expenses.

[351] Mr. Kazarian was also responsible for filing and storing CCI’s financial source documentation. He does not recall any existing source documentation being destroyed in a fire. He does not recall management fees being paid to CCI while he was there. He believes that CCI achieved profitability while he was there.

[352] He left his employment at Retro Suites Hotel to complete his university degree. Pete Tsirimbis became CCI’s General Manager a few months after he left. Mr. Kazarian last communicated with Rob in the spring of 2012, when he provided him with his notice of resignation.

[353] In cross-examination, Mr. Kazarian provided details of his tenure and the duties of his employment in the restaurant industry before he was hired by the Retro Suites Hotel, none of which involved a “fine dining experience”.

[354] He confirmed that during his tenure at Retro Suites/CCI he acted as the controller (referring to control over financial matters) of both Retro Suites and CCI. His salary was paid entirely by Retro Suites, at first instance, and CCI made monthly reconciliation payments to Retro Suites for the work he performed on its behalf. Mr. Kazarian never assumed the title of “general manager” of the Retro Suites or CCI. Retro Suites had its own manager and in addition to his services, CCI employed a banquet manager.

[355] Mr. Kazarian’s initial annual salary at Retro Suites was in the range of $30 – 40,000, and it had increased to $60,000, by the time he resigned in 2012.

[356] Mr. Kazarian took all of his “orders” from Rob. He does not recall Rob telling him that Cheryl was a 50 percent shareholder and president of CCI, at any time. He was surprised to learn that information at trial. He now feels that he was somewhat misled about Cheryl’s status with the corporation.

[357] Mr. Kazarian confirms that on Rob’s instructions, he replaced Cheryl’s corporate debit card with a corporate credit card. Cheryl worked in an office space in a storeroom, as did he. Mr. Kazarian does not recall seizing Cheryl’s office computer. Cheryl did have access to a petty cash float, which he topped up, after approving of her expenses.

[358] Mr. Kazarian knows that Rob tried to contact Cheryl in the summer of 2010 after she left CCI. He confirms that if Rob instructed him to terminate Cheryl’s employment with three months pay in lieu of notice, he would have done so. Rob never instructed him to terminate Cheryl.

[359] Finally, Mr. Kazarian agrees that at the time that he placed the newspaper advertisement for a Chef with a Red Seal, he had determined that the duties that Chef Bonnot performed could not be performed by a line cook.

Evidence of Stephanie Temesy

[360] Ms. Temesy has been a salaried employee of both the Retro Suites Hotel and CCI since October 2015. Her time and duties are split evenly between the two entities, and her salary is allocated between them on an equal basis. She performs bookkeeping and payroll functions for both entities. She is aware of the functions and duties of the other employees of the respective corporations. At the time that she was hired, Ms. Temesy had six to seven years of bookkeeping experience, in addition to related college level courses.

[361] When Ms. Temesy became CCI’s bookkeeper in October 2015, its records were “all over the place”, primarily because it had employed a significant number of bookkeepers in the past, all of whom used different systems to file documentation. Eventually, Ms. Temesy became involved in assisting BDO with its attempts to complete an audit of a number of CCI’s prior fiscal years. She was tasked with providing all of the documentation requested by BDO and she did so to the best of her ability, to the extent that such documentation was available. During her audit-assisting efforts, Ms. Temesy did not discern that either CCI or Retro Suites employees were resisting the auditors’ ongoing efforts.

[362] Ms. Temesy describes the manner in which CCI sales from three distinct sources are recorded in its financial records: restaurant service; room service at Retro Suites Hotel; and banquets and catering. With respect to restaurant sales, CCI utilizes a POS system that tracks, in real time, all food and beverage orders, as well as, payment for those orders (including cash and credit/debit cards – the latter of which constitute 85-95 percent of the restaurant’s payments).

