Court File and Parties

COURT FILE NO.: CV-17-579234-0000 DATE: 20230517 ONTARIO SUPERIOR COURT OF JUSTICE

RE: David Driesman, Applicant -and- Loveleet Gera, CE Williams Imp Exp Limited., CE Williams Limited, and RPPL Industries Limited, Respondents

BEFORE: Robert Centa J.

COUNSEL: Jonathan Rosenstein, for the applicant Andrew Pelletier, for the respondents

HEARD: March 21, 22, and 24, 2023

Endorsement

[1] This application proceeded by way of a hybrid trial before me. The central issue is how to value CE Williams Import Export Inc., which was a corporation that the applicant David Driesman and the respondent Loveleet Gera operated together from 2005 until 2015. The Corporation’s primary source of income was a sales agency agreement with Highway Industries Limited, an Indian auto parts manufacturer.

[2] The parties each retained experts and the experts worked together to produce a joint report that identified the areas where they remained in dispute. The disputes between the experts turned almost exclusively on the different facts the parties asked each of them to assume.

[3] In the reasons set out below, I make the findings of fact that should allow the experts to reach a joint conclusion on the value of the Corporation. If the experts are not able to agree on the appropriate value, the parties may reattend before me to determine the remaining matters.

Process

[4] On July 19, 2017, Mr. Driesman applied to have the court wind up the Corporation under s. 207 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16. He swore an affidavit for use on the application on August 10, 2017, and a supplementary affidavit on November 15, 2017. Mr. Gera swore a responding affidavit on September 28, 2017. Cross-examinations on these affidavits took place on June 12 and 13, 2019.

[5] In their affidavits, Mr. Driesman and Mr. Gera each blamed the other for the deterioration of their business relationship. Each raised a litany of complaints about the other. Because the parties have now narrowed the issues between them to a valuation of the Corporation, most of this evidence is no longer relevant.

[6] Mr. Driesman retained FK Valuations to prepare a valuation report. The firm delivered reports dated November 8, 2021, and March 13, 2023. Mr. Gera retained Taylor Leibow LLP, which delivered valuation reports dated April 28, 2020, and March 17, 2023.

[7] To the parties’ enormous credit, the experts met and produced a joint expert statement dated February 20, 2023. The experts’ work narrowed many of the issues in dispute.

[8] The parties ultimately agreed to have this proceeding determined by way of a hybrid trial. I heard live evidence from Mr. Driesman and Marnie Silver of FK Valuations, and Mr. Gera, Pulkit Gera, and Corey Miles of Taylor Leibow LLP.

Facts and Issues to be Decided

[9] The parties prepared an agreed statement of facts, which I set out below:

The Parties

1. Loveleet Gera (“Gera") is an individual residing in Richmond Hill, Ontario.
2. David Driesman ("Driesman") is an individual residing in Toronto, Ontario.
3. CE Williams Imp Exp Limited is an Ontario corporation incorporated on or about September 6, 2013. Gera and Driesman were the principals of this corporation though it was never formally organized. [The Corporation] does not currently carry on business and is unrepresented in this matter.
4. CE William Ltd. is an Ontario Corporation incorporated on or about February 17, 2015. On or about October 8, 2015, CE William Ltd. changed its name to RPPL Industries Limited ("RPPL"). Gera is the principal of RPPL.

Driesman and Gera enter an informal partnership

5. Gera and Driesman met in or around 2005 while both were working at different companies in the automotive industry and expressed a mutual interest in working together.
6. Gera brokered an agreement between a North American company and Highway Industries Limited, an Indian automotive parts manufacturer ("Highway").
7. Following the successful brokering of this deal, Highway entered into an agreement with Gera and Driesman who, at this time, were operating unincorporated as a partnership under the name CE Williams ("Highway Contract").

Incorporation of CE Williams Imp Exp Limited

8. In 2013, Driesman and Gera decided to incorporate.
9. [The Corporation] was incorporated on September 6, 2013.
10. [The Corporation] was never formally organized but it was always Gera and Driesman's intention that they would each hold equal interest and control over CEW Limited.
11. [The Corporation] carried on effectively the same business as the CE Williams partnership – representing Highway as a sales agent.

Breakdown of the relationship between Driesman and Gera

12. In late 2014, the relationship between Gera and Driesman began to deteriorate.
13. After continued disagreement, Gera and Driesman met in July 2015 to discuss the future of their business relationship.
14. On September 27, 2015, Gera sent an email to Driesman which stated, among other things that: "As I talked to you on July 8th, 2015 for dissolving the partnership. This date of July 8th, 2015 should be treated as a notification for dissolving the partnership and this email should be treated as a confirmation of dissolution of the partnership. I have not received any response from you so this is taken as a consent for dissolution of partnership with an immediate effect"
15. In September 2015, Highway informed [the Corporation] that it was terminating the Highway Contract.
16. Thereafter, Highway entered into a new sales agency agreement with RPPL, which remains active.

[10] The parties also agreed on an issues list, which incorporated a couple of additional agreements reached by the parties. The issues list reads as follows:

The parties have reached an agreement on the following issues:

1. David Driesman and Loveleet Gera were the [principals] of [the Corporation].
2. Their relationship in [the Corporation] was dissolved in 2015.
3. As a consequence of that dissolution, they were entitled to share equally in the value of [the Corporation]…as of the dissolution.
4. The appropriate date as of which to determine the [Corporation’s] Value is July [8], 2015. [1]
5. Gera must account to Driesman for Driesman's 50% share of the [Corporation’s] Value (subject to adjustment pursuant to paragraphs 12 and 13 below).
6. The quantification of the [Corporation’s] Value is a matter for expert opinion, which has been addressed by each party's respective expert in written reports.
7. The parties' experts have conferred and prepared a memo… which sets out their areas of agreement, and the areas where they disagree.

