COURT FILE NO.: CV-11-437362 DATE: 20211012

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2287913 ONTARIO INC., TREBAR HOLDING INC., 2234406 ONTARIO INC. and ARCTIC SPAS OAKVILLE INC.

Plaintiffs/ Defendants by Counterclaim

– and –

ERSP INTERNATIONAL ENTERPRISES LTD., BREAK THROUGH ENTERPRISES LTD., KELLNER CONSULTING LTD., LIQUID LOGIC LTD., ECHO SOLUTIONS INCORPORATED, PARADISE BAY SPA & TUB WAREHOUSE INC., SPA LOGIC INC., BLUE FALLS MANUFACTURING LTD., ARCTIC SPAS INC., JOHN KEIRSTEAD, JAMES KEIRSTEAD, DARCY AMENDT, DENNIS KELLNER and BRENT MACKLIN

Defendants/ Plaintiffs by Counterclaim

Joseph Figliomeni, for the Plaintiffs/ Defendants by Counterclaim

Leslie Dizgun and Allyson M. Fischer, for the Defendants/ Plaintiffs by Counterclaim

HEARD (By Videoconference):

March 23, 24, 25, 26, 29 and 31, April 6, 7, 8, 9, 12, 13, 14, 15, 16, 19 and 20 and May 17, 19, 25 and 26, 2021

REASONS FOR JUDGMENT

A.A. SANFILIPPO, J.

Overview

[1] The rapid rise and then demise of a 10-year business relationship, from small business success story to termination, launched a prolonged dispute that culminated in this trial.

[2] In 1997, Trevor Wasney, an entrepreneur with experience in sales, operated a retail store in the sale of hot tubs – referred to at times as ‘spas’ – in northern Ontario. In 1998 or 1999, Mr. Wasney attended an industry trade show that would change the trajectory of his business life. There, Mr. Wasney met the five principals of Blue Falls Manufacturing Ltd. (“Blue Falls”), a western Canada manufacturer and distributor of hot tubs under the trademark label “Arctic Spas”.

[3] The Blue Falls salespeople pitched Mr. Wasney on the merits of the Arctic Spa products. Mr. Wasney would thereafter stock his store with products manufactured by Blue Falls. But Mr. Wasney knew, and showed that he could play a broader role. Within a year, Mr. Wasney left his retail business to accept a position with Blue Falls as a dealer representative, working with dealers of Arctic Spa products to achieve maximum sales within their assigned territories.

[4] All went well. Mr. Wasney developed strong, close bonds with most of the Blue Falls executive, including John and James Keirstead. It was a seemingly natural progression, then, that when Mr. Wasney decided to establish a new retail dealership, in what he perceived to be a fertile and under-developed retail market for spas in southern Ontario, he would do so with John Keirstead, Blue Falls’ Director of Sales and Marketing, and John’s twin brother, James. In 2001, Mr. Wasney established, together with the Keirsteads, a retail hot tub dealership in Oakville, Ontario, named Arctic Spas Oakville Inc. (“ASOI”).

[5] ASOI was, by any measure, very successful. For Mr. Wasney, it was an ideal hands-on retail venture with a product that he knew well and knew how to sell. For John and James Keirstead, it was an opportunity for vertical integration from their roles and responsibilities within Blue Falls: they would be involved in both manufacturing with Blue Falls and retail sales with ASOI, as had been done by other Blue Falls directors in western Canada. In short order, ASOI expanded from a single retail outlet to 7 stores throughout southern Ontario. Its sales and revenues increased year after year. It won award after award as one of Canada’s fastest growing companies.

[6] This all came to an end in 2011. The Keirsteads were no longer prepared to work with Mr. Wasney and, after an unsuccessful attempt to buy him out, sold their shares in ASOI to Mr. Wasney in July 2011. Two months later, on September 27, 2011, Blue Falls terminated its dealer agreement with ASOI, severing all business relationships, and cutting off supply to Arctic Spa products. Each side stood by their reasons. Mr. Wasney claimed that Blue Falls became greedy and devised an elaborate and devious plot to take over ASOI’s retail territories. Blue Falls contended, instead, that Mr. Wasney had become unmanageable as a distributor of its products, overly demanding, divisive and suspiciously excessive in monetary claims for product warranties, and that no end of patience or profit could compensate for the incessant turmoil that he was causing.

[7] ASOI immediately commenced this action, pleading multiple causes of action. Blue Falls defended by pleading that it had lawful grounds on which to sever all business dealings with ASOI and alleged by counterclaim that ASOI had breached its obligations as a dealer. The parties disputed which contractual agreement governed their dealings, or whether their relationship was as manufacturer/retailer or as franchisee/franchisor. And so, a decade of business dealings was followed by a decade of litigation.

[8] For the reasons that follow, I have determined that ASOI has established an entitlement to Judgment against Blue Falls in the amount of $565,365, plus pre-judgment and post-judgment interest, for breach of Blue Falls’ obligation to provide reasonable notice on termination of the dealer relationship. All other claims pleaded in this action and counterclaim are dismissed.

I. BACKGROUND

A. Blue Falls Manufacturing Ltd.

[9] To provide context regarding Blue Falls, I will set out some background facts that are largely uncontentious.

[10] In February 1997, five friends, some with roots in the retail spa business, came together to acquire Blue Falls. Darcy Amendt and his long-time friend, Brent Macklin, operated retail hot tub stores in Calgary, Saskatoon, Regina and Edmonton. They approached another 40-year friend, Dennis Kellner, and John and James Keirstead, who Mr. Amendt had known from previous businesses. This group, backed by other investors who have no role in this action, began to operate Blue Falls in 1997. They set out to design and manufacture high-end hot tubs.

[11] Blue Falls is a wholly owned subsidiary of Spa Logic Inc. (“Spa Logic”). Blue Falls is the authorized agent and manufacturer of Spa Logic’s products, including hot tubs, branded and distributed under a family of trademarks related to “Arctic Spas®”, Coyote Spas®, and “Guild®”. I will refer to all these lines of hot tubs – from entry level to the largest and most elaborate – and their related equipment as “Arctic Spa Products”. In addition to manufacturing Arctic Spa Products, Blue Falls offers warranty support, and ongoing sales and service training to its dealers. To design and manufacture hot tubs, Blue Falls employs in-house engineers, design technicians, and production staff to perform design and manufacturing tasks.

[12] Blue Falls’ corporate structure is complex. As at October 12, 1999, the shares in Spa Logic were owned in equal parts by holding companies belonging to each of Messrs. Amendt, Macklin, Kellner, James Keirstead and John Keirstead (collectively the “Five BF Principals”), and by a sixth corporate investor whose involvement is immaterial to the issues raised by this action, as follows: Liquid Logic Ltd. (“Liquid Logic”); Echo Solutions Incorporated (“Echo Inc.”); Kellner Consulting Ltd. (“Kellner Consulting”); Break Through Enterprises Ltd. (“Break Through Ltd.”), and Paradise Bay Spa & Tub Warehouse Inc. (“Paradise Bay Inc.”).

[13] Mr. Amendt described the roles of the Five BF Principals: Mr. Amendt was the Chief Executive Officer and self-proclaimed “problem solver”; Mr. Macklin and John Keirstead were in sales; Mr. Kellner handled operations and was the President of Blue Falls; and James Keirstead held various administrative roles culminating in his appointment as Chief Financial Officer.

[14] While Mr. Amendt and Mr. Macklin owned and operated retail hot tub stores in addition to their roles with Blue Falls, they, along with the other Blue Falls principals, came to understand that the growth of their sales depended on establishing a network of retail dealerships. Blue Falls identified and recruited independent dealers, and then committed them to dealer agreements, which are designed, in Blue Falls’ view, to grant exclusivity to the independent dealer over a sales territory in exchange for the dealer agreeing to sell only Arctic Spa Products. The parties referred to this as “mutual exclusivity”. Blue Falls supplies Arctic Spa Products all over the world, with distribution through its independent dealers (“Dealers”).

[15] In Canada, Blue Falls supported its Dealers by providing several resources: (i) Dealer Advisory Meetings, held approximately once a year by invitation to selected Dealers for focused discussion on products and direction; (ii) Dealer Conferences, hosted in various locations with broad participation by Dealers; (iii) sales and service training seminars, held by appointment at Blue Falls’ corporate headquarters in Alberta; (iv) a Dealer Manual; and (v) a manual entitled “Managed Sales Process”.

[16] In 1997, Mr. Wasney sold a competitor’s product at his store, Whitewater Spas, but this changed when he met the Five BF Principals in 1998 or 1999 at a Las Vegas industry trade show. Mr. Wasney began to stock and sell Arctic Spa Products. John Keirstead, at that time Blue Falls’ Director of Sales and Marketing, would visit Mr. Wasney to promote Arctic Spa Products and to discuss how to maximize sales. Over time they developed a business and social relationship.

[17] In 1999 or 2000, Mr. Wasney ended his involvement with Whitewater Spas and accepted a position with Blue Falls as a dealer representative responsible for training Blue Falls’ new Dealers and assisting at sales events. Mr. Wasney worked closely with John Keirstead in travelling to trade shows and dealerships. Over time, they decided to establish their own retail dealership.

[18] Mr. Wasney and John Keirstead agreed that southern Ontario was an “under-developed market” for Arctic Spa Products. Blue Falls had established its first Ontario-based dealer in London in 1998-1999, and had others, but lacked market presence around the Greater Toronto Area. Mr. Wasney was prepared to re-locate to southern Ontario to develop the opportunity that he and John Keirstead had identified.

[19] To finance and develop this new business, Mr. Wasney and John Keirstead brought in James Keirstead, and other investors who are not otherwise involved in this action, and set-up a retail hot tub dealership in Oakville, Ontario. They committed to rapid market penetration and rapid expansion, setting as a target the opening of at least one new store each year over the course of the next five years. To do so, they incorporated ASOI.

B. Arctic Spas Oakville Inc.

[20] To provide context regarding ASOI, I will set out some background facts that are largely uncontentious.

[21] Arctic Spas Oakville Inc. was incorporated in June 2001, with Mr. Wasney and John Keirstead as its first directors. Reflective of this management, the majority shareholders in ASOI were Trebar Holdings Inc. (“Trebar Inc.”), a holding company owned and controlled by Mr. Wasney, and ERSP International Enterprises Ltd. (“ERSP Ltd.”), a holding company owned and controlled by the Keirstead brothers (or companies controlled by each of them), and other investors whose involvement is not material to this action.

[22] On November 1, 2001, ASOI entered into a dealer agreement with Blue Falls that designated ASOI as Blue Falls’ Dealer in “Oakville, Mississauga, Etobicoke, York, Burlington and Surrounding Area”, for a contractual term of two years (the “2001 Dealer Agreement”). All agreed that the 2001 Dealer Agreement granted ASOI the exclusive right to sell Arctic Spa Products in its designated territories, but ASOI profoundly disagreed with Blue Falls’ position that the 2001 Dealer Agreement committed ASOI to selling exclusively Arctic Spa Products.

[23] True to its objective of rapid expansion, in 2002, ASOI opened a new retail store in Kitchener, Ontario. In 2003, a further store location was opened in Hamilton, Ontario. With these expansions, separate corporations, were created: Arctic Spas Kitchener Inc. and Arctic Spas Hamilton Inc. In 2004, ASOI opened two new stores: specifically, its fourth location was opened in Mississauga, Ontario, and a fifth location in Barrie, Ontario.

[24] On February 1, 2007, ASOI acquired its sixth location, this time through purchase from Blue Falls. Mr. Amendt testified that to “buy peace” between Mr. Wasney and Mr. Dave Noel, the operator of an Arctic Spas retail dealership in Richmond Hill under the name “Spa Bound”, Blue Falls purchased, on February 1, 2007, the assets of Mr. Noel’s company, Construct-All Pools & Service Inc., and re-sold it the same day to ASOI. ASOI’s sixth location was thereby established in Richmond Hill, Ontario. In 2009, ASOI opened its seventh location in Burlington, Ontario.

[25] Through corporate restructuring, including in 2004, ASOI amalgamated with the Kitchener and Hamilton corporations. And notwithstanding that others were involved in the ownership of ASOI from its inception, by 2006 and onward, ERSP Ltd. and Trebar Inc. were equal 50% shareholders in the amalgamated ASOI.

[26] Mr. Wasney and John and James Keirstead all testified that by 2009, they were good friends in addition to business associates. In 2003, John Keirstead was a groomsman at Mr. Wasney’s wedding, and James was also present. James and John travelled with Mr. Wasney for business and stayed at Mr. Wasney’s home when conducting business in the Greater Toronto Area. They vacationed together, and they travelled together to training and promotional sessions offered by Blue Falls abroad, including Dealer Conferences in Spain, Mexico and the United States.

[27] By 2009, Mr. Wasney had also developed a strong relationship with Mr. Kellner, with whom he would travel to sporting events, and Mr. Macklin. Mr. Wasney testified that his relationship was different with Mr. Amendt, whom he considered a “hard guy to understand”.

[28] Perhaps it was by reason of their close social relationship, or because two members of the board of ASOI were also principals of Blue Falls, or perhaps through sheer inattention, neglect or inadvertence, the 2001 Dealer Agreement was not contractually renewed on its expiry in 2003. Any dealer agreement acquired by ASOI through purchase and amalgamation similarly expired without renewal. No further dealer agreement was implemented between Blue Falls and ASOI until 2010 (the “2010 Dealer Agreement”), and then for only one year. This would become a divisive issue between the parties.

[29] In March 2010, Mr. Wasney and the Keirsteads purchased the real property and building known municipally as 930 Century Drive, Oakville for $1,475,000, which was utilized as a central warehouse and head office for ASOI’s operations (the “ASOI Head Office Property”). Title to the ASOI Head Office Property was registered to 2234406 Ontario Inc. (“2234406 Inc.”), a corporation formed for the specific purpose of owning this real estate. Ownership of 2234406 Inc. was taken 50% to Mr. Wasney, through Trebar Inc., 25% to John Keirstead personally, and 25% to James Keirstead through his company, Break Through Ltd.

[30] The business of ASOI flourished. Blue Falls awarded ASOI the “Most Improved Dealer Award” in 2002 and “Dealer of the Year” awards every year from 2006 to 2011. In 2007, ASOI was named the 52nd “Fastest Growing Company in Canada” as determined by Profit magazine, a recognition that was repeated in 2008 (141st place) and 2009 (137th place). Mr. Macklin and Mr. John Keirstead both testified that ASOI sold more Arctic Spa Products than any other Dealer. Mr. Kellner agreed that Blue Falls referred to Mr. Wasney as a “model dealer”. ASOI had become Blue Falls’ largest retail Dealer by volume of sales in North America.

[31] In the ten-year period from June 2001 to September 2011, ASOI continuously supplied ASOI with Arctic Spa Products. And then this all changed.

C. The Path to Disconnection – The ASOI Buy-Out

[32] Messrs. Amendt, Kellner, Macklin and James and John Keirstead all testified that a rift developed between them and Mr. Wasney in the period from about 2009 to 2011. John and James Keirstead spoke of why they determined that Mr. Wasney was no longer a compatible partner with them in ASOI, and Messrs. Amendt, Kellner and Macklin explained why they decided that it was not in Blue Falls’ interests to continue with a dealer arrangement with Mr. Wasney.

[33] Mr. Wasney denied that he was aware of any tension, and testified that he was shocked and surprised when a lawyer retained by the Keirsteads sent a letter dated March 11, 2011, on behalf of ERSP Ltd., stating that the Keirsteads and ERSP Ltd. had “lost confidence” in Mr. Wasney as a business partner and wanted to negotiate the purchase of his shares in ASOI: to “buy him out” (the “March 2011 Buy-Out Letter”). The Keirsteads were undoubtedly serious, threatening that they would take steps to liquidate ASOI or seek a court ordered purchase of Mr. Wasney’s shares.

[34] John and James Keirstead explained why they would no longer carry on business with Mr. Wasney. James testified that in November 2010, Mr. Wasney told him that he wanted to develop a private label line of hot tubs under the name “Muskoka Lakes”. Mr. Wasney admitted that he had been in contact with one of Blue Falls’ competitors, Premium Leisure, who had provided him with mock-ups, proposed designs and specifications for private label spas. James told Mr. Wasney that he would raise this with Mr. Amendt, which he did in December 2010.

[35] Mr. Wasney explained to Mr. Amendt his concept that the private label line of spas would bear the names of Ontario lakes and regions, would be in both 7- and 8-foot models and would be offered at a range of price points. On December 21, 2010, Mr. Amendt rejected Mr. Wasney’s concept for the development of a line of private label spas, on the basis that it would cost over $50,000 in upfront costs for certification on safety approval, plumbing and technical layouts and plans, registration, energy consumption testing, labelling and trademark, and also that it could impact Blue Falls’ Apollo line of hot tubs, with which these new models would compete.

[36] Mr. Wasney pushed back, writing to Mr. Amendt on December 21, 2010 that competitors were prepared to work with him in this initiative: “If it is such a big deal and so expensive, why are other manufacturers so willing to do this for us?” Mr. Wasney told Mr. Amendt that he was “getting slammed by quality control issues” with Blue Falls’ Apollo line of spas. Mr. Amendt did not respond further to Mr. Wasney on these issues, and James Keirstead stated that he told Mr. Wasney that he and John had no interest in sourcing a private label brand of spas from a competitor.

[37] James Keirstead testified that he heard nothing further until March 8, 2011, when he learned from Mr. Wasney that he had engaged in further discussions with Premium Leisure, had obtained pricing and continued with his investigation of developing and stocking a line of private label spas manufactured by Premium Leisure. James Keirstead testified that Mr. Wasney admitted to him that he had ordered four truckloads of hot tubs from Premium Leisure, although Mr. Wasney denied that he did so.

[38] None of this sat well with the Keirsteads, who were Blue Falls’ shareholders in addition to being principals of ASOI and testified that they understood and expected that ASOI would be a model Arctic Spas store, under an Arctic Spas banner and would sell only Arctic Spas branded products. James testified that he was offended, as was John, that Mr. Wasney had proceeded to pursue a competing product line against their clear wishes. They testified that they questioned whether they could trust Mr. Wasney. James stated that his concerns were amplified when, on March 9, 2011, he received from Mr. Wasney spreadsheets with two different sets of values for Premium Leisure spas designed, in James’ and John’s view, to demonstrate that the sale of Premium Leisure hot tubs was more profitable than the sale of Arctic Spa Products. James determined that Mr. Wasney had “manipulated the numbers”, writing in an email of that day to Mr. Wasney: “So now you are lying to me again, and your own numbers prove it.”

[39] This evidentiary backdrop to the March 2011 Buy-Out Letter is supported by the documentary evidence. Mr. Wasney admitted that he set out to develop a private label line of spas with a competitor, which Blue Falls did not approve or support and that his partners, the Keirsteads, were opposed to. Mr. Wasney asserted that he did not actually proceed with the order of spas from Premium Leisure, and produced a letter from Premium Leisure stating that, as of March 14, 2011, ASOI had not paid for any Premium Leisure products and none had been shipped. Leaving aside the hearsay nature of Premium Leisure’s letter, it contains a glaring omission in that it does not speak to whether any Premium Leisure product had been ordered by ASOI: only that they had not been shipped or paid for. Each party asked that I draw an adverse inference by reason of the other not having called a representative of Premium Leisure to testify, but this is not necessary to my analysis. It is sufficient, for my analysis, to conclude that by March 2011, Mr. Wasney had fully investigated, negotiated and worked with a competitor, Premium Leisure, in the development and pricing of a competing private label line of spas, contrary to the stated wishes of the other owners of ASOI, the Keirsteads, and contrary to the business objectives of his supplier, Blue Falls, and that Mr. Wasney was poised to place ASOI’s first order.

[40] I do not accept Mr. Wasney’s evidence that he was in any manner surprised or shocked by the March 2011 Buy-Out Letter. This evidence is not plausible, in that it is inconsistent with the written communications. I find that in the days leading to March 11, 2011, there was a disagreement between the Keirsteads and Mr. Wasney about selling competitors’ products. Mr. Wasney had received an email from James two days before receipt of the March 2011 Buy-Out Letter calling him a liar and accusing him of manipulating data.

[41] Further, Mr. Wasney’s evidence on this point was not credible because it was inherently contradictory. Mr. Wasney testified in direct examination that he had no discussion with anyone from ERSP Ltd. prior to receipt of the March 11, 2011 letter that would suggest that anyone had “lost confidence” in him, emphasizing that he had been “blindsided” by the March 2011 Buy-Out Letter. In re-examination, Mr. Wasney testified that he had a telephone discussion with James Keirstead after he received James’ email calling him a liar (March 9, 2011) and before he received the March 2011 Buy-Out Letter. Apart from Mr. Wasney’s inconsistent evidence, there is no documentary evidence of reconciliation between Mr. Wasney and James regarding sourcing products from Premium Leisure, and the March 2011 Buy-Out Letter showed clearly that the owners of ASOI had ongoing, irreconcilable differences.

[42] The Keirsteads, through ERSP Ltd., offered to purchase Mr. Wasney’s 50% interest in ASOI, held by Trebar Inc., for $1.2 million. Mr. Wasney refused, testifying that $1.2 million “did not seem like a lot of money” for 10 years spent building a brand. Notwithstanding the absence of a Shareholders’ Agreement providing a basis to do so, Mr. Wasney reversed the buy-out and offered the Keirsteads $1.2 million for their 50% interest in ASOI. The Keirsteads accepted, on behalf of ERSP Ltd.

[43] For the purpose of this buy-out, Mr. Wasney incorporated the plaintiff corporation, 2287913 Ontario Limited (“2287913 Ltd.”), to receive the 50% shareholding interest transferred by ERSP Ltd. Additionally, Mr. Wasney agreed to purchase James’ and John’s 50% interest in the ASOI Head Office Property, which was held in title by 2234406 Inc.

[44] The terms agreed upon by Mr. Wasney and the Keirsteads, which were implemented through written agreements that were crafted in March 2011 and completed on July 1, 2011, were as follows (the “ASOI Buy-Out Transaction”):

1. James, acting as a director and authorized signing officer of ERSP Ltd., entered into an agreement to sell to ASOI and 2287913 Ltd., 50% of the common shares in ASOI for $1,200,000, which Mr. Wasney would hold through 2287913 Ltd. (the “Buy-Out Purchase Agreement”). After closing, Mr. Wasney would own 100% of the shares in ASOI, held in equal 50% parts by two companies owned and controlled by Mr. Wasney: Trebar Inc. and 2287913 Ltd.

2. James, acting as a director and authorized signing officer of Break Through Ltd., and John, acting personally, entered into an agreement to sell their shares in 2234406 Inc. to 2287913 Ltd. for the purchase price of $107,020. After closing, Mr. Wasney would own 100% of the shares of 2234406 Inc. and thereby 100% of the ASOI Head Office Property.

3. James, acting personally and as a director and signing officer of ERSP Ltd. and Break Through Ltd., and John, acting personally, and both on behalf of 2234406 Inc., entered into a non-competition, non-solicitation and confidentiality agreement with ASOI and 2287913 Inc. (the “Buy-Out Non-Competition Agreement”).

[45] At the same time that the ASOI partners were disconnecting, ASOI’s relationship with Blue Falls was deteriorating.

D. The Concurrent Path to Disconnection: The Blue Falls Termination

[46] Messrs. Amendt, Kellner and Macklin testified that from about 2009 to 2011, their relationship with Mr. Wasney was marred by conflict. Mr. Wasney testified of a litany of issues that he had with Blue Falls during this time period including: his perception that Blue Falls was selling Arctic Spa Products to United States Dealers at a lower cost than to Canadian Dealers; Blue Falls’ decision in 2009 to sell product to Costco; and ASOI’s sale of competitor products to fill entry level gaps in the Arctic Spa Products line. However, the main catalyst for conflict was a chronic debate between ASOI and Blue Falls about the handling of product warranty claims.

[47] Over 99% of ASOI’s customers who purchased a hot tub manufactured by Blue Falls had their warranty registered with Blue Falls. Mr. Wasney explained that when ASOI received a customer call for service, a customer service representative would record the call on an information management software system supplied by Evosus Inc., and a service technician would then record the tasks performed in repairing the hot tub (“ASOI’s Evosus System”). Mr. Wasney explained that if the service performed by the technician was determined to be in the nature of a warranty claim, the ASOI technician would log the service into Blue Falls’ “Inside Arctic” system: an on-line platform that is available to Blue Falls Dealers for, amongst other things, filing warranty claims (“Inside Arctic”).

[48] Mr. Amendt testified on behalf of Blue Falls on the processing of ASOI’s warranty claims, and there was no inconsistency with Mr. Wasney’s evidence on the protocol for customer after-sale service. An ASOI customer with an issue with an Arctic Spa Product would be attended to by an ASOI service technician. The service technician would be paid by ASOI. If the service call did not fall within warranty, it would either be billed by ASOI to the customer (i.e., annual maintenance, filters, wear and tear) or ASOI would absorb the expense as “public relations”. If the service call was for an issue that came within warranty, then it would be submitted to Blue Falls through Inside Arctic, ASOI would be paid by Blue Falls for the warranty claim and would pass this along to the service technician. Mr. Wasney testified that ASOI did not make “a dollar” from warranty work, but just brokered payments from Blue Falls to the warranty service technician.

[49] The potential conflict between Blue Falls and its Dealers arose at the point that the Blue Falls warranty claims representative assessed the warranty claim submitted through Inside Arctic and determined whether it was covered. When a warranty claim was denied by Blue Falls, it was the monetary responsibility of the Dealer to either absorb the cost or pass it on to its customer. Any warranty denial thereby had the potential for conflict between Blue Falls and ASOI.

[50] Mr. Kellner admitted candidly that “we have issues with warranty with every dealer at some point or another”. But Mr. Amendt testified that the warranty claim submissions by ASOI began to be noticeably higher in 2004-2005 and by 2007 had gained profile within Blue Falls as disproportionately higher than the average Dealer. Mr. Amendt became concerned that ASOI was submitting warranty claims for repair items that should have been billed to the customer or borne by ASOI as public relations, or customer service.

[51] Mr. Wasney blamed the warranty claim experience on inherent defects in the Arctic Spa Products, particularly with the Apollo/Coyote line produced in Spokane, and cited defects with a salt-water generating system known as Onzen, developed by Blue Falls through a supplier and put into wide use in 2007. Mr. Amendt testified that the Onzen system was more expensive and less effective than the after-market product that it was designed to replace, called Genesis. Mr. Wasney stated that pumps supplied by Blue Falls were regularly failing, that product arrived in defective condition and that Blue Falls’ warranty manager, Mr. Scott Viglietti, routinely rejected proper claims, resulting in ongoing acrimonious debates with ASOI staff. Mr. Amendt stated that Blue Falls was suspicious of the volume of warranty claims by ASOI, thought that it was disproportionately high, and feared that ASOI was aggressively filing speculative, borderline warranty claims to pass the cost of after-sale service to Blue Falls.

[52] Mr. Amendt and Mr. Kellner testified that in the period leading to 2009, Mr. Wasney became “very heated and disrespectful” with Blue Falls’ staff on warranty claims and product issues. In or about 2009, Messrs. Amendt, Macklin and Kellner agreed that Mr. Kellner would act as Blue Falls’ point person in all issues involving Mr. Wasney to try to centralize and concentrate the conflict.

[53] Mr. Kellner did so until August 1, 2010, when he withdrew, stating that Mr. Wasney was incessantly demanding and belligerent, rebuked him continuously and that the ‘final straw’ occurred when Mr. Wasney was rude to Mr. Kellner’s spouse who had picked up Mr. Wasney’s call while on vacation only to be insulted. Mr. Wasney would later apologize, but the damage was done. Mr. Kellner testified that was able to supervise over 300 staff members and work with a vast array of Dealers, but refused to deal with Mr. Wasney any longer.

[54] Mr. Macklin was not a candidate to replace Mr. Kellner as he refused to deal with Mr. Wasney. Mr. Macklin testified that he had a good relationship with Mr. Wasney in the early days, but that as Mr. Wasney opened more and more stores, he was increasingly determined that “it was his way or the highway”. Mr. Macklin stated that every aspect of dealing with Mr. Wasney was “painful”, and that the rift was cemented in the Summer of 2010 when Mr. Wasney “unloaded” on Mr. Macklin about all manner of complaints about Blue Falls and its principals. Mr. Macklin particularly drew fire from Mr. Wasney for his role as the architect of the 2009 Blue Falls deal with Costco, which Mr. Wasney loathed and rebelled against, in Mr. Macklin’s testimony, by organizing a “dealer revolt” that led to the termination of Blue Falls’ contract with Costco.