[363] On a daily basis, Ms. Temesy ensures that the credit card and cash payments match the amounts recorded on the restaurant’s servers’ “daily reads”, and she verifies those amounts against the data recorded through the POS. Once verified, she enters the sale data into the CCI’s accounting software, and e-mails daily reports to its general manager (Mr. Pete Tsirimbis) and its manager (Connor Allen). To the best of her knowledge, she has consistently and accurately recorded CCI’s sales, and generated reports in that regard, in the ordinary course of business.

[364] Ms. Temesy also details the system that CCI uses to record sales through “complimentary breakfast vouchers” that are provided to Retro Suites Hotel guests, as well as, the daily reports that she prepares in that regard, all of which are made in the ordinary course of business.

[365] Ms. Temesy also prepares monthly financial reports in respect of CCI, in the ordinary course of its business, that include all of its monthly revenue and expenses. She describes the manner in which she enters CCI’s payable invoices into its accounting software, which she has consistently and accurately done.

[366] Ms. Temesy describes the manner by which financial information related to CCI banquet and catering sales, is recorded in the ordinary course of business, generally as follows. Banquets are, typically, held in the Retro Suites Hotel’s facilities. When the event ends, a banquet manager, employed by CCI, enters the information related to sales of “banquet food”, “banquet beverage”, “banquet bar” and “gratuity and taxes” into the Retro Suites Hotel’s POS system. If the number of meals that were actually served, differs from the number of meals set out in the original contract for the banquet/event, the change is recorded on the banquet event order. Subsequently, Ms. Temesy ensures that the content of the banquet event order, is consistent with the number of meals actually served (as recorded on the banquet servers’ “reads”) and she enters that information into CCI’s financial bookkeeping software, in the ordinary course of business. Retro Suites Hotel then pays CCI 100 percent of the amounts collected for banquet food, beverage, and bar, together with gratuities and taxes. Ms. Temesy has consistently followed the foregoing system in CCI’s ordinary course of business. To the best of her knowledge, Retro Suites Hotel has always paid CCI all of the revenue that it was owed on account of banquet sales.

[367] The banquet sales “system” applies equally to CCI’s catering sales and room service orders. Ms. Temesy has consistently followed the system, she has accurately recorded the amounts owed by Retro Suites Hotel to CCI in that regard, and she has prepared monthly reports that include those amounts, in the ordinary course of business.

[368] Ms. Temesy also prepares annual year-end financial reports and draft annual financial statements for CCI. She provides those statements to Gerry Hockin for review. Either Gerry Hockin or CCI’s external accountant, Deloitte LLP, makes determinations with respect to the appropriate characterization of expenditures as “capital” or an “annual expense” and ultimately, Deloitte LLP provides her with adjusting entries in that regard. The annual reports that Ms. Temesy prepares, accurately record all of CCI’s income and expenses in the particular year.

[369] Mr. Tsirimbis’ assistant, Ms. Lucier, and Ms. Temesy are the only two CCI employees that consistently divide their time between CCI and Retro Suites Hotel. They do so on an equal basis and each corporation pays one-half of their respective salaries. There are other employees, who are paid on an hourly basis, that work for both Retro Suites Hotel and CCI. The specific time that those employees work for each corporation is tracked, and they are accurately paid by each corporation, accordingly.

[370] In cross-examination, Ms. Temesy agrees that BDO was able to produce nearly unqualified audited financial statements for the first two full years that she served as CCI’s bookkeeper (2016 and 2017). She also confirms that:

1. CCI’s general manager, Mr. Tsirimbis, works 50 hours per week for CCI and an additional ten hours per week for Retro Suites Hotel. His annual salary and car allowance ($1,000 per month) are paid, entirely, by CCI. He receives an annual bonus from both CCI and Retro Suites Hotel.

2. CCI’s staff includes a general manager, a dining room manager, a head chef, a sous chef, an executive chef and two banquet managers, all of whom are paid by CCI.