The parties agree that the following issues remain to be resolved by the trial judge:

Limitations

8. Whether Driesman's claim is barred by operation of the Limitations Act, 2002.

Quantification of the Value of [the Corporation]

9. Where the source of the experts' disagreement is over a valuation principle, to determine the applicable principle.
10. Where the source of the experts' disagreement is over the application of a valuation principle, and the difference in application is driven by a difference in their understanding of the underlying facts, to make the appropriate findings of fact based on the evidence lead by the parties.
11. Where the source of the experts' disagreement is over the application of a valuation principle, and the difference in application is driven by a difference in their opinion on how that principle applies to the facts, to determine the proper application of the valuation principle to those facts.

Adjustments

12. Whether Driesman had diverted or failed to account for revenue or business assets that were rightly the property of [the Corporation] as of the valuation date, and the resulting appropriate adjustment to any portion of the [Corporation’s] Value to which Driesman would otherwise be entitled to receive.
13. Whether Gera had diverted or failed to account for revenue or business assets that were rightly the property of [the Corporation] as of the valuation date, and the resulting appropriate adjustment to any portion of the [Corporation’s] Value to which Driesman would otherwise be entitled to receive.

The Application is Not Barred by the Limitations Act

[11] Mr. Gera submits that Mr. Driesman’s application is barred by operation of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. Mr. Gera testified that he told Mr. Driesman that he was dissolving their partnership on July 8, 2015. He also testified that he confirmed this position in an email that he sent to Mr. Driesman on September 27, 2015, which read as follows:

As I talked to you on July 8th, 2015 for dissolving the partnership. This date of July 8th, 2015 should be treated as a notification for dissolving the partnership and this email should be treated as a confirmation of dissolution of the partnership. I have not received any response from you so this is taken as a consent for dissolution of partnership with an immediate effect. For an example, I have requested you for return of samples and I sent you a couple of reminders, as well but we did not received any response from you. This further consolidate your intention for not to continue the partnership. I believe that you have persuaded for other ventures which are your priorities, now so I request you to have a meeting to discuss full final agreement. Please let me know when are you available. I am open for a meeting during the business hours next week.

[12] In Ontario, most civil proceedings, including this one, must be started on or before the second anniversary of the day on which the claim was discovered: Limitations Act, s. 4. Mr. Gera submits that because he told Mr. Driesman that he was dissolving their business partnership on July 8, 2015, and Mr. Driesman did not commence this application until July 19, 2017, it is statute barred. For the reasons that follow, I do not accept Mr. Gera’s submissions.

[13] First, I accept the evidence of Mr. Driesman about what happened at his meeting with Mr. Gera on July 8, 2015. Mr. Driesman testified that the two men discussed their different visions for what business lines the company should explore. However, Mr. Driesman was adamant that Mr. Gera did not tell him that their business relationship was absolutely over and that they did not discuss parting ways on their core business.

[14] Mr. Driesman’s evidence is consistent with the fact that the two men continued to operate the business after the conversation on July 8, 2015, as they did before it. Mr. Driesman noted that the business had many contracts in place and that the company needed to continue to service those contracts in order to get paid.

[15] Indeed, the company continued to service the contracts with Highway until September 25, 2015, when Sandeep Arora of Highway wrote to Mr. Gera to advise that Highway was cancelling the sales agency agreement with the Corporation. I doubt that this development was a complete surprise to Mr. Gera, as he and his new company had entered into a sales agency agreement with Highway that was dated as of September 1, 2015.

[16] I find that Mr. Gera’s email dated September 27, 2015, was self-serving and did not accurately describe the events that took place on July 8, 2015. He may have decided on that date to end his business relationship with Mr. Driesman, but I do not accept that Mr. Gera told Mr. Driesman that. Indeed, there is no documentary evidence that Mr. Gera ever indicated to Highway that the business had been dissolved or that there was any problem with the Corporation continuing to provide services to Highway.

[17] Second, even if I accepted Mr. Gera’s evidence, and I do not, his unilateral pronouncement that the partnership was over would not have put an end to the existence of the Corporation. The sales agency agreement dated June 21, 2015, was between Highway and the Corporation. Even if the corporation did not issue shares, it was the legal entity that held the rights under the contract with Highway and it was the Corporation that had the right to the profits from that arrangement.

[18] Mr. Gera could not end the existence of the Corporation simply by declaring his business relationship with Mr. Driesman to be over. Having chosen to operate the business through the vehicle of a corporation, Mr. Gera had the rights and remedies available to him under corporate law, not partnership law: Falus v. Martap Developments 87 Ltd., 2012 ONSC 2301, 2 B.L.R. (5th) 292, at paras. 61 to 63. He could have taken steps to wind-up or dissolve the Corporation, but he did not do so, and those efforts would not have been effective on July 8, 2015. Mr. Gera could not, and did not, wind up the Corporation merely by pronouncing the end of the parties’ business relationship.

[19] For these reasons, I dismiss Mr. Gera’s submission that Mr. Driesman’s application to wind up the Corporation and determine its value is statute barred.

This is Not an Appropriate Case to Draw Adverse Inferences

[20] Mr. Driesman submits that I should draw adverse inferences against Mr. Gera. He notes that Mr. Gera possesses most of the records of the Corporation and all of the records of RPPL, the corporation that now holds the sales agency agreement with Highway.

[21] Mr. Driesman submits that he asked for production of financial records, which Mr. Gera declined to turn over. He points to a letter his counsel sent to counsel for Mr. Gera on March 21, 2019, requesting disclosure of “all documents providing evidence of commission and similar revenues paid in respect of parts provided by Highway…from July 8, 2015 to July 8, 2021.”