[55] Mr. Amendt stepped in – as Blue Falls’ designated fixer – and was the point person for Blue Falls in dealing with Mr. Wasney from August 2010 to September 2011. Mr. Amendt testified that he scoured the Inside Arctic records and conducted a detailed analysis of ASOI’s warranty claim history. In January 2011, Mr. Amendt wrote to Mr. Wasney and told him that he had been overseeing the ASOI warranty claims for some six months, and observed the following:

1. ASOI had no public relations account to deal with customer complaints.

2. ASOI routinely directed customers to Blue Falls on warranty claims, at a rate of about one per week, when other Dealers handled customer warranty complaints at the dealer level and never referred a disgruntled customer to Blue Falls directly.

3. The ASOI staff misunderstood the scope of the Blue Falls warranty and submitted too many claims that did not qualify for warranty. Mr. Amendt commented on how the ASOI warranty service structure could be realigned for greater efficiencies.

[56] Mr. Wasney disagreed. He claimed that he had a public relations account, and that his warranty claims were “in line” with other Dealers and that his service staff was trained by Blue Falls. Mr. Wasney pushed back that the ASOI warranty claims were not being adequately honoured by Blue Falls.

[57] The disagreement between Mr. Wasney and Mr. Amendt on warranty claims festered through 2011, with Mr. Amendt’s increasing suspicion that the ASOI warranty claims were speculatively filed and excessive. Mr. Amendt testified that a number of factors contributed to the further deterioration of his relationship with ASOI, including: learning, in March 2011, that Mr. Wasney was sourcing a new product line with Premium Leisure; upon Mr. Wasney stating, in negotiations to implement a new dealer agreement, that ASOI was not limited to exclusive sales of Arctic Spa Products and could stock products of competitors; and upon learning that Mr. Wasney had taken a group of ASOI’s senior management to California to meet with executives of Jacuzzi Hot Tubs (“Jacuzzi”), a direct competitor. On August 22-23, 2011, Mr. Amendt travelled to Oakville to meet with Mr. Wasney over two days to try to forge a better path forward. Both Mr. Wasney and Mr. Amendt testified that the meeting was unproductive in resolving warranty claim submissions, product complaints or delivery protocols. Mr. Amendt left discouraged, resolved that he was not able or prepared to continue to work with Mr. Wasney.

[58] In September 2011, Mr. Amendt reported to Mr. Macklin and Mr. Kellner that, in his assessment, the business relationship with ASOI was not salvageable, and that “life is too short” to continue to deal with Mr. Wasney. Mr. Kellner required no convincing, having long reached this conclusion. Mr. Macklin urged caution, stating that it was a “hugely difficult decision” – a “big big decision” – to terminate a relationship with Blue Falls’ “largest dealer on the planet”. However, by the end of September 2011, Mr. Macklin concurred that “life was too short to deal with the heartburn of the situation”. Mr. Macklin testified that the tipping point for him was when Mr. Wasney took his Regional Sales Manager and salespeople to California to meet with Jacuzzi.

[59] On September 27, 2011, Mr. Amendt forwarded a letter to Mr. Wasney terminating “any and all agreements that have been previously entered into with Arctic Spas Oakville Inc. that grant your company the right to promote itself as an authorized dealer of the Arctic Spas®, Coyote Spas® line of hot tubs and Guild® line of billiard products” (the “Blue Falls Termination Letter”). Mr. Amendt wrote that this dealer termination resulted from Blue Falls’ determination that it was not in Blue Falls’ best interests to continue a manufacturer/dealer relationship with ASOI.

[60] Mr. Wasney testified that he was in shock and disbelief upon receipt of the Blue Falls Termination Letter. I cannot accept that Mr. Wasney was unaware of the possibility that Blue Falls might terminate his dealer arrangement, for the following reasons:

1. I accept the evidence of Messrs. Amendt, Kellner and Macklin that Mr. Wasney had, in the period spanning 2009 to 2011, alienated them and the Blue Falls’ warranty service staff in disputes regarding product warranty claims, through chronic complaints and debates on the scope of Blue Falls’ warranty.

2. Mr. Wasney conceded that he was persistently critical of Blue Falls’ production of Apollo/ Coyote spas in its Spokane plant and of Blue Falls’ Onzen system.

3. Mr. Wasney admitted that he made clear to Mr. Amendt that he was not prepared to commit ASOI to selling Arctic Spa Products exclusively but nonetheless demanded exclusivity from Blue Falls in that it could not supply Arctic Spa Products to any other retailer within ASOI’s territory. Mr. Wasney knew, in April 2011, that Mr. Amendt thought that this asymmetrical loyalty was unacceptable, as seen by Mr. Amendt’s email to Mr. Wasney: “So basically you want to change the agreements so that you can sell other products but we can't sign other dealers. Loyalty is usually a 2-way street.”

4. On July 21, 2011, Mr. Wasney notified Blue Falls that ASOI “would not be ordering any more Coyote Spas other than what is currently on order”, on his view that this line of Arctic Spa Products had “ongoing problems” and “too many negative experiences with our customers”. On August 10, 2011, ASOI cancelled orders for 12 Coyote Spas in production with Blue Falls, and on September 13, 2011 ASOI cancelled another 7 orders of Coyote Spas, many of which had already been built by Blue Falls for sale to ASOI. Mr. Amendt testified, and I accept, that Blue Falls was concerned that one of its biggest customers refused to sell one of its product lines on the basis that they caused too many problems.

5. I accept Mr. Amendt’s evidence that the meeting of August 22-23, 2011 between Mr. Wasney and Mr. Amendt did not solve the issues that Mr. Wasney had raised and concluded with no plan for Blue Falls and ASOI to work with, going forward.

6. On August 25, 2011, Mr. Amendt sent an email to Mr. Wasney where he recorded four areas in which Mr. Wasney’s demands were excessive and told Mr. Wasney that he was a “high maintenance customer”. Mr. Amendt wrote to Mr. Wasney that Blue Falls had to stop having one standard for ASOI and another for all of its other customers and that Blue Falls would not lose money if ASOI decided to no longer sell Arctic Spa Products, writing: “But please understand that if you choose to change the signs on your buildings – our bottom line will not be significantly affected.” The parties admitted to this acrimonious exchange.

7. On August 31, 2011, Mr. Wasney and his sales team flew to California to meet with executives of Jacuzzi, and then travelled with them to Mexico to tour Jacuzzi’s production plant. Mr. Wasney admitted that he engaged in discussions about the possibility of ASOI becoming a dealer or distributor of Jacuzzi products.

8. On September 8, 2011, Mr. Amendt informed Mr. Wasney that he would send Scott Viglietti, Blue Falls’ warranty manager, to Oakville on September 20, 2011 to meet with Mr. Wasney and his staff. Mr. Amendt called off this travel without informing Mr. Wasney and without responding to Mr. Wasney’s inquiry why this appointment was cancelled.

[61] This evidence is mostly uncontroversial, but where denied by Mr. Wasney, I prefer the evidence of Messrs. Amendt, Kellner and Macklin on these points, for reasons that I will outline more fully later. This evidence shows that Mr. Wasney’s dealings with Blue Falls’ principals and staff in the two years leading to September 27, 2011 were more consistent with Mr. Wasney leaving rather than staying as a Blue Falls Dealer. While I accept that Mr. Wasney may have not believed that Blue Falls would take the step of terminating its largest Dealer, with its resultant loss of sales and loss of corporate profitability, I do not accept as plausible or credible Mr. Wasney’s evidence that the termination caused him shock or was even surprising, in the circumstances that I have found to have existed at that time.

E. Post-Termination Conduct

[62] ASOI moved swiftly to address its termination as a Dealer of Arctic Spa Products. The day after, on September 28, 2011, Mr. Wasney caused ASOI to enter into a dealer agreement with Jacuzzi whereby ASOI was appointed as a non-exclusive retail dealer of Jacuzzi hot tubs (the “Jacuzzi Dealer Agreement”). That same day, Mr. Wasney placed orders for Jacuzzi hot tubs to begin the transition of stocking his showrooms with Jacuzzi products.

[63] On September 29, 2011, Mr. Wasney announced to the ASOI staff, in a group email, that “in the last few years” he had “found that philosophical differences with our primary supplier began to erode the synergy that is crucial to sustaining mutually beneficial partner relationships”, causing him to explore additional options. Mr. Wasney wrote that “after a period of due diligence”, he had reached an agreement with Jacuzzi to represent their line of hot tubs throughout the Province of Ontario.

[64] Messrs. Amendt, Kellner and Macklin testified that they needed to quickly re-establish a southern Ontario market presence for two purposes: (i) to regain lost sales of Arctic Spa Products and market share that would result from the termination of ASOI as a Dealer; and (ii) to service anticipated warranty claims by past and future purchasers of Arctic Spa Products. For these purposes, Mr. Macklin undertook to establish a retail dealership in southern Ontario. To do so, Mr. Macklin flew to Ontario on September 27, 2011 and began the process that led to his incorporation of his new company, Arctic Spas Inc., on October 5, 2011 (“ASI”). Shortly after, ASI opened its first retail location in Oakville, close to the ASOI Head Office Property.

II. ISSUES TO BE DETERMINED

[65] The pleadings, prepared some ten years before trial, are far broader than the issues presented for determination at trial. By closing submissions, the scope of the parties’ claims had narrowed significantly, as I will now explain.

A. The Plaintiffs’ Claims

[66] In addition to ASOI, there are three other named Plaintiffs all owned and controlled by Mr. Wasney, namely: ASOI’s two corporate shareholders, Trebar Inc. and 2287913 Inc.; and, 2234406 Inc., the corporate owner of the ASOI Head Office Property.

[67] The Amended Statement of Claim pleaded multiple causes of action without, for the most part, specifying which cause of action was pleaded on behalf of which Plaintiff. At trial, the Plaintiffs Trebar Inc. and 2234406 Inc. abandoned their claims. Additionally, the Plaintiffs ASOI and 2287913 Inc. abandoned the following pleaded causes of action: defamation; unjust enrichment; obtaining money by false pretences; breach of fiduciary duty; inducing breach of contract; wrongful appropriation and trespass to property; and, the claims for injunctive relief. The claims abandoned by the Plaintiffs shall be dismissed as abandoned.

[68] At trial, the Plaintiffs ASOI and 2287913 Inc. claimed the following:

1. ASOI sought judgment in the amount of $5,150,000 against all the Defendants on the basis of conspiracy, fraudulent misrepresentation, breach of contract, and breach of franchise agreement.

2. 2287913 Inc. sought judgment in the amount of $1,200,000, being the amount paid in its acquisition from ERSP Ltd. of its 50% interest in ASOI, against all the Defendants on the basis of conspiracy, fraudulent misrepresentation and breach of contract.

3. ASOI sought judgment in the amount of $500,000 against all the Defendants for punitive damages for breach of the duty of good faith.

4. ASOI sought a reference to a Master for an accounting of amounts claimed as owing for warranty claims submitted by ASOI to Blue Falls.

[69] The claims by ASOI and 2287913 Inc. were primarily advanced in conspiracy. These Plaintiffs argued that the Five BF Principals and their companies conspired in a “diabolical plan”, an “illicit and unlawful scheme”, to take over ASOI’s sales territories in Ontario. They argued that all Defendants were therefore liable to pay ASOI damages for six years of business losses and liable to repay 2287913 Inc. the $1,200,000 that it paid for ERSP Ltd.’s shares in ASOI.

[70] Alternatively, ASOI and 2287913 Inc. submitted that the Defendants were liable to them for fraudulent misrepresentation and breach of contract: in the case of ASOI, referable to the dealer agreement; and in the case of 2287913 Inc., referable to the agreements implemented further to the purchase by 2287913 Inc. of ERSP Ltd.’s interest in ASOI. Last, ASOI maintained that it and Blue Falls were in a franchise arrangement, and that ASOI’s conduct breached the duty of good faith and fair dealing under Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the “Wishart Act”).

B. The Defendants’ Counterclaim

[71] By Amended Amended Statement of Defence and Counterclaim, the Defendants denied all the Plaintiffs’ claims. Additionally, the Defendants brought a Counterclaim seeking the following: (a) extensive declaratory and injunctive relief, consisting of 28 orders, comprising 17 declaratory orders to prevent the Plaintiffs’ alleged ongoing breach of Spa Logic’s trademarks and copyright; 9 orders for injunctive relief to stop ongoing trademark and copyright infringement; and 2 orders that the Plaintiffs preserve and return to the Defendants all wares, documents and materials in their possession referable to the trademarks and copyright (the “Trademark Infringement Counterclaim”); and, (b) damages of $10,000,000 for trademark infringement and for breach of the dealer agreement, said to have caused Blue Falls to lose profits (“Blue Falls’ Lost Profit Counterclaim”), and for warranty claims allegedly falsely submitted by ASOI to Blue Falls.

[72] At trial, the Defendants/Plaintiffs by Counterclaim abandoned the Trademark Infringement Counterclaim. Additionally, the Defendants reduced the Blue Falls’ Lost Profit Counterclaim to a range of $193,562 to $480,412, and they limited the false warranty claims to jets, Onzen systems and motherboards, thereby reducing their claim to $491,560.08. The counterclaims abandoned by the Defendants/ Plaintiffs by Counterclaim shall be dismissed as abandoned.

[73] The Defendants’ principal submission was that this action distilled to a straightforward claim in breach of contract: did ASOI fundamentally breach the dealer agreement, simultaneously justifying Blue Falls’ termination of the dealer relationship and providing a basis for damages by counterclaim; or, did Blue Falls terminate the dealer agreement without providing reasonable notice to its long-standing distributor; and, if so, what damages are owed by Blue Falls to ASOI? The Defendants submitted that there was no nexus between ERSP Ltd.’s sale of its shares in ASOI to 2287913 Inc. and the termination of the dealer relationship, and thereby no foundation, in fact or in law, for the claim in conspiracy. They contended, instead, that Mr. Wasney refused to be a loyal, exclusive Dealer of Arctic Spa Products and was filing false warranty claims and that this had the two-fold effect of alienating the Keirsteads as partners with Mr. Wasney in ASOI and causing an irreconcilable rift in Mr. Wasney’s relationship with Blue Falls.

C. The Issues

[74] Based on the evidence presented, and after consideration of the abandonment of certain pleaded claims, the parties raised the following issues for determination:

1. Are the Defendants liable to ASOI and/or 2287913 Inc. based in civil conspiracy?

2. What contractual provisions applied to the relationship between ASOI and Blue Falls when Blue Falls terminated its dealer agreement with ASOI?

3. Did ASOI fundamentally breach the dealer agreement with Blue Falls by:

(i) Ordering and selling competitors’ products; or

(ii) Filing false warranty claims?

4. Did Blue Falls breach the dealer agreement with ASOI by failing to provide reasonable notice on termination?

5. What is the measure of damages resulting from termination of the dealer agreement between Blue Falls and ASOI?

6. Did the relationship between Blue Falls and ASOI constitute a franchise and, if so, did Blue Falls breach its duty of good faith and fair dealing?

7. Apart from liability based on conspiracy, did the Defendants, or any of them, breach any duty owed to ASOI and/or 2287913 Inc. in the sale of ERSP Ltd.’s 50% interest in ASOI, by:

(i) Fraudulent misrepresentation; or

(ii) Breach of the Buy-Out Non-Competition Agreement?

8. Are the Defendants, or any of them, liable to ASOI and/or 2287913 Inc. for breach of the duty of good faith?

9. Has ASOI established a basis for an Order requiring a Reference for an accounting of the warranty claims?

[75] I will address these issues in order.

III. ARE THE DEFENDANTS LIABLE TO ASOI AND/OR 2287913 INC. BASED IN CIVIL CONSPIRACY?

[76] The primary cause of action relied on by ASOI and 2287913 Inc. was civil conspiracy. The determination of the conspiracy claim depends heavily on my assessment of credibility and the weight that I attribute to the parties’ evidence. Accordingly, I will next explain my credibility determinations, expanding upon and incorporating the credibility findings that I stated earlier.

A. Credibility Determinations

[77] In assessing credibility, I am guided by the statement of McLachlin J. in R. v. Marquard, 1993 CanLII 37 (SCC), [1993] 4 S.C.R. 223, at p. 248: “Credibility must always be the product of the judge or jury’s view of the diverse ingredients it has perceived at trial, combined with experience, logic and an intuitive sense of the matter”. In R. v. White, 1947 CanLII 1 (SCC), [1947] S.C.R. 268, at p. 272, the Supreme Court explained factors that are pertinent to weighing a witness’s credibility: “The general integrity and intelligence of the witness, his powers to observe, his capacity to remember and his accuracy in statement are important. It is also important to determine whether he is honestly endeavouring to tell the truth, whether he is sincere and frank or whether he is biased, reticent and evasive.”

[78] I have assessed the credibility and reliability of the witnesses by referring to facts proven by others independently, and by considering whether their evidence is contradicted or corroborated by the evidence of other credible witnesses. I have considered how the witnesses’ evidence fits into the entirety of the evidence presented at the trial.

[79] I have also assessed the interests and motives of the parties, whether questions are answered in a forthright and frank manner, whether their testimony was impeached in cross-examination and whether it is consistent with their examination for discovery evidence, whether they prevaricate or vacillate, whether they evade or argue or quibble, or whether they readily and candidly provide a response without focus on its implication to their position. I have considered whether their evidence is plausible, following the statement by O’Halloran J.A. in Faryna v. Chorny, 1951 CanLII 252 (BC CA), [1952] 2 D.L.R. 354 (B.C.C.A.), at p. 357, that: “In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions”. I am also guided by the criteria applied by Cameron J. in Prodigy Graphics Group Inc. v. Fitz-Andrews, 2000 CarswellOnt 1178 (S.C.), as applicable to my determination of credibility.

[80] In applying all these elements, I found the testimony of Messrs. Macklin, Kellner, Amendt, James and John Keirstead to be credible and plausible. Their testimony was largely supported on material points by the extensive documentary record, and was internally consistent. They freely and readily conceded points that were contrary to their interests, and the errors that they made in recollection were explainable by the passage of time, their capacities as historians and understandable within the discrete role that they each had in the factual matrix.

[81] I was troubled by the reliability, plausibility, and credibility of Mr. Wasney’s evidence. Mr. Wasney was evasive and argumentative in giving evidence, combative at times, choosing on occasion to answer the question in a way that suited his position rather than in a manner that was responsive to the question posed. I assessed whether this was the product of Mr. Wasney’s lack of familiarity with the trial process or whether he was just a poor historian, but concluded that Mr. Wasney chose to advocate as opposed to testify on some material points. An example was questioning of the term stated in the 2010 Dealer Agreement: “automatically terminate each year on January 31”. Mr. Wasney refused to concede the obvious and largely uncontentious point of what was written in the agreement, reiterating, in a manner unresponsive to the question posed, his position that so long as Blue Falls continued to sell product to ASOI, the agreement did not terminate. Similarly, when Mr. Wasney was asked a straightforward question about whether his lawyers provided answers to undertakings with his authority, Mr. Wasney did not answer directly, but rather equivocated with irrelevant comments about the role of his lawyers. The frequency of unresponsive answers was too great to be attributable to unfamiliarity with his role as a witness.

[82] I explained earlier the reasons for my rejection of Mr. Wasney’s evidence on his reaction to the March 2011 Buy-Out Letter and the Blue Falls Termination Letter. That analysis applies equally to my overall determination of the weight to be attributed to Mr. Wasney’s testimony. Other areas which raised concern regarding the credibility and plausibility of Mr. Wasney’s evidence included the following:

1. Mr. Wasney swore that he anticipated that his dealer relationship with Blue Falls would continue “for eternity”. However, in an email to his staff on September 29, 2011, Mr. Wasney wrote that he had differences with Blue Falls that caused him to pursue other dealer arrangements:

In the last few years we found that philosophical differences with our primary supplier began to erode the synergy that is crucial to sustaining mutually beneficial partner relationships. As a result, we began exploring additional options in pursuit of a better fit with the Vision and Values so crucial to our culture.

Mr. Wasney dismissed the difference in this evidence on the basis that he was attempting to “put a positive spin” on Blue Falls’ termination of ASOI’s dealer arrangement and its transition to operating as a Jacuzzi dealer. I do not accept this explanation, as the conflicting statements are inherently contradictory.

2. Mr. Wasney testified that he could not recall any specific discussions in September 2011 with the sales staff who accompanied him to California to meet with Jacuzzi executives, Cameron Pittock, Melanie Fogolin and Joe Bowers, about plans to “bring Jacuzzi on” as a product to be sold by ASOI. This was inconsistent with other evidence provided by Mr. Wasney, as follows:

i. In an answer to an undertaking, Mr. Wasney stated that throughout September 2011, he and his Regional sales managers had discussions about the possibility of ASOI becoming a dealer or distributor of Jacuzzi products.

ii. In his email to his staff on September 29, 2011, Mr. Wasney wrote that “after a process of mutual due diligence” he had concluded that ASOI would enter into a dealer agreement with Jacuzzi, which it had done the day before, on September 28, 2011.

iii. The Plaintiffs did not call Cameron Pittock or Melanie Fogolin to testify at trial, even though they were listed on the Trial Management Report as trial witnesses (Ms. Fogolin as a current employee) and trial time was allocated for their testimony. Had it been necessary to draw an adverse inference that Mr. Wasney discussed with Mr. Pittock and Ms. Fogolin the possibility of entering into a dealer agreement with Jacuzzi during the month of September 2011, I would have done so on the basis of the principles set out in R. v. Ellis, 2013 ONCA 9, 113 O.R. (3d) 641, at para. 48.

3. Mr. Wasney testified that he “shelved” consideration of purchasing a private label line of spas with Premium Leisure by March 2011 and instead “doubled-down” on (focussed on) his purchase of Coyote Spas from Blue Falls. However, by email on July 29, 2011, Mr. Wasney told the Messrs. Amendt, Macklin, Kellner and James Keirstead that ASOI “would not be ordering any more Coyote Spas other than what is currently on order” due to “far too many negative experiences with our customers and challenges for our company”.

[83] Based on my determination of credibility and weight to be attributed to the evidence of Mr. Wasney, as the principal of ASOI, and the evidence of the Five BF Principals, I prefer the evidence of Messrs. Macklin, Kellner, Amendt, James and John Keirstead over the evidence of Mr. Wasney on the material points where they conflict.

B. Have the Plaintiffs Established that the Defendants Engaged in a Conspiracy?

[84] ASOI and 2287913 Inc. claim that all the Defendants engaged in a conspiracy to cause them harm. ASOI claimed that the conspiracy had as its object the appropriation of ASOI’s sales territories and customers, and 2287913 Inc. submitted that the conspiracy resulted in its payment of $1,200,000 for the shares in ASOI formerly held by ERSP Ltd., in circumstances in which the value of the shares was contingent on ASOI having a continued dealer agreement to sell Arctic Spa Products. 2287913 Inc. and ASOI contended that the Defendants knew all along that Blue Falls had no intention of entering into any new dealer agreement with ASOI after 2287913 Inc. bought-out the interests of the Keirstead brothers.

[85] ASOI and 2287913 Inc. submitted that the conspiracy was diabolically and meticulously planned by all the Defendants, and could readily be established, at law, by simply “connecting the dots”. The Defendants submitted that the Plaintiffs’ conspiracy theory cannot be established in the trial evidence. I agree, for reasons that I will now explain.

(a) Applicable Principles

[86] In Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 CanLII 23 (SCC), [1983] 1 S.C.R. 452, at pp. 471-472, the Supreme Court explained that there are two categories of civil conspiracy recognized by Canadian law, namely, “lawful means” or “simple motive” conspiracy and “unlawful conduct” conspiracy, both of which require that the plaintiff sustain injury caused by the conspirators’ conduct:

Although the law concerning the scope of the tort of conspiracy is far from clear, I am of the opinion that whereas the law of tort does not permit an action against an individual defendant who has caused injury to the plaintiff, the law of torts does recognize a claim against them in combination as the tort of conspiracy if:

(1) whether the means used by the defendants are lawful or unlawful, the predominant purpose of the defendants' conduct is to cause injury to the plaintiff; or,

(2) where the conduct of the defendants is unlawful, the conduct is directed towards the plaintiff (alone or together with others), and the defendants should know in the circumstances that injury to the plaintiff is likely to and does result.

In situation (2) it is not necessary that the predominant purpose of the defendants' conduct be to cause injury to the plaintiff but, in the prevailing circumstances, it must be a constructive intent derived from the fact that the defendants should have known that injury to the plaintiff would ensue. In both situations, however, there must be actual damage suffered by the plaintiff.

[87] To establish a simple motive civil conspiracy, the Plaintiffs are required to show that the Defendants: (i) engaged in a course of conduct with the predominant purpose of causing harm to the Plaintiffs, notwithstanding that the conduct might be legal; and (ii) that the Plaintiffs sustained damages as a result of that conduct.

[88] To establish civil liability for the tort of unlawful conduct conspiracy, the Plaintiffs must demonstrate: (i) two or more Defendants acted in concert, by agreement or with common purpose or intention; (ii) the conspirators acted in conduct that was unlawful, which can include breach of contract, breach of a statute or misrepresentation or fraud; (iii) the conduct was directed to the Plaintiffs, or either of them; (iv) the Defendants should have known that their conduct would cause harm to the Plaintiffs, or either of them; (v) the Defendants’ conduct caused injury to the Plaintiffs, or either of them: Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, 106 O.R. (3d) 427, at para. 26.

[89] Without distinguishing between the two categories of civil conspiracy, the Plaintiffs submitted that the Defendants had engaged in an “illicit and unlawful scheme”, which would support basing their claim on an unlawful conduct conspiracy. For completeness of analysis, I have analysed the Plaintiffs’ submissions on civil conspiracy in the framework of both a simple motive civil conspiracy and as an unlawful conduct civil conspiracy.

(b) The Plaintiffs’ Position in Conspiracy

[90] The Plaintiffs’ position in conspiracy traces back to July 7, 2010, when the shareholders, or the principals of the corporate shareholders of Spa Logic entered into a Mutual Purchase Option Agreement executed July 7, 2010 (the “2010 MPOA”). This involved 8 corporations owned and controlled by the Five BF Principals, the Five BF Principals directly and certain of their spouses. Messrs. Amendt, Macklin and Kellner, and the Keirsteads testified that they signed the MPOA.

[91] The stated purchase of the 2010 MPOA was to address the parties’ rights and duties in the event that a shareholder of Spa Logic ceased to be a shareholder. These duties included the following: (i) the remaining shareholders of Spa Logic had the option of acquiring the shares of the departing shareholder in Spa Logic; and (ii) in accordance with ss. 4.01 and 4.02 of the MPOA, upon the sale of shares by the departing shareholder, the departing shareholder agreed not to compete “directly with the business of Spa Logic or any Related Party of affiliate of Spa Logic” (the “MPOA Restrictive Covenant”).

[92] Mr. Amendt testified that, “in his wildest dreams” he would “never have imagined” that the MPOA could be material to the issues raised by this action. This is understandable. The Plaintiffs were not signatories to the MPOA – neither was ERSP Ltd. – and the MPOA spoke to rights pertaining to Spa Logic, in which the Plaintiffs had no interest.

[93] At the time that the MPOA was created, John Keirstead had, for some four years, been removed from the operations of Spa Logic and Blue Falls, having resigned as a director and officer of both companies on April 1, 2006. John and James Keirstead testified that in late 2010 to early 2011, James raised with his brother the prospect of selling his shares in Spa Logic and Blue Falls and “moving on”. By that time, John Keirstead had established interests in companies, Mission LED Lighting Company Ltd. and WAL Consulting (HK) Limited, that supplied components for use in hot tub manufacturing – some supplying Blue Falls. On John’s authority, James initiated negotiations with Mr. Amendt for the shareholders in Spa Logic to purchase John’s shares.

[94] The Plaintiffs put much emphasis on their submission that James Keirstead conducted the negotiations with Mr. Amendt on his brother’s behalf because there was tension between Mr. Amendt and John. James Keirstead admitted that there was tension between Mr. Amendt and John but stated that he assisted his brother in the negotiations for the sale of his shares because John was in China. I accept that James Keirstead was the intermediary in these negotiations, and do not see the materiality of any tension between Mr. Amendt and John to the issues raised by this action.

