COURT FILE NO.: CV-6887-17

DATE: 2023-10-03

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Conrad Houle, by his Litigation Guardian, Boris Naneff, Sheila Houle, CS Houle Holdings Inc. and KKP Investments Inc.

Plaintiffs

– and –

Andrew Sostarich, Alesia Sostarich, Tracks & Wheels Equipment Brokers Inc., Michael Gougeon, Sostarich Ross Wright Cecutti LLP, Arseneau Poulson and Workers Auto Services Ltd.

Defendants

Joseph Groia and Sophie Baker, for the Plaintiffs

James Thomson, for the Defendants Andrew Sostarich and Sostarich Ross Wright Cecutti LLP

Orlando Rosa, for the Defendant Michael Gougeon, Tracks & Wheels Equipment Brokers Inc. and Workers Auto Services Ltd.

HEARD: February 7, 8, 9, 10, 11; 14, 15, 16, 17, 18, 28; March 1, 2, 3, 4, 7, 8, 9, 10, 11, 14, 15, 16, 17, 18, 21, 22, 23, 24 25, 28, 29, 30, 31; April 1; May 4 and 5, 2022

TRIAL DECISION – LIABILITY

CULLIN J.

Table of Contents

Overview of the Proceedings. 3

Introduction to the Parties. 4

Tracks & Wheels Equipment Brokers Ltd. (“T&W”) & KKP Investments Inc. (“KKP”) 4

Conrad Houle & Sheila Houle (the “Houles”) 4

Michael Gougeon and Workers Auto Services Ltd. 4

Andrew Sostarich & Sostarich Ross Wright Cecutti LLP (the “Sostarich Defendants”) 4

Alesia Sostarich. 4

Ken Koppes & TD Bank. 5

Ian Sinclair 5

Summary of the Facts. 5

The Lands, the Leases And the Options. 17

The Timmins Lands (“Timmins”) 17

The Sudbury Lands (“Sudbury”) 18

Attempted Completion of the Timmins Severance. 18

Attempted Exercise of the Options. 19

The HST Claim.. 20

The Legal Proceedings. 20

The Main Action. 20

The Specific Performance Action. 21

The Escrow Action. 21

The Order of Justice Akbarali, dated November 1, 2017. 22

The Order of Justice Gordon, dated January 20, 2020. 22

The Order of Justice Gordon, dated September 2, 2021. 23

The Issues. 23

Preliminary Findings. 24

Conrad Houle was not a vulnerable person at the time of the Transaction. 24

Michael Gougeon was not a bad actor 27

Andy Sostarich was in a conflict of interest 27

Andy Sostarich was not an agent for the Houle Plaintiffs or the Gougeon Defendants. 28

Witnesses’ demeanour and credibility. 29

Analysis: PCA Claim And HST Claim Against the Houle Plaintiffs. 31

The Law.. 31

Are the Houle Plaintiffs liable to the Gougeon Defendants in respect of PCA or HST audit amounts? 35

Relevant Contractual Terms and Evidence. 35

Positions of the Parties. 44

Is the PCA claim time-barred under the SPA?. 45

Is the PCA claim barred by the failure of the Gougeon Defendants to comply with the notice provisions of the SPA?. 46

Is the PCA claim time-barred pursuant to the Limitations Act?. 47

Are the Houle Plaintiffs liable to reimburse or indemnify the Gougeon Defendants for the HST claim? 48

Analysis: Liability of the Sostarich Defendants. 48

The Law.. 48

Are the Sostarich Defendants liable to the Houle Plaintiffs in the Main Action for breaches of professional, contractual, and fiduciary duties owed by Andy Sostarich to the Houle Plaintiffs?. 53

Are the Sostarich Defendants liable to the Gougeon Defendants for professional negligence and breach of contract for failing to pursue claims available to them for PCA?. 55

Failure to file a Loss Notice. 55

Failure to prepare a year-end statement for T&W... 55

Analysis: The Specific Performance Action. 56

The Law.. 56

Is T&W entitled to specific performance with respect to the optioned lands, or only with respect to the leased lands as conceded by the Houle Plaintiffs?. 57

Analysis: Costs. 61

The Law.. 61

Liability Phase Costs Determination. 61

Who, if anyone, is entitled to and liable for costs in the Main Action?. 61

Is KKP entitled to costs with respect to its Counterclaim in the Specific Performance Action?. 63

Disposition. 64

In the Main Action. 64

In the Specific Performance Action. 64

In the Escrow Action. 65

Overview of the Proceedings

[1] On July 21, 2014, Conrad and Sheila Houle (the “Houles”) sold their company, Tracks and Wheels Equipment Brokers Inc., to Michael Gougeon. Before the ink had dried on their agreement, disputes erupted about its terms.

[2] The most contentious of the disputes were those regarding the lands on which the company operated. Those lands were owned by a real estate holding company owned by the Houles. Mr. Gougeon alleged that he was granted options to purchase the lands. The Houles denied the existence of those options.

[3] The Houles and Mr. Gougeon commenced proceedings against each other and against the professional advisors involved in their share purchase transaction (the “Transaction”), consisting of three related actions. In the actions, the court is asked to determine the obligations and liabilities of the parties, to assess damages, and to grant any other appropriate relief to bring the parties’ dispute to a conclusion.

[4] The parties consented to a bifurcated trial in which the issues of liability would first be determined, followed by the issues of damages. This decision deals with the first stage of the trial and addresses the issues of liability.

Introduction to the Parties

[5] The actions involve six different parties or groups of parties. Because many of them share the same surname, I will refer to the individual parties by their first name.

Tracks & Wheels Equipment Brokers Ltd. (“T&W”) & KKP Investments Inc. (“KKP”)

[6] T&W is the business that was the subject of the Transaction. It manufactured and sold heavy equipment. T&W conducted business from its Ontario facilities in Sudbury, Timmins and North Bay on lands which were owned by KKP.

Conrad Houle & Sheila Houle (the “Houles”)

[7] Conrad Houle (“Connie”) founded T&W. He and his wife, Sheila Houle (“Sheila”), were the shareholders of T&W and KKP. At the time of the Transaction, Connie had exclusive management control of T&W. Sheila had no management involvement in either of the corporations.

[8] Connie and Sheila were also the shareholders of CS Houle Holdings Inc., a corporation created to effect the sale of T&W.

[9] At the time of trial, Connie was a party under disability represented by a litigation guardian, Boris Naneff. On July 18, 2022, Connie passed away; his interest in the litigation was transferred to Sheila as his Estate Trustee.

Michael Gougeon and Workers Auto Services Ltd.

[10] Michael Gougeon (“Mike”) and his company, Workers Auto Services Ltd. ("WAS"), were the purchasers of T&W.

Andrew Sostarich & Sostarich Ross Wright Cecutti LLP (the “Sostarich Defendants”)

[11] Andrew Sostarich (“Andy”) is a Chartered Professional Accountant (“CPA”). He has been a CPA since 1986 and a partner in his firm, Sostarich Ross Wright Cecutti LLP, since 1991. The Sostarich Defendants were the accountants for both T&W and KKP and they provided personal tax accounting services to Connie and Sheila since late 2012. The Sostarich Defendants were also the personal and corporate accountants for Mike and his businesses. At the time of the Transaction, they had been the accountants for Mike and his businesses for over 20 years.