[22] On April 17, 2019, Mr. Gera’s counsel responded that, because this proceeding was an application, the issues should be canvassed during the cross-examination of Mr. Gera on his affidavit. He also advised that he thought the request was overly broad, with a limitless date range, and concerned business matters not at issue on the application. I note that on June 12, 2019, at Mr. Gera’s cross-examination, he gave 24 undertakings and took four questions under advisement. One of the questions taken under advisement was to provide all of the documents sought in the letter from Mr. Driesman’s counsel, which was dated March 21, 2019. In response to that question, Mr. Gera stated:

Certain of the requested documents have previously been disclosed or are disclosed herein. With respect to the remaining documents requested, it is Mr. Gera's position that such documents are not relevant to this matter and contain business information that is confidential to RPPL Industries Limited, its suppliers and customers.

[23] Mr. Driesman remains unsatisfied with the information produced by Mr. Gera and asks that I draw certain adverse inferences against Mr. Gera for failing to produce certain documents.

[24] I note that Mr. Driesman did not bring a motion to obtain a ruling on the refusals in the years between the cross-examinations and the trial. It was open for him not to move and to ask the trial judge to draw an adverse inference. [2] His failure to do so, however, is a factor that I can take into account in exercising my discretion regarding whether or not to draw an adverse inference. [3]

[25] Determining whether or not to draw an adverse inference is a fact-specific inquiry. I am not convinced that Mr. Gera intentionally refused to produce documents that were critical to permit Mr. Driesman to prove his case, or that would corroborate or contradict his own evidence. [4] Having assessed the evidence, and in all of the circumstances, I do not think it is appropriate to draw any adverse inferences. [5]

[26] There may, however, be instances where the absence of certain documents or evidence affects my conclusion with respect to one or more issues in this proceeding. For example, I agree with Mr. Driesman that, to the extent that Mr. Gera seeks to rely on compilations of data without having produced the documents that underlie those compilations, I must take that into account when deciding what, if any, weight I should give to such documents: Bukshtynov v. McMaster University, 2019 ONCA 1027, at paras. 48 to 54.

Valuing the Corporation

[27] The primary issue to be determined on this application is the value of the Corporation and what, if any, adjustments should be made to that value.

The Principles to be Applied

[28] The parties agree on the appropriate principles that I should apply to the valuation exercise. I am to assess the situation as of July 8, 2015, and determine whether or not certain events were foreseeable at that time. I should not use hindsight information. In Bimman v. Neiman, 2017 ONCA 264, at para. 52, the Court of Appeal put it this way:

Valuation is more art, than an exact science; mathematical certainty is not demanded, because it is not possible: Debora v. Debora (2006), 2006 ONCA 40663, 83 O.R. (3d) 81 (C.A.), at para. 51. A valuation exercise must look at the situation as of the valuation date. Hindsight information generally is not relevant to the valuation exercise, except for the purpose of measuring the accuracy of projections or testing the assumptions used by valuators: New Quebec Raglan Mines Limited v. Uffe Blok-Andersen, [1991] O.J. No. 3472 (C.J.), at para. 2; Hall v. Atto, [2004] O.J. No. 463 (S.C.), at para.23, aff'd 2005 CarswellOnt 7087 (Div. Ct.).

[29] Mr. Driesman’s valuator chose a discounted cash flow model to value the Corporation. Mr. Gera’s valuator did not disagree with this approach, but selected an asset value method of valuation because it produced a higher value. I accept this approach. The parties should use a discounted cash flow model to value the business unless an asset value method produces a higher result.

[30] The experts agreed that, as of July 8, 2015, the Corporation generated the bulk of its revenue through its auto parts sales agency agreement with Highway. They also agree that a number of events took place after July 8, 2015, and during the forecasting period, which changed the commissions actually earned. The parties disagree regarding what was and was not known prior to the valuation date. I must determine whether or not those events were foreseeable on the valuation date. I will address these issues one at a time.

What is the Appropriate Commission Percentage?

[31] Under the sales agency agreement signed on June 21, 2005, Highway agreed to pay commissions to the Corporation at a rate of 5% of the selling price of the products, excluding any ocean freight expense. Although the sales agency agreement contained a termination provision, it did not contain a provision that permitted Highway to adjust the commission rate unilaterally.

[32] Mr. Gera submits that as of July 8, 2015, it was foreseeable that Highway would reduce that commission below 5%. In his affidavit sworn on September 28, 2017, Mr. Gera stated “Highway has for some time now been indicating that it intends to lower the commission rate down to 3.5 percent.” In his evidence, he stated that since 2013, Highway had been pushing the Corporation to reduce the commission rate. He said that Highway mentioned this many times and asked the Corporation to use a commission rate of 3.5%. He noted the power imbalance in the relationship between Highway and the Corporation, which was wholly dependant on Highway for its revenue.

[33] Mr. Driesman testified that he remembered Mr. Gera telling him that Highway had indicated that there was a possibility that, at some point in the future, it might look to reduce the commission rate. He described Mr. Gera’s statement as being only a passing comment and one that did not concern him because the Corporation had a signed agreement with Highway that provided for a 5% commission.

[34] I find that it was not foreseeable as of July 8, 2015, that Highway would reduce the commission rate below 5%.

[35] In an industry as competitive as auto parts manufacturing, it is not surprising that from time to time companies would raise the prospect of trying to cut costs and press for reduced commissions. However, that does not mean that on July 8, 2015, that it was foreseeable that Highway would reduce the commission rate.

[36] Although Mr. Gera testified that Highway raised the issue about reducing the commission in 2013, he did not provide any emails that corroborated this evidence. Moreover, Highway did not act on their alleged intention in the two years from 2013 until the valuation date of July 8, 2015. I do not accept his evidence on this point.

[37] In addition, when Mr. Gera signed the new sales agency agreement with Highway as of September 1, 2015, that agreement also contained a commission rate of 5%. If Highway had a firm intention to cut the commission rate as of July 8, 2015, it does not make sense that it would sign a new sales agency agreement with a 5% commission rate in September 2015, and renew that agreement at the same rate on January 7, 2017.

[38] Indeed, Highway did not actually reduce the commission payable under the new sales agency agreement until April 1, 2018, at the earliest. In an email dated February 7, 2018, Highway advised Mr. Gera that it would be reducing the commission to 4.5% effective April 1, 2018, and to 4% effective October 1, 2018. This demonstrates that when Highway wanted to reduce the commission rate, it moved swiftly.