3. Banquets are traditionally held at the Retro Suites Hotel, which receives a portion of the banquet revenue for “room rental”. CCI receives all banquet revenue derived from food, beverage and bar sales. CCI pays the banquet managers’ salaries, even though the Retro Suites Hotel receives some revenue from banquet events. However, the banquet managers’ offices are located in the Retro Suites Hotel premises, for which CCI does not pay rent.

The Evidence of Pete Tsirimbis

[371] Mr. Tsirimbis is a university graduate, who has worked in the restaurant industry since he was 16 years old. He has been employed as CCI’s general manager since 2012. He is married to Rob’s daughter, Jessica Myers.

[372] Mr. Tsirimbis describes CCI as a “casual fine dining restaurant” offering breakfast, lunch, and dinner service. Most of its meals are made from scratch, with fresh ingredients, as opposed to “pre-made” food, resulting in relatively higher labour costs. CCI operates in the Retro Suites Hotel. The development of the Retro Suites Hotel is widely recognized as a significant factor in the revitalization of Chatham’s downtown area.

[373] Prior to accepting the position, Mr. Tsirimbis turned down a number of offers made by Rob to become CCI’s general manager because the restaurant had a bad reputation, at that time. Specifically, the quality of its food was inconsistent and the kitchen was not “set up to succeed”.

[374] Even after Mr. Tsirimbis was hired as its general manager, Mr. Kazarian continued to act as CCI’s controller for a period of time, and was responsible for its finances and bookkeeping. When he first started at CCI, Mr. Tsirimbis assumed responsibility for hiring and firing employees, cleaning the restaurant and “changing its operations”. He only received “signing authority” for CCI’s purchases, approximately, one to one and a half years after his employment commenced, even though Mr. Kazarian left CCI approximately six to eight months after Mr. Tsirimbis was hired.

[375] When Mr. Tsirimbis started at CCI, Jessica Myers was the Retro Suites’ general manager. Eventually, Jessica took time off from the hotel. During that time, Mr. Tsirimbis temporarily assumed the title of General Manager of Retro Suites Hotel, however his hotel-related duties were generally limited to signing cheques, “assisting” in hotel hiring and assisting in employee discipline issues. During that time, he continued to work 50 hours per week at CCI and another ten hours per week at the hotel. After Jessica’s departure, the Retro Suites Hotel hired a new manager (now its general manager), who assumed Jessica’s operational duties at the hotel.

[376] At the time that Mr. Tsirimbis was hired by CCI, it was losing money and its food was, in his view, “terrible”. He consistently worked to improve CCI’s menu, cleanliness and atmosphere, and he strived to establish a standard of “excellence” in its service. He systematically made incremental changes in the restaurant and its operation because he did not have a budget to make wholesale changes, all at once. Over the course of time, he built a management team consisting of a restaurant manager, an executive chef, a dining room manager (front of house), and two banquet managers.

[377] Mr. Tsirimbis also implemented and oversaw an expansion of the restaurant in 2012, which added a private dining room and increased its seating capacity. Later, the Retro Suites Hotel banquet facility was renovated, increasing its banquet capacity by 60 seats. CCI’s dining room, bar area, and private dining room underwent significant renovations in 2018, which cost approximately $400,000, paid by CCI. Over the course of time, the hotel has also added a number of additional suites, increasing its guest capacity. All of these changes have led to increased revenue to CCI.

[378] Mr. Tsirimbis’ incremental improvement strategy was successful. Both the restaurant’s reputation and its sales continuously improved, on an annual basis, and CCI achieved profitability, for the first time, in 2016. Mr. Tsirimbis credits the gradual improvement and ultimate success of CCI’s operation to the following factors: hiring key employees (including CCI’s current manager and executive chef); changing the restaurant’s menu; increased guest traffic from the Retro Suites Hotel; the expansion of the hotel’s banquet room; the addition of CCI’s private dining room; CCI’s improved level of service; and CCI’s increased media advertising and promotion.