Alesia Sostarich

[12] Alesia Sostarich (“Alesia”) is a lawyer. At the time of the Transaction, she was an associate with the law firm of Arseneau Poulson LLP in Sudbury, Ontario. Alesia is Andy’s sister. She was involved in the Transaction at the request of her brother, including drafting lease agreements, incorporating CS Houle Holdings Inc., and acting as counsel for Connie and Sheila. She acted for TD Bank and, possibly, also Connie on TD’s financing of a share purchase between Connie and the Estate of his son, Kevin Houle (“Kevin”).

Ken Koppes & TD Bank

[13] TD Bank was T&W’s banker since approximately 1995. Ken Koppes (“Ken”) was the Vice-President of Commercial Banking (Northern Ontario) at TD Bank commencing in 2000. Ken acted as the principal liaison between TD Bank and T&W. TD Bank provided lending facilities and other financial services to T&W, KKP, and Connie and Sheila personally.

Ian Sinclair

[14] Ian Sinclair (“Ian”) is a lawyer with the firm of Sinclair and Sinclair in Sudbury. He was not a party in the litigation but was a key witness due to his role in the Transaction. Ian acted for Mike and WAS on the Transaction. He also acted for Kevin’s Estate on its share sale to Connie.

Summary of the Facts

[15] For this purpose of this summary, I will restrict myself to an overview of the facts surrounding the claims before the court. Where necessary, evidence and disputed positions will be included to ensure a complete narrative of the facts. Emails and documents have been quoted verbatim. Additional details and evidence will be discussed when addressing particular issues.

[16] Connie created and developed T&W. The business began operating in or around 1976, and it was incorporated on or about February 1, 1980. Sheila worked in the business in its early days, issuing invoices and preparing paperwork, but she did not continue in this role as the business grew. Connie directed the business as its President until in or about 2005 when his son, Kevin, assumed that role.

[17] On October 10, 2009, Kevin died in a plane crash. Following Kevin’s death, Connie returned to directing the day-to-day operations of T&W. At that time, Connie was 72 years old, and Sheila was 69 years old.

[18] When Kevin assumed the role of President of T&W in 2005, he held 109 Class A Common Shares in T&W. Sheila held 115 Class A Common shares, and Connie held the remainder of the issued and outstanding shares.

[19] Mike first approached Connie about purchasing T&W approximately one year after Kevin’s death. At that time, Connie advised him that he was not ready to sell the business, and the discussion was not pursued further.

[20] In 2012, Connie retained Andy to act as his personal accountant, and as the accountant for T&W and KKP. In March 2013, Andy provided his first review engagement of T&W’s financial statements for the year ended September 30, 2012. In early December 2013, Connie extended cheque-signing authority for T&W to Andy as he and Sheila planned to be in Florida for the winter.

[21] At the time that he retained Andy, Connie was ready to explore the sale of T&W, and he advised Andy that he intended to take this step. Some hearsay evidence was offered about potential purchasers of the business. No admissible evidence was offered to establish that any purchase offers were requested, received, entertained or rejected by or on behalf of T&W other than the offer by Mike.

[22] Concurrently with his interest in selling the business, negotiations were underway regarding Connie’s purchase of the T&W shares held by Kevin’s Estate. Andy was also involved in that share purchase, by preparing memoranda related to the valuations of the shares, acting as a facilitator during the negotiations, and providing input regarding the preparation of legal documents. The negotiations with Kevin’s Estate culminated in an agreement, dated March 13, 2014, in which Kevin’s 109 Class A common shares were sold to Connie for the sum of $2,207,000 plus interest.

[23] The prospective sale of T&W to Mike was first seriously considered in September 2013. Mike had heard from others that Connie was contemplating a sale of T&W and he contacted Connie to discuss his interest in purchasing it.

[24] Although the initial discussions about the Transaction took place between Mike and Connie, Andy and Ken were drawn into those discussions at an early stage. On September 24, 2013, Andy advised Ken that Mike was interested in buying the business. On September 26, 2013, Ken suggested that a meeting should be organized. On November 5, 2013, Andy expressed to Ken that he thought they could “broker a deal that works well for both.”

[25] Connie and Sheila had never been involved in a transaction to buy or sell a business prior to September 2013. Mike had been previously involved in such transactions. This experience (or lack of experience) was known to Andy.

[26] Shortly after Mike’s expression of interest, T&W began to disclose financial information to him in furtherance of the negotiations. There is no evidence that Mike was asked to execute a non-disclosure or confidentiality agreement prior to receiving T&W’s financial information. On or about December 4, 2013, Mike drafted and presented a Letter of Intent (the “December LOI”) to Connie as president of T&W. The December LOI contemplated an asset purchase and contained no reference to land leases, purchases or options.

[27] On January 30, 2014, Mike emailed Andy about the structure of the Transaction, and specifically whether the Transaction should be structured as an asset or share purchase. His email discussed options to purchase land and the use of Municipal Property Assessment Corporation (“MPAC”) assessments to value that land. He expressed the view that a share purchase would be “easier for all of us.”

[28] On February 4, 2014, Mike emailed Andy to confirm that he and Connie had met to discuss the Transaction. The email described the following:

Ok I met with Connie and it went very well. We are in agreement to the share price we all have been discussing. Hopefully the parts adj. and other depreciation adj wouldn’t be an issue as you have already factored that into his net number. The only other thing I can see as a potential issue is the A/R.

I think even the Real Estate he seems in agreement with. I made it clear that I must have the option to purchase upon his death. He was very reluctant at first but after talking through it he seems in agreement. The appraisals and rent factors have already been looked at and I reviewed these numbers with him. He really did seem in agreement; however, I see this as a potential changed my mind.

[29] On February 12, 2014, Connie met with Andy and Ken to discuss the purchase of the Estate’s shares and the sale of T&W. An email by Ken dated February 12, 2014, indicates that Mike’s “key item” of having a purchase option was discussed during the meeting. It was Ken’s evidence that this issue was discussed in depth, particularly having regard to the accuracy of the land appraisals to be used to set lease rates and purchase prices.

[30] On March 6, 2014, Andy advised Ken by email that Mike was “OK with what he sees” with respect to a firm purchase price of $13 million for the T&W shares. The email also referenced terms for the lease of lands in Sudbury, Timmins and North Bay, with options to purchase those lands upon Connie’s death.

[31] The optional purchase prices being discussed in March 2014 for Sudbury and Timmins were based upon appraisals prepared by Appraisals North Realty Inc. Those appraisals cited current market values as of May 1, 2009, for Sudbury, and June 26, 2009, for Timmins. There was no appraisal for North Bay. That land was purchased by KKP in 2012, and the 2012 purchase price was used to set the optional purchase price.

[32] On March 8, 2014, Mike sent an email to Connie using Sheila’s email address. In that email, he confirmed a discussion that they had earlier that day regarding the options to purchase Sudbury, Timmins and North Bay. In the email he noted, “[i]t just does not make sense for me to proceed purchasing and operating a company without a fixed option to eventually own the properties.”

[33] Immediately after sending the email to Connie, Mike forwarded it to Andy and Ken with the following message:

Enclosed is the email I sent Connie.

In our discussion this morning he said we never talked about buying the real estate. I am not sure if he really can’t remember or has selective memory.

In any event I made it clear that he has to make up his mind before we go any further.

I expect he will talk to you guys shortly for your opinions.

[34] Neither Connie nor Sheila could recall receiving Mike’s email.

[35] Mike drafted and delivered a further Letter of Intent to Connie, dated March 13, 2014 (the “March LOI”). The March LOI contemplated leases but made no reference to options to purchase land. It outlined a share purchase price based on T&W’s net book value, which was estimated to be $10.2 million as of September 30, 2013, plus $2 million for goodwill.