[39] I find that it was not foreseeable on July 8, 2015, that Highway would reduce the commission rate below 5%. The Corporation’s value should be based on a 5% commission rate.

Should Revenue from the FCR Brake Flange DT Program be Included?

[40] The parties disagree on whether or not income from the FCR brake flange DT program should be included in the value of the Corporation. The FCR brake flange DT program did not start generating commission revenue until 2018. The dispute turns on whether or not this income was foreseeable on the valuation date, July 8, 2015.

[41] Mr. Driesman submits that the value of the Corporation should include the income generated by the FCR brake flange DT program. He testified that the FCR brake flange DT program replaced an existing program, the FCA brake flange DS program. He testified that as the incumbent supplier for the FCA brake flange DS program, it was highly likely that Highway and the Corporation would continue to participate in the FCR brake flange DT program, to support the program with engineering services, and to be involved in the development of new or replacement parts.

[42] Mr. Driesman testified that prior to the valuation date, Arcelor Mittal contacted him for input on that part and that he received and reviewed some drawings for the part. He admitted that he did not receive a request for quotation on what would become the FCR brake flange DT program before the valuation date.

[43] Mr. Gera testified that there were no guarantees that the Corporation would participate in the FCR brake flange DT program. As of July 8, 2015, it was not certain that there would be such a program or who would win the work.

[44] He testified that he first learned of the FCR brake flange DT program in January or February 2015, when a representative of Arcelor Mittal called him to discuss it. He received a request for proposal on July 10, 2015. After that date, there were very significant design changes to the original proposal that significantly increased the cost of the part.

[45] I conclude that the revenue from the FCR brake flange DT program should not be included in the value of the business. I find that it was not foreseeable on the valuation date that the Corporation would earn any revenue from that line of business.

[46] First, the program was very much in its infancy. The contours of this program were very unclear as of the valuation date. It would be over three years before Arcelor Mittal issued a request for proposal for the final version of the FCR brake flange DT program. On valuation date, very little was known about price, complexity, or scope of the potential future program.

[47] Second, there was a very significant risk that the Corporation would not earn sales commissions from this program even if it came to pass. Chrysler, the original equipment manufacturer, would have to award the work to ZF, the tier one supplier. ZF, would have to award the work to Arcelor Mittal, the tier two supplier. Arcelor Mittal would have to award the work to Highway. Each of these stages would involve competitive bidding. There was no guarantee that Arcelor Mittal would select Highway to produce the part and Mr. Gera testified that Arcelor Mittal was actively considering suppliers other than Highway. Only if Arcelor Mittal won the work and chose to work with Highway would the Corporation be likely to earn commissions though its sales agency agreement with Highway.

[48] Third, I do not accept that the role of Highway (or the Corporation) as an incumbent would have been a significant factor in winning the work on this part given how different it was from the FCA brake flange DS program. I did not hear any evidence from anyone else in the industry (for example Arcelor Mittal or Highway) regarding whether or not incumbency played a significant role in winning this work, especially where the design of the part changed so significantly.

[49] On the valuation date of July 8, 2015, it was not foreseeable that the Corporation would earn sales commissions from the FCR brake flange DT program. The valuation of the Corporation should exclude revenue from the FCR brake flange DT program.

Should Revenue from the Gen V (Magna) Program be Included?

[50] The Corporation earned income from the Gen V VP drive shaft program until 2017, when the program with Magna ended. This is an example of a program that Highway took over from another supplier mid-way through the life of the program. The parties disagree on whether or not income from the Gen V program should be included in the valuation of the business after July 2017. The dispute turns on whether or not the end of this program was foreseeable on the valuation date, July 8, 2015.

[51] Mr. Gera testified that Highway took over this program from another manufacturer in 2013 and that it was always known that the program would end in 2017. There were, however, no contemporaneous documents that supported his evidence. He testified that programs do not run forever because parts are continually being updated and cars are frequently redesigned. He testified that the end date of the Gen V program was clear from day one. He received an email from Magna in July 2017 that advised that the program was ending and that this confirmed his expectation. He testified that this program was not replaced. Mr. Gera’s evidence was that it was well known on July 8, 2015, that this program would be ending in July 2017.

[52] Mr. Driesman acknowledged that all programs come to an end. However, he testified that there was no known end date for the Gen V program. He testified that the purchase order from Magna had a start date, but no stop date. He testified that the Gen V program produced a part for an engine and that engines typically have longer program lengths because they are complicated and difficult to design.

[53] I did not have the benefit of evidence from a representative of Magna or Highway about the expected lifespan of the program. Nevertheless, I conclude that that the revenue from the Gen V program should be included in the value of the Corporation for the entire period of the valuation. I find that it was not foreseeable on the valuation date that the program would end in July 2017.

[54] First, the purchase order issued by Magna lists November 11, 2013, as its start date. However, the purchase order lists no end date. In fact, the purchase order reads as follows:

START DATE: 11/11/13 STOP DATE: NO STOP

[55] If, as Mr. Gera testified, the end date of the program was known “from day one,” I would have expected to see that end date recorded on the purchase order. Instead, the purchase order indicated that there would be no stop date. This is objective, contemporaneous, written evidence from a third party that is inconsistent with Mr. Gera’s evidence

[56] Second, the purchase order also required Highway to “provide service parts for 5 years after end of life at the prices set forth in this Purchase Order and for an additional 12 years after at a mutually agreed upon price.” While this is not determinative of the life, scope, or profitability of the program, it is evidence that is inconsistent with Mr. Gera’s evidence that all parties knew in 2013 that the program would end in July 2017.

[57] Third, Mr. Gera did not point to any documents or emails from prior to the valuation date that indicated that the Gen V program would end in 2017.