[95] On March 1, 2011, by Redemption of Shares Agreement, John Keirstead sold his 20% interest in Spa Logic, owned by John’s holding company, Echo Inc., for $1,424,713 and affirmation of Spa Logic’s obligation to pay John the shareholder’s loan owed by Spa Logic to Echo Inc. in the amount of $3,075,287, for total consideration of $4,500,000. James testified, and I accept, that Spa Logic intended to fund its pay-out to John by use of a loan facility that Spa Logic had obtained from the TD Bank, in July 2010, in the principal amount of $12 million.

[96] The Plaintiffs submitted that effective March 1, 2011, John Keirstead was in breach of the MPOA Restrictive Covenant because he had sold his shares in Spa Logic but continued as a retail dealer of hot tubs through ASOI. The Plaintiffs contended that this caused the Five BF Principals, and their holding companies, to “concoct” an “illicit and unlawful scheme”, as follows:

Step #1: Rather than the remaining shareholders of Spa Logic paying John Keirstead additional consideration for divesting his interest in ERSP Ltd. and, through it ASOI, or John Keirstead breaching his obligation not to engage in the hot tub business, James (on behalf of the remaining shareholders of Spa Logic and ERSP Ltd.) would approach Mr. Wasney to buy-out his interest in ASOI.

Step #2: If Mr. Wasney refused to sell his interest in ASOI, then John and the remaining shareholders of Spa Logic would together represent to Mr. Wasney and assure him that Blue Falls would continue to supply hot tubs to ASOI after Mr. Wasney acquired ERSP Ltd.’s shares.

Step #3: John and the remaining shareholders of Spa Logic knew that this representation was false, in that they had no intention of continuing with Mr. Wasney as the exclusive Dealer of Arctic Spa Products in southern Ontario and made this representation “in order to lull him into a false sense of security and to induce him to agreeing to purchase ERSP Ltd.’s shares in ASOI”.

Step #4: Once Mr. Wasney agreed to purchase ERSP Ltd.’s shares in ASOI, James and John would agree to sell their interest in ASOI to him.

Step #5: After the closing of the sale of ERSP Ltd.’s shares in ASOI, Blue Falls would terminate the supply of hot tubs to ASOI by terminating the dealer agreement.

Step #6: Following termination of the dealer agreement, Blue Falls would create a competing business to appropriate ASOI’s business.

Step #7: If Mr. Wasney asserted any legal claim, John and the remaining shareholders of Spa Logic would deny the existence of any conspiracy and assert that Blue Falls had cause to terminate the dealer agreement.

[97] The Plaintiffs submitted that the “connecting of these dots” would establish a civil conspiracy involving all the Defendants that caused harm to ASOI and 2287913 Inc.

(c) Analysis of the Plaintiffs’ Position in Conspiracy

[98] The launching point – ground zero – for the Plaintiffs’ conspiracy theory is that John Keirstead was in breach of the MPOA Restrictive Covenant on the day he closed his sale of Echo Inc.’s 20% shareholding in Spa Logic because he had contractually committed to refraining from engaging in any business related to the sale of hot tubs for five years following Echo Inc.’s sale of its shares in Spa Logic. The Plaintiffs contended John Keirstead’s ongoing ownership of an interest in ASOI was a violation of the MPOA Restrictive Covenant that could only be cured in one of three ways: (i) John Keirstead could divest his interest in ASOI without consideration; (ii) the remaining shareholders of Spa Logic could increase the price for their purchase of Echo Inc.’s shares in Spa Logic in the amount necessary to pay John Keirstead the value of his interest in ASOI; or (iii) the shareholders of Spa Logic could devise a “diabolical” scheme to cause Mr. Wasney to purchase John Keirstead’s interest in ASOI and then terminate his dealer arrangement and take over his sales territories.

[99] The Defendants, being the signatories to the MPOA, submitted that the MPOA Restrictive Covenant applies to a business competing with Spa Logic in the wholesale manufacture and sale of hot tubs and cannot be interpreted to apply to the activities of any shareholder in the retail sale of hot tubs.

[100] The MPOA Restrictive Covenant provides as follows:

Upon the closing of the sale by the Disposing Shareholder, or Related Party as the case may be, to the Acquiring Shareholder as contemplated by this Agreement the Disposing Shareholder and each Related Party of the Disposing Shareholder shall not compete directly or indirectly … with any person or group of persons, where that corporation … is engaged in a business that would compete directly with the business of Spa Logic Inc or any Related Party or affiliate of Spa Logic Inc in any manner related to the manufacturing, distribution or selling of hot tubs or related items globally for a period of five years.

[101] I agree with the Defendants’ interpretation and find that John Keirstead was not in breach of the MPOA Restrictive Covenant, for reasons that I will now explain.

[102] First, the entirety of the MPOA deals with the business of Spa Logic as a global manufacturer and distributor of hot tubs. Spa Logic is not in the business of retail sales of hot tubs. Accordingly, ASOI, as a retailer of hot tubs, does not “compete directly with the business of” Spa Logic. Second, there was no evidence that any of the parties to the MPOA took the position that John would be competing with Spa Logic if he maintained an interest in ASOI after the redemption of his shares in Spa Logic. The only parties who took this position, ASOI and 2287913 Inc., were strangers to the MPOA. Third, the principal purpose of the MPOA was to provide the Spa Logic shareholders with the option to purchase the shares of a departing shareholder, as a component of the overall business relationship in the wholesale manufacture of hot tubs. It is consistent with this contractual intent that the departing shareholder agrees not to compete with the business of Spa Logic. It is inconsistent with this contractual intention to interpret the MPOA to restrict the ability of a departing shareholder to conduct business as a retailer of hot tubs.

[103] The factual departure point, or foundation of the Plaintiffs’ claim in conspiracy was not established. The factual steps that built on this foundation were similarly not established, as I will now explain.

[104] Regarding Step #1, it is undisputed that the Keirsteads offered to purchase Mr. Wasney’s shares in ASOI, through the March 2011 Buy-Out Letter. The shareholders of ASOI did not have a shareholders’ agreement that allowed for a reversal of this buy-out. I find that the Keirsteads had no way of knowing that Mr. Wasney would not only decline their proposed purchase of his shares but then offer to purchase the shares of the Keirstead brothers held through ERSP Ltd. The Plaintiffs’ submission that the Keirsteads’ offer to Mr. Wasney was a “ruse” to induce him to purchase their shares – that they “initiated a campaign to try and force Wasney to sell his shares in ASOI at less than market value” – was not established in the evidence and is rejected. I find that the Keirsteads offered to buy-out Mr. Wasney, and Mr. Wasney reversed the buy-out by offering to purchase the shares of the Keirsteads at the same value that the Keirsteads had offered.

[105] The Plaintiffs’ Steps #2 and #3 required that the Defendants represented to Mr. Wasney that Blue Falls would continue to supply ASOI with Arctic Spa Products. I will explain fully in my analysis of which contractual provisions governed the parties’ conduct on termination and in my analysis of the Plaintiffs’ claim in fraudulent misrepresentation, my finding that the Plaintiffs did not establish that the Defendants made a representation to them about an ongoing dealer arrangement with Blue Falls for the supply of Arctic Spa Products.

[106] Step #5 required that the Plaintiffs establish that there was a connection between ERSP Ltd.’s agreement to sell to 2287913 Ltd. its 50% interest in ASOI and Blue Falls’ decision to terminate the dealer agreement. The Plaintiffs did not do so. First, I find that Mr. Wasney understood, in March 2011, at the time that he decided to purchase ERSP Ltd.’s interest in ASOI that there was no dealer agreement in place. James Keirstead notified Mr. Wasney of this in an email of March 12, 2011, and Mr. Wasney was alert to this, writing to James: “If Trebar was to purchase the shares from ERSP we would need assurances that Arctic Spas Oakville would continue as a dealer for Blue Falls”. Second, Mr. Wasney knew, as well, that any dealer agreement in place “was always terminable on notice by either party”, as explained by James Keirstead to Mr. Wasney in writing. Third, Mr. Amendt sent Mr. Wasney a draft dealer agreement on March 14, 2011, by which Mr. Wasney could have immediately implemented through signature a new dealer agreement, but for Mr. Wasney’s refusal to agree to sell exclusively Arctic Spa Products. Fourth, and perhaps most telling, both the Buy-Out Purchase Agreement and the Letter of Intent for the ASOI Buy-Out were conditional on ASOI “entering into an Arctic Spas Dealership Agreement, on terms that are satisfactory to Wasney and [ASOI] in their sole discretion.”

[107] Regarding Step #6, I find that Blue Falls did not create a competing business after the termination of ASOI’s dealer agreement. Rather, Mr. Macklin established ASI on October 5, 2011, and shortly after began retail operations competitive to ASOI. I accept that Mr. Macklin was assisted in this effort by loans provided by his co-shareholders in Blue Falls, and lifetime friends, Messrs. Amendt and Kellner. I also accept that Blue Falls had a corporate interest in the establishment of this Ontario retail operation for both servicing warranties for existing customers and to recapture some lost sales of Arctic Spa Products caused by the termination of ASOI as an Ontario Dealer. However, the Plaintiffs did not establish, in the trial evidence, that ASI was owned by Blue Falls, or that Blue Falls gained anything from the creation of ASI apart from the sale of hot tubs and a local corporation through which to handle warranty claims.

[108] And last, Step #7 required that a finding that Messrs. Amendt, Macklin and Kellner, and John and James Keirstead, testified in a manner that was dishonest and deceitful in order to hide their conspiracy. I do not make this finding, based on the credibility determinations stated earlier.

[109] Having considered the factual elements of the Plaintiffs’ claim in conspiracy, I will turn to the application of legal principles.

(d) Application of Legal Principles

[110] The first step in the analysis of conspiracy is to examine whether the purpose of the Defendants’ conduct was to cause the Plaintiffs harm.

(i) What was the purpose of the Defendants’ conduct?

[111] Both simple motive civil conspiracy and unlawful conduct conspiracy require an assessment of the purpose of the alleged co-conspirators’ conduct. In the case of a simple motive conspiracy, the Plaintiffs must establish that the “predominant purpose” of the co-conspirators’ conduct was to cause harm to the Plaintiffs. In an unlawful conduct conspiracy, the Plaintiffs must establish that each of the co-conspirators acted with a common purpose or intention in conduct that was unlawful.

[112] I begin with assessment of the Defendants’ conduct in the ASOI Buy-Out Transaction. I find that amongst the 14 Defendants alleged to be co-conspirators, only James and John Keirstead and their holding companies were involved in the sale of ERSP Ltd.’s 50% interest in ASOI to 2287913 Inc. Specifically, I accept James Keirstead’s evidence that he consulted with Mr. Amendt, in or about March 2011, regarding the change that would by necessity occur in his role in Blue Falls’ operations if he and his brother were successful in buying Mr. Wasney’s interest in ASOI, and I accept the evidence of Messrs. Amendt, Kellner and Macklin that they were generally aware that the Keirsteads were separating from Mr. Wasney in ASOI. I also accept the evidence of all the Five BF Principals that Messrs. Amendt, Kellner and Macklin were not provided by the Keirsteads, or anyone, with any of the corporate documents pertaining to the ASOI Buy-Out Transaction. I make these findings on my credibility assessment, as explained earlier, and on my finding that their evidence on these points was uncontradicted by the evidence of other witnesses, including Mr. Wasney, and unaffected by cross-examination.

[113] A conspiracy requires conduct by each conspirator for a common purpose. As the Court of Appeal observed in Agribrands Purina, at para. 28, “What, then, are the requirements for unlawful conduct for the purposes of this tort? Most obviously, it must be unlawful conduct by each conspirator”: see also Bank of Montreal v. Tortora, 2010 BCCA 139, 3 B.C.L.R. (5th) 39.

[114] The conspiracy alleged by the Plaintiffs involving the ASOI Buy-Out Transaction was thereby not established against Messrs. Amendt, Kellner, Macklin, and the defendant corporations which they control, Kellner Consulting, Liquid Logic, Paradise Bay Inc., Blue Falls and Spa Logic on my determination that they were not involved in the conspiratorial conduct or purpose alleged by the Plaintiffs in relation to the ASOI Buy-Out Transaction. The involvement in a conspiracy alleged by the Plaintiffs against the Defendant ASI in the ASOI Buy-Out Transaction was not established because, simply, ASI did not exist at the time of the ASOI Buy-Out Transaction.

[115] I turn then to my assessment of the conduct of James and John Keirstead, and their company ERSP Ltd., in the ASOI Buy-Out Transaction.

[116] I find that James Keirstead believed that the mission statement of ASOI – the reason it was incorporated – was to be a model Dealer of Arctic Spa Products. I accept that James Keirstead was sincere when he wrote to Ms. Wasney on March 12, 2011: “We founded Arctic Spas Oakville to be an Arctic Spas Dealer.” Regardless of what the dealer agreements tendered by Blue Falls might say about exclusivity, I accept that James Keirstead embraced the notion that ASOI was founded to promote and sell only Arctic Spa Products.

[117] I conclude that James Keirstead was not in agreement with Mr. Wasney’s initiative, in November 2010, to develop a private label line of spas, and referred this initiative to Mr. Amendt, who shut it down. I find that James was offended by his discovery in March 2011 that Mr. Wasney had pursued the development of a competing line of private label spas with Premium Leisure notwithstanding James’ understanding that this initiative had been abandoned.

[118] I accept that James believed that the 2001 Dealer Agreement imposed mutual exclusivity, in that ASOI was contractually restricted from selling products that competed with a line of spas manufactured by Blue Falls. I accept that James and John were content that ASOI could sell entry level ‘plug and play’ hot tubs that were not competitive with Blue Falls’ line of products but would not sell any hot tubs that competed with Blue Falls.

[119] James was adamant in his testimony that Mr. Wasney told him, in March 2011, that he had ordered four truckloads of Premium Leisure spas. Mr. Wasney denied this, but on March 9, 2011, Mr. Wasney sent James an email by which he sought to justify the price point and profitability of the private label Premium Leisure spas. I conclude from this that Mr. Wasney told James that he had ordered four truckloads of Premium Leisure spas, regardless of whether he had actually done so.

[120] Last, James analysed the increased role that he would have in ASOI’s day-to-day operations after a purchase of Mr. Wasney’s interest and reviewed this with Mr. Amendt and John prior to making the proposal to purchase Mr. Wasney’s shares. James and John knew, in my view, that if Mr. Wasney accepted their proposal, they were committed to full ownership of ASOI.

[121] I accept James’ and John’s evidence that Mr. Wasney’s demonstrated intention to sell competitors’ products and his decision to disregard his partners’ objectives and understandings, caused James and John to lose confidence in Mr. Wasney as a business partner. In their words, it was a “question of trust”. It transcended whether it was, as a matter of law, a breach of a now-expired dealer agreement: it was an irreconcilable difference in corporate philosophy, and it was a loss of confidence and trust in the business relationship. I conclude that the purpose – indeed the predominant purpose – of the ASOI Buy-Out Transaction was for the business partners of ASOI to disconnect: not to cure an issue arising from the MPOA Restrictive Covenant and not to appropriate ASOI’s sales territories.

[122] I turn now to my analysis of the Defendants’ conduct in the September 2011 termination of the dealer arrangement.

[123] First in terms of the category of co-conspirators in this alleged conspiracy, ASI could not have been involved in the September 27, 2011 dealer termination, as it had not yet been incorporated. Similarly, there is no evidence of involvement as co-conspirators by John Keirstead and his company, Echo Inc., or by ERSP Ltd., as they, by then, no longer had any involvement in the business of ASOI or the business of Blue Falls. The Plaintiffs’ claim that these Defendants were co-conspirators in Blue Falls’ termination of the dealer agreement was not established.

[124] I accept the evidence of Messrs. Amendt, Kellner, Macklin and James Keirstead that Mr. Wasney became increasingly unmanageable as a Dealer in the period from 2010 to 2011. I find that their evidence on this issue was internally consistent, plausible as based on the documentary evidence, unaffected by cross-examination and largely conceded by Mr. Wasney.

[125] Mr. Wasney did not deny that he was critical of Blue Falls for several reasons: (i) Blue Falls’ decision in 2009 to enter into a supply contract with Costco; (ii) the issue of differential pricing in Arctic Spa Products between Canada and the United States, which Mr. Wasney had raised and advanced; (iii) quality control in the Spokane production plant, of which Mr. Wasney was openly critical; (iv) Blue Falls’ lack of support for his initiative of bringing to market a private label brand of spas; and (v) the chronic, antagonistic debate between ASOI and Blue Falls on warranty submissions, which festered and occasionally boiled over. Generally, I find that Mr. Wasney felt unappreciated and under-supported throughout this time, feeling that his volume of sales demanded better treatment: in his words, “Our orders are the true sign of our loyalty”.

[126] The Plaintiffs submitted that during 2009 to 2011, Mr. Wasney continued to attend Dealer Conferences, he was one of a select group of Dealers invited to Dealer Advisory Meetings, and he continued to receive awards from Blue Falls, in support of their position that he continued to enjoy a good relationship with the Five BF Principals. In the circumstances that existed at those times, I find that this involvement with Blue Falls was based on ASOI’s high volume of sales, resulting in Mr. Wasney having an elevated status in Blue Falls’ dealer hierarchy. It does not mask, however, the discord that persisted in Mr. Wasney’s dealings with the Five BF Principals.

[127] I have considered Mr. Wasney’s evidence of his relationship with Blue Falls in the period leading to September 27, 2011 and, for reasons earlier stated, reject it on all points where it conflicts with the evidence of Messrs. Amendt, Macklin, Kellner and James Keirstead. I earlier explained why, in my determination, the dealer termination arose from, and was the product of the conflict between Blue Falls and Mr. Wasney from 2010 to September 2011.

[128] I accept Mr. Macklin’s evidence, provided in my view in a sincere and candid manner, that he agonized over the lost revenue to Blue Falls that would occur should Blue Falls lose ASOI as a Dealer of Arctic Spa Products: a risk earlier-identified and echoed by Mr. Amendt. I find that it was this risk that prompted Mr. Amendt to travel to Ontario in August 2011 to attempt to forge a plan going forward with Mr. Wasney, and to gauge, one last time in person, whether the parties could continue in a business relationship. Both Mr. Amendt and Mr. Wasney agreed that this meeting proved unproductive, in that the parties failed to find any common ground. This is seen by Mr. Amendt’s subsequent email, sent on August 25, 2011 upon his return to Alberta, labelling Mr. Wasney a “high maintenance customer”.

[129] I have considered the Plaintiffs’ submission that the Defendants’ conduct post-termination of the dealer arrangement demonstrates their intention to appropriate ASOI’s business by “incorporating, funding and financing a competing business, soliciting employees and customers of ASOI, recruiting new dealers to operate in ASOI’s former territories, hiring a private firm of private investigators to investigate ASOI’s ongoing business operations, unlawfully accessing ASOI’s confidential information and disparaging Wasney and the good name of ASOI.” I do not accept these submissions for the following reasons:

1. As explained, it is not disputed that the entity that went into competition with ASOI post-termination, ASI, was incorporated on October 5, 2011 at the direction of Mr. Macklin, with Mr. Macklin named as its first director. There was no evidence of ownership interest in ASI by Blue Falls or any other Defendant.

2. I accept Mr. Macklin’s testimony that Blue Falls had “no interest” in running a retail operation in southern Ontario, that he had experience in retail through his hot tub store in Calgary, and that he invested some $250,000 to establish ASI to provide retail sales for Arctic Spa Products in southern Ontario, and to service warranties for existing and future purchasers of Arctic Spa Products.

3. I find, as the evidence is uncontradicted, that ASI was funded by Mr. Macklin, personally, and by loans that Mr. Macklin obtained from Mr. Kellner (November 14, 2011- $50,000) and from Mr. Amendt, through his holding company, Liquid Logic (January 11, 2012 - $50,000). There was no evidence that Messrs. Kellner or Amendt obtained an interest in ASI through these loans, and I accept Mr. Macklin’s evidence that ASI was not funded by loans or investments by Blue Falls.

4. ASI’s financial statement for 2012 showed $899,972 in accounts payable and accrued liabilities. Mr. Macklin explained that some of this would be payable to Blue Falls but there was no evidence that this was in consideration of an ownership interest of ASI as opposed to payments for Arctic Spa Products.

5. I found that ASI solicited one employee from ASOI, Morley Hart, who resigned his position as a service technician on October 1, 2011 to join ASI. While Mr. Wasney recited a list of staff members who left ASOI after the termination of the dealer agreement, Mr. Wasney conceded in cross-examination that he terminated Mr. Denis Brikmanis’ employment in August 2011, prior to the termination of the dealer agreement, and did not know whether others resigned or were terminated.

6. Both ASOI and Blue Falls sent notifications regarding the termination of ASOI as a Dealer. On October 11, 2011, Blue Falls notified its Dealers of this transition, stating that Blue Falls had decided that “it was in the best interest of Blue Falls and all of our customers” to end their relationship with ASOI. Although the Plaintiffs pleaded that this publication was defamatory, they later withdrew this allegation.

[130] The Plaintiffs relied on the date of the dealer agreement implemented by Blue Falls with ASI, March 1, 2011, as proof that Blue Falls had agreed to appoint ASI as a Dealer long-before the termination of ASOI’s dealer agreement on September 27, 2011. Mr. Macklin was certain that the use of March 1, 2011 was in error, and Mr. Amendt, who executed the ASI dealer agreement on behalf of Blue Falls, corroborated this evidence. I find that the ASI dealer agreement was not executed until after September 30, 2011, on the evidence of Messrs. Macklin and Amendt, supported by the following: (i) ASI was not incorporated until October 5, 2011, and had no existence, at law, on March 1, 2011; (ii) the Burlington address indicated on the ASI dealer agreement for ASI, 5280 South Service Road, was not obtained by Mr. Macklin for ASI until his acquisition, in October 2011, of the assets of 2051110 Ontario Inc., which had operated a retail hot tub business known as Ontario Spa Distributors; and (iii) the date of execution of the ASI dealer agreement was listed as September 30, 2011.

[131] I conclude that the purpose, indeed the predominant purpose, of the dealer termination was for Blue Falls to sever its relationship with a discontented Dealer, whose continued dealings with Blue Falls were increasingly conflictual in nature and disruptive to Blue Falls’ business model, not to appropriate ASOI’s sales territory.

(ii) Was the Defendants’ conduct unlawful?

[132] As I have found that the predominant purpose of the Defendants’ conduct in the ASOI Buy-Out Transaction and in the termination of ASOI as a Blue Falls Dealer was not in furtherance of the alleged conspiracy, the Plaintiffs’ claim that the Defendants engaged in a simple motive civil conspiracy is not established.

[133] This finding is similarly fatal to the Plaintiffs establishing an unlawful conduct conspiracy. I have found that the Defendants did not conspire to appropriate ASOI’s sales territories. Blue Falls’ termination of ASOI’s dealer agreement was available to them by the nature of their relationship. The 2001 Dealer Agreement, like the 2010 Dealer Agreement, were terminable on notice. It is not enough for the Plaintiffs to contend, as they did, that the Defendants acted out of self-interest, as self-interest alone is not sufficient to establish a conspiracy: Harris v. Glaxosmithkline Inc., 2010 ONCA 872, 106 O.R. (3d) 661, at para. 39, leave to appeal refused, [2011] S.C.C.A. No. 85. The Plaintiffs were required to establish that the alleged conspiracy was for the purpose of causing them harm, which they failed to do.

[134] In addition to the findings already made regarding the Defendants’ conduct, for completeness of analysis I will address two specific allegations of deceit and dishonesty made by the Plaintiffs.

[135] The Plaintiffs submitted that James and John Keirstead withheld from Mr. Wasney that John Keirstead was, effective March 1, 2011, contractually restricted from continuing in any role with ASOI by reason of his sale of shares in Spa Logic and the resultant operation of the MPOA Restrictive Covenant. I find that James and John Keirstead had no disclosure obligation in regard to this issue because the MPOA Restrictive Covenant was not activated by John’s sale of shares, and because the parties of interest in the MPOA Restrictive Covenant did not take the position that John had to divest himself of his interest in ASOI.

[136] The Plaintiffs submitted, further, that the Five BF Principals all withheld from Mr. Wasney that Blue Falls had no intention of entering into a new dealer agreement with ASOI after 2287913 Inc.’s purchase of shares from ERSP Ltd. This position is not supported by the evidence. Mr. Amendt sent Mr. Wasney a new dealer agreement on March 14, 2011, which Mr. Wasney did not accept. Mr. Wasney had a Condition in the Buy-Out Purchase Agreement that specifically provided him with remedies in the event that a dealer agreement was not offered to him by Blue Falls, to his satisfaction, prior to closing. I cannot find, on this evidence, that the Five BF Principals acted deceitfully or dishonestly in failing to cause Blue Falls to enter into a new dealer agreement with ASOI, as alleged by the Plaintiffs.

[137] The Plaintiffs have not established that the conduct of the alleged co-conspirators was unlawful, as necessary to establish an unlawful conduct conspiracy.

[138] Considering my determination that certain of the alleged co-conspirator Defendants were not involved, at all, in the alleged conspiracy, and my findings of the purpose of the conduct of those Defendants who acted together, and that their conduct was not unlawful, the Plaintiffs are not able to establish liability on any of the Defendants in conspiracy. Accordingly, it is not necessary to analyse the remaining constituent elements required to establish a conspiracy.

(e) Conclusion: Conspiracy

[139] On the reasons now explained, I conclude that the Plaintiffs failed to establish liability on any group of Defendants based on conspiracy.

IV. WHAT CONTRACTUAL PROVISIONS APPLIED TO THE RELATIONSHIP BETWEEN ASOI AND BLUE FALLS WHEN BLUE FALLS TERMINATED ITS DEALER AGREEMENT WITH ASOI?

[140] The parties agreed that at the time that Blue Falls terminated its dealer arrangement with ASOI on September 27, 2011, there was no executed dealer agreement in place. Over the course of their ten year history, ASOI and Blue Falls had executed two dealer agreements, which I will repeat for convenience: (i) the original Dealer Agreement executed on November 1, 2001 (the “2001 Dealer Agreement”), which had, by its term, expired on November 1, 2003; and (ii) the 2010 Dealer Agreement, executed by ASOI and Blue Falls on January 1, 2010, which had, by its term, expired on January 31, 2011. ASOI and Blue Falls exchanged drafts of a further dealer agreement in the period from March 14, 2011 to April 5, 2011 (collectively the “2011 Draft Dealer Agreements”), which, the parties agreed, were not executed.

[141] The parties disagreed on what contractual provisions applied to their dealer relationship at the time that Blue Falls terminated ASOI as a Dealer of Arctic Spa Products. In their Reply and Defence to Counterclaim, the Plaintiffs pleaded, in paragraph 3, that “the last written Dealer Agreement entered into among the parties was in 2010” and admitted, in paragraph 13, “that a dealer agreement was in fact in place in 2011, being the agreement signed in 2010”. In his examination for discovery evidence, as read in at trial, Mr. Wasney testified to his understanding that the 2010 Dealer Agreement was in place at the time of the dealer termination in September 2011. Nonetheless, at trial, the Plaintiffs took the position that the 2001 Dealer Agreement – not the 2010 Dealer Agreement – was applicable to the relationship between ASOI and Blue Falls at the time of termination.

[142] The Defendants submitted that the parties had a “meeting of the minds” that resulted in a draft dealer agreement prepared by Blue Falls on March 14, 2011 (the “2011 BF Draft Dealer Agreement”) being applicable to the relationship between ASOI and Blue Falls on September 27, 2011. The Defendants submitted, alternatively, that if the 2011 BF Draft Dealer Agreement did not apply, then the 2010 Dealer Agreement applied except that the term or duration was indefinite.

[143] At the time of termination, ASOI and Blue Falls had been in a business relationship for almost ten years. To assess ASOI’s position that the 2001 Dealer Agreement remained applicable, and to provide context for Blue Falls’ position that the 2011 BF Draft Dealer Agreement governed, I will analyse the parties’ contractual relationship throughout their business dealings.

A. The Contractual Provisions Applicable from 2001 to 2010

(a) The 2001 Dealer Agreement

[144] The 2001 Dealer Agreement was executed on November 1, 2001 and had an effective term of 24 months. Upon maturity, there was an option to renew for another 24-month term, or it could be terminated by either party during its term on ninety days’ written notice. The parties agreed that the 2001 Dealer Agreement was effective for its two-year term. The parties also agreed that the parties did not renew the 2001 Dealer Agreement upon its maturity on November 1, 2003.