[36] Although the March LOI made no reference to the options, the evidence is clear that they were still contemplated. In an email from Ken to Andy, dated March 14, 2014, Ken wrote:

Please make sure Mike is aware of Connie’s feelings about the Timmins property (i.e., he thought the excess lands were “out” of the equation) in terms of the valuation and purchase option piece, however, has since acquiesced based on our collective recommendations to get this done.

[37] The first draft share purchase agreement (“SPA1”) was sent by email from Andy to Ken on March 21, 2014. It was Andy’s evidence that he received a “template” agreement from Mike from a prior transaction. Andy amended that template for use in the Transaction. SPA1 was an incomplete document as it did not include the schedules referenced in the agreement.

[38] On March 22, 2014, Andy met with Connie to discuss the Transaction. They reviewed the shareholder accounts for T&W and KKP as well as the agreements between T&W and its major suppliers. They also spoke about SPA1.

[39] On March 24, 2014, Andy contacted Alesia by email to request that she prepare leases to add to SPA1. This was her introduction to the Transaction. The leases were in respect of Sudbury, Timmins and North Bay. Andy directed Alesia about the key terms to be included in the leases, including purchase options for Sudbury, Timmins and North Bay which were to be exercisable at the end of ten (10) years or earlier upon the deaths of Connie and Sheila. He also instructed Alesia to incorporate a new company, CS Houle Holdings Inc., for the Transaction.

[40] On March 25, 2014, Andy circulated a draft lease for Sudbury, prepared by Alesia, to Mike and Ken. In the email circulating the draft, Andy noted that:

The biggest open point is Connie’s insistence that he be able to build on the excess land- how do we handle that in terms of the buyout which right now only contemplates the properties in their current form.

[41] Connie’s position regarding the land was a point of contention for Mike, and one which had the potential to bring the Transaction to a halt. Mike expressed his frustration in an email response to Andy and Ken on March 25, 2014:

Andy as I said last night I don’t think there is a realist way to do this. I’ve been very clear on this option from day one and Connie has agreed to it several times only to change his mind afterwards. I’ve made multiple concessions on the property leases to get this completed and I'm done now.

[42] Mike’s response raised the alarm for Andy. In the early hours of March 26, 2014, he emailed Ken as follows:

You and I should speak in the morning. This deal seems to be fracturing over the potential use, far in the future, of raw land that may be worth $ 250,000 in aggregate!

[43] On March 30, 2014, SPA1 was signed by Connie, Sheila and Mike. No schedules, leases, options, or other documents were attached to SPA1. Further, no consensus terms had been reached regarding the land leases or the purchase options. Although counsel for the parties were identified in SPA1, at that time, neither Mike nor Connie and Sheila were represented by counsel nor received advice from counsel in advance of signing the agreement.

[44] Connie and Mike signed SPA1 at Andy’s office. Sheila was not present as she was in Florida. She testified that she never saw the body of SPA1 before signing it: she received, signed, and returned the signature page. It was Andy’s evidence that Mike and Connie were adamant that they wanted to sign SPA1. He testified that they were both anxious to move their negotiations toward a conclusion.

[45] After March 30, 2014, Andy and Alesia worked to finalize the terms of SPA1. Andy sent an updated draft agreement, including some draft schedules, to Alesia on May 10, 2014. On May 13, 2014, Alesia sent Andy draft leases, containing options to purchase, for Sudbury, Timmins and North Bay. She asked Andy to forward the drafts to Mike for his review, while she forwarded them to Ken. Amendments were made based upon feedback received from Mike and Ken.

[46] There is no evidence that the draft documents were provided to Connie. He did not have an email address. On the rare occasions that emails were sent to Connie, they were sent to Sheila’s email address, and she would provide them to him. It was Andy’s evidence that he always communicated with Connie by telephone or in person.

[47] It is not clear from the evidence when Alesia transitioned from preparing lease documents on Andy’s instructions to acting for Connie and Sheila in the Transaction. Alesia did not send them a retainer letter or secure their written agreement to act for them. She could not recall if she had consented to being listed as their counsel on SPA1.

[48] During this time, Alesia was involved in finalizing the agreement regarding the purchase of Kevin’s shares in T&W. Alesia provided a report to Connie, dated May 5, 2004. Although her oral evidence was unclear on this point, it appears that she acted for both Connie and TD Bank in the Transaction. Her reporting letter alluded to the T&W Transaction and her firm’s involvement in it: “[a]mendments have been made to the Minute Book to reflect the share purchase and the Minute Books are now being held at the offices of Arseneau Poulson in order to complete the sale of Tracks and Wheels Equipment Brokers Inc.”

[49] Notwithstanding that SPA1 was incomplete and the parties had yet to reach consensus on its key terms, Mike and Connie were engaged in parallel dealings in the background that would impact the Transaction.

[50] By the beginning of June 2014, Mike had commenced the process of assuming T&W’s dealer agreements with Kubota and Case and releasing Connie from those agreements. It was his evidence that he believed the arrangements he was making with Kubota and Case could be reversed in the event the Transaction was not completed.

[51] On June 1, 2014, KKP entered into a lease agreement with ATCO Structures & Logistics Ltd. for a section of the lands in Sudbury. It is unclear when Mike, Andy, Ken and Alesia became aware that this lease had been finalized. It is clear that Andy and Ken were aware that it was being contemplated as early as March 8, 2014.

[52] By mid-June 2014, the draft land leases and purchase options continued to be incomplete. Andy identified the competing interests of Connie and Mike with respect to the options as follows:

In an email to Alesia, dated June 16, 2014:

1. Mike wants to incorporate into the purchase option in Timmins the vacant parcel of land as that value of that piece is already included in the purchase option price referred to in the agreement.

2. Connie wants to ensure that any material improvements he makes to the lands as a landlord he can be compensated for over and above the current option prices. Can we build in some language to that effect. Something like – “should the landlord make any material improvements or build additional structures to or on the land the option price shall be increased by the value of such additions and improvements -such increase to be agreed to be the landlord and the tenant.”

In an email to Alesia, dated June 17, 2014:

We have a hang up on the aspect of the leases involving any material improvements or additional structures etc.

Mike does not want to be exposed to dealing with the valuing of the additional improvements.

A suggestion is to have the lands severed to accommodate the improvements – I think that is the way to go.

The property maps for Sudbury clearly define the land utilized by Tracks now. Not sure about North bay-Timmins is not an issue as the piece is separate already. We will have to change the purchase price options to remove the value of the excess lands – the Sudbury excess land is valued at $100,000 – the Timmins excess land is valued at $150,000. The North Bay excess land is valued at $100,000. These amounts will have to be knocked off the option prices.

[53] On June 20, 2014, Connie, Andy and Ken met at Andy’s office to discuss the Transaction. Andy compiled a “purchase price reconciliation” summary in preparation for the meeting. He shared that summary, as well as draft land leases for Sudbury, Timmins, and North Bay, with Ken. In the email forwarding the draft land leases to Ken, Andy identified clauses 4 (Lease Term and Option to Purchase) and 5 (Rent) as “key” clauses.

[54] What was discussed at the meeting on June 20, 2014, is in dispute. There are no contemporaneous notes. The discussion was, however, addressed in emails between Andy and Ken in the weeks following the meeting.