[379] Mr. Tsirimbis describes the restaurant’s POS system and the manner by which daily sales are verified and recorded in CCI’s accounting software in a manner that is entirely consistent with Ms. Temesy’s evidence.

[380] Mr. Tsirimbis confirms that CCI employed a number of different bookkeepers after Mr. Kazarian’s departure and before Ms. Temesy’s arrival. All of CCI’s bookkeepers followed its established system of verifying daily POS revenue data and entering the amount into CCI’s bookkeeping software, and all of them were instructed to do so accurately. Prior to Ms. Temesy’s arrival in 2015, Mr. Tsirimbis received monthly bookkeeper-generated sales reports, all of which appeared to be accurate. To the best of his knowledge, throughout his tenure at CCI, all of its sales had been accurately verified and recorded in its financial records, in the ordinary course of business.

[381] On the issue of banquet sales, Mr. Tsirimbis indicated that CCI’s banquet managers are responsible for facilitating sales of off-site and “in-house” events, catered by CCI. Banquet revenue is typically split 90 percent to CCI for food, beverage, and bar, and ten percent to the Retro Suites Hotel for room rental. CCI’s banquet managers and CCI’s manager work in offices that are located in the Retro Suites Hotel premises. CCI does not pay the Retro Suites Hotel for the use of its office space. Similarly, CCI does not pay Retro Suites for the work that the hotel’s desk staff and general manager perform, in relation to catered banquet events (including labour and supervisory services).

[382] Banquet costs are invoiced to customers by CCI’s banquet managers, but the revenue is collected by Retro Suites Hotel, immediately after the event is completed because the Retro Suites’ payment system operates on a “24 hour per day” basis. The hotel then pays CCI 100 percent of the meal, beverage, and bar revenue generated from the event. The hotel retains revenue for the banquet room rental, unless the event is held in CCI’s private dining room, in which case, CCI receives 100 percent of the revenue related to the event.

[383] Mr. Tsirimbis deposes that based on his own personal observations of: CCI’s level of patronage; its service staff (both in the restaurant and at banquets); its sales and related entries; and his review of the ongoing reports of CCI’s financial performance, it does not seem possible that CCI made unrecorded sales in an amount of: over $200,000 in 2012; $225,000 in 2013; $193,000 in 2014; and $252,000 in 2015.

[384] Mr. Tsirimbis justifies the legitimacy and accuracy of CCI’s recorded annual labour costs and he attributes its asserted “higher than average labour costs” to:

a) preparing meals from scratch (which is labour intensive);

b) serving three meals a day (which results in the restaurant being open longer hours, thereby requiring more staff throughout the day);

c) CCI’s commitment to its “excellence” in service standard, which involves more service providers at various levels of service (i.e. hosts/wait staff), and a higher staff to customer ratio than an average restaurant; and

d) paying employees a higher wage rate than they could earn elsewhere (together with benefits), to facilitate employee retention.

[385] Mr. Tsirimbis confirms that in this litigation, the plaintiffs’ expert, Mr. Tracey, provided a detailed list of questions concerning the operations of CCI and, to a lesser extent, the Retro Suites Hotel. In response, Mr. Tsirimbis and Ms. Temesy provided accurate information concerning, among other things: a precise list of all the people involved in CCI’s management, together with their respective roles and duties; the amount of time that Mr. Tsirimbis works for CCI and Retro Suites Hotel, respectively; and the amount of time that other management team members work for CCI, on a weekly basis.

[386] Mr. Tsirimbis confirms that once he learned that the court had ordered that multi-year audited financial statements be prepared for CCI, he instructed CCI staff to fully cooperate in BDO’s audit efforts and to be as helpful as possible. To the best of his knowledge, all of his staff did so, even to the point of working overtime to facilitate BDO’s efforts. Mr. Tsirimbis confirms that he has never knowingly participated in covering up a fraud of unreported sales by CCI, and he would never do so on behalf of the defendants, or otherwise.