[58] Fourth, I find that the email that Magna sent to Highway on September 20, 2016, does not support Mr. Gera’s evidence that everyone always knew that that Gen V program would end in July 2017. The email reads:

FYI EOP for GenV Program will be Aug. 01/2017 and there will be no service parts need to be provided to our customers. The total forecast volume for 2017 is approximately 350,000 pcs. Please make sure to stay close to our release orders in order to avoid any obsoleted parts/materials. Thank you to your attention for this request. Let me know if there is any concern or question. Thank you.

[59] “For your information” is an odd way to start an email if everyone had known for four years that this program was coming to an end at this precise time. Given the text of the message, I find that it is more likely that this email was the first notice that the end of program would be the end of July 2017 than that this email simply confirmed what was already well known to everyone.

[60] I do not accept Mr. Gera’s evidence on this point. I find that on the valuation date it was not foreseeable that the Corporation would lose sales commissions from the Gen V program in July 2017. The Corporation’s value should include revenue from the Gen V program of approximately $140,000 for the duration of the valuation period.

How Should Revenue from the Bridgestone Fastener Program be Calculated?

[61] The parties disagreed over how much income should be included in the Corporation’s value for the Bridgestone fastener program.

[62] Mr. Driesman’s expert included approximately $28,000 per year as income to the corporation. By the end of the hearing, both parties agreed that this amount was overstated. That amount appears to be the total annual sales price for the part, of which the corporation only received 5%. That would produce income to the corporation of approximately $1400 per year.

[63] In addition, the parties agreed that the Bridgestone fastener was a service part, which meant that volumes were low and rapidly declined over time until they were no longer needed.

[64] I find that the Corporation’s value should include $1400 of income from the Bridgestone fastener program in the first year of the valuation.

Should Commissions from the Multimatic E2xx Program be Included?

[65] The parties agree that it was foreseeable that the Corporation would receive sales commissions on the Multimatic E2xx program. The only disagreement between the parties was about the expected date the Corporation would begin to earn that income. Mr. Driesman says it was known that the Corporation would earn income starting in 2015. Mr. Gera says that the Corporation was not expected to start to earn income from this program until 2016.

[66] On April 4, 2012, Dynamic Suspensions, a division of Multimatic, issued a purchase order for the Epsilon 2 Ball Joint Housing. Mr. Driesman is named as the contact on the purchase order. He testified that this was a blanket purchase order that sets out how much Highway would get paid for each component it built. Dynamic Suspensions would then issue separate orders for a specific number of parts that Highway would fulfill at the agreed upon price. The effective date of the purchase ordered among the three items listed on the purchase order between January 9, 2012, to May 16, 2013. The end dates varied from December 31, 2017, to December 31, 2021. He testified that the Corporation worked on tooling and making prototype parts before the valuation date.

[67] Mr. Gera testified that prior to the valuation date, he and Mr. Driesman knew that the corporation would be receiving sales commissions for this part but that the business would only commence in 2016.

[68] I find that as of the valuation date, both Mr. Driesman and Mr. Gera knew that the corporation would receive sales commission income from the sale of the Multimatic E2xx. I accept that Highway was told before the valuation date that the program was coming and that it would get the work before. Here, unlike the DT brake flange, tools and parts had been produced before the valuation date.

[69] I accept Mr. Gera’s evidence that it was known that the sales commission income would only begin in 2016. I find that, as of the valuation date, it was not foreseeable that the company would begin to earn income in 2015. I find that the valuation of the business should include income from the Multimatic E2xx program, but only commencing in January 2016.

How Should the Valuation Normalize Certain Expenses?

[70] The parties agree that they must normalize certain expenses as part of the valuation of the Corporation. In their joint report, the experts retained by the parties explained the normalization process as follows:

The experts agree that as part of a valuation exercise of any enterprise, certain expenses must be "normalized". In a normalization exercise, the expert adjusts for those expenses which the enterprise actually incurred but which a hypothetical buyer would or would not incur, in order to determine what a "normal" stream of revenue for the enterprise, and on which a hypothetical value should be based.

[71] The parties disagreed on how to treat two different expenses: salary to owners and the variable expenses incurred by the Corporation.

Salary Payable to Owners

[72] The parties disagreed significantly on how to normalize the salaries that the Corporation paid to the shareholders

[73] Mr. Gera submitted that the value of the Corporation needed to account for a market salary to be paid to each of the shareholders. Mr. Gera and his expert proposed a $200,000 annual expense comprising $100,000 for each of the shareholders. This salary level would properly reflect the burden on the owners to manage current contracts, deliver on the contracts, and spent time developing new contracts in order to maintain the future viability of the business. Mr. Gera submitted that the income from the Corporation was not a passive income stream. It required hard work selling technically sophisticated products to demanding clients in a competitive industry.

[74] Mr. Driesman submitted that the Corporation’s value should not be reduced by a salary expense. He submitted that the Corporation ran a fairly simple sales agency with no operations outside of the need to manage the existing contracts and to collect the commission payments. From this perspective, Mr. Driesman and Mr. Gera were essentially sales representatives, with limited overhead. In the alternative, Mr. Driesman submitted a single management salary of $40,000 to $50,000 would be appropriate.

[75] In my view, a single salary of $100,000 should be included to normalize the salary payable by the Corporation to the owners.

[76] I do not accept that a single salary of $40,000 to $50,000 would be adequate to reflect the work necessary to maintain the business of the Corporation and its income level. Both Mr. Gera and Mr. Driesman were engineers, with extensive experience in the auto parts industry. I do not accept that $40,000 to $50,000 would be sufficient to recruit and retain someone with the skills and abilities that Mr. Gera and Mr. Driesman brought to the Corporation. In my view, and for reasons discussed below in the section on Mr. Driesman’s employment with Hoerbiger, a salary of $110,000, reflects a reasonable market salary for this type of position in 2015.