[55] Mike continued to act without a lawyer until on or about June 23, 2014, when he retained Ian. Immediately following Ian’s retainer, Alesia, Andy and Ian coordinated the preparation of closing documents. Over the ensuing weeks, Alesia and Ian exchanged draft documents. Andy and Mike were copied on some, but not all, of the emails exchanging the drafts. Connie was not copied on any of the emails exchanging the drafts.

[56] On July 10, 2014, in an email to Andy, Alesia identified the following potential issue with the lease for Sudbury:

Now for the issues attached to the lease. Connie said to me the other day that he had not seen the lease. He was in a bad mood after I told him about the permit that had been open for 12 years. I was explaining that it needs to be closed, generally, and specifically if Mike wanted to exercise the option to purchase. He was pretty angry when I said the option was 10 years or upon the last to die of him and Sheila. He started saying that maybe his other 2 kids would want to be landlords etc. About 5 minutes later he dropped it, but I am not sure if this is going to be an issue.

[57] Andy conveyed Connie’s discussion with Alesia to Ian and Mike in an email dated July 11, 2014. In this email, Andy advised, “I confirmed Ken Koppes is available on Wednesday or Thursday next week as I will probably need him around to deal with Connie on the closing.”

[58] On July 14, 2014, Alesia spoke to Connie. In an email to Andy, Alesia noted:

I just spoke to Connie about a few things. Told him we are closing Wednesday.

Then he started talking again about wanting to see the leases beforehand. And only giving a right of first refusal. You and Ken need to speak with him.

[59] Andy forwarded Alesia’s email to Ken with the following message:

FYI.

I will try to call Connie tomorrow. I may require your assistance once more!!

[60] Ken responded to Andy, “remind him that we reviewed the property leases at great depth at your office which included insurance coverage responsibility, structural/roof repairs etc.”

[61] Alesia’s email was followed by an email containing a draft of the option to purchase for Sudbury. The draft had been prepared by Ian, who was proposing to include it as a schedule to the lease. Alesia noted that, “[a]t this stage this will cause Connie some problems.” Andy forwarded the email to Ken, absent Alesia’s note about Connie, but he observed, “[t]he option to purchase is now a schedule – not a bad idea really. This is what Connie is balking about – not sure why as it contains exactly what we reviewed.”

[62] In her email to Andy, Alesia noted that there were two issues with respect to the options which required instructions: (1) the included chattels and (2) the excluded fixtures. Alesia intended to have Ian speak to Mike about the chattels, while the excluded fixtures would have to be confirmed with Connie.

[63] On July 15, 2014, Ken emailed Alesia raising concerns about discrepancies between the leases and the options. He noted that the leases contemplated land severances if Connie developed any of the properties, but that the severances were not contemplated in the options. He suggested that the language in the leases and the options should be consistent.

[64] On the same day, Andy emailed Ken to confirm a scheduled closing the following day at Alesia’s office. In his reply, Ken asked, “[t]ell her to have at least two rooms available for possible private discussion with Connie.”

[65] While Alesia, Andy and Ken were organizing the closing on July 15, 2014, Mike and Connie had a meeting in the T&W yard in Sudbury. Connie told Mike that he did not want to give him the options. Connie testified that Mike wanted to reduce the leases to a five-year term if he was not being given the options. Sheila testified that this was what Connie reported to her following the meeting. Mike testified that he told Connie “No options, no deal.”

[66] On July 16, 2014, Connie and Sheila attended Alesia’s office to close the Transaction. This was Alesia’s first meeting with Sheila. Andy and Ken joined them at Alesia’s office for closing. Ian and Mike were to join them later. As the closing proceeded, several documents were signed by Connie and Sheila, including the Share Purchase Agreement, which was dated April 3, 2014 (the “SPA”) and the leases and options for Timmins and Sudbury.

[67] The meeting devolved when Connie asked why he wasn’t fully reviewing each of the closing documents. He was particularly concerned about the leases and options. Alesia told him that such a review would take a lot of time. Connie became upset and made a comment about “smelling a rat;” he said that he did not want to sell his land, and that he had not agreed to give the options. Andy believed that Connie was disparaging him, and a shouting match ensued between them. Andy eventually stormed out of Alesia’s office. He encountered Ian and Mike in the parking lot. He called Connie a derogatory name and told them, “I’m done with this.”

[68] After Andy’s departure, Alesia decided not to close the Transaction. She put the documents in her safe as she, “[didn’t] want to get sued.” It was Ken’s evidence that he asked Connie and Sheila what their concern was about closing the Transaction. He testified that they told him they did not want to sell the undeveloped land in Timmins; they wanted to remove it from the option.

[69] In the days that followed, discussions continued between all parties in an effort to close the Transaction. The options continued to be the central disputed issue.

[70] On July 17, 2014, Alesia emailed Andy as follows:

I talked to Connie. He said that he talked to Mike and that Mike says just take the properties out if you are developing them. I guess the one thing that Connie is not hearing is that if Connie does not/cannot get them severed then Mike wants those properties. Connie seems to want nothing to do with that.

[71] On July 18, 2014, Mike sent an email to Alesia, Andy, Ian and Ken entitled, “Timmins Tracks.” It stated:

Connie and I have agreed this morning to keep the lease agreement as is with a minor addendum that Alesia is completing this morning. We will meet at 1:00 sign it and we are hopefully done.

[72] This message was followed by an email from Mike to Alesia and Ian entitled “Timmins” which stated:

If you send me the draft I can review with him before we come over to make sure we don’t have problems.

Essentially it will say his intention is to develop the property which effectively takes it out of the lease. In order to do so he has to sever off the section highlighted.

T&W agrees to pay $2,500.00 of this cost.

[73] Approximately two hours after receiving Mike’s email, Andy sent the following email message to Ken:

This whole thing is now probably dead as of right now.

This a.m. Connie and Mike agreed to remove the excess Timmins property from the deal.

This dropped the purchase price option from $705,000 to $545,000 in accordance with the values on the appraisal.

Connie got angry when he saw that. I called him. Tried to explain to no avail. Mike then offered to go five years in Timmins with no options. Connie said yes but when I called him back he took five year offer to mean ALL of the properties. Mike said no way.

Positions have now hardened.

Connie is completely lost.

Mike has agreed to wait until Monday to see if you cannot help with matters somehow.

[74] Andy spoke to Connie on the evening of July 18, 2014, and again on the morning of July 21, 2014. He summarized the conversations in an email to Ken, dated July 21, 2014, in which he stated:

Ken to summarize what we spoke about this morning.

Spoke to Connie at length late Friday night and again for quite a while this morning.

He is not accepting the fact that Mike has an option to purchase on his and Sheila’s demise and does not recall ever agreeing to that.

He does not accept the new Timmins arrangement that when the large piece is excluded and that, in fact, reduces the option price.

He does not recall ever agreeing or discussing any other alternative really and that Mike is changing things.

He now takes the position that the only acceptable deal on the real estate from his point of view is for Mike to have 5 year leases because at the end of five years he will be able to obtain “AT LEAST” @ 12 per foot instead of the current 8 - that is not acceptable to Mike - it is a reason why Mike paid the $2m goodwill.

I am not sure if you can help at this point.

I am quite concerned that Connie can assume and deal with the TD debt of $ 2.4M on top of all the current obligations to TD, CASE KUBOTA on a go forward basis given all this. He does not have the management strength behind him and does not possess it himself really.

We clearly have to close or unwind this deal by the end of the day at the latest.

I have attached the leases in their latest form that were discussed on Wednesday – I have attached the maps – I have attached the two appraisals - there was none for North Bay.