[145] On September 18, 2002, upon opening the Kitchener retail store, Mr. Wasney entered into a dealer agreement with Blue Falls on behalf of Arctic Spas Kitchener Ltd. (“ASKL”) that was identical to the 2001 Dealer Agreement except for its territory, which was “Kitchener, Guelph, Waterloo, Cambridge and surrounding area” (the “2002 ASKL Dealer Agreement”). This Dealer Agreement had a 24-month term, was not renewed and thereby expired on September 18, 2004.

[146] The parties agreed that in the years from September 18, 2004 to January 1, 2010, there was no written dealer agreement between Blue Falls and ASOI, notwithstanding that by 2009 ASOI had expanded to seven retail stores with territorial reach well beyond the territories set out in the 2001 Dealer Agreement and the 2002 ASKL Dealer Agreement.

[147] I did not see any dispute that the 2001 Dealer Agreement and the identically worded 2002 ASKL Dealer Agreement were not renewed upon their maturity and that no steps were taken for renewal or extension until January 2010. I also saw no debate that notwithstanding the absence of a written renewal or extension of the 2001 Dealer Agreement, its terms continued to govern the relationship between the parties. ASOI and Blue Falls, Mr. Wasney and the Five BF Principals, continued to conduct their business throughout the period from November 1, 2001 to at least January 1, 2010 as if the 2001 Dealer Agreement had been renewed, even though it had expired.

(i) Perpetual in Nature or an Indefinite Term Contract

[148] In 1397868 Ontario Ltd. v. Nordic Gaming Corporation (Fort Erie Race Track), 2010 ONCA 101, 259 O.A.C. 173, the Ontario Court of Appeal explained, at para. 13, that: “When the term of a contract is not fixed and there is no provision for termination on reasonable notice, a court may treat a contract as either perpetual in nature or as an indefinite term contract into which the court implies a provision of unilateral termination on reasonable notice”.

[149] On the authority of Nordic Gaming, the Plaintiffs submitted that the 2001 Dealer Agreement ought to be treated as perpetual in nature. The Defendants disagreed, and submitted that if I were to find that the terms of the 2001 Dealer Agreement were applicable to the parties’ relationship at the time of termination, that it was as an indefinite term contract into which I should imply a right of termination on reasonable notice.

[150] In assessing whether the 2001 Dealer Agreement was perpetual in nature, or an indefinite term contract, the Court should look to the contract, the relationship between the parties and the surrounding circumstances: Nordic Gaming, at para. 13. Looking first at the contract, the 2001 Dealer Agreement was terminable on ninety days’ notice: “Upon maturing there will be the option to renew for a further twenty-four (24) months, or termination by either party on ninety (90) days’ written notice to the other party.”

[151] The 2001 Dealer Agreement does not say that the relationship between ASOI and Blue Falls was perpetual in nature: it provided for an option to renew, and a right of termination on 90 days’ notice. As O’Connor A.C.J.O. commented in Nordic Gaming, at para. 17: “One might expect that an intent to be bound in [a perpetual relationship] would be expressly stated”.

[152] In regard to the relationship between the parties, the Plaintiffs relied heavily on Mr. Wasney’s evidence that he believed that ASOI’s relationship with Blue Falls would go on “for eternity”. I do not accept this evidence as credible, for the following reasons. First, it is inconsistent with Mr. Wasney’s pursuit of a private label line of spas with Premium Leisure in 2010-2011. Second, it is inconsistent with Mr. Wasney’s consideration, in August 2011, of a dealer relationship with Jacuzzi. Third, Mr. Wasney did not work collaboratively with Blue Falls to find solutions on defects that he claimed in Blue Falls’ warranty program and in the production of spas in Spokane, but rather cancelled orders of Apollo spas and ultimately refused to sell this product line, which is inconsistent with a perpetual distributorship relationship. Fourth, it is directly opposite to Mr. Wasney’s statement to the ASOI staff, on September 29, 2011, that due to “philosophical difficulties” with Blue Falls, he had begun “exploring additional options in pursuit of a better fit with the Vision and Values so critical to our culture”. Fifth, and perhaps most importantly, Mr. Wasney’s evidence that ASOI’s arrangement with Blue Falls was perpetual is inconsistent with the position taken by Mr. Wasney, throughout his business relationship with Blue Falls, that while Blue Falls appointed ASOI as the exclusive Dealer of Arctic Spa Products in its sales territories, that ASOI had not committed to selling Arctic Spa Products exclusively. Mr. Wasney’s evidence that the parties had agreed to a perpetual “non-exclusive” business relationship was simply not credible when assessed with the evidence that I have accepted.

[153] I have considered, as well, the Plaintiffs’ submission that ASOI spent considerable amounts of money in promotion of the Arctic Spa brand and were “all in” in advancing Blue Falls’ objective of market penetration in southern Ontario. ASOI was Blue Falls’ largest volume Dealer, which benefitted Blue Falls, but also advanced ASOI’s objective of profit maximization. In other words, ASOI expanded, found efficiencies and maximized profits as part of its corporate objectives which had the corresponding effect of increasing Blue Falls’ sales as a manufacturer but, in my view, these steps were not taken principally in furtherance of a perpetual relationship with Blue Falls.

[154] An assessment of surrounding circumstances shows that the 2001 Dealer Agreement was not perpetual in nature. The Plaintiffs led evidence of other Blue Falls Dealers, similarly constituted to ASOI, whose dealer agreements were terminated on notice: such as Mr. Lowell Rempel in British Columbia. The 2010 Dealer Agreement, which I will analyse shortly, had a provision that allowed for termination “at any time”. In his efforts to obtain a new dealer agreement in March-April 2011, Mr. Wasney included a provision in the Buy-Out Purchase Agreement that his purchase of ERSP Ltd.’s shares in ASOI was conditional (“in his sole discretion”) on concluding a new dealer agreement with Blue Falls. This evidence supports a finding that ASOI knew that the 2001 and 2010 Dealer Agreements were not perpetual in nature.

[155] In submitting that ASOI’s dealer relationship with Blue Falls was perpetual in nature, the Plaintiffs relied on Petro-Lon Canada Ltd. v. Petrolon Distribution Inc., 1995 CanLII 7407 (Ont. S.C.), and France v. Kumon, 2014 ONSC 5890, 35 B.L.R. (5th) 286. These cases are not helpful to the Plaintiffs’ position. In Petro-Lon, the Court upheld an arbitrator’s finding refusing to imply a term permitting termination on reasonable notice. This case is fact specific and of limited assistance to my analysis. In France, at para. 60, the Court declined to find a perpetual contract.

[156] For these reasons, I do not accept the Plaintiffs’ submission that ASOI and Blue Falls intended that their relationship be perpetual in nature.

[157] Where a fixed term contract ends and the parties continue their business relationship in the interim, the expired contract becomes one of an indefinite term with the material terms continuing to apply: Safeway Products Inc. v. Andico Manufacturing Ltd., 1984 CarswellOnt 92 (H.C.), at para. 16, varied on other issues, 1985 CarswellOnt 990 (C.A.), at para. 6; JMT Phillips (1986) Inc. v. Medieval Glass Industries Ltd., 2002 CanLII 20782 (Ont. S.C.), at para. 29. On this basis, I find that after its maturity without renewal on November 1, 2003, the 2001 Dealer Agreement continued as an expired contract of an indefinite (not perpetual) term or duration. The material terms of the 2001 Dealer Agreement continued to apply, being those applicable to the distribution and sale of Arctic Spa Products.

[158] The 24-month term of the 2001 Dealer Agreement is clearly not applicable to the contract of indefinite duration, and neither is the clause permitting termination on ninety days’ written notice, which was available, but not used, within the expired 24-month term. Weighing all factors, I conclude that a clause permitting termination on reasonable notice should be implied into the continuing material terms of the contract of indefinite duration between ASOI and Blue Falls, on the principles set out in 1193430 Ontario Inc. v. Boa-Franc Inc. (2005), 2005 CanLII 39862 (ON CA), 78 O.R. (3d) 81, at para. 45, leave to appeal refused [2006] S.C.C.A. No. 2, applying Hillis Oil & Sales Ltd. v. Wynn's Canada Ltd., 1986 CanLII 44 (SCC), [1986] 1 S.C.R. 57, at p. 67: “If a distributorship agreement does not contain a provision for termination without cause it is so terminable only upon giving reasonable notice of termination.” I adopt the observation made by McNeely J. in WERAM (1975) Inc. v. EMCO Ltd., 1999 CanLII 14940 (ON SC), [1999] O.J. No. 3218 (S.C.), at para. 39, that if an “officious bystander” asked the parties objectively at any time during their business relationship of what they would do in the event that their corporate objectives diverged and their differences became incompatible, if not irreconcilable, that “both parties would answer that in such circumstances they would act reasonably toward each other and that in such new circumstances, the agreement between them might be terminated on reasonable notice having regard to all the circumstances existing at the time of termination”.

[159] I therefore find that once the fixed term 2001 Dealer Agreement ended without renewal or extension and the parties continued with their business relationship – indeed confirming the material terms of the 2001 Dealer Agreement through the 2001 ASKL Dealer Agreement – the expired 2001 Dealer Agreement became a contract of indefinite duration with an implied clause allowing for termination by either party on reasonable notice. The material terms of the 2001 Dealer Agreement pertaining to the distribution and sale of Arctic Spa Products continued to apply.

[160] I will address later the question of how much notice constitutes “reasonable notice”, in determination of whether Blue Falls’ provision of one-month’s notice at the time of termination on September 27, 2011 constituted “reasonable notice”. I will analyse now the material terms of the 2001 Dealer Agreement.

(ii) Interpretation of the 2001 Dealer Agreement

[161] For interpretation of the rights and duties prescribed by the 2001 Dealer Agreement, I will apply the well-established principles for contract interpretation set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 47-48. In Harvey Kalles Realty Inc. v. BSAR (Eglinton) LP, 2021 ONCA 426, at paras. 5-6, the Ontario Court of Appeal explained these contractual interpretation principles as follows:

[T]he primary goal of contractual interpretation is to give effect to the objective intention of the parties at the time of contract formation. Courts must determine the intent of the parties and the scope of their understanding by reading the contract “as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.” The meaning of words is determined by contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement: Sattva, at paras. 47-48.

It is also well settled that courts should avoid commercially absurd interpretations of contracts. Commercial reasonableness must be interpreted from the perspective of both contracting parties: Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, at para. 148.

[162] To interpret the terms of the 2001 Dealer Agreement, I will first examine its genesis and the factual context present at the time that it was created. ASOI was formed in June 2001 by Blue Falls patriots. The Keirstead brothers were shareholders of Blue Falls and Mr. Wasney was its dealer representative, and they all came to ASOI with the mindset of expanding Blue Falls’ sales and profitability by promoting the Arctic Spa brands. I find that they aspired to establish a profitable and broad retail platform focusing on the sale of Arctic Spa Products.

[163] The other contracting party to the 2001 Dealer Agreement, Blue Falls, was interested in selling more Arctic Spa Products in southern Ontario and had confidence in the ability of Mr. Wasney and the Keirsteads to do so. Other Blue Falls principals had retail outlets, in addition to their involvement in manufacturing, and so there was precedent for what the Keirsteads set out to do. The 2001 Dealer Agreement was the instrument by which the parties’ mutually consistent objectives could be met: ASOI could achieve its objective of establishing a profitable retail outlet and Blue Falls could achieve better penetration into the southern Ontario market.

[164] The parties agreed that the 2001 Dealer Agreement defined the territory for which ASOI was appointed as Dealer, as did the 2002 ASKL Dealer Agreement. The parties agreed that the 2001 Dealer Agreement required that Blue Falls exclusively sell and distribute Arctic Spa Products to ASOI in its geographic territory, unless ASOI specifically agreed otherwise. This is seen in Recital C of the 2001 Dealer Agreement (“the Manufacturer will not appoint another Dealer in the territory set forth in B. above, without prior consultation and agreement with the Dealer”) and in section 3 (the “Manufacturer Exclusivity Provision”):

Manufacturer shall:

(c) Refrain from selling any Product to any Person other than the Dealer, whom is engaged in the business of reselling products similar to the Products within the Territories, unless specifically agreed between the two parties; a location within the Territories;

[165] The contentious issue was whether the 2001 Dealer Agreement prohibited ASOI’s sale of products supplied by Blue Falls’ competitors. In other words, was the exclusivity in the 2001 Dealer Agreement mutual and bilateral – in the parties’ terminology, “mutual exclusivity” – or was it unilateral? ASOI contended that the 2001 Dealer Agreement did not commit ASOI to sell only Arctic Spa Products. Blue Falls said that it did.

[166] The context in which the 2001 Dealer Agreement was created, as set out above, would support an interpretation of mutual exclusivity: Blue Falls would supply only ASOI in its territory, and ASOI would sell only Arctic Spa Products. However, I observe that Mr. Macklin testified that at his Calgary hot tub store, Paradise Bay, he sold hot tubs supplied by others, including Jacuzzi, even though he also sold Arctic Spa Products and was an officer of Blue Falls. More importantly, the 2001 Dealer Agreement does not contain any provision that states that ASOI will sell only Arctic Spa Products.

[167] There is no substantive provision in the 2001 Dealer Agreement that obligates the Dealer to sell only Arctic Spa Products. There is no Dealer analogue to the Manufacturer Exclusivity Provision mandating Dealer exclusivity. The 2001 Dealer Agreement sets out, in section 2, the Dealer’s obligations, in seven specific sub-sections. None of these detailed, listed obligations required the Dealer to stock and sell exclusively products supplied by Blue Falls. None of these listed obligations restricted the Dealer from purchasing products supplied by other manufacturers for resale. To have mutual exclusivity, one would expect a Dealer analogue to the Manufacturer Exclusivity Provision, but there is none in the 2001 Dealer Agreement. The only provision in the 2001 Dealer Agreement that refers to a restriction on the Dealer’s ability to sell products other than those produced by Blue Falls is contained in a recital (“Recital E”):

WHEREAS:

E. The Dealer will not stock and/or sell a line of equipment that is competitive with the equipment provided by the Manufacturer, without prior consultation with the Manufacturer.

[168] Mr. Wasney testified that he did not even consider Recital E when he signed the 2001 Dealer Agreement, and only read the document “very briefly” because his 50% co-shareholders, the Keirsteads, were officers of Blue Falls. Mr. Wasney conceded that, in 2001, it “was just an understanding” that ASOI would only sell Arctic Spa Products but was not aware of any contractual restriction on the products that ASOI could stock and sell. James Keirstead, who signed the 2001 Dealer Agreement on behalf of Blue Falls while also a principal of ASOI, testified that he understood the 2001 Dealer Agreement as containing “2-way exclusivity”, but could not identify a contractual provision that supported this understanding. I considered this evidence as part of my assessment of the context present at the time of contract formation.

[169] The wording of Recital E does not mandate that ASOI sell only Arctic Spa Products. Interpreted literally and generously, Recital E restricts only the sale of products supplied by others that are “competitive with” Arctic Spa Products, and it requires only that ASOI consult with Blue Falls before stocking and selling products supplied by others that do compete with Arctic Spa Products. Unlike the Manufacturer Exclusivity Provision, it does not require that ASOI obtain the agreement of Blue Falls before stocking and selling products supplied by others: only that ASOI first consult with Blue Falls.

[170] I conclude that the 2001 Dealer Agreement granted to ASOI the exclusive right to sell Arctic Spa Products in its defined sales territory. I conclude, as well, that the 2001 Dealer Agreement did not obligate ASOI to sell exclusively products supplied by Blue Falls. At its highest, the 2001 Dealer Agreement set out a contractual agreement, through Recital E, that ASOI would not stock or sell products that were competitive with Arctic Spa Products without prior consultation with Blue Falls, but without requiring Blue Falls’ agreement. I conclude, further, that by reason of the parties’ conduct, these material terms of the 2001 Dealer Agreement were applicable to the parties’ business relationship from November 1, 2001 to January 1, 2010.

(b) The 2010 Dealer Agreement

[171] Having analysed the role of the 2001 Dealer Agreement, I turn now to analysis of the role of the 2010 Dealer Agreement in the rights and duties between the parties at the time of termination of the dealer arrangement on September 27, 2011.

[172] Mr. Wasney testified that he executed the 2010 Dealer Agreement on January 1, 2010, but otherwise had no evidence regarding the formation of the 2010 Dealer Agreement. Specifically, Mr. Wasney had no evidence regarding when or where he signed the 2010 Dealer Agreement; when or how it was negotiated; who prepared the document; or how he came to receive it. No documents were tendered at trial pertaining to the formation of the 2010 Dealer Agreement.

[173] Regarding its contractual purpose, Mr. Wasney testified that the 2010 Dealer Agreement was useful in that it depicted clearly ASOI’s seven sales territories, unlike the 2001 Dealer Agreement that referred only to ASOI’s Oakville sales territory, and the 2002 ASKL Dealer Agreement that referred only to ASOI’s Kitchener sales territory. I accept Mr. Wasney’s evidence that he wanted a dealer agreement that mapped ASOI’s seven sales territories. This evidence is uncontradicted and plausible in the circumstances that existed on January 1, 2010.

[174] The 2010 Dealer Agreement was signed on behalf of Blue Falls by Perry Lewis who was, at that time, Blue Falls’ National Sales Manager. Mr. Lewis was not a signatory to any other material document between ASOI and Blue Falls. The Defendants did not call Mr. Lewis to testify at trial. But the Defendants did not deny that Mr. Lewis had authority to enter into the 2010 Dealer Agreement on behalf of Blue Falls.

[175] None of the witnesses called by the Defendants had any evidence regarding the genesis of the 2010 Dealer Agreement or the factual matrix surrounding its execution in January 2010. Mr. Amendt testified that he did not know anything about the 2010 Dealer Agreement until it was sent to him by Mr. Wasney some fifteen months after its execution, on March 14, 2011. John Keirstead testified that he did not know of the existence of this agreement until this litigation was initiated.

[176] Both ASOI and Blue Falls disavowed the 2010 Dealer Agreement. The Plaintiffs submitted that the 2010 Dealer Agreement was void for lack of consideration, without citing any authority for this position, or any explanation of how the 2001 Dealer Agreement, on which the Plaintiffs heavily relied, was supported by any greater consideration than the 2010 Dealer Agreement. The Defendants did not deny the validity of the 2010 Dealer Agreement but submitted that it was ‘anomalous’ in that it was different than any “standard” dealer agreement used by Blue Falls in 2010. But the Defendants did not lead any evidence of a “standard” 2010 dealer agreement. The Defendants did not so much reject the 2010 Dealer Agreement as they rejected its clear characterization of ASOI as a “non-exclusive dealer”.

[177] On the parties’ evidence, the 2010 Dealer Agreement is an executed, authentic dealer agreement, admittedly produced by Blue Falls on Blue Falls’ form and executed by its National Sales Manager. The 2010 Dealer Agreement was in effect from January 2010 to January 31, 2011 in accordance with its termination term: “Unless renewed in writing by the Company by December 31 of each year, this Agreement shall automatically terminate each year on January 31”. During its term, the 2010 Dealer Agreement could have been terminated at any time (“may be terminated at any time by either party without further obligation”), but was not.

[178] The parties tendered little objective evidence of context to frame interpretation of the 2010 Dealer Agreement. In my view, the 2010 Dealer Agreement was substantively confirmatory of the 2001 Dealer Agreement, and the parties’ conduct in the time between the expiry of the 2001 Dealer Agreement and the inception of the 2010 Dealer Agreement, in two important ways. First, the 2010 Dealer Agreement expressly “appointed [ASOI] as a non-exclusive retail dealer of” Arctic Spa Products. This is consistent with my determination that the 2001 Dealer Agreement did not require that ASOI sell exclusively Arctic Spa Products. It is also reflective of ASOI’s conduct in the period between 2001 and 2010. Mr. Wasney testified, and the Defendants did not dispute, that ASOI sold an entry level “plug and play” hot tub produced by Strong Spas for some eight years after executing the 2001 Dealer Agreement, without objection by the Keirsteads or anyone at Blue Falls.

[179] Second, the 2010 Dealer Agreement annexed a map that outlined the geographic territories in which the seven ASOI retail outlets operated. This was confirmatory of the sales territories developed by ASOI through its rapid corporate expansion from 2001 to 2009.

[180] Applying a literal interpretation, the 2010 Dealer Agreement was a non-exclusive dealer/distributor arrangement, conferring to ASOI the right to sell Arctic Spa Products in seven sales territories, as ASOI had been doing for years. The 2010 Dealer Agreement did not represent a change in direction in the business relationship between ASOI and Blue Falls. Rather, it was part of a continuum. In my view, the material contractual provisions between ASOI and Blue Falls for the period from November 1, 2001 (inception of the 2001 Dealer Agreement) to January 31, 2011 (expiry of the 2010 Dealer Agreement) would have been substantively identical with or without the 2010 Dealer Agreement. Specifically, the material terms contained in the 2001 Dealer Agreement that Blue Falls appointed ASOI as its exclusive retail Dealer in seven southern Ontario sales territories for the retail sale of Arctic Spa Products and ASOI was a non-exclusive retailer of Arctic Spa Products, continued to the 2010 Dealer Agreement and were then reflected in it.

[181] In considering the role of the 2010 Dealer Agreement’s termination clause (“at any time”) to the continuation of the material terms of the 2010 Dealer Agreement after its expiration, I apply, without repetition, the same analysis as explained in relation to the 2001 Dealer Agreement’s termination clause (ninety days’ notice): paras. 157-159 of these Reasons. The termination clause in the 2010 Dealer Agreement was available for use, but not used, during the term of the contract. As the 2010 Dealer Agreement long-expired before Blue Falls provided notice of termination on September 27, 2011, the expired termination clause in the 2010 Dealer Agreement, applicable to a fixed term contract, cannot continue to govern, or pre-empt the assessment of what amount of notice is reasonable for an indefinite term contract: Boa-Franc, at paras. 44-45: “where the duration [of a contract] is not fixed … the courts have implied a term that the agreement could be terminated by either side on reasonable notice”.

[182] In conclusion, as the 2010 Dealer Agreement expired on January 31, 2011, I find, on the same analysis and reasoning set out earlier in relation to the 2001 Dealer Agreement, that once the 2010 Dealer Agreement ended without renewal or extension and the parties continued with their business relationship, the material terms of the expired 2010 Dealer Agreement continued as a contract of indefinite duration with an implied clause allowing for termination by either party on reasonable notice.

(c) The 2011 Draft Dealer Agreements

[183] I turn now to analysis of the role of the 2011 Draft Dealer Agreements on the contractual provisions applicable to the parties at the time of dealer termination, considering the Defendants’ position that the 2011 BF Draft Dealer Agreement ought to govern.

[184] In the period from March 14, 2011 to April 5, 2011, Mr. Wasney and Mr. Amendt exchanged draft dealer agreements that each sought to implement. Neither of the two draft dealer agreements were executed. The Defendants submitted that I should find that the 2011 BF Draft Dealer Agreement sent by Mr. Amendt to Mr. Wasney on March 14, 2011 is binding and effective because there was a ‘meeting of the minds’ on its fundamental terms. The Plaintiffs submitted that there was no such agreement, that the 2011 Draft Dealer Agreements did not elevate to the level of creating legal rights and are not applicable to the relationship between Blue Falls and ASOI at the time of dealer termination. I accept the Plaintiffs’ position. I will explain why.

(i) The 2011 BF Draft Dealer Agreement

[185] On March 12, 2011, the day after Mr. Wasney received the March 2011 Buy-Out Letter, James Keirstead sent an email to Mr. Wasney that confirmed a telephone discussion earlier that day. James Keirstead stated that Mr. Wasney’s purchase of competitors’ products through his private label spa initiative with Premium Leisure, “jeopardize[s] the relationship with Blue Falls.” James Keirstead wrote that the “dealer agreement with Blue Falls is expired, and was always terminable on notice by either party”. In terms of obtaining a new dealer agreement, James Keirstead cautioned Mr. Wasney: “I don’t know what commitment you can expect to get, particularly if your plan is to sell competitive product.”

[186] Mr. Wasney and Mr. Amendt both testified that on March 14, 2011, Mr. Wasney sent Mr. Amendt the 2010 Dealer Agreement, stating that he had received this agreement from Blue Falls’ Perry Lewis and asked: “Can you have someone send an agreement for 2011?” Mr. Amendt responded by sending a draft dealer agreement to Mr. Wasney that day, which I have referred to as the 2011 BF Draft Dealer Agreement.

[187] The 2011 BF Draft Dealer Agreement is similarly formatted to the 2001 Dealer Agreement but is different from the 2001 Dealer Agreement in the following material ways:

1. Recital E is changed to require that the Dealer not stock or sell a competitive product “without prior written consent from the Manufacturer”, distinct from the 2001 Dealer Agreement that required only that the Dealer “consult with” the Manufacturer.

2. The Warranty section imposes, for the first time, the following duties on the Dealer: “Any liabilities arising from any unauthorized warranties provided by the Dealer shall be [sic] exclusive responsibility of the Dealer, with such liabilities including, without limitation, any and all legal fees incurred by the Manufacturer in defending itself. Dealer will be responsible to service all spas sold for the duration of the warranty period. This will also be the case if the dealer or manufacturer terminates the agreement”.

3. The Effective Date, Term and Termination provision would cause the dealer agreement to mature on December 31 of the year of signing (similar to the 2010 Dealer Agreement) unless the Dealer requests in writing a renewal no later than 30 days before maturity. Unlike the 2001 Dealer Agreement, in the 2011 BF Draft Dealer Agreement the Dealer does not have the unfettered option to renew the dealer agreement, but rather ASOI can only enter into a new dealer agreement “at the sole discretion of the Manufacturer”.

4. ASOI would have no right of termination of the 2011 BF Draft Dealer Agreement. Rather, only Blue Falls would have a right of termination, “without notice” on the occurrence of any one of eight different events. This was unlike the 2001 Dealer Agreement where either party could terminate on 90 days’ notice or the 2010 Dealer Agreement where either party could terminate “at any time”.

[188] The 2011 BF Draft Dealer Agreement otherwise listed ASOI’s seven geographic territories pertinent to the seven ASOI retail outlets, and contained the Manufacturer Exclusivity Provision set out in the 2001 Dealer Agreement, whereby Blue Falls required ASOI’s agreement in writing to sell Arctic Spa Products to any other retailer situated in an ASOI territory.

[189] The 2011 BF Draft Dealer Agreement was never signed. The Defendants submitted that there was a ‘meeting of the minds’, based on contemporaneous emails between Mr. Wasney, on behalf of ASOI, and Mr. Amendt, on behalf of Blue Falls, on the core element of the 2011 BF Draft Dealer Agreement: mutual exclusivity. ASOI disagreed.

(ii) Did Blue Falls and ASOI Come to an Agreement on the Terms of the 2011 BF Draft Dealer Agreement?

[190] The Defendants submitted that where a fixed term contract comes to an end, a new agreement is reached if there is a meeting of the minds on the core components of the new contract, relying on JMT Phillips, at paras. 28-29. The Defendants relied, further, on Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., 2020 SCC 29, 450 D.L.R. (4th) 105, at paras. 33 and 37, and Saint John Tug Boat Co. Ltd. v. Irving Refining Ltd., 1964 CanLII 88 (SCC), [1964] S.C.R. 614, at pp. 621-622, in support of the principle that the elements necessary for contract formation – offer, acceptance, consideration and terms – may be inferred from the parties’ conduct, objectively assessed, and from the surrounding circumstances.

[191] The Defendants argued that ASOI’s conduct in the period after March 14, 2011 established acceptance by conduct, objectively assessed, of the 2011 BF Draft Dealer Agreement because ASOI agreed that that it would sell, exclusively, Arctic Spa Products. The Defendants base this argument on the Supreme Court’s adoption, in Saint John Tug Boat, at pp. 621-622, of Lord Blackburn’s statement in Smith v. Hughes (1871), L.R. 6 Q.B. 597 at 607, that: “If, whatever a man’s real intention may be he so conducts himself that a reasonable man would believe that he was consenting to the terms proposed by the other party and that other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.”

[192] The Defendants stated that after March 14, 2011, Mr. Amendt reached an agreement with Mr. Wasney that ASOI would sell Arctic Spa Products exclusively. Mr. Amendt testified that, on or about March 19, 2011, he came to an agreement with Mr. Wasney, in a telephone discussion, that Blue Falls would give ASOI a 2% discount on Arctic Spa Products in exchange for ASOI agreeing to sell only Arctic Spa Products. Mr. Amendt tendered an email that he sent to Mr. Wasney on March 19, 2011, wherein he wrote: “Please use this email to confirm your 2% further discount for exclusivity on all spas from Thorsby or Spokane”. Further to this, Mr. Amendt produced emails dated March 25 to 30, 2011, involving Mr. Wasney and the ASOI controller, Iryna Granich, wherein Mr. Amendt clarified that the 2% ‘exclusivity’ discount applied to product purchased in 2011 after a ‘new price list’. Mr. Wasney testified that he did not reach an agreement with Mr. Amendt whereby ASOI would sell only Arctic Spa Products in exchange for a 2% ‘exclusivity’ discount. He testified that Blue Falls provided ASOI with an array of promotional discounts, such as prepayment and volume discounts, and that any 2% price discounts shown in invoices are attributable to these and not in exchange for an agreement on exclusivity.