[387] Mr. Tsirimbis approved increases in CCI’s advertising and promotional expenses in both 2016 and 2017, which led to increased revenue. He deposes that CCI’s motor vehicle-related expenses increased in 2016 and 2017 because it purchased a new truck, used for catering and running errands. He also believes that the restaurant’s “repair and maintenance” expenses increased in 2016 and 2017 because of the life-cycle of its equipment and possibly some changes in the kitchen.

[388] In cross-examination, Mr. Tsirimbis confirms that CCI currently employs both an executive chef and a head chef. The duties of the executive and head chef overlap, to some extent, but between them they cover three meal services a day over seven days a week, during the 90 hours a week that the restaurant is open. Similarly, there is some overlap between the duties of certain management positions at CCI because those duties are performed, at any given time, by the particular manager that is actively working, at that time.

[389] Mr. Tsirimbis receives a $1,000 per month car allowance related to his personal pick-up truck, which is used by CCI to make deliveries, pick up supplies and in its catering operations.

[390] Mr. Tsirimbis confirms that according to BDO, CCI’s annual net income/losses since he became its general manager are as follows: ($112,338) in 2012; ($ 90,230) in 2013; ($36,945) in 2014; ($31,104) in 2015; $83,727 in 2016; and $8,933 in 2017.

[391] CCI’s draft internal financial statements for 2018, as prepared by management, record an unadjusted net income of $131,160.08. Mr. Tsirimbis is not in a position to determine what adjusting entries will, ultimately, be made, or what CCI’s actual anticipated net income will be, after those entries are made.

Evidence of Gerry Hockin

[392] Mr. Hockin is a Chartered Public Accountant (“C.P.A.”) and formerly the senior partner of Horne LLP, which provided accounting services for various corporations that Rob held an ownership interest in, which included CCI, 2009. In 2010, Horne LLP was sold to Deloitte LLP, which continued to act as CCI’s accountant. Shortly after retiring from Deloitte LLP in 2010, Mr. Hockin became an independent consultant to the RM group of companies, owned by Rob. Among his current duties, Mr. Hockin oversees the preparation of CCI’s year-end financial statements.

[393] Mr. Hockin describes Rob as a great friend, but cautions that he would never assist a great friend in covering up a fraud.

[394] Turning to the formation of CCI, Mr. Hockin recalls that some time in 2008, Rob contacted him and advised him that he had been speaking with the “McInerneys” about starting a restaurant in the hotel. Rob instructed him to set up a new corporation for the restaurant. Mr. Hockin believed that RJM Holdings would be a 50 percent shareholder and the McInerneys would be 50 percent shareholders. When he was originally contacted by Rob, with respect to the corporate structure of CCI, Mr. Hockin understood that Bruce would be involved in the business. Mr. Hockin sent a memorandum to Rob’s counsel, Dennis Asher, concerning the new corporation. He also instructed Mr. Asher to prepare a USA and a lease. Mr. Hockin believes that he initially advised Mr. Asher that the shareholdings would be broken down as: 50 percent by RJM Holdings, 25 percent by Cheryl and 25 percent by Bruce. He does not know why Cheryl became a 50 percent shareholder.

[395] From his discussions with Rob, Mr. Hockin understood that RJM Holdings Limited was intended to have financial control over CCI and that it would have a right of first refusal to purchase Cheryl’s shares, in the event of her death or disability. He described the latter term as being “fairly standard” in a corporate structure similar to the one anticipated for CCI.