[77] I also do not accept that two salaries are appropriate for a business of this size, scope, and nature. The evidence at trial demonstrated that both Mr. Gera and Mr. Driesman worked in a variety of other roles at other companies while they worked in this business. Indeed, some of those positions were full-time. Mr. Driesman testified that he only ever worked on this business on a part-time basis. While this may have been a source of friction with Mr. Gera, it does not suggest to me that the Corporation’s expenses should include two full-time employees. Although Mr. Gera testified that he worked 60 hours per week on this business, I have some difficulty accepting this evidence since he admitted that he held other full-time positions at these times. For these reasons, I do not think that two full-time positions would be required to operate this business.

[78] Considering all of the evidence, I find that the value of the Corporation should include a $110,000 annual expense to normalize for salaries paid to the shareholders.

Variable Expenses

[79] The parties disagreed on how to treat the variable expenses of the Corporation.

[80] Mr. Driesman’s expert explained her approach as follows:

57. We considered that in order to generate the commission income, other variable costs would be incurred. We reviewed the draft financial statements for the periods ending September 30, 2014 and 2015 as prepared by SB Partners LLP, along with the comments provided by Mr. Michael Kee ("Mr. Kee") (Appendix B). Mr. Kee noted that the statements were prepared based on information provided, and that there may be amounts that Mr. Gera and Mr. Driesman paid personally and were not included. We did not summarize and include this information as it does not appear to be reliable, or consistent.

58. We considered what reasonable costs would need to be incurred to maintain the commission income, and consider that they would be nominal as limited work is necessary to maintain the contracts. Accordingly, we considered variable costs to be in a range of 10% to 20% of revenue.

[81] Mr. Gera’s expert relied more heavily on the Corporation’s draft income statement, which reflected expenses of 61% of revenue for 2014 and 35% of revenue for 2015. Mr. Gera’s expert proposed using a variable expense of 35% of revenue, prior to shareholder salaries.

[82] The evidence on this issue is unsatisfactory. The Corporation’s financial statements appear to be based only on bank and credit card statements. They are notice to reader statements only. Moreover, they appear to include many expenses that might arguably be better described as personal expenses of Mr. Gera and Mr. Driesman that were run through the company.

[83] Finally, the financial statements appear to include a significant number of expenses (including, but not limited to, warehouse set-up costs and rent) related to a new company of Mr. Gera’s that was spun out of the Corporation and should not be used to reduce the value of the Corporation. Those expenses must be excluded.

[84] I have no confidence that the Corporation’s financial statements are a sound basis to assess the variable expenses associated with its core business for the purpose of valuing it as of July 8, 2015.

[85] Considering all of the flawed evidence before me on this point, I find that the best estimate of variable expenses is 20% of revenue, which is the top end of the range identified by Mr. Driesman’s expert. The value of the Corporation should be calculated using a variable expense equal to 20% of annual revenue. This amount is in addition to the salary expense discussed above.

Should the Sales Volumes Include All of North America or Only Canada?

[86] The parties dispute whether or not the Corporation’s value should include projected sales commissions from Canada or all of North America.

[87] Mr. Gera acknowledges that the 2005 sales agency agreement between the Highway and the Corporation states that Highway appointed the Corporation as its “exclusive sales representative in the territory described in Schedule ‘A’…”. That schedule read, “For the purposes of this Agreement, the Territory shall mean North America.”

[88] Mr. Gera, however, testified that in 2007 or 2008, after the Corporation signed its sales agency agreement, Highway hired another sales agent, Global Solutions, which Highway used in the United States and Mexico. Mr. Gera testified that the Corporation received commissions for any business obtained or sourced by Global Solutions for parts that came into Canada and that the Corporation sourced work for parts that ended up in the United States, Global Solutions would receive the commissions. I was not taken to any documents that supported this division of commissions among Global Solutions and the Corporation. I also did not have the benefit of any evidence from a representative of Highway or Global Solutions that supported Mr. Gera’s testimony. I am not satisfied that the historical commission income earned by the Corporation only included sales from Canada.

[89] Mr. Driesman testified that he was aware that Highway had a “secondary agent” that it used for some parts in the United States. He testified that he had no dealings with this secondary agent and could not even identify it as being Global Solutions.

[90] Mr. Driesman was shown an email he received on May 25, 2013, from a representative of Highway that read as follows:

Dear Mr. David Driseman [sic] Please refer to the recent visit of our Worthy M.D Mr. Umesh Munjal to Canada & USA and the meetings with you and various other customers including Magna. During the course of discussion it transpired that some times M/s C.E Williams and some times other agents are approaching the same customer with the same set of RFQs. This has created some confusion and over lapping. To sort out this problem it is suggested that a clear demarcation be made so that in future there may not be any misunderstanding or any missed opportunity due to two persons handling the same customer.

Highway Management is of the view that in Canada your company M/s C.E Williams should be sole representative and in USA & Mexico let M/s Global Purchasing Solutions handle the customers as there is a possibility that one customer like Magna Powertrain may be located in Canada well as in USA and Mexico.

The Management is of the view that irrespective of the fact that from where the RFQ is generated, we will go by where the end user is located. So when the end user is located in USA or Mexico, it will be handled by M/s Global Purchasing Solution and if the end user is located in Canada, it will be handled by M/s C.E Williams.

Kindly let us have your views on this point so that we may proceed further on this matter.

[91] It appears that Mr. Driesman responded to this message on May 27, 2013. He objected to the proposed territory split for a variety of reasons. He suggested a different proposal for how to organize sales. Neither party took me to any evidence that Highway ever responded to Mr. Driesman’s counter-offer. Mr. Driesman denied that the Corporation ever accepted Highway’s proposal or that Highway implemented the plan described in the email message from May 25, 2013.

[92] I find that the valuation of the Corporation should include sales in North America, not just Canada, for three reasons.

[93] First, under the sales agency agreement, the Corporation had the contractual right to act as exclusive sales agent for Highway in all of North America. The sales agency agreement contains an entire agreement provision that stipulates that any amendment to the agreement must be in writing and signed by both parties to demonstrate their consent to the amendment. There is no evidence that the parties ever amended the sales agency agreement in writing to reduce the territory granted to the Corporation.