[75] The $2.4 million referenced in the email were the funds advanced by TD for Connie’s purchase of the shares of Kevin’s Estate. Those funds had been advanced on April 30, 2014, and were to be fully repaid to the bank by or before August 28, 2014. It was Ken’s evidence that if the Transaction had not closed, this short-term debt would have been converted to a term loan.

[76] On July 21, 2014, after receiving Andy’s email, Ken met with Connie and Sheila in the TD Bank office. It was Ken’s evidence that he prepared a summary entitled “Transaction Closing Highlights”, which he provided to them and reviewed with them. He also prepared notes for himself as a form of agenda for the discussion.

[77] It was Ken’s evidence that, during the meeting, he advised Connie and Sheila that they were not required to sell the business to Mike if they did not want to sell the lands. He asked each of them if they wanted to abort the Transaction. They said they did not.

[78] It was Ken’s evidence that, at the end of their discussion, both Connie and Sheila were prepared to close the Transaction on the basis that the options would be provided but the lease terms would be reduced from 10 years to 5 years. It was his evidence that he advised them against the reduction in the lease terms, but that Sheila insisted she wanted the term reduced.

[79] It was Connie and Sheila’s evidence that, at the end of their discussion with Ken, they understood that the lease terms were to be reduced, but that there would be no options.

[80] Ken advised Alesia of the amendment as he understood it. He also emailed Ian as follows:

Can’t underscore enough – this transaction based on the 5year lease/purchase options in amounts signed last week needs to close today! I understand your client has verbally consented.

[81] The Transaction closing was conducted at Ken’s office with some final documents signed by Connie and Sheila at Alesia’s office. Closing documents were amended and signed throughout the day and into the evening on July 21, 2014. The final closing document was signed, and the closing funds were forwarded to Alesia on July 22, 2014.

[82] One of the documents signed by Connie on closing was an Acknowledgement and Direction on behalf of KKP to Alesia’s firm, Arseneau Poulson, which provided as follows:

The undersigned authorizes and directs Alesia L. Sostarich of Arseneau Poulson to amend the leases between Tracks & Wheels Equipment Brokers Inc., as Tenant, and KKP Investments Inc., as Landlord, made as of April 1, 2014, to a five-year term with all other provisions to stay the same except for amendments to the Timmins lease as noted below.

In the Timmins lease PIN 65416-0018 (LT) shall be removed from the option to purchase (therefore the option to purchase price shall become $555,000.00 CAN) and the landlord will consent to a severance in respect of a certain portion shown on the attached Schedule A and will consent to a severance to allow PIN 65416-0015 (LT) to be part of the option to purchase along with PIN 65416-0017(LT). The costs of the severance will be fully paid by the Tenant.

[83] For the purpose of this litigation, the salient aspects of the Transaction that closed are as follows:

1. WAS purchased the shares of T&W from the Houles and CS Houle Holdings Inc. for an aggregate purchase price of $13 million, subject to post-closing adjustments. The purchase price was based on a net book value for the corporation of $11 million and goodwill of.$2 million.

2. The net book value of the corporation was subject to a post-closing adjustment following the production of review engagement financial statements for T&W for the period ended March 31, 2014.

3. The sum of $500,000 of the purchase price was to be paid to Andy as Escrow Agent in accordance with the terms of an escrow agreement (the “Escrow Agreement”). The funds were to be held in escrow for a period of 90 days following the closing date of the Transaction to secure the full collection of any 90 days and over accounts receivable.

4. KKP undertook to complete work required by an outstanding building permit issued for Sudbury by or before October 31, 2014.

5. On closing, T&W entered into leases and options with KKP for Timmins, Sudbury and North Bay. The leases and options contemplated severances in Timmins, Sudbury and North Bay that would allow KKP to retain part of those lands .

6. KKP entered into an agreement with T&W, dated July 21, 2014, which allowed T&W to apply for the Timmins severance at T&W’s expense. KKP agreed to register the consent to sever, if obtained, at the designated Land Registry Office.

[84] Controversy developed between the parties in short order.

[85] Alesia sent her account to Connie and Sheila on July 22, 2014. Andy sent his account to Connie and Sheila on July 20, 2014. He did not bill Mike for any services in connection with the Transaction.

[86] On September 9, 2014, Alesia sent Connie and Sheila a further account for services provided to KKP as well as a reporting letter. Connie and Sheila testified that this was their first notice that they had granted options to purchase as part of the Transaction.

[87] After receiving the letter, Connie and Sheila met with Ken, who reviewed the terms of the Transaction with them. It was his evidence that he was taken aback when Connie insisted during the meeting that he had not granted options. He testified that Sheila was more concerned about the severance applications. She questioned why they were required to apply for a severance to develop their part of the lands in Sudbury.

[88] On September 24, 2014, Mike contacted Alesia directly to express concerns about Connie’s post-closing conduct. He advised her that Connie had not yet taken steps to complete the building permit work for Sudbury, that he had cancelled a meeting with respect to the Timmins severance, that he was attending the T&W yard to remove chattels, and that he was causing disruptions at the T&W office. Alesia communicated these concerns to Andy.

[89] On September 26, 2014, Suzanne Fortin, the controller for T&W, provided an accounts receivable reconciliation to Mike. He forwarded it to Andy with the comment “this is worse than I thought.”

[90] Andy admitted at trial that, after receiving Mike’s email, he did not follow up about the accounts receivable adjustment or submit a loss notice to the Houles, as required pursuant to their Escrow Agreement. It was his evidence that, in September 2014, his wife was diagnosed with a serious medical condition and underwent surgery. Preoccupied with his wife’s issues, he did not turn his attention to the T&W file or arrange to have anyone assume carriage of it.

[91] In early October 2014, Andy told Alesia that he was working on the closing financials for T&W, which were due in two weeks. They agreed that they should meet with Connie before the middle of October to discuss the closing adjustments for the Transaction. Instead, Andy met with Connie and Sheila at their residence, alone, on the last Sunday of October in 2014. The closing financials for T&W were not finalized in advance of the meeting they would not be produced until September 27, 2016.

[92] Although the purpose of the October 2014 meeting was to discuss the closing adjustments, the discussion quickly devolved into a debate about the options. Connie stormed out of the meeting. Andy left and did not speak to the Houles again.

[93] Connie and Sheila retained Fogler, Rubinoff LLP, a law firm, to investigate what had occurred with the Transaction. On November 28, 2014, Fogler, Rubinoff wrote to Andy demanding the return of the funds being held in escrow. On December 5, 2014, Ian advised Fogler, Rubinoff that Mike was opposed to the release of the escrow funds as the funds were earmarked to satisfy outstanding undertakings to adjust accounts receivable and accounts payable.

[94] The Houles issued a Statement of Claim on January 8, 2015.

The Lands, the Leases And the Options

[95] A central issue in this litigation is the disposition of the Lands on which T&W operates in Timmins and Sudbury. T&W also operated on lands in North Bay which are no longer in dispute.

The Timmins Lands (“Timmins”)

[96] The lands in Timmins are municipally located at 2200 Riverside Drive, Timmins, Ontario. Timmins consists of three parcel PINs: PIN 65416-0015 (LT); PIN 65416-0017 (LT); and PIN 65416-0018 (LT).