[396] Mr. Hockin confirms that the asset purchase agreement between Cheryl/NFE and CCI was designed to transfer NFE’s assets and liabilities to CCI effective January 1, 2009. NFE’s liabilities, which totalled over $102,000 as of December 31, 2008, were assumed by CCI, which is the reason that the consideration in the asset purchase agreement is stated as $102,238. The actual “assets” that NFE owned were valued at $1. NFE’s stated liabilities included $36,702 of unremitted employee source deductions. However, the actual amount of the liability owed by CCI to the Receiver General, as a result of its assumption of NFE’s liabilities, was $40,711.33, once interest and penalties were calculated. That amount was ultimately paid by RJM Holdings, on behalf of CCI.

[397] Mr. Hockin assumed that Cheryl signed all the documentation forwarded to her by Mr. Asher in August 2009, including the USA. Cheryl never advised him that she disagreed with the terms of the USA, or that she wanted them changed.

[398] Mr. Hockin testifies that while it is unusual for a small business to obtain audited financial statements, they are required pursuant to the provisions of the Ontario Business Corporations Act, unless all shareholders agree to an exemption. CCI was incorporated on December 22, 2008. On January 6, 2009, Rob executed a resolution exempting CCI from the statutory requirement for audited statements for the year 2009. Cheryl became a shareholder of CCI in August 2009. Mr. Hockin does not know if she ever agreed to exempt CCI from the OBCA’s audit requirements.

[399] Beginning in early 2009, Mr. Hockin periodically attended meetings concerning CCI’s operation and fiscal performance. During those meetings, Rob’s demeanour was always “fine”. Mr. Hockin did not attend a meeting in April 2009, in which Rob yelled, slammed papers, and demanded to know why CCI was not making a profit. Similarly, Mr. Hockin never attended a meeting where Rob yelled at, insulted, or demeaned Cheryl. Rob never advised Mr. Hockin that he intended to fire Cheryl.

[400] On the contentious issue of CCI’s related-party debt, Mr. Hockin confirms that through other corporations that he owned, Rob paid all of the amounts related to CCI’s build out, the acquisition of its kitchen equipment and its furnishing and fixtures, and all of the expenses required to set up the restaurant, all of which totalled $353,429. To the best of Mr. Hockin’s knowledge, that amount accurately reflects the total amount spent by Retro Suites Hotel, which was owned by RJM Holdings at the time, to build out, equip and furnish CCI.

[401] CCI’s financial records also indicate that Retro Suites Hotel advanced a further $35,000 to NFE in 2008 and a total of $125,000 to CCI in 2009, and that Rob personally advanced $16,000 to CCI in 2009. To the best of Mr. Hockin’s knowledge, the records relating to the foregoing cash advances are accurate.

[402] Mr. Hockin does not recall reviewing any source documentation related to the foregoing entries and he did not make the entries himself.

[403] Horne LLP prepared CCI’s financial statements for the year ended 2009 on a Notice to Reader basis, relying on the general ledger and internal trial balance prepared by CCI’s then bookkeeper, Ms. Brouwer. Deloitte LLP prepared Notice to Reader annual financial statements for CCI for the period of 2010 to 2014, inclusive. Unlike audited financial statements, no specific testing of the financial information supplied by management is conducted when statements are prepared on that basis. Rather, the financial statements are prepared in accordance with an overall test of reasonableness. Pursuant to that standard, if an aspect of the information provided by management is questionable or a variance in a “year-over-year comparison” appears to be “off”, the accountant preparing the statements has a duty to make inquiries of management for an explanation in that regard. If an accountant preparing a Notice to Reader statement discovers fraud, he is obliged to report it to the client.

[404] Mr. Hockin confirms that in all of the years that it prepared Notice to Reader statements for CCI, Deloitte LLP never reported any fraud-related concerns with respect to CCI’s financial statements or its financial records. Deloitte LLP stopped preparing CCI’s financial statements after BDO was appointed as its auditor in 2014, but it continued to prepare CCI’s annual tax returns, based on management’s internal statements. CCI has never been audited by the Canada Revenue Agency.