[193] I do not accept the Defendants’ submission that a reasonable person would conclude that ASOI agreed to sell only Arctic Spa Products in exchange for a 2% ‘exclusivity discount’ because it is based on an incomplete objective assessment of whether ASOI agreed to sell only Arctic Spa Products. There is more that occurred after the email exchanges of March 2011 that shows that the parties had not reached an agreement.

[194] On April 5, 2011, mere days after the Defendants’ alleged agreement between ASOI and Blue Falls on dealer exclusivity, Mr. Wasney forwarded to Mr. Amendt a draft dealer agreement, which I will refer to as the “2011 ASOI Draft Dealer Agreement”. In the 2011 ASOI Draft Dealer Agreement, ASOI modified the 2011 BF Draft Dealer Agreement in the following ways:

1. ASOI deleted Recital E, which provided that ASOI would not sell competitors’ products without the prior written consent of Blue Falls.

2. ASOI deleted Recital C, which provided as follows: “The Manufacturer will not, for the duration of this Agreement, appoint another Dealer in the Territory described in Paragraph B above, without prior consultation and Agreement with the Dealer.” In its place, ASOI proposed provision 3(a), which would prohibit Blue Falls from appointing a Dealer in any ASOI sales territory without prior written consent of ASOI, which could be withheld, acting reasonably.

[195] Mr. Amendt immediately recognized the gap in the parties’ positions, writing to Mr. Wasney on April 5, 2011, within hours of receipt of the 2011 ASOI Draft Dealer Agreement: “So basically you want to change the agreements so that you can sell other products but we cannot sign other dealers. Loyalty is usually a 2 way street.” Mr. Wasney responded on the same day:

I didn’t want to change this agreement at all – I simply asked we renew the agreement that was in place last year [the 2010 Dealer Agreement], you refused and sent me this. Our orders are the true sign of our loyalty.

[196] I find that if Mr. Amendt had reached an agreement with Mr. Wasney the week before – on March 30, 2011 – that ASOI would sell Arctic Spa Products, exclusively, in consideration of a 2% ‘exclusivity discount’, Mr. Amendt would have said so when presented with a draft dealer agreement that provided for the opposite. He did not. Instead, Mr. Amendt wrote: “Let me see what I can negotiate when the guys are all here”. Neither party tendered any evidence of any further communications between Mr. Amendt and Mr. Wasney on a new dealer agreement.

[197] I do not accept the Defendants’ submission that there was a ‘meeting of the minds’ between Mr. Wasney and Mr. Amendt on an arrangement whereby ASOI would sell Arctic Spa Products exclusively in exchange for a 2% exclusivity discount, or that any such deal was struck. Mr. Wasney’s response to Mr. Amendt’s draft agreement was to deliver another draft agreement that made clear that the parties were far apart on the critical material term – mutual exclusivity – and Mr. Amendt’s response that he would “look into” this further shows that he did not consider that an agreement had been reached. I accept that the evidence disclosed that certain invoices were discounted by 2%, and that piecing together email exchanges supports the submission that Blue Falls thought that this was in relation to an “exclusivity discount”, but more than this is needed to find that there was a “meeting of the minds” when the exchange of draft dealer agreements stalled.

[198] When the entire factual matrix of 2011 communications between Mr. Amendt and Mr. Wasney on the issue of a new dealer agreement is fully examined from its inception on March 14, 2011 to its conclusion on April 5, 2011, a reasonable person would not conclude that there was any ‘meeting of the minds’. I find that Mr. Amendt sought Mr. Wasney’s agreement to commit ASOI to selling only Arctic Spa Products, and Mr. Wasney refused. I find that this impasse was not resolved and blocked the implementation of a new dealer agreement in 2011.

[199] I conclude that the 2011 BF Draft Dealer Agreement remained throughout a draft and did not become a valid and binding agreement. The 2011 BF Draft Dealer Agreement and the 2011 ASOI Draft Dealer Agreement thereby were not applicable to the relationship between ASOI and Blue Falls at the time of termination.

(d) Conclusions: The Contractual Provisions Applicable to the Relationship Between ASOI and Blue Falls at the Time of Termination

[200] I concluded that at the time of termination of the dealer relationship between Blue Falls and ASOI on September 27, 2011, these parties had been in a manufacturer/dealer relationship since November 1, 2001: almost ten years.

[201] The contractual provisions applicable to their dealer relationship were, from November 2001 to January 2010, as set out in the 2001 Dealer Agreement which, by reason of the parties’ conduct, continued after its maturity as a contract of indefinite duration with an implied clause allowing for termination by either party on reasonable notice. I determined that the 2001 Dealer Agreement granted ASOI the exclusive right to sell Arctic Spa Products in its territories, but that ASOI was not restricted to the sale of only Arctic Spa Products. Rather, ASOI could sell products that did not compete with Arctic Spa Products, and competitive products after consultation. These material terms continued to apply, by reason of the parties’ conduct, after expiration of the 2001 Dealer Agreement. I do not accept the Plaintiffs’ submission that these contractual provisions remained in effect until termination of the dealer relationship on September 27, 2011 because of the intervening 2010 Dealer Agreement. However, the result is substantively the same.

[202] I conclude that the 2010 Dealer Agreement was effective from January 1, 2010 until its expiry on January 31, 2011 and, by reason of the parties’ conduct, continued after its maturity as a contract of indefinite duration with an implied clause allowing for termination by either party on reasonable notice. In the my view, the material terms in the 2010 Dealer Agreement that continued after its expiry were the same as those that continued after expiry of the 2001 Dealer Agreement: specifically, that Blue Falls granted ASOI exclusive sales territories, increased to seven, for the retail sale of Arctic Spa Products, and ASOI’s dealer relationship with Blue Falls for the retail sale of Arctic Spa Products was as a non-exclusive Dealer. These material terms were, in my determination, applicable to the dealer relationship between Blue Falls and ASOI at the time of the termination of their dealer relationship on September 27, 2011. Going forward, I will refer to these contractual provisions, being the continuation of the material terms of the 2010 Dealer Agreement as a contract of indefinite duration with an implied clause allowing for termination by either party on reasonable notice, as the “Governing Dealer Agreement”.

V. DID ASOI FUNDAMENTALLY BREACH THE GOVERNING DEALER AGREEMENT?

[203] The Defendants submitted that ASOI fundamentally breached the Governing Dealer Agreement in two ways: (i) by ordering and selling products that competed with Blue Falls; and (ii) by filing false warranty claims. The Defendants maintained that ASOI’s fundamental breach entitled Blue Falls to treat the Governing Dealer Agreement as at an end.

A. Applicable Principles

[204] A fundamental breach is a breach that “goes to the root of the contract” and thereby has the effect of depriving the innocent contracting party of “substantially the whole benefit of the contract”: Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 CanLII 129 (SCC), [1989] 1 S.C.R. 426, at pp. 459-60; Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), at para. 117.

[205] In Boa-Franc, the Ontario Court of Appeal held, at para. 48, that an innocent party may only terminate a distribution agreement for breach and be relieved of any further obligation “if the breach of contract meets the test for fundamental breach”. In Boa-Franc, at para. 50, the Court of Appeal applied the following five factors to analyze whether there has been a substantial failure of performance amounting to fundamental breach:

They are: (1) the ratio of the party’s obligation not performed to the obligation as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of such breach; (4) the seriousness of the consequences of the breach; and (5) the relationship of the part of the obligation performed to the whole obligation.

[206] On the basis of these principles, if the Defendants establish that ASOI has fundamentally breached the Governing Dealer Agreement, then Blue Falls would be relieved of any duty to provide reasonable notice on termination. If the Defendants establish a contractual breach of the Governing Dealer Agreement that is not a fundamental breach, then Blue Falls would be entitled to any damages that flow from the contractual breach but would remain liable for any failure to provide ASOI with reasonable notice upon termination of the Governing Dealer Agreement. Last, if the Defendants do not establish a breach of the Governing Dealer Agreement, at all, then ASOI would have no liability to Blue Falls and Blue Falls would be liable to ASOI in damages if it failed to provide reasonable notice upon termination of the Governing Dealer Agreement.

B. The Termination of the Governing Dealer Agreement

[207] In the Blue Falls Termination Letter of September 27, 2011, Blue Falls notified ASOI, both on its own behalf and on behalf of its related U.S.-based entity, that Blue Falls had “determined that it is no longer in their best interests to continue their manufacturer/dealer relationship with [ASOI]”. Blue Falls terminated “any and all agreements” that Blue Falls had entered into with ASOI, without identifying any such agreements, writing as follows:

As a result of this determination, any and all agreements that have been previously entered into with Arctic Spas Oakville Inc. that grant your company the right to promote itself as an authorized dealer of the Arctic Spas®”, Coyote Spas® line of hot tubs and Guild® line of billiard products is hereby terminated.

[208] Blue Falls gave ASOI one month’s notice of termination:

At the conclusion of the Thirty (30) day period, neither Blue Falls Manufacturing Ltd. nor Blue Falls USA LLC will accept or process any orders placed by your company for hot tubs, billiard tables, gazebos, related supplies or other items previously ordered by your company.

[209] Blue Falls’ provision of one month’s notice of termination to ASOI is inconsistent with Blue Falls’ position that it was relieved from providing any notice of termination to ASOI by reason of ASOI’s fundamental breach of the dealer agreement in place at the time of termination. Blue Falls’ conduct on termination is more consistent with an acknowledgment that it owed ASOI notice of termination.

[210] The Blue Falls Termination Letter is also noteworthy for what it does not state. First, Blue Falls did not identify which dealer agreement it considered to be applicable at the time of termination. Blue Falls submitted at trial that it believed that it had concluded a new dealer agreement with Mr. Wasney in March 2011 in the form of the 2011 Draft BF Dealer Agreement but it did not say this to ASOI at the time of termination. Second, Blue Falls did not state any grounds for termination. One would expect that if Blue Falls considered that ASOI had breached “an agreement” – indeed, had committed a fundamental breach – that Blue Falls would have, at a minimum, stated the nature of the breach. Third, Blue Falls did not state that it intended to pursue damages from ASOI by reason of ASOI’s breach of the dealer agreement.

[211] The manner by which Blue Falls terminated its 10-year dealer relationship with ASOI – what Blue Falls said and what Blue Falls did not say – forms part of the context applicable to assessment of Blue Falls’ claim that ASOI breached the Governing Dealer Agreement.

C. Did Blue Falls Establish that ASOI Breached the Governing Dealer Agreement by Ordering and Selling Competitors’ Products?

[212] Blue Falls’ submission that ASOI was ordering and selling competitors’ products in contravention of the applicable dealer agreement was predicated on a finding that ASOI had contractually committed to selling only Arctic Spa Products. For this claim to be established, Blue Falls needed to prove either that the 2001 Dealer Agreement mandated mutual exclusivity and continued in effect until 2011, or that the 2011 BF Draft Dealer Agreement, which contained terms requiring mutual exclusivity, was valid and binding. I declined to make either of these findings. Accordingly, Blue Falls did not establish that ASOI breached the contractual provisions applicable at the time of termination – the Governing Dealer Agreement – by selling competitors’ products.

[213] It is unnecessary to determine whether ASOI did, in fact, sell competitors’ products, as alleged by Blue Falls. However, had it been necessary to determine whether ASOI did, in fact, order and sell competitors’ products, I would have determined that Blue Falls failed to establish that ASOI did so. For completeness of analysis, I will explain why.

[214] Dealing first with the period prior to 2010, during the term of the 2001 Dealer Agreement as continued by conduct, there was no dispute that ASOI stocked and sold Go-Spa plug and play spas supplied by Strong Spas for eight years leading to 2010. Mr. Wasney testified that these hot tubs were not competitive with any Arctic Spa Products and their sale was thereby compliant with the terms of the 2001 Dealer Agreement. I accept this evidence, as it was uncontradicted by any evidence tendered by Blue Falls. Regarding the sale of competitive products during the term of the 2001 Dealer Agreement, there was no dispute that Mr. Wasney consulted with Mr. Amendt about the Muskoka Lakes spa line, and that Blue Falls rejected this initiative. There was no evidence that ASOI stocked or sold this product during the term of the 2001 Dealer Agreement, as continued to January 1, 2010; only that ASOI sourced and planned to stock this product.

[215] The main evidentiary dispute between the parties was whether ASOI “stocked or sold” directly competitive products in the period after January 2010. In my view, Blue Falls failed to establish that ASOI “stocked or sold” either Premium Leisure hot tubs or Jacuzzi hot tubs in the period after 2010, for the following reasons.

[216] First, in relation to the Muskoka Lakes private line of hot tubs sourced from Premium Leisure, Blue Falls led evidence through James Keirstead that these hot tubs were sourced, priced and even ordered by ASOI, but did not establish that they were ever received, stocked or sold. The highest evidence adduced by Blue Falls was from Mr. Garry Fizzard, a former employee of ASOI and current employee of Arctic Spas Barrie, who testified that ASOI was selling a hot tub known as “Pinnacle” at the same price point as Blue Falls’ Coyote spa. I do not accept this evidence, as Mr. Fizzard was not able to identify the manufacturer of the Pinnacle spa, and his evidence was vague and unreliable as to the price point and timing that the product was offered for sale. Similarly, I do not accept Blue Falls’ submission that ASOI’s inclusion of a Premium Leisure logo in an advertisement on or about September 16, 2011 was determinative of the issue of whether ASOI actually sold competitive Premium Leisure spas at that time.

[217] Second, regarding ASOI’s alleged sale of Jacuzzi spas after January 1, 2010 and before September 27, 2011, Blue Falls again relies on the evidence of Mr. Fizzard, who testified that Mr. Wasney shared with the Barrie store staff in mid-September that he had made a decision to sell Jacuzzi products due to problems with Onzen and poor research and development at Blue Falls and that the Jacuzzi spas arrived “within weeks”. Mr. Fizzard could not pinpoint the timing of these discussions, or the timing of receipt by ASOI of Jacuzzi spas. I found that Mr. Fizzard’s evidence was not reliable in establishing whether ASOI’s sale of Jacuzzi spas took place prior to the termination of the Blue Falls dealer relationship on September 27, 2011 or after. I thereby do not accept any of the evidence provided by Mr. Fizzard on this issue.

[218] I conclude that ASOI did not breach the Governing Dealer Agreement by ordering or selling competitors’ products because ASOI was not contractually committed to exclusivity as a Dealer of Arctic Spa Products. Further, had it been necessary to decide whether ASOI sold competitors’ products contrary to any arrangement with Blue Falls, I would have determined that ASOI did not do so.

D. Did Blue Falls Establish that ASOI Breached the Governing Dealer Agreement by Filing False Warranty Claims?

[219] Blue Falls’ claim that ASOI filed false warranty claims is based on the submission that ASOI conducted itself in a dishonest, deceitful manner, deliberately for the purpose of causing Blue Falls to honour service claims that did not fall within Blue Falls’ warranty program. Blue Falls did not allege that ASOI mistakenly or inadvertently filed service claims that did not activate a Blue Falls’ warranty. In fact, specific details of the Blue Falls’ warranty program, that is the description of what is covered and what is not covered as one would expect from a warranty manual, were not entered into evidence.

[220] Blue Falls sought to establish that ASOI deliberately filed false warranty claims through two sources of evidence: Mr. Amendt’s testimony of his analysis of the history of ASOI warranty claims, leading to his compilation of unexplained warranty claims; and, testimony from former ASOI service technicians that Mr. Wasney instructed them to file false warranty claims. I will address this evidence in order.

(a) The Unexplained Warranty Claims

[221] During the litigation, ASOI was ordered to produce a report summarizing the tasks and instructions given to ASOI’s service technicians, including technicians’ notes following completion of work, for the 5-year period from September 2006 until the date of dealership termination (September 27, 2011) for jets, motherboards and Onzen salt water generating systems: 2287913 Ontario Inc. v. ERSP International Enterprises Ltd., 2017 ONSC 7085, at para. 65. As ASOI was unable to produce such a report, the parties jointly retained and instructed Evosus Inc., as a means by which to comply with this Court Order. I explained the process by which the parties came to jointly instruct Evosus Inc. in the preparation of a report in my ruling of April 27, 2021, which I adopt as part of these Reasons without duplication: 2287913 Ontario Inc. v. ERSP International Enterprises Ltd., 2021 ONSC 3079, at paras. 4-8.

[222] Corey Holton, a representative of Evosus Inc., tendered into evidence a report prepared by Evosus consistent with the terms set out by the parties (the “Evosus Report”). Mr. Holton testified that he “dumped” the data from ASOI’s Evosus System into the Evosus Report, including all work orders and scheduled tasks that pertained to warranty service repairs conducted by ASOI service technicians. The Defendants submitted that if a service note or work order was not tracked in the Evosus Report, it is because it did not exist in ASOI’s Evosus System.

[223] Mr. Amendt testified that he relied on the Evosus Report in investigating the allegedly false warranty claims, by comparing its recording of ASOI’s service calls with the corresponding warranty claims filed by ASOI through Inside Arctic. He stated that he undertook this task because he had a suspicion, that he claimed to have verified through analysis, that ASOI’s warranty claim history was higher than the worldwide average.

[224] Mr. Amendt testified that he became concerned about a high volume of warranty claims by ASOI in the period leading to 2010, and conducted an analysis of ASOI’s warranty claims relative to other Dealers. He testified that in 2011, he prepared a Warranty Summary Report that compared the cost to Blue Falls in supporting ASOI’s warranty claims compared to Dealers in 30 other countries. Mr. Amendt testified that he concluded from this comparative analysis that ASOI had a higher warranty claims history than the average Dealer.

[225] Mr. Amendt’s testimony that he prepared the Warranty Summary Report in 2011 was effectively impeached by cross-examination on Mr. Amendt’s examination for discovery evidence provided on September 16, 2016, wherein Mr. Amendt testified that the Warranty Summary Report was prepared in 2016, not in 2011 as sworn at trial, and not by him but rather by Melissa Coggins-Deveau, who worked in the Blue Falls service department. Further, in questioning on the computation of the historic average of the ASOI warranty claims, Mr. Amendt admitted that the data shown on the Warranty Summary Report did not contain arithmetic values that supported a conclusion that ASOI’s historic warranty claims were higher than the average Dealer. I have thereby disregarded the Warranty Summary Report as unreliable.

[226] Mr. Amendt testified to a much broader analysis that he conducted of ASOI’s warranty claims, resulting in his production of massive Excel Spreadsheets that he stated represented “unexplained warranty claims” filed by ASOI. Mr. Amendt testified that he compiled this data as follows: Mr. Amendt swore that he began by downloading from Inside Arctic 14,000 warranty claims that Blue Falls had received from ASOI in the 5-year period from September 2006 to September 2011. Mr. Amendt stated that he reduced this master list to about 5,500 warranty claims that he considered relevant to the data from ASOI that he received in the Evosus Report. Mr. Amendt stated that he then merged the Inside Arctic list with the data from the Evosus Report to see if the warranty claims submitted to Blue Falls through Inside Arctic matched or reconciled with ASOI’s service records as contained in the Evosus Report. Mr. Amendt testified that he found that there were approximately 3,800 warranty claims where there was “no match or reconciliation”, meaning that they represented warranty claims had been submitted to Blue Falls through Inside Arctic where there was no corresponding record for work done by ASOI in the Evosus Report. He identified these unexplained warranty claims in a document referred to as a “Reconciled Warranty Spreadsheet”. Mr. Amendt proceeded on the premise that if ASOI filed a warranty claim without a matching ASOI service record, then the warranty claim was at least unexplained and unreconciled and, arguably, false.

[227] Mr. Amendt stated that, in the period leading to trial, he refined and narrowed the Reconciled Warranty Spreadsheet to three categories: warranty claims for Onzen salt water generating systems, jets and motherboards that had no matching work orders in the ASOI records contained in the Evosus Report. He swore that this resulted in the production of a revised Reconciled Warranty Spreadsheet that reduced the number of unexplained warranty claims with no ASOI work orders to 1,779, totaling $412,254.50 for the cost of parts and $87,816 for the cost of labour, for a total claim of $500,070.50. I will refer to this as the “Revised Spreadsheet-No Work Orders”.

[228] To this, Mr. Amendt added a second spreadsheet, which consisted of a reconciliation of all warranty claims in the Inside Arctic records that had a different or irregular description than contained in the Evosus Report. This spreadsheet contains 61 claims and totaled $6,489.58. I will refer to this as the “Revised Spreadsheet-Inconsistent Work Orders”. The Revised Spreadsheet-No Work Orders and the Revised Spreadsheet-Inconsistent Work Orders taken together (collectively the “Revised Warranty Spreadsheets”) constitute Blue Falls’ claim for allegedly false warranty claims totaling $506,560.08.

[229] Mr. Amendt then testified that Blue Falls received credits from its suppliers in relation to certain of the returned parts used in the warranty claims in the amount of $15,917.57. Blue Falls deducted these supplier credits from the amount of Blue Falls’ false warranty claims, resulting in a net damage claim of $490,642.51 ($500,070.50 + $6,489.58 - $15,917.57).

[230] Mr. Amendt testified that the 1,779 warranty claims listed in the Revised Spreadsheet-No Work Orders, and the 61 warranty claims listed in the Revised Spreadsheet-Inconsistent Work Orders are “unexplained”. By this Mr. Amendt intended that these are 1,840 warranty claims that ASOI filed and Blue Falls honoured, and thereby paid in the period between September 2006 and September 2011, for which there is no corresponding ASOI work order in the Evosus Report, or the ASOI work order in the Evosus Report is inconsistent with the warranty claim.

[231] Mr. Amendt did not testify that ASOI intentionally filed false warranty claims. His analysis resulted only in his conclusion that there were factual discrepancies in ASOI’s warranty claim submissions that were “unexplained”. To establish that the explanation for the discrepancies was the deliberate filing of false claims, Blue Falls relied on the evidence of three of ASOI’s former service technicians.

(b) The Alleged Instructions to File False Warranty Claims

[232] Blue Falls relied on the testimony of three witnesses in support of its position that Mr. Wasney directed the ASOI service technicians to file false warranty claims: Mr. Dennis Brikmanis; Mr. Kevin Rurka; and Mr. Andrew MacKay.

(i) Dennis Brikmanis

[233] Mr. Brikmanis worked for Blue Falls, “off and on” for approximately 27 years. From 2008 to 2011, he was employed by ASOI as a customer service manager, which included supervising the dispatch of service technicians to service calls. He explained that the dispatchers would receive calls for after-sale product service, that they would record the issue in ASOI’s Evosus System, and that the service technician would then attend to the service call and input into Evosus the detail of their service work. If the service work involved a warranty claim, then the service technician would upload the warranty claim by filing it into Blue Fall’s Inside Arctic system.

[234] Mr. Brikmanis testified that Mr. Wasney directed him to instruct the dispatchers and service technicians that any service call that might not necessarily be covered under warranty should nonetheless be filed as a warranty claim. Mr. Brikmanis stated that Mr. Wasney specifically told him that he no longer wanted to absorb the cost of a technician putting in a service call, so Mr. Brikmanis was directed to file all service calls that did not involve replacement of parts as a warranty claim. Mr. Brikmanis testified that he received these instructions once in person, and overheard Mr. Wasney direct staff members on another occasion.

[235] Mr. Brikmanis also identified an email that he sent on July 8, 2011 to ASOI’s service technicians, dispatchers and sales staff, which he claims to have sent on Mr. Wasney’s instructions. Mr. Brikmanis testified that the purpose of this email was to direct all staff to repair any customer’s defective Onzen system by filing a warranty claim in Inside Arctic for an “Onzen upgrade” but not disclose to Blue Falls that the Onzen system was actually being replaced with a Genesis system. Mr. Brikmanis testified that this was falsifying the repair work and deceiving Blue Falls. Mr. Brikmanis stated that shortly after this, by August 2011, he quit his employment with ASOI following a heated exchange with Mr. Wasney.

[236] Mr. Brikmanis conceded, in cross-examination, that in his email of July 8, 2011 he was directing the technicians under his supervision to act fraudulently. He admitted, further, that he would lie on behalf of his employer. Blue Falls’ counsel attempted to rehabilitate this admission in re-examination but, in my determination, unsuccessfully.

[237] Mr. Brikmanis’ testimony had further problems. Mr. Brikmanis did not have any knowledge of a single warranty repair claim that was filed fraudulently. In other words, he had no evidence that any technician acted on his email of July 8, 2011. There was no corroboration of Mr. Brikmanis’ testimony that his email of July 8, 2011, and the instruction to the staff to file false warranty claims, originated with Mr. Wasney. Mr. Brikmanis had no explanation of how his email of July 8, 2011 could be reconciled with an email sent by Mr. Wasney directly to staff on July 20, 2011, in regard to an Onzen system that had just been replaced with another Onzen system: not a Genesis system. And last, even if I accepted Mr. Brikmanis’ evidence, it would only support Blue Falls’ claim that Mr. Wasney directed the filing of false warranty claims from June or July 2011 to August 2011, while Mr. Amendt testified that his Revised Warranty Spreadsheets showed “unexplained” warranty submissions from September 2006 onwards.

[238] I found that Mr. Brikmanis’ evidence lacked credibility and was neither plausible nor reliable. Mr. Brikmanis admitted to an angry exchange with Mr. Wasney in terminating his employment with ASOI, and was a life-long “on and off” employee of Blue Falls who admitted in testimony that he would lie for an employer and, by his testimony on his own conduct, did so when he directed staff to mislead Blue Falls about the replacement of the salt water generating systems. Mr. Wasney testified that he never gave Mr. Brikmanis any instructions to file false warranty claims. I accept Mr. Wasney’s evidence over the testimony of Mr. Brikmanis, on this issue.

(ii) Kevin Rurka

[239] Mr. Kevin Rurka was a childhood friend of the Keirsteads, and a 14% shareholder in ERSP Ltd. In 2001, Mr. Rurka trained as a technician in the Blue Falls factory in Alberta, and then moved to Ontario. Mr. Rurka testified that he was employed by ASOI as either a service technician or as a store manager from 2002 until his resignation on October 11, 2011. In cross-examination, Mr. Rurka admitted that he operated a business known as Spa Tech Services from 2002 to 2007, providing repair services through this company, and then was directly employed by ASOI in 2007.

[240] Mr. Rurka was involved in the filing of warranty claims through Inside Arctic and the recording of service calls in ASOI’s Evosus System. Mr. Rurka testified that Mr. Brikmanis and one of ASOI’s dispatchers, Mary Coakley directed him to describe his service calls in a manner that would qualify them for warranty coverage, even if the service was not properly within warranty. Mr. Rurka testified that he attended “countless meetings,” from 2008 to 2011,where Mr. Wasney discussed warranty claims, and that he understood that the cost of any repair would be submitted to Blue Falls as a warranty claim so that ASOI did not have to bill the customer for the work and ASOI did not have to absorb the expense as public relations.

[241] There were several problems with the credibility, reliability, and plausibility of Mr. Rurka’s testimony that Mr. Wasney directed him to file false warranty claims. First, Mr. Rurka was not an independent witness, in that he was a minority shareholder in ERSP Ltd. and a childhood friend of the Keirsteads. Mr. Wasney conceded in cross-examination that James Keirstead assisted him in the preparation of his witness statement of evidence for trial. Second, Mr. Rurka could not accurately recall the timing of his employment with ASOI, confusing the time in which he provided services as an independent contractor operating his own business, and he could not recall the name of ASOI’s business software, Evosus, until prompted, even though he testified to working with this software for years. Third, Mr. Rurka could not produce a single email, or written communication by Mr. Wasney that purported to instruct him, or anyone, to file false warranty claims. Fourth, Mr. Rurka could not identify a single customer, service call, file number or hot tub serial number of a false warranty claim that he filed, and could not even recall a date, month or year on which he filed a false warranty claim even though he swore that this practice occurred routinely for years. Fifth, Mr. Rurka testified that he told James Keirstead “on numerous occasions in 2009, 2010 and 2011” that he was routinely filing false warranty claims at the direction of Mr. Wasney. I cannot accept this evidence because James Keirstead, as a principal of Blue Falls, would have had an interest in addressing false warranty claims. Further, Mr. Rurka stated that he did not tell Mr. Amendt that he was filing false warranty claims even though he was in regular communication with him in 2010-2011 on routine warranty processing.