[97] When the Transaction was completed, T&W and KKP signed a commercial lease with respect to Timmins, dated April 1, 2014 (the “Timmins Lease”). The Timmins Lease included the following terms:

1. T&W would have exclusive possession of PIN 65416-0017 (LT) (“the Timmins Leased Lands”) for a term of five years;

2. T&W would apply, at its cost, to the City of Timmins for Consent to sever all of PIN 65416-0015 (LT) and part of PIN 65416-0018 (LT) (“the Timmins Severed Lands”);

3. T&W would have an option to purchase the Timmins Leased Lands and, if the severance were granted, the Timmins Severed Lands, at the earlier of the expiry of the five-year lease term or the death of both Connie and Sheila (“the Timmins Option”). KKP would retain any lands that were not severed (“the Timmins Excess Lands”); and

4. Regardless of whether the severance was granted the purchase price for the Timmins Option would be $555,000.00 plus HST if applicable.

The Sudbury Lands (“Sudbury”)

[98] The lands in Sudbury are municipally located at 400 Highway 69 North, Val Caron, Ontario. Sudbury consists of two parcel PINs: PIN 73497-0146 (LT) and PIN 73497-0147 (LT).

[99] When the Transaction was completed, T&W and KKP signed a commercial lease with respect to Sudbury, dated April 1, 2014 (“the Sudbury Lease”). The Sudbury Lease included the following terms:

1. T&W would have exclusive possession of approximately 10.63 acres of Sudbury (“the Sudbury Leased Lands”), for a term of five years;

2. T&W would have an option to purchase all of Sudbury at the earlier of the expiry of the five-year lease term or the death of both Connie and Sheila (“the Sudbury Option”);

3. If KKP wished to make improvements with a value greater than $10,000 to the land in Sudbury that was not being leased by T&W (“the Sudbury Excess Lands”), then KKP could apply for a severance from the City of Greater Sudbury; and

4. The purchase price for Sudbury would be $1,790,000. If KKP received and registered a severance for the Sudbury Excess Lands before the Sudbury Option was exercised, it would keep the Sudbury Excess Lands and the purchase price would be reduced by $100,000 to $1,690,000.

Attempted Completion of the Timmins Severance

[100] On or about August 21, 2014, Mike submitted a severance application for Timmins.

[101] After receiving Alesia’s reporting letter on September 9, 2014, Connie took steps to halt the severance application for Timmins. The application was scheduled to be considered by the Timmins Committee of Adjustments on September 23, 2014. Connie wrote to the Committee on September 19, 2014, and requested that they adjourn the meeting until further notice.

[102] On December 1, 2014, Fogler, Rubinoff wrote to Ian demanding that the severance application for Timmins be withdrawn. The letter denied that Mike had the authority to submit the application and cautioned that if the application proceeded legal proceedings would be commenced and a complaint would be filed to the Law Society of Upper Canada.

[103] The application was not pursued further by Mike after receiving this correspondence.

Attempted Exercise of the Options

[104] Ian delivered formal notices of Mike’s intention to exercise the Sudbury Option and the Timmins Option on January 25, 2019. The notices provided a closing date of February 25, 2019. The notice for Timmins (the “Timmins Notice”) stipulated a purchase price of $555,000 for all lands, including the Timmins Severed Lands and the Timmins Excess Lands. The notice for Sudbury (the “Sudbury Notice”) stipulated a purchase price of $1,790,000.00 for all lands, including the Sudbury Excess Lands.

[105] On February 13, 2019, Fogler, Rubinoff responded to Ian’s letter enclosing the notices. They advised that a real estate partner of their firm would be acting on the transaction for KKP. As Connie was in the hospital, they proposed that a vesting order first be obtained to complete the transfer or that one officer of KKP sign on its behalf. Ian was prepared to close with one officer signing on behalf of KKP.

[106] On February 21, 2019, Fogler, Rubinoff wrote to Ian regarding T&W’s exercise of the options. A letter regarding the Sudbury Option responded to requisitions. A letter regarding the Timmins Option alleged that the Timmins Notice was deficient, that T&W was not in a position to tender on January 25, 2019, and that the Timmins Option was therefore null and void.

[107] Fogler, Rubinoff alleged the following deficiencies with respect to the Timmins Notice:

1. T&W had taken no steps to revive its severance application to the Timmins Committee of Adjustments following the settlement of claims by the Houle Plaintiffs against the Gougeon Defendants in the Main Action. The letter noted that the settlement was in the process of being finalized.

2. The Timmins Notice included the Timmins Leased Lands, the Timmins Severed Lands and the Timmins Excess Lands. T&W had no option with respect to the Timmins Severed Lands in the absence of a consent from the Timmins Committee of Adjustments, which it had not obtained. T&W had no option with respect to the Timmins Excess Lands under any circumstances.

3. Pursuant to s. 9 of the Timmins Option, if T&W was not prepared to waive KKP’s nonconformity with municipal or government enactments, intentional or otherwise, then the Timmins Option would become null and void.

4. The Timmins Notice included land outside of the scope of the Timmins Option.

[108] On February 25, 2019, Fogler, Rubinoff advised that Connie’s litigation guardian, Andy Katulka, had resigned effective February 14, 2019. As a result, there was no one available to sign documents to complete the settlement of the Main Action, and there was an impediment to providing a discharge of a mortgage registered against Sudbury as requisitioned by Ian. The Houle Plaintiffs subsequently resiled from the settlement.

[109] The purchases contemplated in the Timmins Option and the Sudbury Option were not completed. Presently, KKP continues to own Timmins and Sudbury and T&W continues to occupy the Timmins Leased Lands and the Sudbury Leased Lands.

The HST Claim

[110] On October 25, 2017, the Canada Revenue Agency wrote to T&W to advise that the HST owing by T&W for the period from October 1, 2013 to September 30, 2016 was the subject of an audit and that adjustments were being made to the net tax payable on T&W’s HST returns.

[111] As a result of the audit, an outstanding HST payment was levied against T&W. This included an outstanding payment for the period prior to March 31, 2014.

The Legal Proceedings

The Main Action

[112] The action commenced under court file number CV-15-519292 (“Toronto”) and later transferred to Sudbury under court file number CV-17-00006887-0000 (the “Main Action”) involves the following parties:

a. Plaintiffs: Conrad Houle, by his Litigation Guardian, Boris Naneff, Sheila Houle, CS Houle Holdings Inc., and KKP Investments Inc.;

b. Defendants: Andrew Sostarich, Sostarich Ross Wright Cecutti LLP, Alesia Sostarich, Arseneau Poulson, Tracks & Wheels Equipment Brokers Inc., Michael Gougeon, and Workers Auto Services Ltd.;

c. Third Parties: The Toronto-Dominion Bank and Kenneth M. Koppes; and

d. Fourth Parties: Andrew Sostarich, Sostarich Ross Wright Cecutti LLP, Alesia Sostarich, Arseneau Poulson, Tracks & Wheels Equipment Brokers Inc., Michael Gougeon, and Workers Auto Services Ltd.

[113] In advance of trial, the following claims in the Main Action were resolved on consent: the claims of the Houle Plaintiffs and all crossclaims against the Defendants Alesia Sostarich and Arseneau Poulson; the Third Party Claims; and the Fourth Party Claims.

[114] The claims of Conrad Houle, Sheila Houle, CS Houle Holdings Inc., and KKP Investments Inc. (the “Houle Plaintiffs”) against Tracks & Wheels Equipment Brokers Inc., Michael Gougeon, and Workers Auto Services Ltd. (the “Gougeon Defendants”) were dismissed on September 2, 2021, pursuant to the Order of Justice Gordon. A Counterclaim made by the Gougeon Defendants against the Houle Plaintiffs for post-closing adjustments (“PCA”) and other compensation remains outstanding. The Houle Plaintiffs argue that these claims are contractually barred and time-barred.