[405] To the best of Mr. Hockin’s knowledge, all of the amounts set out in CCI’s 2009 financial statements are accurate. Those statements indicate that as of December 31, 2009: CCI owed $544,116 to the Retro Suites Hotel as long-term debt; the value of CCI’s long-term assets was $292,174, representing the depreciated value of the furnishings and equipment that were purchased through related parties on behalf of CCI; and CCI incurred a net operating loss of $195,001 in 2009.

[406] In 2010, CCI’s recorded related-party debt grew by approximately $35,000, which Mr. Hockin attributes to related-party funding of CCI’s calculated annual net loss of $35,000, as recorded in the Notice to Reader statements prepared by Deloitte LLP for that year. However, the amount of its net loss was calculated after considering a management fee of $150,000 that was booked as owing by RJM Holdings to CCI. Without the management fee, CCI’s calculated operating loss would have been $150,000 higher, i.e. approximately $185,000.

[407] Consistent with the foregoing, Mr. Hockin confirms that management fees were booked as owed by RJM Holdings to CCI in each of 2010, 2011, 2012 and 2013, in an aggregate total of $585,000. He observes that in order to book such management fees, there had to be a factual basis for the fees themselves and the amounts charged. He explains that during the period of time that management fees were being booked, CCI was undergoing a renovation to its operating premises that required continuous construction oversight, which could have provided the basis for the management fees. He describes the management fees as essentially a “tax play”. The management fees were never paid in cash, but they had the effect of increasing CCI’s annual revenue and decreasing RJM Holdings’ annual taxable income in the subject years. He estimates that the accrued management fees resulted in a total tax savings to RJM Holdings of approximately $100,000, over the four-year period in which they were booked.

[408] Mr. Hockin did not personally verify the basis for the management fees but he observes that they were included in CCI’s Notice to Reader financial statements prepared by Deloitte LLP, who would have to have been satisfied that a reasonable basis for the management fees, as charged, existed. He agrees that when BDO subsequently calculated CCI’s net annual losses for the years 2010 to 2014, inclusive, it did not include the management fees as part of CCI’s annual revenue.

[409] Since the management fees, as booked, were not directly paid by RJM Holdings, they remained a receivable on CCI’s financial statements, which in turn, affected the net amount of the related-party debt that CCI owed. Mr. Hockin testifies that had the subject management fees not been recorded as revenue to CCI, the calculated related-party debt that CCI owed as of the end of 2013 would have been $585,000 higher than the amount that is reflected in CCI’s 2013 Notice to Reader statement prepared by Deloitte LLP, which would have resulted in a total related-party debt owed by CCI of approximately $1,130,000 as of the end of December 31, 2013.

[410] Conversely, had management fees not been accrued in the period of 2010 to 2013, CCI would have had an additional available “loss-carry forward” of $585,000 at the end of 2013, to offset against future taxable income. CCI did not have any taxable income in 2014 or 2015 and despite the booking of management fees in 2010 to 2013, it still had a sufficient loss carry forward to reduce both its taxable income of $83,000 in 2016 and $8,933 in 2017, to zero.

[411] In order to determine CCI’s financial performance from its active operations in 2010-2013, respectively, the management fees booked during those years must be subtracted from the total revenue recorded in the subject years. Once that adjustment is made, it is clear that CCI continued to operate at a loss in each of those years.

[412] To the best of Mr. Hockin’s knowledge, as of December 31, 2017, CCI owed RJM Holdings the total amount of $450,343 and it owed Rob $16,000, in his personal capacity.

[413] Mr. Hockin confirms that once BDO was appointed, CCI’s employees were instructed to fully cooperate with its audit efforts. Mr. Hockin was not aware that BDO required additional information to complete its audit work. BDO never contacted him for information. He does not know why BDO did not prepare audited statements for 2015 and prior years.