[242] Perhaps most importantly, Mr. Rurka testified that he resigned from ASOI on October 11, 2011 because of ASOI’s “irregular practices.” This raises the question of why Mr. Rurka did not resign from ASOI earlier if the irregular practices started in 2008-2009, as he contended. And last, Mr. Rurka’s testimony is irreconcilable with his resignation letter, wherein he wrote to Mr. Wasney as follows: “I have had many wonderful years working with you and it has been a positive experience.”

[243] Taking Mr. Rurka’s evidence at its highest, he filed false warranty claims in a systematically dishonest manner for a period of some three years, wherein he stood to gain financially by payment of his invoiced fees, justified doing so because he claimed to have been following undocumented instructions said to have been provided by Mr. Wasney, and then resigned from his employment in October 2011 because he disagreed with how Mr. Wasney conducted business. I find that Mr. Rurka’s evidence is not credible or reliable, or plausible when considered in the context of admissible evidence. Mr. Rurka’s testimony that Mr. Wasney instructed him to file false warranty claims was resoundingly denied by Mr. Wasney. I prefer Mr. Wasney’s evidence over the testimony of Mr. Rurka, on this issue.

(iii) Andrew MacKay

[244] Andrew MacKay was employed by ASOI as a service technician from 2008 until 2012 or 2013, and then was employed by a successor corporation, Aquatic Home Living, until December 2018. Mr. MacKay was trained as a hot tub service technician by Blue Falls’ training programs.

[245] Mr. MacKay denied that Mr. Wasney ever instructed him to file false warranty claims. Mr. MacKay testified that Mr. Wasney was “hands-off” the warranty service program, and up to 2011 Mr. MacKay received his instructions from his supervisor, Mr. Brikmanis. Mr. MacKay swore that he did not, at any time, file a false warranty claim. Further, Mr. MacKay testified that Mr. Rurka and Mr. Brikmanis did not ever tell him that they were filing any false warranty claims.

[246] The Defendants thoroughly cross-examined Mr. MacKay on four invoices rendered by him to ASOI that collectively contained a listing of the customer, date, order ID, serial number and claim number for approximately 250 service calls made by Mr. MacKay to repair hot tubs in the periods from April 6 to 30, 2009; June 2 to 26, 2009; October 5 to 31, 2009; and November 30 to December 24, 2009 (the “MacKay Invoices”). These invoices each annexed a Daily Schedule Chart, prepared by Mr. MacKay, that described the problem reported by the customer, the technical comments resulting from his evaluation and a description of the remedial service provided. Mr. MacKay confirmed that in each case the cost of his technical repair service would be paid by Blue Falls by warranty, or would be billed by ASOI to the customer, or ASOI would absorb the cost. Mr. MacKay acknowledged that the responsibility for the cost of the repair service would depend upon his description of the nature of the repair.

[247] Mr. MacKay was cross-examined on 15 specific claims (amongst the group of approximately 250) where the comment contained in his Daily Schedule Chart was different than the description of the service provided for the purpose of the warranty submission. By way of example, in the case of customer Rick Sargini, the Daily Schedule Chart noted an airlock issue, not covered by warranty, but the warranty claim was for a jet leak repair, which would attract warranty coverage. Another example was where Mr. MacKay noted in his Daily Schedule Chart that regarding a broken mount repair for customers Angela and Dave Penn, he had to “make something up”. In each such instance, the Defendants suggested to Mr. MacKay that he was mischaracterizing his work to falsify a warranty claim. Mr. MacKay denied, and offered alternative explanations. In the case of the broken mount, Mr. MacKay explained that he had to improvise – find a way to fix the issue – because he did not have the correct repair kit available.

[248] I do not accept that Mr. MacKay deliberately filed false warranty claims. Overall, I found Mr. MacKay to be a credible witness, who answered the questions posed in a deliberate and straightforward manner. Although Mr. MacKay had a history of working with Mr. Wasney, he has been independent from involvement with any party since 2018. The MacKay Invoices and related Daily Schedule Charts were detailed, made contemporaneously and, in my view, honestly. The discrepancies in the highlighted descriptions were explainable by poor record keeping or vague note taking, or even inadvertence or error, but not, in my determination, sufficient to allow for a conclusion that Mr. MacKay acted fraudulently in the filing of warranty claims. Further, the notes suggested by the Defendants to be inconsistent were of only some 15 of 250 service entries, and of only a four-month period in the approximately three years that Mr. MacKay worked with ASOI prior to termination of the dealer arrangement in September 2011.

[249] Last, even if I had accepted that Mr. MacKay had purposefully filed false warranty claims, Mr. MacKay’s evidence that he was not instructed to do so by Mr. Wasney was unaffected by cross-examination. Mr. Rurka testified that Mr. MacKay was present at every meeting held at ASOI pertaining to the filing of warranty claims. Mr. Rurka testified that he was instructed at those meetings to file false warranty claims. Mr. MacKay’s evidence is directly opposite: specifically, that no such instruction was provided by Mr. Wasney or anyone at ASOI. I prefer Mr. MacKay’s evidence over the testimony of Mr. Rurka on all points where they conflict.

(c) Analysis: Did Blue Falls Establish that ASOI Filed False Warranty Claims?

[250] Blue Falls had the burden of establishing that ASOI filed false warranty claims. This was Blue Falls’ onus both in proving its position that ASOI had fundamentally breached the Governing Dealer Agreement by filing fraudulent warranty claims and in seeking a monetary judgment in its counterclaim for having been misled into paying false warranty claims.

[251] Apart from vague, disconnected, anecdotal evidence from Messrs. Amendt, Brikmanis, Rurka and MacKay on the scope of Blue Falls’ warranty, there was no detailed evidence of what the warranty manual set out as warranty coverage for the Arctic Spa Products, and how this might have changed over the five years (2006 to 2011) for which Blue Falls claimed damages. Further, although Mr. Dwhytie was retained to provide a report on Blue Falls’ losses resulting from ASOI’s alleged breaches of the dealer agreement, he was not directed to provide any expert opinion evidence on the losses said to have been caused by the filing of false warranty claims. This evidence came from Mr. Amendt and, in my determination, was insufficient to establish that ASOI filed false warranty claims, as I will now explain.

[252] First, I disregarded Mr. Amendt’s evidence that ASOI had average warranty claims that were historically above the average Dealer of Arctic Spa Products because the Warranty Summary Report, that was said to support this conclusion, was not prepared by Mr. Amendt and was inconclusive in that it did not contain sufficient data to support the conclusion that ASOI had a higher-than-average warranty claims history.

[253] Second, Mr. Holton, the author of the Evosus Report, which formed the foundation for Mr. Amendt’s Revised Warranty Spreadsheets, admitted to limitations in the scope of the data set out in the Evosus Report, including the following:

(a) On delivery of the Evosus Report on February 15, 2019, Mr. Brandon Hoek of Evosus Inc. cautioned that: “The invoice register would be a report that one of the end users could run to ensure that they are getting the correct information, but your prospective client should ensure that they are filtering to only display Service Orders rather than all orders”. Mr. Holton testified that Evosus Inc. was not requested to generate an invoice register;

(b) Evosus Inc. did not conduct a forensic examination of ASOI’s software system to ensure completeness;

(c) Evosus Inc. was not provided with a list of specific warranty claims and was not asked to retrieve records related to those claims. Mr. Holton conceded that if Evosus Inc. had been provided with such a list, it could have searched for records related to specific warranty claims for which service records were said to be missing or insufficient; and

(d) Evosus Inc. was not provided with a list of customers and was not requested to retrieve records for specific customers. Mr. Holton admitted that if Evosus Inc. had been provided with such records, they could have determined whether there were records somewhere on ASOI’s Evosus System for the customers identified on Blue Falls’ Revised Warranty Spreadsheets.

[254] These shortcomings in the scope of the Evosus Report are significant because Mr. Amendt’s analysis of missing or insufficient ASOI service records presumes that the Evosus Report comprehensively sets out the full data available from ASOI’s Evosus System. I do not accept that the Evosus Report was sufficiently comprehensive to allow for a finding that if there is no ASOI record in the Evosus Report for a warranty claim then the warranty claim must have been falsely filed. Mr. Amendt’s evidence, at its highest, in relation to the Revised Warranty Spreadsheets was that they show that the reviewed warranty claims were “unexplained”.

[255] I accept Mr. Amendt’s characterization that if a Blue Falls warranty claim is not reflected by a corresponding work order or service notation in the Evosus Report then it is “unexplained”, but I do not accept that this, alone, establishes that the ASOI warranty claim was falsely filed. More than unexplained anomalies are required to establish fraud in the filing of warranty clams.

[256] ASOI called three witnesses to testify about the service that they required to their Arctic Spa hot tub: Mr. Kevin O’Mara; Mr. Brett Salvisburg; and Mr. Trevor Haelzle. Each was a customer listed on the Revised Warranty Spreadsheets as having an unexplained warranty claim, accounting for 8 out of the 1,840 entries. Each testified that they had no information that would cause them to believe that there was anything false or improper about the warranty claims filed on their behalf. I have limited my use of this evidence in the manner set out by my ruling of May 31, 2021: 2287913 Ontario Inc. v. ERSP International Enterprises Ltd., 2021 ONSC 3927, at para. 23. I observed, however, that Blue Falls did not tender into evidence a single customer with an unexplained claim in the Revised Warranty Spreadsheets in support of its claim that ASOI engaged in the filing of false warranty claims.

[257] Blue Falls relied on the testimony of former ASOI service technicians Brikmanis, Rurka and MacKay to establish that Mr. Wasney directed ASOI staff members to falsify warranty claims. I earlier explained why I prefer the evidence of Mr. MacKay over the evidence of Messrs. Brikmanis and Rurka, including Mr. MacKay’s evidence that Mr. Wasney did not direct the service technicians to file false warranty claims.

[258] Even if I had accepted the evidence of Messrs. Brikmanis and Rurka, and had found that Mr. Wasney had directed the filing of false warranty claims, I would have found that the timing of these instructions to falsify was in June or July 2011 to August 2011. This was the time in which Mr. Brikmanis stated that he received instructions from Mr. Wasney to falsify warranty claims submissions, as grounded in Mr. Brikmanis’ email to ASOI staff of July 8, 2011. Mr. Rurka testified that he began falsifying warranty submissions in 2009, but I reject this evidence as Mr. Rurka also testified that he falsified records at the direction of Mr. Brikmanis, whose evidence would limit this deceptive conduct to June or July 2011 to August 2011.

[259] Had I concluded that Mr. Wasney instructed the falsification of warranty claims, but only from June or July 2011 until August 2011, Blue Falls’ damage claim for false warranty claims would have been limited to this one to two-month period. The Defendants did not tender sufficient evidence to allow for calculation of damages for this one to two month period because the Revised Warranty Spreadsheets compute the damages for a five year period, and do not categorize the false warranty claims chronologically. Accordingly, had the Defendants established that ASOI filed false warranty claims, but only for the period from June or July 2011 to August 2011, there would not have been any damages capable of calculation on the evidence tendered at trial.

E. Conclusion – ASOI Did Not Breach the Governing Dealer Agreement

[260] I conclude that Blue Falls failed to discharge its burden of establishing that ASOI breached the Governing Dealer Agreement in either of the two ways submitted by Blue Falls, either by selling competitors’ products or by filing false warranty claims. As Blue Falls did not establish a contractual breach by ASOI of the Governing Dealer Agreement, Blue Falls is not entitled to damages against ASOI. I therefore find that both claims advanced by Blue Falls by counterclaim, specifically Blue Falls’ Lost Profit Counterclaim and Blue Falls’ counterclaim for damages resulting from alleged false warranty claims, are dismissed.

[261] Blue Falls did not establish that ASOI fundamentally breached the Governing Dealer Agreement. Blue Falls is therefore not relieved of its duty to provide ASOI with reasonable notice on termination of the Governing Dealer Agreement. Blue Falls will thereby be liable to ASOI in damages if it failed to provide reasonable notice upon termination of the Governing Dealer Agreement.

VI. DID BLUE FALLS BREACH THE GOVERNING DEALER AGREEMENT WITH ASOI BY FAILING TO PROVIDE REASONABLE NOTICE ON TERMINATION?

[262] For reasons explained earlier, I have found that at the time of the termination of the dealer relationship between Blue Falls and ASOI on September 27, 2011, these parties had been in a manufacturer/dealer relationship since November 1, 2001: almost ten years. I also found that there was no written contract in place between the parties at the time of termination. Rather, the parties conducted their business further to the material terms of the 2010 Dealer Agreement which continued after expiry as a contract of indefinite duration with an implied clause allowing for termination by either party on reasonable notice, which I refer to as the Governing Dealer Agreement (para. 202 of these Reasons).

[263] On September 27, 2011, Blue Falls terminated “any and all agreements that have been previously entered into with [ASOI]” on one month’s notice. The question is whether one month’s notice constitutes reasonable notice, in all the circumstances.

[264] The parties’ positions varied significantly on the amount of notice that would be reasonable. ASOI contended that a reasonable notice period is “at least three years”. The Defendants’ principal submission was that the 2011 BF Draft Dealer Agreement should apply and that the damages applicable to its breach should extend only to December 31, 2011: three months post-termination. The Defendants’ first alternative position was that the 2010 Dealer Agreement should apply, including its termination clause permitting either party to terminate “at any time”, providing for no notice. The Defendants’ second alternative position was the amount of reasonable notice should be calculated only on a dealer relationship from January 1, 2010 to September 27, 2011, with the result that three months’ notice would be reasonable. The Defendants’ third alternative position was that reasonable notice would be no more than six months, based on a dealer relationship from November 2001 to September 2011.

[265] The Defendants’ primary and first alternative positions on the issue of reasonable notice are rejected on my determination of the Governing Dealer Agreement. This determination ruled out the applicability of the 2011 BF Draft Dealer Agreement and found that the termination provision in the 2010 Dealer Agreement was not applicable after contract expiry, but rather the material terms of the 2010 Dealer Agreement continued after expiry as a contract of indefinite duration with an implied clause allowing for termination by either party on reasonable notice.

[266] Similarly, the Defendants’ second alternative position on the issue of reasonable notice is rejected by my earlier finding that the dealer relationship between ASOI and Blue Falls was almost ten years in duration, and is not limited to the time from the inception of the 2010 Dealer Agreement (January 1, 2010) to termination of the dealer relationship (September 27, 2011). I explained earlier that the 2010 Dealer Agreement was a continuum of the 2001 Dealer Agreement, and that the dealer relationship between ASOI and Blue Falls commenced on November 1, 2001 and continued by conduct to termination. Accordingly, the reasonable notice period must be analysed on the basis of a dealer relationship of almost ten years.

[267] I turn then to the Plaintiffs’ position that the reasonable notice period on termination was three years, and the Defendants’ third alternative position that the reasonable notice period is no more than six months. The common law principles applicable to the assessment of a reasonable notice period are well-established. The parties’ debate was limited to the application of these principles to the facts of this case.

[268] In Boa-Franc, the Court of Appeal explained, at para. 45, that the assessment of reasonable notice will depend on “the circumstances of each case”, which will include factors such as: (i) the expectations of the parties; (ii) the duration or intended duration of the relationship; (iii) the dependency of the business of the terminated party on the arrangement; and (iv) the commercial climate for the product. In Construction Distribution & Supply Co., 2016 ONSC 4042, at para. 22, Justice Faieta added to this list a further factor: “the manner in which the termination of the relationship was disclosed to the distributor”, as did MacDonald J. in Cosco Inc. v. Cambridge Recreation Products Inc., [1995] O.J. No. 717 (Gen. Div.), at para. 34. In JMT Phillips, at paras. 47-52, MacKenzie J. also considered the “level of investment made by the distributor to distribute the principal’s product and the volume of business derived from the sale of the principal’s product”, as well as “the established practice, if any, in the trade or business”.

[269] The assessment of the amount of reasonable notice must be made by reference to the facts that existed at the time that notice of termination was given, not by the facts that existed at the time that the contract was first put in place: Clarke, Irwin & Co. v. George C. Harrap & Co., [1980] O.J. No. 482 (H.C.), at para. 44, affirmed [1982] O.J. No. 2050 (C.A.); Western Equipment Ltd. v. A.W. Chesterton Co., 1983 CanLII 527 (BC SC), [1983] B.C.J. No. 1831 (B.C.S.C.), at para. 31. In Paper Sales Corporation Ltd. v. Miller Bros. Co. (1962) Ltd. (1975), 1975 CanLII 555 (ON CA), 7 O.R. (2d) 460 (C.A.), the Ontario Court of Appeal upheld the trial judge’s analysis, who instructed, at para. 8, that: “Each case must depend upon its own circumstances and upon the general nature of the situation”.

[270] In consideration of the factors pertinent to the determination of the amount of reasonable notice, the evidence established the following:

1. Expectation of the Parties: The common expectation of ASOI and Blue Falls was to achieve maximum market penetration for Arctic Spa Products and profitability to both manufacturer and distributor. I find that the parties entered their relationship with these common objectives and the expectation that ASOI and Blue Falls would work collaboratively to achieve them. However, at the time of termination, there was a clear divergence between the parties on the issue of mutual exclusivity and their conduct demonstrated that they did not agree on the parameters of warranty support. I found that neither Blue Falls nor ASOI could have expected, at the time of termination, that their relationship could productively continue given these core differences. I am validated in this finding by Mr. Wasney’s consideration of an alternate distributorship arrangement with Jacuzzi. This would support a shorter notice period.

2. The Intended Duration of the Relationship: I have found that the parties’ dealer arrangement was not perpetual. All the dealer agreements, although expired, had fixed terms and termination provisions. At the time of termination, Mr. Wasney was considering a proposal to become a Jacuzzi dealer. I find that the parties expected that their dealer relationship was periodically reviewable and capable of termination on reasonable notice by either party. My assessment of this factor would support a shorter notice period.

3. The Dependency of the Business: ASOI was a model Dealer of Arctic Spa Products. It had invested a decade and financial resources in promoting this line of spas. I accept Mr. Wasney’s evidence, as it is corroborated by the financial statements, that approximately 95% of ASOI’s business was in the sale of Arctic Spa Products. A transition to a different product line would clearly involve time and expense. My assessment of this factor would support a longer notice period.

4. The Commercial Climate for the Product: The Defendants sought to establish, as part of their evidence on the issue of damages, that the market for hot tubs in southern Ontario had declined by 2011. In my view, they failed to do so. I accept Mr. Wasney’s evidence that the market for hot tubs remained healthy in 2011 and there were consumers receptive to this product, and that lack of supply would harm ASOI. My assessment of this factor would support a longer notice period.

5. The Level of Investment Made by the Distributor: Mr. Wasney testified that ASOI spent “millions” promoting awareness for the Arctic Spa brands and spent $301,892.77 to purchase the Richmond Hill Arctic Spa location. 2287913 Inc. spent $1,200,000 to purchase ERSP Ltd.’s shares in ASOI. This level of investment and financial commitment would support a longer notice period.

6. Established Practice: Neither party led meaningful evidence of industry practice of notice periods in termination of dealership agreements. ASOI submitted that I should be guided by the three-year term of the Buy-Out Non-Competition Agreement, the five-year term of the Non-Competition Agreement entered into by Blue Falls on its buy-out of the Richmond Hill location, and the five-year term of the MPOA Restrictive Covenant. I do not accept this submission because restrictive covenants have a different role, at law, than notice periods on termination. The Plaintiffs did not present any case law that would support reference to a restrictive covenant to inform determination of a notice period on termination of a distributorship agreement. This is a neutral factor in assessment of a reasonable notice period.

7. The Manner in Which the Termination was Disclosed: As explained earlier, I found that the termination of the dealership arrangement was the culmination of months of acrimony between Messrs. Amendt, Macklin and Kellner and Mr. Wasney. Mr. Wasney may not have believed or anticipated that Blue Falls would terminate its largest dealer, by sales volume, but could not have been shocked or surprised, based on the circumstances that existed at that time. This supports a shorter notice period.

[271] Although the assessment of reasonable notice is factually specific to each case, I considered the approaches taken, and the findings made by other courts in the case law presented by the parties. The Plaintiffs did not present any case authority that would support ASOI’s claim for a reasonable notice period of three years.

[272] In JMT Phillips, the Court found a reasonable notice period of six months upon termination of an eight year distributorship arrangement, founded on a letter agreement that did not have a termination provision, and declined to apply a two-year notice provision contained in a draft, unexecuted dealer agreement. In Boa-Franc, the Court found a six-month notice period following termination of a ten-year exclusive distributorship arrangement where there was no evidence that the plaintiff would suffer loss after termination because the plaintiff could sell from inventory.

[273] In Marbry v. Avrecan International Inc., 1999 BCCA 172, at para. 54, the B.C. Court of Appeal reduced the motion judge’s finding of 15 months of notice to 9 months, in a 10-year exclusive distributorship arrangement where nearly 90% of the product sold by the distributor was from the manufacturer, and the distributor was unable to find replacement product. A similar finding of nine-months of reasonable notice was found in JKC Enterprises Ltd. v. Woolworth Canada Inc., 2001 ABQB 791, where the plaintiffs provided trucking services to the defendants, who were their only customer. The Court found that the relationship constituted an exclusive distributorship, with 16 years duration.

[274] In Western Equipment, at para. 42, the Court held that the Plaintiff was entitled to ten-months of notice upon termination of a 15-year exclusive distributorship relationship and where there was significant reliance on the supply of the defendant’s products. The cases that have found 12-months of notice had very lengthy, exclusive relationships. In Clarke, Irwin & Co., the plaintiff was an exclusive distributor of the defendant’s dictionaries for 47 years, which accounted for upwards of 20% of its total sales. The Court found, at paras. 41-49, that the plaintiff had worked hard to promote the defendant’s products and had sustained a loss of profit on termination, supporting a 12-month notice period. In Western Fashion Group Inc. v. Richman Consulting Group Inc. (c.o.b. Richman Group), 2018 MBQB 186, 4 W.W.R. 363, the plaintiff had been the exclusive sales representative for the defendant for 55 years, and the sales of the defendant’s products accounted for 25 to 27% of revenue. This was seen to support a finding of 12-months’ notice. And last, in Paper Sales Corporation, the plaintiff had been an exclusive sales agent of the defendant for 36 years, and its employees dedicated at least 40% of their time to the sale of the defendant’s products. The Ontario Court of Appeal affirmed the trial decision that 12 months was the reasonable period of notice of termination.

[275] At the core of my inquiry is an assessment of the true nature of the relationship – the business integration – between ASOI and Blue Falls at the time of termination. There is no debate that ASOI was the largest volume Dealer of Arctic Spa Products and had held this role for a significant part of the 10-year distributorship relationship. There was a high degree of economic dependence, in that ASOI relied on Blue Falls for 95% of the product inventory that it sold. ASOI had made a meaningful monetary investment in its promotion and sale of Arctic Spa Products, had a sales and service staff that were specifically trained to deal with Arctic Spa Products and was poised to continue in the retail sale of hot tubs without interruption. All these factors would support a longer notice period in the range of six to nine months.

[276] However, there are several factors that would support a shorter notice period. I found that at the time of termination, the relationship between Blue Falls and ASOI had significantly soured. Mr. Wasney was increasingly critical of Blue Falls’ production and manufacture of its lower entry spas from its Spokane facility, chronically critical of Blue Falls’ warranty program, angry about the discrepancy that he perceived in pricing and disrespectful of Messrs. Amendt, Macklin and Kellner. ASOI knew that its distributorship arrangement was impermanent. ASOI’s own draft dealer agreement, prepared on April 5, 2011 – the 2011 ASOI Draft Dealer Agreement – set out ASOI’s proposal that the dealer agreement would “expire on December 31 in the year of signing”.

[277] But perhaps most importantly, ASOI did not, at any time, commit to selling only Arctic Spa Products. Unlike certain of the cases that found longer notice periods, the relationship between Blue Falls and ASOI did not involve mutual exclusivity in product distribution and sales. At the time of termination, ASOI had a developed relationship with Premium Leisure and a developing relationship with Jacuzzi. ASOI had begun to look elsewhere for its future in retail sales of hot tubs prior to the termination, as shown by the speed by which it transitioned from a long-standing retailer of Arctic Spa Products to its role as an exclusive dealer of Jacuzzi products. ASOI signed the Jacuzzi Dealer Agreement on September 28, 2011, the day after the Blue Falls’ termination. ASOI had already laid the necessary groundwork for immediate transition into a new distributorship agreement. ASOI thereby had available a ready source of hot tub products to replace the Arctic Spa line and continue its business post-separation from Blue Falls. These considerations all support a shorter notice period of three to six months.

[278] Taking into consideration all pertinent factors, and on the basis of the analysis explained herein, I conclude that a reasonable notice period owed to ASOI by Blue Falls on the termination of the Governing Dealer Agreement on September 27, 2011 was six months.

VII. WHAT IS THE MEASURE OF DAMAGES RESULTING FROM TERMINATION OF THE DEALER AGREEMENT BETWEEN BLUE FALLS AND ASOI?

[279] As Blue Falls provided ASOI with one month’s notice on termination, and as I have found that the reasonable notice period on this termination was six months, Blue Falls failed to provide ASOI with five months’ notice. I will now quantify the damages that result from Blue Falls’ failure to provide this notice.

[280] To assist in the quantification of damages, the parties tendered the opinion evidence of two experts. The Plaintiffs proffered the opinion evidence of Vincent Conte, solely regarding the damages alleged to have been sustained by ASOI. No expert evidence was tendered pertaining to the losses alleged to have been sustained by 2287913 Inc. The Defendants tendered the opinion evidence of Jacob Dwhytie.

[281] Although parties consented to the qualifications and scope of testimony of the two experts, I assessed the admissibility of opinion evidence by both expert witnesses in accordance with the two-stage test set out by the Ontario Court of Appeal in R. v. Abbey, 2017 ONCA 640, 140 O.R. (3d) 40, as applied in Imeson v. Maryvale (Maryvale Adolescent and Family Services), 2018 ONCA 888, 143 O.R. (3d) 241, which drew on the test set out by the Supreme Court of Canada in R. v. Mohan, 1994 CanLII 80 (SCC), [1994] 2 S.C.R. 9, and White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, 2 S.C.R. 182. I admitted both witnesses to testify, subject to my assessment of the weight to be attributed to the opinion evidence: Graat v. R., 1982 CanLII 33 (SCC), [1982] 2 S.C.R. 819, at p. 838: “The weight of the evidence is entirely a matter for the judge or judge and jury. The value of opinion will depend on the view the court takes in all the circumstances.”

A. Expert Opinion Evidence of Vincent Conte

[282] Vincent Conte has an undergraduate degree in mathematics, a graduate degree in accounting and is a Chartered Professional Accountant (CPA), a Chartered Business Valuator (CBV) and a Chartered Financial Analyst (CFA). Mr. Conte was qualified, without objection, as an expert business valuator, whose permissible scope of testimony was to provide expert opinion evidence in business valuation and the quantification and analysis of economic loss and damages. By way of experience, Mr. Conte testified that he has conducted approximately 300 valuations.

[283] Mr. Conte testified that he analysed the economic damages sustained by ASOI that resulted from the termination of the dealer relationship with Blue Falls by using a “Before and After Approach” to quantify “Lost Profit Differential”. This involved analyzing ASOI’s profit prior to the termination and comparing it to profit that ASOI would have earned post-termination. Mr. Conte explained that ASOI’s pre-termination profits and its actual post-termination profits are readily determinable from ASOI’s financial statements, but that to quantify losses arising from the termination, he must project an income for ASOI post-termination that represents what ASOI would have earned but for the termination. Of course, the post-termination projected profits would be reduced by actual profits earned by ASOI after the date of termination as it transitioned into the sale of Jacuzzi products.

[284] Mr. Conte testified, without serious challenge in cross-examination, that this model for analysis is the simplest and most certain because ASOI’s history of earnings before the termination was “highly reliable” and allowed for identification of a trend based on historical evidence. It also required fewer assumptions than the other analytical models that Mr. Conte had considered and dismissed.

[285] ASOI’s income from operations grew steadily from $461,112 in 2007 to $477,558 in 2008, $600,597 in 2009 to $759,659 in 2010. None of these values were contested in cross-examination. Mr. Conte adjusted these values by adding back two non-operational items: long-term interest and shareholder and management fees. Once he did so, ASOI’s historical income from operations was increased to $607,180 in 2007, $563,648 in 2008, $759,628 in 2009 and $818,796 in 2010.