[94] Second, the email in exchange in 2013 is not determinative of this point. The message from Highway does not clearly address how commissions would be shared under its proposal. More importantly, the Corporation did not accept this proposal and there is no evidence that Highway pushed this dispute to impasse or even responded to Mr. Driesman’s message.

[95] Third, when Mr. Gera signed the new agency agreement effective September 1, 2015, Highway appointed his new company the exclusive sales representative for North America. If Highway had altered the Corporation’s territory to limit its scope to Canada only, I would have expected that limitation to be incorporated into the new sales agency agreement. Instead, Highway gave Mr. Gera the same territory that it gave to the Corporation in 2005: all of North America.

[96] The value of the Corporation should be calculated using sales volumes from all of North America.

Should the Experts Rely on Actual Sales Figures?

[97] The parties disagree on how to estimate the revenue of the Corporation during the valuation period.

[98] Mr. Driesman’s expert noted that she did not receive all the information she requested or required from Mr. Gera. Due to these inadequacies, she attempted to calculate the actual number of parts that Highway would have sold using publicly available sales data for the make and models of vehicles that used Highway’s parts.

[99] Mr. Gera objects to this approach and submits that this is exactly the type of hindsight information that should not be used to value a business.

[100] Unfortunately, the parties did not have or provide to me any sales projections that existed on or around the valuation date. Those projections may well have provided the best evidence of the foreseeable income levels of the Corporation during the valuation period. In the absence of such projections, the approach taken by Mr. Driesman’s expert is understandable. However, I am concerned that it is hindsight information and that its count of parts may be both over-inclusive and under-inclusive.

[101] Mr. Driesman submitted that one check on the accuracy of the expert’s projection is to test it against the Corporation’s 2015 sales, for which there was invoice backup. He notes that, if you exclude the DT brake flange, his expert’s projections are very similar to the 2015 results.

[102] The evidence on this point is less than satisfactory. All of the approaches have flaws in methodology or evidence. The result of the differing approaches becomes less significant once they are adjusted to reflect my findings about the DT brake flange program, the Gen V (Magna) program, and the Bridgestone fastener program.

[103] Considering all of the evidence and the circumstances, I find that the sales volumes be calculated on the basis that the Corporation would earn commission income of $300,000 in each of the years from 2016 to 2019. This figure falls somewhere between the numbers submitted by Mr. Gera and Mr. Driesman, once they are adjusted for my findings. In my view, while not perfect, this amount is fair to both parties and the evidence before me.

[104] Having excluded the DT brake flange, and approached the anticipated commission income in this way, I would not further adjust the discount rate used by Mr. Driesman’s expert. Mr. Gera submitted that the discount rate was too low, in part because her valuation called for a significant growth in the Corporation’s income. Given my approach to commission income, I find that this concern is no longer warranted. I accept that Mr. Driesman’s expert’s discount rate of 19% is appropriate.

How Should Cash Flow in 2015 be Recognized?

[105] The parties disagreed as to whether the cash flow streams for the business in the first year should be from the valuation date to the year end or from the start of the calendar year to the year end.

[106] Mr. Driesman’s expert initially included cash flows for the entire 2015 calendar year in the first year cash flows for the discounted cash flow analysis. In her evidence, I understood her to accept that this was a conceptual error.

[107] I agree with the approach of Mr. Gera’s expert on this point. The cash flows included in the business valuation should only include those from the valuation date to the end of the calendar year. The experts should consider whether or not any consequential adjustments are required.

Should a Terminal Value of the Corporation be Included?

[108] The parties disagree on whether or not the cash flows of the company should be calculated into perpetuity and reflected using a terminal value.

[109] Mr. Driesman submits that there is no reason to believe that the cash flow streams would not have continued indefinitely and that the value of the business should reflect that income. I do not accept this submission.

[110] First, the evidence in this proceeding demonstrates that the programs that generate the sales commissions for the company end due to technological change and the redesign of automobiles. I am not satisfied that incumbency provides the company with a guarantee or even a high likelihood that it would win future work. That depends on a complex series of economic decisions. First, the original equipment manufacturer must place the order. Second, the tier one system supplier (which includes Magna, Arcelor Mittal, and Multimatic) must win that work. Third, Highway must win the work from either the tier one or tier two supplier.

[111] Second, the evidence of past performance does not satisfy me that the Corporation was either very successful or well-positioned to win new contracts. Although their evidence differed in degree, both Mr. Driesman and Mr. Gera testified that the company won very few contracts on which it bid. I do not think it is likely that CE Williams would have won many additional contracts to justify including a terminal value in the value of the business.

[112] Third, I accept the submission of Mr. Gera that a buyer would not pay a premium for the right to use the Corporation vehicle to bid on new contracts for new programs. I accept that a purchaser would be unlikely to agree to pay an amount in respect of a terminal value.

[113] For these reasons, the value of the Corporation should not include a terminal value.

Adjustments to the Value of the Corporation

[114] Each of the parties requested that the value of the Corporation be adjusted to address what each saw as unfairness between the owners. I will address these issues below.

There Should Be No Adjustment for Income Earned by Mr. Driesman from Hoerbiger

[115] Mr. Gera submits that the value of the corporation should be reduced because of certain employment income earned by Mr. Driesman from a company called Hoerbiger.

[116] It appears that in early February 2014, Mr. Driesman entered into negotiations with Hoerbiger about the Corporation becoming a sales agent for Hoerbiger, an international company that manufactured auto parts, among other items. These negotiations took place over email and Mr. Gera was copied on the communication. Mr. Driesman proposed that the Corporation would act as Hoerbiger’s sales agent, represent it at trade shows, and introduce it to potential customers. Mr. Driesman proposed that the Corporation would charge a 5% commission the sale price of orders placed with its assistance and circulated a draft sales agency agreement. Ultimately, Hoerbiger did not agree to these terms and chose not to enter into a sales agency agreement with the Corporation.