[414] On the issue of related-party debt reconciliation, Mr. Hockin confirms that eventually, he became aware that BDO was attempting to confirm the amounts owing by and to CCI by its related parties, as they were recorded in CCI’s general ledger and financial statements. He understands that BDO was able to work with Deloitte LLP and verify the accuracy of the amounts recorded as owing by CCI to related parties (which reconciled with the amounts recorded by the related parties, as being owed to them, by CCI), and the correct identities of CCI’s related-party creditors. Thereafter, Rob (on behalf of himself and RJM Holdings) and Jessica Myers on behalf of Retro Suites, signed debt confirmation letters prepared by BDO, which are commonly used for audited financial statement purposes.

[415] Mr. Hockin believes that CCI has paid BDO approximately $115,000 for its audit-related work, to date.

The Share Valuation Evidence

[416] Although not expressly pleaded, the parties agree that if a remedy is granted pursuant to s. 248(3) of the OBCA, the award ought to include an order that Cheryl’s shares be purchased, but they dispute the appropriate valuation date for the shares. The defendants advocate a valuation, as at CCI’s year-end in the year in which the proceeding was commenced (December 31, 2011), or as at CCI’s year-end in the year of the alleged oppressive conduct (December 31, 2010). The plaintiffs advocate a valuation date as of the date of judgment. In the event that the latter date is selected as the valuation date, the parties dispute the fair market value (FMV) of CCI’s shares.

[417] The plaintiffs and defendants both called opinion evidence concerning the FMV of CCI’s share capital as at December 31, 2017, from properly qualified experts: James Tracey of Tracey Business Advisors Inc. for the plaintiffs; and Lindsay Campbell of Marcus & Associates/Hoare Dalton for the defendants. Ms. Campbell also provided opinion evidence with respect to the FMV of CCI’s shares as of December 31, 2010 and December 31, 2011. Finally, the respective experts also critiqued aspects of the other’s assumptions and methodology, as it relates to their respective valuations of CCI’s shares as of December 31, 2017.

[418] Below, I will generally review the experts’ respective evidence about their valuation methodologies, including their assumptions, together with their evidence on share value. I will not expressly review their evidence concerning the details of the individual aspects of their methodologies, although I have considered that evidence, together with the balance of the evidence, in determining this proceeding.

[419] Mr. Tracey provides calculations of value for CCI’s shares as of December 31, 2017, under three differing sets of assumptions. Conversely, Ms. Campbell provides estimates of value for CCI’s shares as of: December 31, 2010; December 31, 2011; and December 31, 2017. In each instance, her opinions are premised on CCI’s actual financial performance, as recorded in its annual financial statements, rather than “assumptions” about its financial performance.

[420] Both experts offer evidence with respect to the FMV of CCI’s shares. They generally agree that FMV is regarded as the highest price at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in an open and unrestricted market, where neither is under a compulsion to buy or sell and they both have reasonable knowledge of the relevant facts.

[421] In their evidence, the experts agree that the first step in valuing CCI’s shares is the selection of the appropriate valuation “approach”. In that regard, Ms. Campbell indicates that the FMV of a business is normally determined by the greater of: the value that can be substantiated based on the capitalization of its anticipated future earnings or cash flow; and the value that the owner would receive if the business was liquidated. The FMV of a business that is generating a level of profitability consistent with the assets it utilizes to do so, ought to be determined in accordance with a “going concern approach”. Conversely, in circumstances in which a business’s earnings or cash flow are inadequate, in relation to its tangible assets, and the investor would benefit more by liquidating the business than by operating it, the FMV of the business ought to be based on its liquidation value through “an asset-based approach”.

Ms. Campbell’s Evidence Concerning the FMV of CCI’s Shares as of December 31, 2010 and December 31, 2011

[422] In arriving at her estimates of value, Ms. Campbell accepted CCI’s historical annual financial statements as accurate, including its recorded: sales (revenue); expenses and related-party debt. All of those financial statements were filed by the defendants, as evidence of the proof of their content, in accordance with a notice of intention pursuant to s. 35 of the Evidence Act, R.S.O.