[115] The claims of the Houle Plaintiffs against Andrew Sostarich and Sostarich Ross Wright Cecutti LLP (the “Sostarich Defendants”) remain outstanding. These claims allege that the Sostarich Defendants are liable for breaches of professional, contractual and fiduciary duties owed to the Houle Plaintiffs. They are contested by the Sostarich Defendants.

The Specific Performance Action

[116] The action commenced under court file number CV-19-00008247-0000 (the “Specific Performance Action”) involves the following parties:

a. Plaintiff: Tracks & Wheels Equipment Brokers Inc.; and

b. Defendant: KKP Investments Inc.

[117] In the Specific Performance Action, T&W seeks an Order for specific performance against KKP. It requests that the lands that were the subject of the Timmins Option and the Sudbury Option be transferred to T&W. It also makes a claim for damages for breach of the options.

[118] As a result of a ruling at the commencement of trial arising from Justice Gordon’s Order of September 2, 2021, KKP concedes that T&W is entitled to an order for specific performance in respect of the Timmins Leased Lands and the Sudbury Leased Lands. KKP asserts that T&W is not entitled to an order for specific performance in respect of those lands which are not the subject of leases.

[119] KKP commenced a counterclaim in the Specific Performance Action seeking damages for rent and taxes alleged to be owing and on the lands in Sudbury and Timmins and seeking a declaration that a sublease of the Sudbury lands by T&W is void. At the commencement of trial, counsel advised that KKP would not be advancing this counterclaim, provided that T&W was compliant with an Order of Justice Gordon, dated August 4, 2020, regarding the terms of its interim occupation of Timmins and Sudbury. The costs of the counterclaim continue to be a live issue.

The Escrow Action

[120] The action commenced under court file number C-7584-18OT (the “Escrow Action”) involves the following parties:

a. Plaintiffs: the Gougeon Defendants; and

b. Defendants: the Sostarich Defendants.

[121] In the Escrow Action, the Gougeon Defendants seek Judgment against the Sostarich Defendants for professional negligence and breach of contract for failing to pursue claims available to them for PCA pursuant to the terms of an Escrow Agreement with the Houle Plaintiffs, dated April 3, 2014 (the “Escrow Agreement”). Subject to the outcome of the Counterclaim of the Gougeon Defendants in the Main Action, they are seeking either damages, or costs or both against the Sostarich Defendants.

The Order of Justice Akbarali, dated November 1, 2017

[122] On October 3, 2017, Justice Akbarali heard three motions in the Main Action regarding the disposition of the funds held by the Sostarich Defendants pursuant to the Escrow Agreement.

[123] The Sostarich Defendants requested an order permitting them to pay the funds into court. The Houle Plaintiffs requested an order for partial summary judgment directing that the funds be paid to them. The Gougeon Defendants requested an order for partial summary judgment directing that $239,357.34 of the funds be paid to them, and that the balance of approximately $260,642.66 plus interest (if any) be paid to the Houle Plaintiffs.

[124] Justice Akbarali made the following findings:

1. The Sostarich Defendants did not deliver written notice or a copy of the Gougeon Defendants’ loss notice (if any) to the Houle Plaintiffs promptly as required by the Escrow Agreement;

2. The Houle Plaintiffs did not receive notice of a claim under the Escrow Agreement within the time required by the agreement;

3. By the terms of the Escrow Agreement, the Houle Plaintiffs were entitled to the return of the funds on the Escrow Period Termination Date, which was October 21, 2014;

4. The Sostarich Defendants were not entitled to hold the escrow funds beyond October 21, 2014; and

5. The Plaintiffs were entitled to the return of the escrow funds plus any accrued interest.

[125] In her endorsement, Justice Akbarali noted that the release of the escrow funds to the Houle Plaintiffs resulted in the loss of the security for PCA by the Gougeon Defendants. She noted that “[t]hey are left to proceed with their Claim, unsecured, under the terms of the share purchase agreement.”

[126] Pursuant to an endorsement dated November 30, 2017, Justice Akbarali reserved the costs of the motions to the trial judge.

The Order of Justice Gordon, dated January 20, 2020

[127] On January 7, 2020, T&W brought a motion for summary judgment in the Specific Performance Action. KKP brought a cross-motion for an order dismissing or staying T&W’s action as an abuse of process and for payment of rent.

[128] Justice Gordon found that, in the context of the litigation as a whole, T&W’s motion was a request for partial summary judgment. He noted that, regardless of the outcome of the motion, the litigation between the parties would continue. He found that partial summary judgment was not appropriate having regard to all of the circumstances and denied T&W’s motion.

[129] Justice Gordon also dismissed KKP’s motion. He found that T&W’s action was not an abuse of process. The motion for payment of rent was withdrawn given an impending trial date, without prejudice to KKP’s ability to renew the motion if the trial did not proceed as scheduled.

[130] The trial date did not, in fact, proceed as scheduled as a result of the pandemic. The parties subsequently agreed upon terms for the payment of rent which formed the basis of Justice Gordon’s Order of August 4, 2020.

The Order of Justice Gordon, dated September 2, 2021

[131] On July 29, 2021, the Gougeon Defendants brought a motion in the Main Action, seeking to dismiss the claims of the Houle Plaintiffs against them. The Gougeon Defendants argued that they had reached a settlement of the Main Action with the Houle Plaintiffs, and that the Houle Plaintiffs had resiled from the settlement.

[132] Justice Gordon agreed with the arguments of the Gougeon Defendants and found that the Houle Plaintiffs had reached the following settlement of the Main Action:

1. The Houle Plaintiffs’ action against the Gougeon Defendants was dismissed; and,

2. The costs of a motion argued before Justice Akbarali on October 3, 2017, a summary judgment motion, not argued, dated May 30, 2018, and the Main Action were reserved to the trial judge.

The Issues

[133] In this phase of the trial, the court has been asked to determine the following issues:

1. In the Main Action, are the Houle Plaintiffs liable to the Gougeon Defendants in respect of PCA or HST audit amounts? Specifically:

a. Is the PCA claim time-barred under the SPA;

b. Is the PCA claim barred by the failure of the Gougeon Defendants to comply with the notice provisions of the SPA;

c. Is the PCA claim time-barred pursuant to the Limitations Act, 2002, S.O. 2002, c.24, Schedule B (the “Limitations Act”); and

d. Are the Houle Plaintiffs liable to reimburse or indemnify the Gougeon Defendants for the HST claim.

2. In the Main Action, are the Sostarich Defendants liable to the Houle Plaintiffs for breaches of professional, contractual and fiduciary duties owed by them to the Houle Plaintiffs?

3. In the Escrow Action, are the Sostarich Defendants liable to the Gougeon Defendants for professional negligence and breach of contract for failing to pursue claims available to them pursuant to the terms of the Escrow Agreement? Specifically for failing to:

a. File a loss notice; and

b. Prepare a year-end statement for T&W.

4. In the Specific Performance Action, is T&W entitled to specific performance with respect to the optioned lands or only with respect to the leased lands as conceded by the Houle Plaintiffs?

5. Who, if anyone, is entitled to and liable for costs with respect to the following:

a. The motion before Justice Akbarali, which resulted in her decision, dated November 30, 2017;

b. The summary judgment motion of May 30, 2018;

c. The dismissal of the Houle Plaintiffs’ claim against the Gougeon Defendants pursuant to the Order of Justice Gordon, dated September 2, 2021; and

d. KKP’s Counterclaim in the Specific Performance Action.