[286] Mr. Conte disregarded ASOI’s income from operations for 2011, which was $278,285, or $283,936 once adjusted by adding non-operational items. This represented a 65% single-year decline in income, and the first significant reversal in profitability in ASOI’s recent history. Mr. Conte testified that he disregarded ASOI’s 2011 actual income from operations in projecting ASOI’s future profitability because, in his view, ASOI’s 2011 year was affected by the termination of the Dealer Agreement on September 27, 2011. As ASOI’s fiscal year-end is November 30, the termination of the Dealer Agreement took place only two months from its year end.

[287] Mr. Conte testified that to determine ASOI’s lost profit differential, “Before and After” the termination, he compared ASOI’s actual post-termination adjusted income from operations with the projected adjusted annual income from operations. From the adjusted values for fiscal year-ends 2007-2010, Mr. Conte determined that ASOI’s adjusted income from operations should be projected forward, on an annualized basis, using the 2010 adjusted income from operations: specifically, $818,796. In his opinion, this reflected what ASOI would have earned in 2011 and 2012 but for the termination, and would thereby produce the most accurate calculation of the loss of profit sustained by ASOI resulting from the termination.

[288] Mr. Conte began his lost profit differential analysis with the two months remaining in ASOI’s 2011 fiscal year: October and November 2011.

[289] Mr. Conte applied ASOI’s actual adjusted income from operations for all 12 months of 2011 ($283,936) to only the first ten months, and deducted this from a pro-rated amount of expected income of $818,796: specifically, $682,330, being 10/12ths of $818,796. This produced a loss of -$398,394 attributable to the first 10 months of 2011 ($682,330 - $283,936) which, with modest adjustments for interest and fees, Mr. Conte reduced to -$397,452. Mr. Conte then attributed to October and November 2011 a loss of -$136,466, being 2/12ths of $818,796. Accordingly, Mr. Conte opined that ASOI’s sustained a loss of profits at year end November 30, 2011 of $533,918, consisting of a loss of $397,452 calculated by reference to the first 10 months of 2011 and a loss of $136,466 attributable to October and November 2011, specifically.

[290] Mr. Conte conducted a similar analysis for ASOI’s 2012 fiscal year: December 1, 2011 to November 30, 2012. Mr. Conte calculated that ASOI sustained an actual loss of income from operations in its 2012 fiscal year of -$76,422. Mr. Conte projected that, but for the termination, ASOI would have had adjusted income from operations in its fiscal year 2012 of $818,796. Accordingly, Mr. Conte opined that ASOI sustained a loss of profits of $895,218 in its 2012 fiscal year ending November 30, 2012 ($818,796 + $76,422). This produced a monthly loss to ASOI of $74,601.50.

[291] Mr. Conte conducted identical “Lost Profit Differential” analyses for ASOI’s fiscal years 2013 to 2017, not because he considered that they were required by a damage theory based in law, but rather because he had the data available from the financial statements produced in this action for ASOI’s year ends from 2011 to 2017. I do not consider that it is necessary to address these damage calculations for the years 2013 to 2017, based on my determination that the reasonable notice period on termination was six months, which expired in ASOI’s 2012 fiscal year.

[292] Mr. Conte also produced profit loss calculations based on what he referred to as the “Total Lost Profits” approach, which presumed that ASOI would have sold both Arctic Spa Products and Jacuzzi products, and thereby increased its overall sales. This approach produced higher profit loss values for ASOI resulting from the termination of the Dealer Agreement. I did not accept this damage approach because there was no evidence that ASOI would have been in a position to have sold both Arctic Spa Products and Jacuzzi products, and because there was no evidence that had it done so, it would have increased its sales as opposed to dividing its sales between the two product lines. Mr. Conte conceded that the concept of “cannibalization” was applicable, explaining that where two product lines of competing products are offered for sale, the retailer will likely have the same overall level of product sales on the basis that a single customer would only purchase one of the two hot tub products offered for sale.

[293] Last, Mr. Conte conceded that the third loss scenario that he considered, “Value of Business Less Assets”, was not appropriate to calculation of ASOI’s profit loss resulting from the termination of the dealer relationship.

[294] Applying Mr. Conte’s “Before and After” approach to calculation of lost profits differential to a notice period of 6 months produced a damage claim of $832,324, plus pre-judgment interest. Mr. Conte calculated this as follows: (i) lost profits for the two months (October, November) remaining post-termination in ASOI’s year ending November 30, 2011 in the amount of $533,918; and (ii) 4 months of notice in ASOI’s fiscal year 2012, at a value of $74,601.50 each month producing $298,406 (4/12ths of $895,218). This overstated ASOI’s damage claim for lack of reasonable notice because Blue Falls must be credited for the one month’s notice that it provided to ASOI.

B. Expert Opinion Evidence of Jacob Dwhytie

[295] Jacob Dwhytie has undergraduate and graduate university degrees in economics and is a Chartered Financial Analyst (CFA) and a Chartered Business Valuator. Mr. Dwhytie works as a business valuator and economist, specializing in valuation of businesses and securities, and analysis and quantification of economic loss. Identical to Mr. Conte’s qualification as an expert witness, Mr. Dwhytie was qualified, without objection, as an expert business valuator, whose permissible scope of testimony was to provide expert opinion evidence in business valuation and the quantification and analysis of economic loss and damages.

[296] Mr. Dwhytie testified that he examined two areas and prepared two reports, one in relation to each analysis, as follows: (i) he commented on the analysis conducted by Mr. Conte, provided his own analysis of the economic losses, if any, sustained by ASOI as a result of the termination of the dealer arrangement; (ii) he analysed certain of the losses alleged to have been sustained by Blue Falls arising from Blue Falls’ termination of the dealer arrangement arising from alleged breaches by ASOI, except that he was not directed to conduct any analysis of the alleged false warranty claims. As I have dismissed Blue Falls’ counterclaim, it is not necessary to address Mr. Dwhytie’s analysis of Blue Falls’ claims.

[297] Mr. Dwhytie examined two of the methodologies employed by Mr. Conte: the “Before and After” or “Lost Profit Differential” approach, which compared ASOI’s profit level before the termination and after; and the “Total Lost Profit” approach. He also conducted a “Lost Business Value” analysis. Mr. Dwhytie was critical of the “Total Lost Profits” approach as inappropriate for use in assessment of economic loss to ASOI in this case, on the same grounds that I explained earlier in preferring the Lost Profit Differential approach. I accept Mr. Dwhytie’s evidence that, in this case, the Lost Profit Differential approach is the preferred method for the calculation of ASOI’s loss resulting from lack of reasonable notice on termination. Mr. Dwhytie’s critiqued Mr. Conte’s computations using the Lost Profit Differential approach, offered his opinions regarding appropriate values, and also computed ASOI’s lost business value to “set the bounds” of ASOI’s losses arising from the termination.

[298] Mr. Dwhytie agreed with Mr. Conte that the loss period began October 1, 2011 and set upon assessing the difference between what ASOI earned after October 1, 2011 and what it earned before. Based on my finding that ASOI is entitled to six months’ notice, I will focus on Mr. Dwhytie’s evidence for this period.

[299] Both experts agreed that ASOI’s adjusted income from operations had declined 65% from its 2010 level of $818,796 to its 2011 level of $283,936. Both experts accepted these adjusted income values, including the “adding back” of the non-operational items. Both agreed that this drop was significant. Both experts also agreed that ASOI sustained a loss from operations in 2012 of -$76,422. The controversy between the experts was how to employ these values to project what ASOI would have earned post-termination. The focus of the disagreement between Mr. Dwhytie and Mr. Conte in applying the Lost Profit Differential Approach resulted from difference in the treatment of ASOI’s adjusted income from operations in 2011, and its use in projecting future income.

[300] Mr. Conte attributed the decline in annual adjusted income from $818,796 (2010) to $283,936 (2011) to the termination of the dealer arrangement. Mr. Dwhytie testified that this decline was due to other factors, specifically: (i) greater competition in the retail marketplace for hot tubs, putting pressure on pricing and resultant lower profit margins; (ii) change in consumer demand for product mix, with a movement to entry level spas (which had lower mark-up) than more profitable high-end hot tubs. Mr. Dwhytie testified, further, that the 65% drop in adjusted income from operations could not have resulted from the termination of the dealer arrangement because the Blue Falls Termination Letter allowed ASOI to continue to order Arctic Spa Products until October 31, 2011 and because the consumer payment for hot tubs was made on delivery, thereby providing for incoming revenue into October/ November of 2011 for ASOI from sales of Arctic Spa Products that were ordered by customers prior to termination.

[301] This disagreement between Mr. Conte and Mr. Dwhytie significantly impacted the calculation of loss using the Lost Profit Differential Approach in two ways:

1. Mr. Conte disregarded ASOI’s 2011 adjusted income from operations from his calculation of projected post-termination adjusted annual income, and instead used the 2010 adjusted income from operations ($818,976). Mr. Dwhytie instead projected ASOI’s adjusted annual income from operations post-termination by not only applying the 2011 income ($283,936) but by employing a “weighted average”, using ASOI’s 2009, 2010 and 2011 adjusted incomes from operations ($759,628, $818,796 and $283,936, respectively) and attributing to them a weight of 1x, 2x and 3x, respectively. Mr. Dwythie testified that he put most weight on the most recent year because it is the best indicator of future years. This not only brought the 2011 income into the computation of projected annual income – contrary to Mr. Conte’s decision to exclude it – but attributed to it disproportionately more weight than ASOI’s 2009 and 2010 annual income levels. This calculation produced a weighted average of $541,505 in projected adjusted annual income for ASOI’s fiscal year end 2012 and onward: significantly below Mr. Conte’s use of $818,976 as ASOI’s projected adjusted annual income.

2. Mr. Dwhytie testified that ASOI did not sustain any loss in its 2011 fiscal year attributable to the termination. Mr. Dwhytie stated that only the months of October and November 2011 remained in ASOI’s fiscal year at the time of termination, and, in his view, ASOI would have realized an annual income of $283,936 and thereby would have sustained a 65% drop from the previous year’s income regardless of the termination on September 27, 2011.

[302] Mr. Dwhytie’s application of the Lost Profit Differential approach to quantifying ASOI’s losses from termination would, in Mr. Dwhytie’s opinion, support a damage claim of $205,976 for a six-month notice period. Mr. Dwhytie calculated this as follows. First, no amount would be awarded to ASOI for the two month-notice period remaining in the 2011 fiscal year (October and November). Second, ASOI would be attributed a projected adjusted income from operations of $541,505 (the weighted average) plus ASOI’s loss from operations in 2012 of -$76,422, resulting in total actual losses from operations in 2012 of -$617,927. ASOI would be awarded, in Mr. Dwhytie’s opinion, monthly losses for the four months remaining in the notice period, in the amount of $51,494 each month ($541,505 + 76,422 = $617,927, divided by 12) totaling $205,976.

[303] Mr. Dwhytie testified that he also prepared a “Lost Business Value” analysis resulting from the termination of the Dealer Agreement, by calculating the value of ASOI immediately prior to termination on September 27, 2011 and after. Mr. Dwhytie testified that “lost business value does a better job of putting some bounds around the total value of ASOI’s losses”.

[304] To calculate the Lost Business Value, Mr. Dwhytie attributed to ASOI a value of $2.4 million as at September 27, 2011. He derived this value, simplistically, by doubling the $1.2 million that 2287913 Inc. paid on July 1, 2011 for the 50% shareholding in ASOI formerly owned by ERSP Ltd., and presuming that there were no developments in the intervening period that materially affected ASOI’s value. Mr. Dwhytie computed the value of ASOI on October 1, 2011 to be $1,980,730. Mr. Dwhytie explained that once Blue Falls terminated its dealer relationship, ASOI lost some of its “brand value”. This represented a loss in business value of ASOI of $419,270, which when grossed up for income taxes at 26.5% ($151,165) produced a total business value loss of $570,436. Mr. Dwhytie expressed the opinion that this constituted the “upper bounds” of ASOI’s losses resulting from termination of the dealer relationship.

C. Analysis – Damage Quantification

[305] Courts have held that when reasonable notice is not given, the measure of damages “should be an amount equal to prospective profits the distributor would have earned during the time period that would have been considered as reasonable notice”: JMT Phillips, at para. 48, citing Clarke, Irwin & Co.

[306] I accept that the most appropriate analytical model to determine ASOI’s loss of profits during the six-month notice period is the “Before and After” Lost Profits Differential approach. I also accept the foundational values that the expert jointly employed: ASOI’s actual adjusted income from operations was $607,180 for 2007; $563,648 for 2008; $759,628 for 2009; $818,796 for 2010; $283,936 for 2011; and (-$76,422) for 2012.

[307] I found that both experts provided evidence in a fair and unbiased manner, but that both based their analysis on facts that were not established in the evidence or did not take into consideration facts that were established. This was particularly acute in relation to the two months remaining in ASOI’s 2011 fiscal year after the September 2011 termination. The reliability of Mr. Conte’s opinion that all of the loss sustained by ASOI during October and November 2011 was attributable to the termination was, in my view, detrimentally impacted by the following: (i) Mr. Conte did not take into consideration that by the terms of Blue Falls’ termination, ASOI was able to continue to order Arctic Spa Products for a further 30 days which meant that for one-half of this two-month period, ASOI could continue to sell Arctic Spa Products; (ii) Mr. Conte proceeded on the basis that potential for sale of the inventory of Arctic Spa Products in ASOI’s possession on termination was tainted, without any evidentiary basis for this proposition; (iii) Mr. Conte did not consider whether there was any basis for the 65% decline in ASOI’s income from 2010 to 2011 apart from the termination; (iv) Mr. Conte applied a 5% liquidation mark-up on ASOI’s sale of Arctic Spa Products after termination, solely based on a conversation with Mr. Wasney, without verification in the financial records; (v) Mr. Conte referred, in his evidence, to ASOI having incurred costs of $200,000 in October and November 2011 for signage and advertising as part of ASOI’s transition, without verification in the financial records.

[308] I found that the reliability of Mr. Dwhytie’s opinion that ASOI sustained no loss in October and November 2011 attributable to the termination was detrimentally impacted by his reliance on factual propositions that were not established, as follows: (i) Mr. Dwhytie’s opinion that ASOI’s 65% drop in income from 2010 to 2011 was caused or contributed to by shift in product mix away from the higher-priced Arctic brand hot tubs to lower-priced Apollo brand hot tubs was based on incomplete records that were effectively challenged in cross-examination; (ii) Mr. Dwhytie’s opinion that ASOI’s 65% drop in income from 2010 to 2011 was caused or contributed to by “broader industry trends”, such as increased competition in the retail marketplace for hot tubs or change in customer preference, was not supported by reliable admissible evidence. Mr. Dwhytie relied on a single comment made by Mr. Wasney, only to admit in cross-examination that he had “made a bit of a jump” in doing so. And Mr. Dwhytie relied on sales data provided by Blue Falls that was shown, in cross-examination, to be incomplete and insufficient to establish that the shift in the retail marketplace in southern Ontario for hot tubs explained a 65% one-year decline in revenue. And perhaps most significantly, Mr. Dwhytie’s analysis of Blue Falls’ financial statements showed that Blue Falls’ post-termination sales to its dealers in ASOI’s former territories increased every year from 2012 to 2017: as much as 32% in a single year. I thereby could not accept Mr. Dwhytie’s evidence that an established, model Dealer of Arctic Spa Products had a single year 65% loss in income due to marketplace/ product mix considerations in the same marketplace that thereafter experienced significant, steady year-to-year increases in sales.

[309] For these reasons, I rejected Mr. Dwhytie’s opinion that ASOI did not sustain a loss of profit resulting from the termination in October and November 2011. Mr. Dwhytie did not provide an alternate damage computation for consideration in the event that I should determine that ASOI sustained losses in October and November 2011 arising from the termination. I accepted, however, Mr. Dwhytie’s opinion that ASOI sustained a loss of business value of $570,436, as this opinion was not contested by Mr. Conte’s analysis and, in my view, not affected by cross-examination.

[310] I accept Mr. Conte’s assessment that ASOI sustained a loss of profit in its 2011 fiscal year caused by Blue Falls’ termination of the dealer relationship. I also accept Mr. Conte’s computation of ASOI’s loss of profits of $533,918 in October and November of fiscal year 2011 but find that this two-month value must be adjusted to account for two factors that were not considered by Mr. Conte. Blue Falls provided one-month’s notice, that would account for October 2011, and that the one-month’s notice provided by Blue Falls authorized ASOI to continue to order and sell Arctic Spa Products. I thereby conclude that ASOI has established an entitlement to one-half of the profit loss quantified by Mr. Conte as sustained in October and November 2011, specifically $266,959.

[311] I turn then to the computation of the loss of profits sustained by ASOI for the remaining four months of its notice period: being December 2011, and January, February, and March of 2012.

[312] In accepting that ASOI sustained a loss of profits of $533,918 in October and November 2011, I previewed that I have accepted Mr. Conte’s opinion that ASOI’s projected post-termination loss of income should be set at $818,796. I have thereby rejected Mr. Dwhytie’s opinion that ASOI’s projected post-termination loss of income should be the weighted average of $541,505. I will explain why.

[313] First, I have accepted that ASOI’s income for fiscal year 2011 was impacted by the termination of the Governing Dealer Agreement. Accordingly, to use the fiscal year 2011 income value of $283,936 as a projection of future income absent the termination would not be accurate, or fair. Second, the application of a weighted average exaggerates this issue, because the 2011 income value would be given an enhanced (3x) role in deriving the weighted value. Third, both experts agreed that the most recent, reliable income value should have prominence in projection of future income and, in my view, the 2010 income from operations was most representative of ASOI’s income earning prior to termination. Fourth, using the 2010 income from operations reflected ASOI’s historic pattern of increasing income from operations on a year to year basis. Fifth, Blue Falls’ evidence did not establish that ASOI would have sustained a loss of income even absent the termination.

[314] In applying the value of $818,796 as ASOI’s projected income from operations post-termination, and then adding ASOI’s actual loss from operations in 2012 of -$76,422, I find that ASOI sustained a loss in its 2012 fiscal year of $895,218. This produces a monthly loss of $74,601.50. Four months of such loss is $298,406. Together with the loss in November 2011 of $266,959, I find that ASOI sustained a loss of $565,365 arising from Blue Falls’ failure to provide six months’ notice on termination of the Governing Dealer Agreement. ASOI is entitled to pre-judgment interest on this amount.

[315] Last, I observe that this amount of lost profits, $565,365, is less than the amount of the lost business value derived by Mr. Dwhytie of $570,436. Mr. Dwhytie stated that he calculated ASOI’s lost business value to “test the reasonability of the lost profit differential computation”. While lost profit differential, and not lost business value, is applicable to the assessment of profit loss deriving from breach of a notice period, the value that I have derived comes within Mr. Dwhytie’s computation of ASOI’s lost business value.

D. Conclusion – Damages for Blue Falls’ Failure to Provide Reasonable Notice

[316] I conclude that ASOI has established an entitlement to six-months’ notice on Blue Falls’ termination of the Governing Dealer Agreement, which I have quantified in the amount of $565,365. ASOI is also entitled to pre-judgment interest and post-judgment interest on these damages, in accordance with ss. 128 and 129 of the Courts of Justice Act, R.S.O. 1990, c. C.43.

VIII. DID THE RELATIONSHIP BETWEEN BLUE FALLS AND ASOI CONSTITUTE A FRANCHISE AND, IF SO, DID BLUE FALLS BREACH ITS DUTY OF GOOD FAITH AND FAIR DEALING?

[317] The Plaintiffs submitted that the relationship between Blue Falls and ASOI constituted a franchise, under the terms of the Wishart Act, and that Blue Falls breached the franchisor’s duty of fair dealing. Blue Falls contended that it was not a franchisor, and that the Wishart Act has no application. I will explain why I found that the relationship between Blue Falls and ASOI was not a franchise.

[318] “Franchise” is defined in s. 1(1) of the Wishart Act. A franchise is a “right to engage in a business” where the franchisee is required to make payments to the franchisor “in the course of operating the business or as a condition of acquiring the franchise or commencing operations” and one of the following two sets of criteria are established:

1. The franchisor grants the franchisee the right to sell or distribute products associated with the franchisor’s trademark and “the franchisor … has the right to exercise or exercises significant control over”, or has the right to provide “significant assistance in” the franchisee’s method of operation; or

2. The franchisor grants the franchisee “representational or distribution rights, whether or not a trade-mark … is involved” to sell or distribute goods or services supplied by the franchisor and the franchisor “provides location assistance, including securing retail outlets or accounts for the goods” to be sold or distributed or securing “locations or sites” for the franchisee.

[319] The absence of a written franchise agreement is not determinative of the existence of a franchise, but rather the determination of a franchise depends upon satisfaction of the criteria set out in the Wishart Act: 1706228 Ontario Ltd. v. Grill It Up Holdings Inc., 2011 ONSC 2735, 88 B.L.R. (4th) 191, at paras. 27-29, 31; Fyfe v. Vardy (Dial A Bottle), 2018 ONSC 5066, at para. 8. When these criteria are met, the parties are in a relationship of franchisee/ franchisor regardless of their characterization or description of their relationship: Chavdarova v. The Staffing Exchange, 2016 ONSC 1822, at para. 33, aff’d 2016 ONCA 874. The Plaintiffs placed great weight on James Keirstead’s statement in a document entitled “Blue Falls Manufacturing: Turning Market Knowledge into a Competitive Edge, November 2006”, published by the Small Business Policy Branch of Industry Canada, and which I ruled admissible in accordance with the public documents exception: 2287913 Ontario Inc. v. ERSP International Enterprises Ltd., 2021 ONSC 3080. In the document, James Keirstead stated that, “We’re close to a franchise without actually being a franchise”. Leaving aside that I read this statement as more supportive of the disavowal of a franchise relationship that a concession that one existed, as urged by the Plaintiffs, the parties’ terminology in describing their relationship is not determinative.

[320] Here, the dealer agreements granted ASOI the right to sell Arctic Spa Products in its territories and use Arctic Spa trademarks and copyrights to this extent, and it required ASOI to make payments to Blue Falls for its purchase of Arctic Spa Products. These characteristics of a distributorship agreement overlap with a franchise. However, I have made three determinations that are fatal to the finding of a franchise.

[321] First, the hallmark of exclusivity is absent. The Plaintiffs contended that ASOI never contractually committed to exclusivity in the sale of Arctic Spa Products. I have accepted this position and have determined that ASOI was a non-exclusive Dealer of Arctic Spa Products. The Plaintiffs had no answer to the question of how a franchise relationship can exist in a business relationship whereby the putative franchisee is at liberty to sell competitors’ products.

[322] Second, ASOI was not required to pay any royalty fees to Blue Falls. Mr. Wasney so conceded. Mr. Amendt stated, and I accept, that Blue Falls billed ASOI for hot tubs, equipment, parts and accessories, only. Two invoices tendered into evidence, dated December 14, 2004 and April 25, 2007 showed that Blue Falls charged ASOI $50 per hot tub for a limited period for a “Canadian Advertising Program”. Mr. Wasney explained that Blue Falls would “quarterback” this national advertising program and Canadian dealers would pay for it. Mr. Wasney could not recall how long this program was in place – but admitted that it was time-limited – and could not recall whether participation was mandatory, although he conceded that he chose to do so. Mr. Wasney admitted that ASOI was not required to participate in expenses generated by GSquared, a company retained by Blue Falls to assist in advertising Arctic Spa Products. And Mr. Wasney testified that he was not aware of any penalties imposed on any Dealers who chose not to participate in this national advertising program made available, for a limited time, by Blue Falls to its Dealers.

[323] And last on the issue of payments by ASOI to Blue Falls, the Plaintiffs argued that ASOI paid Blue Falls for the right to sell Arctic Spa Products in the Richmond Hill territory, indicative of a franchise. This submission is not supported by the evidence. I accept Mr. Amendt’s evidence, uncontradicted by any evidence led by the Plaintiffs, that Blue Falls bought the Richmond Hill Arctic Spa dealership on February 1, 2007 for consideration totaling $425,000 ($350,000 in purchase price and $75,000 in product credits) and sold the dealership on the same day to ASOI for $301,892.77. This was not a sale out of inventory and was not a profitable transaction for Blue Falls. I accept Mr. Amendt’s evidence that Blue Falls engaged in this transaction to “buy peace” between Mr. Wasney and the owner of the Richmond Hill store, Mr. Dave Noel.

[324] Third, the Wishart Act requires significant control, or significant assistance to establish the existence of a franchise: MGDC Management Group v. Marilyn Monroe Estate, 2014 ONSC 4584, 32 B.L.R. (5th) 166, at para. 14; Di Stefano v. Energy Automated Systems Inc., 2010 ONSC 493, 68 B.L.R. (4th) 209, at paras. 25-28. The Plaintiffs submitted that Blue Falls’ significant control, or significant assistance of ASOI is evident from Blue Falls’ provision of the Dealer Manual and the Managed Sales Process and by Blue Falls organizing and hosting Dealer Advisory Meetings, Dealer Conferences and training seminars. I reject the Plaintiffs’ submission that these materials and programs show “significant control or assistance” over ASOI for the following reasons:

1. I accept James Keirstead’s evidence, which is uncontradicted, that he wrote the 190-page Dealer Manual, completing it in or about 2003-2004, and that he did so to assist Dealers, new and existing, with lessons learned in operating a retail dealership. This means that Mr. Wasney and ASOI did not have a copy of the Dealer Manual when ASOI entered into the 2001 Dealer Agreement, which is the moment that is pertinent for assessment of the existence of a franchise. In any event, Mr. Wasney testified that he did not recall when he received a copy of the Dealer Manual. Mr. Wasney admitted that Dealers were not required to follow the Dealer Manual, consistent with James Keirstead’s evidence that there was no requirement for a Dealer to use it. Former Saskatoon Dealer Ronald Charles Walker and former Kelowna Dealer Lowell Rempel both agreed that there were no penalties if the Dealer decided not to follow the Dealer Manual. On this evidence, I find that the Dealer Manual was advisory, not mandatory, and did not result in Blue Falls exercising control, or “significant assistance” over ASOI’s operations.

2. Mr. Wasney agreed that John Keirstead wrote the original version of the 77-page Managed Sales Process manual. He completed it in 2006, with the input of Mr. Macklin, who testified that it was designed to give advice on the best way to sell a hot tub: in John’s words, “how to close deals”. John Keirstead, Mr. Amendt and Mr. Macklin testified that Blue Falls did not require that Dealers use it. Mr. Wasney stated that it was “virtually the Bible” for the Blue Falls sales process but did not testify that it was mandatory. Former Dealer Ronald Charles Walker said that he felt “strongly encouraged” to follow the Managed Sales Process manual, and former Dealer Lowell Rempel testified that there was no penalty if it was not followed. Importantly, there was no evidence that the Managed Sales Process manual was in place in 2001, when the Blue Falls relationship began with ASOI. On this evidence, I find that the Managed Sales Process manual did not result in Blue Falls exercising control, or “significant assistance” over ASOI’s operations.

3. Blue Falls organized and hosted four types of in-person conferences or training sessions. Blue Falls held Dealer Advisory Meetings about once a year, by invitation to Blue Falls’ headquarters in Alberta. They were designed to allow select Dealers to discuss what Blue Falls was doing right, what Blue Falls was doing wrong, what Blue Falls should be working on, and what new products the Dealers thought they needed. Dealer Conferences were held annually, often abroad in popular destinations, and were open to all Dealers. Mr. Wasney explained that they often featured new product launches, upcoming models and were designed to motivate Dealers. Blue Falls offered in-person and on-line sales and service training seminars for Dealers, their staff and technicians, to share ‘best practices’. Mr. Wasney testified that he always sent his staff for training, but did not testify that such training was mandatory. Mr. Rempel stated that there was no requirement to send staff for training seminars, and Mr. Walker testified only that it was strongly suggested. Dealers were not required to commit to attend these training sessions as a condition of entering into a dealer agreement. I do not accept that these functions resulted in Blue Falls exercising control, or “significant assistance” over ASOI’s operations. I adopt the finding made by Code J., in Di Stefano, at para. 27:

Finally, the result of the Plaintiffs’ submission, if correct, would be that any company selling a sophisticated product, and offering advance training about that product to its nascent distributors, would in law be a “franchisor”. It is unlikely the Legislature intended this result.