[117] On June 16, 2015, a Hoerbiger representative contacted Mr. Driesman and advised him that the company was looking to hire a sales engineer. Mr. Driesman did not disclose to Mr. Gera that Hoerbiger had offered him this position. Ultimately, Mr. Driesman applied for the job, submitted to an interview, and then accepted this full-time position, which paid a straight salary of $110,000, without commission. As indicated above, this is good evidence of an appropriate market salary to be attributed to the Corporation in 2015.

[118] Mr. Gera submits that the value of the Corporation should be adjusted to take into account the fact that Mr. Driesman did not put the best interests of the Corporation first when he negotiated this agreement for himself. I disagree.

[119] Mr. Gera has not proven on a balance of probabilities Mr. Driesman usurped an opportunity of the Corporation. The negotiations between the Corporation and Hoerbiger ended in early 2014. Hoerbiger did not want to hire the Corporation as a sales agent. Many months later, Hoerbiger posted a position and contacted Mr. Driesman, who applied for the job. Mr. Driesman received his job offer on July 15, 2015, which is after the valuation date for the Corporation.

[120] In all of the circumstances, I decline to adjust the value of the Corporation to reflect Mr. Driesman’s employment at Hoerbiger.

There Should Be No Adjustment for Income Earned by Mr. Driesman from MJ Manufacturing

[121] Mr. Gera asks that the value of the Corporation be adjusted to account for income earned by Mr. Driesman from a company called MJ Manufacturing that manufactured industrial parts.

[122] Mr. Gera testified that in approximately 2006, Mr. Driesman told him that he started working for MJ Manufacturing. This was after they became partners in 2005. Mr. Gera stated that Mr. Driesman told him that he was earning very little through the contract but that he would share the revenue with the Corporation once the revenue started to grow. Mr. Gera admitted that he never asked Mr. Driesman if MJ Manufacturing ever started paying him more money.

[123] Mr. Driesman stated that after he lost his job with another company, he retained a recruiter to help him find new employment. He testified that he signed a contract with MJ Manufacturing in 2006 that paid him a commission on sales he closed as an independent contractor. He worked for the company until the business terminated in 2015. He indicated that he thought he earned about $10,000 per year from his work for MJ Manufacturing and that the amount he earned went down slightly (not up) over time.

[124] In an answer to an undertaking, Mr. Driesman provided his pay stubs from MJ Manufacturing. I was advised that he earned a total of $102,782 from 2006 to 2015. This averages out to about $10,200 per year.

[125] Even if I accept Mr. Gera’s version of Mr. Driesman’s promise, there is no evidence in the pay stubs that the amount of money that Mr. Driesman earned from MJ Manufacturing increased over time. Mr. Gera has not satisfied me on a balance of probabilities that the value of the Corporation should be adjusted to reflect the income earned by Mr. Driesman from MJ. Manufacturing.

There Should Be an Adjustment to Reflect Assets Transferred to RPPL

[126] Mr. Gera incorporated his new company, RPPL, on February 17, 2015. He confirmed that all of the business related to warehousing and parts manufacturing were transferred from the Corporation to RPPL. Mr. Gera admitted that “Formal paperwork transferring the equipment from the [Corporation] to RPPL was never completed. However, I agreed to refund the value of equipment.” On this basis, the value of the corporation should be adjusted to credit Mr. Driesman with one-half the value of the $27,143 CNC Forktruck, which the Corporation purchased on January 12, 2015.

[127] It also appears that $14,502 was spent by the Corporation to set up the warehouse. That expense should have been repaid by RPPL. The value of the corporation should be adjusted to credit Mr. Driesman with one-half the value of the $14,502,which the Corporation purchased on January 12, 2015.

[128] In addition, on October 2, 2016, the Corporation wrote a cheque to RPPL for $20,000. It appears that Mr. Gera signed this cheque, which has a memo line that reads “Loan.” The value of the corporation should be adjusted to credit Mr. Driesman with one-half the value of the $20,000 cheque.

There Should Be an Adjustment to Equalize Expenses

[129] Each of Mr. Driesman and Mr. Gera complain about expenses that the other ran through the company or how they were paid. In any event, the parties agree that the expenses they paid through the company should be equalized. Therefore, I agree that the value of the Corporation should be adjusted in favour of Mr. Driesman to equalize the current difference in expenses of $36,421.57.

Conclusion

[130] The value of the Corporation should be determined and adjusted in accordance with the findings set out above. The parties and their experts should work together over the next 30 days to see if they can agree on the value of the Corporation in light of my findings. If they are not able to reach a consensus in that time, the parties should contact my judicial assistant and arrange for a further attendance with me to settle the issues.

[131] Mr. Gera shall account to Mr. Driesman for 50% of the value of the Corporation (as adjusted by these reasons), plus prejudgment interest from the valuation date to the date of these reasons.

[132] If the parties are not able to resolve costs of this action, I will set a timetable for costs submissions once the final value of the Corporation has been fixed.

Robert Centa J. Date: May 17, 2023

Footnotes:

[1] The issues list filed as Exhibit 5 contained a typographical error. The issues list stated that the agreed valuation date was July 15, 2015. Counsel for both parties confirmed that was an error and should have read July 8, 2015.

[2] Bank of Montreal v. Faibish, 2013 ONSC 2801, at para. 5; Stewart v. Lattanzio, 2022 ONSC 1770, at para. 31.

[3] RBC Life Insurance Company v. Monaco, 2010 ONCA 855, at para. 6.

[4] Central Lumber Limited v. Gentile, 2019 ONSC 7413, at paras. 22, 31(e), and 45; 1468025 Ontario Ltd. v. 998614 Ontario Inc., 2015 ONSC 7216, at paras. 149-150.

[5] Parris v. Laidley, 2012 ONCA 755.