[325] And last, in assessing the degree of control or assistance imposed by Blue Falls on its Dealers, Mr. Wasney stated, and former Saskatoon Dealer Ronald Charles Walker confirmed, that Blue Falls Dealers could sell the Arctic Spa Products at whatever price they chose, notwithstanding a Manufacturer’s Suggested Retail Price, and could set up sales events on their own schedule. There was no evidence that Blue Falls offered assistance in ASOI’s design, store furnishings or location assessment.

[326] On these reasons, I reject the Plaintiffs’ submission that the relationship between ASOI and Blue Falls was a franchise. Considering this finding, it is not necessary to assess whether Blue Falls breached the duty of good faith and fair dealing implicit in a franchise, as set out in the Wishart Act in s. 3 and described in Fairview Donut Inc. v. The TDL Group Corp., 2012 ONSC 1252, at paras. 487-490 and 502-503, aff’d 2012 ONCA 867. Had it been necessary to determine whether Blue Falls breached the duty of good faith and fair dealing in a franchise relationship with ASOI, I would have found that Blue Falls did not, on the same findings as those set out earlier in my dismissal of the Plaintiffs’ claim in conspiracy.

IX. APART FROM LIABILITY BASED ON CONSPIRACY, DID ANY OF THE DEFENDANTS BREACH ANY DUTY OWED TO ASOI AND/OR 2287913 INC. IN THE SALE OF ERSP LTD.’s 50% INTEREST IN ASOI?

[327] Distinct from its claim in conspiracy, ASOI and 2287913 Inc. submitted that the Defendants are liable for breaches in 2287913 Inc.’s purchase of ERSP Ltd.’s 50% shareholding in ASOI. These Plaintiffs base these claims in two causes of action: fraudulent misrepresentation in inducing these Plaintiffs to enter into the Buy-Out Purchase Agreement; and breach of the Buy-Out Non-Competition Agreement. I will consider these claims in order.

A. Fraudulent Misrepresentation

[328] ASOI and 2287913 Inc. submitted that the Defendants are liable in fraudulent misrepresentation in two ways. First, the Plaintiffs submitted that the Defendants deliberately concealed from Mr. Wasney that John Keirstead was prohibited from operating a retail hot tub business by reason of the MPOA Restrictive Covenant. Second, the Plaintiffs submitted that the Defendants caused Mr. Wasney to enter into the Buy-Out Purchase Agreement on the false representations and assurances that Blue Falls would continue its dealer relationship with ASOI.

[329] The Court of Appeal explained the elements of fraudulent misrepresentation in Mariani v. Lemstra (2004), 2004 CanLII 50592 (ON CA), 246 D.L.R. (4th) 489 (Ont. C.A.), at para. 12:

It is common ground before this court that the elements of fraudulent misrepresentation are: (1) that the defendant made a false representation of fact; (2) that the defendant knew the statement was false or was reckless as to its truth; (3) that the defendant made the representation with the intention that it would be acted upon by the plaintiff; (4) that the plaintiff relied upon the statement; and (5) that the plaintiff suffered damage as a result.

[330] The Plaintiffs’ claim that the Defendants misrepresented, and actively concealed, John Keirstead’s inability to engage in the operation of a retail hot tub store is not sustainable on my finding, explained earlier in my analysis of the Plaintiffs’ claim in conspiracy, that John Keirstead was not restricted in this manner by the MPOA Restrictive Covenant. Accordingly, this claim in fraudulent misrepresentation is dismissed.

[331] I turn then to the Plaintiffs’ claim that the Defendants, either entirely or specifically the parties to the Buy-Out Purchase Agreement, are liable in fraudulent misrepresentation for making false representations, and assurances, that Blue Falls would continue its dealer relationship with ASOI. This claim is not sustainable on my finding that the Defendants did not represent to Mr. Wasney that Blue Falls would continue in a dealer relationship with him and that, in any event, ASOI declined Blue Falls’ proposal to continue in a dealer relationship. I will explain the basis for these findings.

[332] On March 11, 2011, Mr. Wasney wrote to James Keirstead that he needed an assurance that Blue Falls would continue a dealer relationship with ASOI after the sale of ERSP Ltd.’s 50% shareholding in ASOI, writing: “If Trebar was to purchase the shares from ERSP we would need assurances that [ASOI] would continue on as a dealer for Blue Falls . Can you confirm that this is what [Blue Falls] would agree to?”

[333] James Keirstead did not assure Mr. Wasney that Blue Falls would continue its dealer relationship with ASOI. Indeed, James Keirstead explained to Mr. Wasney, in an email of March 12, 2021, that ASOI did not have a dealer agreement in place with Blue Falls, and cautioned that he did not know what commitment ASOI could obtain to sell Arctic Spa Products, going forward:

Arctic Spas Oakville's continuation as a dealer is a separate issue for the owners of Blue Falls to decide, of which John and I now only represent 1 out of 4 votes. I have not involved the partners of Blue Falls in making my decisions with respect to you nor can I confirm what they might do in the eventuality that I am no longer a shareholder in · Arctic Spas Oakville. Our dealer agreement with Blue Falls is expired, and was always terminable on notice by either party. I don't know what commitment you can expect to get, particularly if your plan is to sell competitive product.

[334] I find that Mr. Wasney received this email communication because Mr. Wasney did not deny authenticity or receipt, and because Mr. Wasney took steps to ensure that the purchase of ERSP Ltd.’s 50% interest in ASOI was conditional on ASOI obtaining a new dealer agreement with Blue Falls. The first such step was in exchanging draft dealer agreements with Mr. Amendt, commencing two days later on March 14, 2011, and continuing to April 5, 2011, as I explained earlier in my assessment of whether there was a meeting of the minds on the terms of the 2011 Draft Dealer Agreements. The second step was to draft into the Letter of Intent for the ASOI Buy-Out Transaction, as s. 6(c), a condition in Mr. Wasney’s favour that he would not be contractually obligated to purchase ERSP Ltd.’s shares in ASOI unless ASOI first had a new dealer agreement.

[335] And third, and most importantly, the Buy-Out Purchase Agreement contained two provisions, ss. 4.1 and 4.1.2, that made ASOI’s purchase of ERSP Ltd.’s shares in ASOI conditional on ASOI entering into an “Arctic Spas Dealership Agreement” on terms satisfactory to Mr. Wasney and ASOI:

4.1 Conditions for the Benefit of Wasney

The Subscription is subject to the conditions precedent set forth in this Section 4.1, each of which is hereby declared to be for the exclusive benefit of Wasney. Each of such conditions is to be satisfied in full at or prior to the Closing Time, unless otherwise provided for herein.

4.1.2 Dealership Agreement

The Subscription is conditional upon the Corporation entering into an "Arctic Spas" Dealership Agreement, on terms that are satisfactory to Wasney and the Corporation, in their sole discretion

[336] The parties did not tender any evidence at trial on the treatment of this condition on the closing of 2287913 Inc.’s purchase of ERSP Ltd.’s shares in ASOI. However, ASOI and 2287913 Inc. had available a condition “for their exclusive benefit” that they could have exercised, “in their sole discretion”, to avoid closing the purchase transaction in the absence of a new dealer agreement. 2287913 Inc. nonetheless proceeded with the closing of the transaction. Mr. Wasney and his company, 2287913 Inc. were represented by counsel on the closing of the Buy-Out Purchase Agreement and, I find, understood that no new dealer agreement had been implemented.

[337] The highest evidence tendered by the Plaintiffs in support of their claim of fraudulent misrepresentation pertaining to the availability of a new dealer agreement was Mr. Amendt’s statement to Mr. Wasney, in an email exchange of April 4, 2011, as follows: “Let me see what I can negotiate when the guys are all here.” Mr. Amendt conceded that he did not get back to Mr. Wasney about a new dealer agreement at any time after April 4, 2011. However, there was no evidence of any representation by Messrs. Amendt, Macklin, Kellner or James Keirstead, at any time after April 4, 2011, that Blue Falls would enter into a new dealer agreement with ASOI that was not mutually exclusive. Indeed, on April 19, 2011, James Keirstead wrote to Mr. Wasney that he “had no control over the dealer agreement terms” and that Mr. Wasney had been offered the current form of Blue Falls dealer agreement and had declined its acceptance. I accept that all these communications were exchanged between the parties. I do not see, in any of the admitted evidence, a representation or assurance by any of the Defendants that Blue Falls would continue its dealer relationship with ASOI.

[338] To establish a claim in fraudulent misrepresentation, the Plaintiffs must show that the Defendants, or certain of them, made a false representation of fact. The Plaintiffs have not done so. Their claim in fraudulent misrepresentation thereby fails on this single finding.

[339] And last, for completeness, I will briefly address the Plaintiffs’ pleaded claims for breach of fiduciary duty and unjust enrichment, that were based on the same breaches and wrongful conduct as were said to have supported the claim in fraudulent misrepresentation. The Plaintiffs submitted in closing argument that their claims in breach of fiduciary duty and unjust enrichment were abandoned, although I noted that they made brief, single paragraph written closing submissions on each of these cases of action (paras. 52 and 53). Had the Plaintiffs not abandoned these causes of action, I would have dismissed them on the same findings that I made in the dismissal of the claims in fraudulent misrepresentation and conspiracy. Specifically, the breaches and wrongful conduct alleged by the Plaintiffs were not established.

B. Breach of the Buy-Out Non-Competition Agreement

[340] On July 1, 2011, John and James Keirstead, personally and on behalf of corporations in which they held interests, ERSP Ltd., Break Through Ltd. and 2234406 Inc., entered into the Buy-Out Non-Competition Agreement with ASOI and 2287913 Inc. as part of the Buy-Out Purchase Agreement. Pursuant to s. 2.1, John and James Keirstead, and their companies, agreed not to compete in “the business of retail hot tub sales, or otherwise be involved or financially interested in … any business or entity, or activity that directly or indirectly engages in the business of retail hot tub sales” for a period of three years.

[341] Mr. Wasney admitted, in cross-examination, that the signatories to the Buy-Out Non-Competition Agreement have not directly competed with ASOI or 2287913 Inc., and have not breached the Buy-Out Non-Competition Agreement. Specifically, Mr. Wasney testified that he has no evidence that John and James Keirstead or their company, ERSP Ltd., has competed with ASOI or 2287913 Inc. in the retail sale of hot tubs in Ontario.

[342] Even absent this admission, I accept the evidence of John and James Keirstead, that they did not compete with ASOI or 2287913 Inc. in the retail sale of hot tubs in Ontario in the three-year period after July 1, 2011 because there was no evidence that they did so. Neither opened a competitive retail outlet in Ontario after the sale of their interests in ASOI.

[343] ASOI and 2287913 Inc. submitted, however, that the remaining Defendants, are liable for breach of the Buy-Out Non-Competition Agreement. These Plaintiffs do not advance this submission on the basis that the remaining Defendants are signatories to the Buy-Out Non-Competition Agreement, because they are not, but rather on the submission that they are “Affiliates” of signatories to the Buy-Out Non-Competition Agreement. This submission was based on s. 2.1, which states that the covenant not to compete is not only applicable to the “Vendor Parties”, but also “his or its Affiliates”.

[344] The Buy-Out Non-Competition Agreement defines “Affiliate” as follows:

"Affiliate" means, with respect to any person, any other person that directly or indirectly controls, is controlled by, or is under common control with that other person. For purposes of this definition, a person "controls" another person if that person directly or indirectly possesses the power to direct or cause the direction of the management and policies of that other person, whether through ownership of securities, by contract or otherwise and "controlled by" and "under common control with" have similar meanings.

[345] The central element necessary to find an “Affiliate” of a signatory to the Buy-Out Non-Competition Agreement is control. A signatory of the Buy-Out Non-Competition Agreement must be able to exert control, “directly or indirectly”, over the other person or entity, in order for that person or entity to constitute an “Affiliate” for the purposes of them being bound by the three-year restrictive covenant.

[346] This definition of “Affiliate” cannot pertain to the Defendant, ASI, which did conduct business as a retail dealer of hot tubs in ASOI’s sales territories, for two reasons. First, ASI did not exist at the time that the Buy-Out Non-Competition Agreement was executed (July 1, 2011) as it was not incorporated until October 5, 2011. Second, there was no evidence that any of the signatories to the Buy-Out Non-Competition Agreement had any role in ASI, such that it would not have constituted an “Affiliate” even had it existed at the time of the Buy-Out Non-Competition Agreement.

[347] As of July 1, 2011, John Keirstead had no ownership interest in Blue Falls, and thereby could not have exerted any control over that entity. James Keirstead was a 25% shareholder in Blue Falls. I cannot find, on the admitted evidence, that James Keirstead controlled Blue Falls, in that he possessed “the power to direct or cause the direction of the management and policies of” Blue Falls. James’ capacities as a director and officer of Blue Falls provided him with input into its direction and management, together with others, but not the power to control. Accordingly, even had I found that Blue Falls directly or indirectly competed with ASOI after July 1, 2011, I would not have found that this constituted a breach of the Buy-Out Non-Competition Agreement.

[348] Regarding Messrs. Amendt, Kellner and Macklin, the Plaintiffs did not establish that James Keirstead or John Keirstead controlled these individuals, or “possessed the power to direct” or cause their direction. On this basis alone, Messrs. Amendt, Kellner, Macklin and their holding companies are not Affiliates under the Buy-Out Non-Competition Agreement. But there is also a broader consideration. Mr. Wasney, together with Messrs. Amendt, Kellner and Macklin, had a close and long-standing business relationship in the period leading to July 1, 2011. Had Mr. Wasney intended that they be bound by the Buy-Out Non-Competition Agreement, he could have made this request as part of the ASOI Buy-Out Transaction. Mr. Wasney did not do so.

[349] Messrs. Amendt, Kellner and Macklin all testified that they were not provided with a copy of the Buy-Out Purchase Agreement or the Buy-Out Non-Competition Agreement prior to July 1, 2011. This evidence was corroborated by James and John Keirstead. I accept this evidence as credible, largely on the basis that there is no evidence to the contrary and this evidence was not affected by cross-examination, and it is plausible in that there was no reason for them to be involved in ERSP Ltd.’s sale of its share interest in ASOI to 2287913 Inc., even as part of the conspiracy alleged by the Plaintiffs, which I have declined to accept.

[350] Further, in analysis of the context in which the Buy-Out Non-Competition Agreement was negotiated, James Keirstead showed that on April 19, 2011, he specifically told Mr. Wasney that he could not commit to a restrictive covenant that would impact his role as a director of Blue Falls which, as Mr. Wasney knew, already carried on business in Ontario with Dealers. I find that Mr. Wasney understood that James Keirstead could not bind Blue Falls to a non-competition agreement to which Blue Falls was not a signatory.

[351] In conclusion, I do not accept the Plaintiffs’ submission that any of the Defendants breached the Buy-Out Non-Competition Agreement.

X. ARE THE DEFENDANTS, OR ANY OF THEM, LIABLE TO ASOI AND/OR 2287913 INC. FOR BREACH OF THE DUTY OF GOOD FAITH?

[352] In addition to submitting that Blue Falls breached the duty of good faith and fair dealing owed in a franchise, ASOI and 2287913 Inc. alleged that the Defendants were liable to them for punitive, exemplary, or aggravated damages for breach of the common law duty of good faith.

[353] The Plaintiffs claimed punitive damages against all the Defendants in the amount of $500,000, basing their claim in bad faith on Zesta Engineering Ltd. v. Cloutier, 2010 ONSC 5810, 77 B.L.R. (4th) 7, at paras. 1-31 and 299-308; and Gennett Lumber Co. v. John Doe a.k.a. Milton Harvey, 2019 ONSC 1345, 145 O.R. (3d) 61, at paras. 28-33. In Gennett, at paras. 29-31, Sossin J., as he then was, set out the applicable principles for the granting of punitive damages, as established by the Supreme Court of Canada in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at paras. 36, 94 and 111. Applying Whiten, the Ontario Court of Appeal held, in Hornstein v. Kats, 2021 ONCA 293, at para. 6, that “there is no basis for an award of punitive damages in the absence of an independent actionable wrong. … Punitive damages cannot be awarded simply on the basis of a party’s misconduct”.

[354] For reasons explained earlier, I found that the Plaintiffs had not established their claims against the Defendants in conspiracy, breach of fair dealing and good faith as a franchisor and fraudulent misrepresentation and, if they had not been withdrawn, breach of fiduciary duty and unjust enrichment. In dismissing these claims, I found that the Defendants did not engage in the misconduct alleged by the Plaintiffs, specifically rejecting the Plaintiffs’ submission that the Defendants had intentionally engaged in dishonest, deceptive, and deceitful conduct, including fraudulent misrepresentation. The Plaintiffs did not establish any independent actionable wrong that could arise from the findings that I made in dismissing these claims, which I adopt, without repetition, for my analysis of this claim in bad faith. On these findings, the Plaintiffs’ claim in bad faith is not sustainable in relation to these causes of action.

[355] This leaves only the Plaintiffs’ claims in breach of contract. I dismissed the Plaintiffs’ claims of breach of contract in regard to the Buy-Out Purchase Agreement and the Buy-Out Non-Competition Agreement but accepted the claim by ASOI that Blue Falls did not provide reasonable notice on termination of the Governing Dealer Agreement. In order to establish a claim for damages for bad faith in breach of contract, the Plaintiffs had the burden of establishing an independent actionable wrong: Hornstein, at para. 6.

[356] ASOI submitted that the contracting parties, either to the Governing Dealer Agreement or to the ASOI Buy-Out Transaction contracts, owed each other a duty of honest contractual performance and a duty to exercise contractual discretion in good faith, as set out by the Supreme Court in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494; Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, 454 D.L.R. (4th) 1, at paras. 48-63; and C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 452 D.L.R. (4th) 44, at paras. 44-51. ASOI submitted that the Defendants breached these duties of good faith contractual performance, and that this constituted an independent actionable wrong.

[357] In Bhasin, at para. 63, the Supreme Court explained that the organizing principle of good faith requires that “parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily”. In Wastech, the Supreme Court affirmed the contracting parties’ duty to exercise contractual discretion in good faith which, while distinct from the duty of honest performance, is a manifestation of the organizing principle of good faith. These organizing principles require that the contracting parties exercise their right and discretion reasonably, in a manner consistent with how these rights were contractually granted. As explained succinctly in Wastech, at para. 62, applying Bhasin, at para. 63: “Expressed as an organizing principle, this standard is that parties must perform their contractual duties, and exercise their contractual rights, honestly and reasonably and not capriciously or arbitrarily”. The Supreme Court noted, in Wastech, at para. 83, that in considering a party’s exercise of contractual discretion, there can be no actionable wrong unless there is “some infringement of the non-exercising party’s rights”.

[358] I dismiss the claims by ASOI and 2287913 Inc. that the Defendants breached their obligations of good faith contractual performance in relation to the Buy-Out Purchase Agreement and the Buy-Out Non-Competition Agreement on the same basis that I dismissed their claims for breach of these contracts. I adopt, without repetition, that reasoning.

[359] This leaves only ASOI’s claim for punitive damages based in bad faith against Blue Falls for its conduct in the termination of the Governing Dealer Agreement. I found that ASOI established that Blue Falls failed to give ASOI reasonable notice on termination of the Governing Dealer Agreement, and I have awarded $565,365, plus pre-judgment and post-judgment interest. The issue is whether ASOI has established a basis for an award of punitive damages in addition to these compensatory damages on the basis of the independent actionable wrong of breach of the duty of good faith contractual performance.

[360] ASOI had the burden of establishing that Blue Falls breached the duty of good faith contractual performance and, in my determination, failed to do so, for the following reasons. First, Blue Falls had a legal basis on which to terminate its dealer arrangement with ASOI on reasonable notice, just as ASOI could have done, had it chosen to do so. Second, I found that ASOI terminated the Governing Dealer Agreement because its business objectives and interests were no longer compatible with a continued dealer relationship with ASOI, and not to appropriate its sales territories. Third, post-termination, Blue Falls did not establish a sales territory in areas in which ASOI formerly conducted business: ASI did. Fourth, while Blue Falls solicited one employee from Blue Falls, ASOI failed to establish its allegation that Blue Falls lured its staff after termination of the dealer relationship.

[361] In applying the principles set out in Whiten as required to establish a claim in contractual bad faith, I find, on the evidence that I have accepted, as follows: (a) Blue Falls did not engage in conduct that would support a claim for bad faith damages; (b) the harm caused to ASOI was in not providing reasonable notice; (c) compensatory damages are adequate to address the lack of reasonable notice; (d) the compensatory damages will achieve the objectives of retribution, deterrence and denunciation, such that punitive damages are not required; and (e) an award of punitive damages, in the circumstances as I have found them, would not be rational or proportionate. I conclude that ASOI has failed to establish a claim in bad faith against Blue Falls as necessary to support an award of punitive damages.

XI. HAS ASOI ESTABLISHED A BASIS FOR AN ORDER REQURING A REFERENCE FOR AN ACCOUNTING OF THE WARRANTY CLAIMS?

[362] The Plaintiffs claimed, in their Amended Statement of Claim, an “accounting in respect of all warranty claims issued by the Plaintiff [ASOI] to the Defendant [Blue Falls]”. The Plaintiffs pleaded that this accounting was “in respect of all warranty work claimed by ASOI and for all the Defendants’ business dealings in respect of ASI and all other Defendants”: Amended Statement of Claim, paras. 1(c)(xiii) and 45. ASOI submitted that I should exercise my discretion to direct a Reference, pursuant to Rule 54.02(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to determine the amount owing to ASOI in respect of unpaid warranty claims. The Defendants deny that the Plaintiffs have established any basis for a Reference.

[363] The Plaintiffs did not establish that ASOI submitted warranty claims to Blue Falls, on behalf of its customers, that were wrongfully declined and that the resultant declination of the warranty claim resulted in financial loss to ASOI. ASOI did not tender into evidence a list or portfolio or collection or inventory of warranty claims that it contended had improperly been denied by Blue Falls, from which there could have been findings pertaining to the timing of the submissions, the basis of their denial and the quantum said to be owed. ASOI would have had within its records the warranty claims that it had filed with Blue Falls, and would have had within its possession or control a list of those that it alleges were wrongfully declined, giving rise to recourse in damages, presuming no limitation bar. This evidence was not tendered.

[364] Further, the basis for the Reference was not established as ASOI did not show, in my view, that it had sustained any monetary loss resulting from the submission of warranty claims to Blue Falls on behalf of its customers. Mr. Wasney testified that ASOI did not make any profit from the warranty claims, but rather submitted them to Blue Falls as part of its after-sale service. The highest evidence on this point was provided by Mr. Rurka who stated that if Blue Falls declined a warranty claim, and if ASOI decided not to invoice the customer, ASOI would have to bear the cost of the service call. But he did not identify a single instance in which this occurred. This evidence is vague and insufficient to support a claim for monetary damages.

[365] Mr. Wasney’s evidence of amounts that ASOI incurred in after-sales customer service was similarly vague and imprecise, both as to quantum and timing. But in any event, Mr. Wasney’s evidence of after-sales customer service was not connected to any alleged failings in Blue Falls’ response to warranty claims that would support a claim in damages in favour of ASOI.

[366] The Ontario Court of Appeal held, in Elcano Acceptance Ltd. et al. v. Richmond, Richmond, Stambler & Mills (1986), 1986 CanLII 2591 (ON CA), 55 O.R. (2d) 56 (Ont. C.A.), at para. 11, that “it is a basic right of a litigant to have all issues in dispute resolved in one trial”, such that it is a “narrowly circumscribed power” to order a Reference. In such circumstances, a Reference should be ordered after trial “in the interest of justice, only in the clearest cases”. This is not such a case. Here, ASOI has not established a claim that would give rise to a Reference, or even sufficient evidence to establish the terms of a Reference on the issue of outstanding warranty.

[367] For completeness, I will briefly address the other relief sought by the Plaintiffs in para. 45 of their Amended Statement of Claim: specifically, an Order requiring the Defendants to “disgorge all profits, revenues or benefits that they received as a result of this wrongful conduct as pleaded herein”. This submission was based on the Plaintiffs’ establishing wrongful conduct on the part of the Defendants. For reasons that I explained earlier in dismissing the Plaintiffs’ claim in conspiracy, the Plaintiffs did not establish that the Defendants engaged in wrongful conduct, apart from Blue Falls’ failure to provide reasonable notice on termination of the Governing Dealer Agreement.

[368] On these reasons, I dismiss ASOI’s claim that I direct a Reference.

XII. SUMMARY OF CONCLUSIONS

[369] On the basis of the reasons set out herein, I conclude as follows (in order of the issues raised by the parties for determination at trial as listed in para. 74 of these Reasons):

1. None of the Plaintiffs established liability on any group of Defendants based on civil conspiracy.

2. The contractual provisions applicable to the relationship between ASOI and Blue Falls on September 27, 2011, when Blue Falls terminated its dealer relationship with ASOI, were the material terms of the 2010 Dealer Agreement, whereby Blue Falls granted ASOI exclusive sales territories for the retail sale of Arctic Spa Products and ASOI was a non-exclusive Dealer, which continued after expiry as a contract of indefinite duration with an implied clause allowing for termination by either party on reasonable notice (the “Governing Dealer Agreement”).

3. Blue Falls did not establish that ASOI breached the Governing Dealer Agreement in either of the two ways submitted by Blue Falls: by selling competitor’s products; or, by filing false warranty claims.

4. Blue Falls breached the Governing Dealer Agreement by failing to provide reasonable notice on termination, which I have determined to be six months.

5. The monetary amount of damages established by ASOI caused by Blue Falls’ provision of one month’s notice on termination when six months of notice was reasonably required is $565,365. To this amount, ASOI is awarded pre-judgment interest and post-judgment interest in accordance with the Courts of Justice Act.

6. The relationship between Blue Falls and ASOI did not constitute a franchise.

7. ASOI and 2287913 Inc. did not establish liability on any of the Defendants in fraudulent misrepresentation or breach of contract in the sale of ERSP Ltd.’s 50% interest in ASOI.

8. The Plaintiffs did not establish a claim in bad faith against any of the Defendants.

9. ASOI did not establish the basis for an Order requiring a Reference for an accounting of the warranty claims.

[370] The claims abandoned by the parties at trial, as set-out in paras. 67 and 72 of these Reasons, are dismissed as abandoned.

XIII. DISPOSITION

[371] On the basis of the reasons set out herein, I order and adjudge as follows:

1. The Plaintiff Arctic Spas Oakville Inc. is awarded damages in the amount of $565,365 payable by the Defendant, Blue Falls Manufacturing Ltd.

2. The Plaintiff Arctic Spas Oakville Inc. is awarded pre-judgment interest and post-judgment interest on the amount adjudged payable by the Defendant, Blue Falls Manufacturing Ltd., in accordance with ss. 128 and 129 of the Courts of Justice Act, R.S.O. 1990, c. C.43.

3. The claims by the Plaintiffs 2287913 Ontario Inc., Trebar Holding Inc. and 2234406 Ontario Inc., and the claims by the Plaintiff Arctic Spas Oakville Inc. against all Defendants other than Blue Falls Manufacturing Ltd., are dismissed.

4. The Counterclaim is dismissed.

5. The issue of costs shall be determined by written submissions in accordance with a timetable to be established.

XIV. COSTS

[372] I encourage the parties to discuss and agree on the issue of costs. If the parties are not able to agree on the issue of costs, the parties may, by November 12, 2021, request a chambers appointment, by contacting the Chambers Appointment Coordinator or my judicial assistant, for the purpose of implementing a timetable for the delivery of written submissions on costs. If no party seeks the scheduling of such a case conference by November 12, 2021, I will deem the issue of costs to have been settled.

A.A. Sanfilippo J.

Released: October 12, 2021

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2287913 ONTARIO INC., TREBAR HOLDING INC., 2234406 ONTARIO INC. and ARCTIC SPAS OAKVILLE INC.

Plaintiffs/ Defendants by Counterclaim

– and –

ERSP INTERNATIONAL ENTERPRISES LTD., BREAK THROUGH ENTERPRISES LTD., KELLNER CONSULTING LTD., LIQUID LOGIC LTD., ECHO SOLUTIONS INCORPORATED, PARADISE BAY SPA & TUB WAREHOUSE INC., SPA LOGIC INC., BLUE FALLS MANUFACTURING LTD., ARCTIC SPAS INC., JOHN KEIRSTEAD, JAMES KEIRSTEAD, DARCY AMENDT, DENNIS KELLNER and BRENT MACKLIN

Defendants/ Plaintiffs by Counterclaim

REASONS FOR JUDGMENT

A.A. Sanfilippo J.

Released: October 12, 2021