Preliminary Findings

Conrad Houle was not a vulnerable person at the time of the Transaction

[134] A litigation guardian was first appointed for Connie on August 21, 2017. It is undisputed that, from that date, he was a party under a disability and was vulnerable.

[135] The Houle Plaintiffs submit that, in 2014, Connie was likely developing and suffering from Alzheimer’s disease. They submit that, at the time of the Transaction, due to his age, health, education level and lack of sophistication in share purchase transactions, Connie was vulnerable.

[136] Connie had a Grade 4 education. He was 77 years old at the time of the Transaction.

[137] The Houle Plaintiffs rely on the reports of Dr. Sharon Cohen, dated June 14, 2016, November 1, 2016, September 27, 2018, and February 1, 2022. Dr. Cohen did not testify at trial.

[138] In her report of June 14, 2016, Dr. Cohen noted the following:

Conrad denies significant memory difficulties. He is puzzled that you wished him to have his memory assessed as he does not feel there is enough of a problem to have any bearing on the legal case which you are handling for him. He admits that he is forgetful at times and attributes this to the fact that he has been under a great deal of stress. Sheila reports that he is mildly forgetful and that occasionally he may not recall what she has told him. Nonetheless, she feels there has been no significant impact on his day to day activities. He remains independent in banking, shopping, and driving. He recently purchased a house and is carrying out the construction work on it.

Conrad has mild cognitive impairment (MCI) but not of a magnitude to impact daily function. He is willing to pursue medical recommendations regarding underlying cause and management but does not feel that this has any bearing on his legal case. While his mild memory difficulty may have made him more vulnerable to being taken advantage of with regard to the contract he signed a year ago, it is difficult to make a definite argument with respect to this signing. He may indeed forget details of meetings and recent events but his insight and judgment appear to be intact.

[139] In her report of November 1, 2016, Dr. Cohen revised her opinion. At that time, it was her opinion that Connie had dementia, most likely caused by Alzheimer’s disease. It was her opinion that his dementia was, “of a severity that it affects his memory, his insight, and his decision-making ability.” She was also of the view that it impacted his ability to provide accurate testimony or to give consistent direction to his lawyers.

[140] In her report of September 27, 2018, Dr. Cohen further refined her opinion. She suggested that it was “extremely likely that Mr. Houle was already developing Alzheimer's disease by 2014.” She indicated that Sheila reported that Connie, “was in fact noted by her to be forgetful at least two years before my 2016 cognitive examination of him.” She further opined that his cognitive difficulties likely predated 2014.

[141] The difficulty, of course, is the absence of any testimony from Dr. Cohen. She was not formally qualified as an expert, participant or, otherwise, and her evidence was not tested on cross-examination. This significantly limits the Court’s ability to place any weight on her reports.

[142] No expert evidence was called about the progression of Alzheimer’s disease.

[143] In making findings about Connie’s level of functioning and vulnerability, I must rely first and foremost on witness and circumstantial evidence.

[144] Sheila was questioned at trial about Connie’s presentation at the time of the Transaction. Connie and Sheila had been married for 56 years at the time of the Transaction. She would have known him better than anyone else involved in the Transaction.

[145] It was Sheila’s evidence that Connie was feeling the “pressures” of the business and that, “the heart went out of him” following Kevin’s death. On cross-examination, it was her evidence that she “didn’t really notice anything” regarding his memory nor did it appear to her that his memory was greatly affected at the time of the Transaction. She acknowledged her evidence at discovery on October 13, 2015, that she had not observed any significant deterioration in Connie’s memory over the years.

[146] Sheila testified that it was difficult for her to say what Connie understood about the nature of the Transaction or the documents he was signing. There is no evidence before me that Sheila raised any concerns about Connie’s ability to understand or complete the Transaction during her meetings with Alesia, Andy and Ken on July 16, 2014, and July 21, 2014, or at any other time leading to the completion of the Transaction.

[147] The documentary evidence discloses instances during the negotiations when Connie advised Mike and others that he could not recall agreeing to the sale of the lands. The Houle Plaintiffs point to this as evidence of Connie’s failing memory and cognitive deficits. Other witnesses, including Ken and Mike, suggested that it may have been a negotiating tactic, as it had the effect of bringing the issue back to the table. Ken described that Connie had a “tough” negotiating style and that he “protected his interests carefully.”

[148] The Houle Plaintiffs also point to an email from Andy to Ken referring to Connie as having “limitations” as evidence of his vulnerability. Andy and Ken testified that this email referred to Connie’s relative lack of experience with the terminology of a complex transaction and the need to ensure that the Transaction was explained to him using language that he would understand. Neither agreed that it was indicative of any cognitive shortcomings.

[149] While Connie’s formal education was limited, he was not an unsophisticated or inexperienced businessman. He owned and operated a business with multiple sites in different cities and extensive land holdings; it was a business that he built from the ground up. The business was a party to multiple contracts, including dealer contracts with Case and Kubota. While Connie may have required professional advice about the language of a share purchase agreement, I find that he was not unfamiliar with the nuances of negotiating the broader terms of such a contract.

[150] In my view, it is significant that the only aspect of the Transaction that Connie had difficulty with was the sale of the lands. He had no difficulty navigating and remembering the terms of the share purchase or the terms of the leases (other than the options). It is also significant that he was capable of continuing his involvement in the day-to-day operations of T&W up to the date that the Transaction closed. He negotiated the terms of the purchase of Kevin’s shares from his Estate, and he negotiated the lease with ATCO.

[151] The only issue that appears to have challenged Connie was the one that he did not want to agree to – the sale of the lands.

[152] While it is clear that, by 2016, Connie’s cognitive abilities were in decline, there is no persuasive evidence before me that his insight and judgment were compromised in 2014 when the Transaction was negotiated. There is also no persuasive evidence before me that he was at the mercy of his professional advisors or Mike as a result of any relative lack of business sophistication. On the evidence before me, I am not satisfied on a balance of probabilities that Connie was a vulnerable person at the time of the Transaction.

Michael Gougeon was not a bad actor

[153] The Houle Plaintiffs urged the court to view Mike as a bad actor who took advantage of Connie in order to wrestle his lands from him. I do not share this view.

[154] On the evidence before me, it is clear that Mike was a very successful businessman in his own right and that, while he was interested in purchasing T&W, he was not so invested in the Transaction that he was prepared to close it at all costs.

[155] By February 2014, it is apparent that Mike’s prerequisite condition of purchasing the lands was communicated to Connie, Andy and Ken. I am satisfied on the evidence that Mike clearly communicated that he was prepared to terminate negotiations if Connie was not interested in selling the lands.

[156] There is no evidence that Mike colluded with Andy, Ken or any other person to deceive Connie with a view to extracting his agreement to sell the lands. He was transparent about his intentions throughout the Transaction and made reasonable concessions in response to Connie’s concerns. While his evidence reflected his understandable frustration about being embroiled in litigation with the Houle Plaintiffs, I can find no fault with how he conducted himself in the Transaction and conclude that he was not a bad actor in its negotiation.

Andy Sostarich was in a conflict of interest

[157] Alan Mak (“Mr. Mak”) testified on behalf of the Plaintiffs. Mr. Mak is a Chartered Professional Accountant (“CPA”) and a forensic accountant. He was qualified as an expert regarding the standards appliable to CPAs. He was qualified to give evidence about Andy’s compliance with the obligations and standards of care required of him as a CPA.

[158] It was Mr. Mak’s opinion that Andy failed to recognize the actual and potential conflicts of interest arising from his involvement in the Transaction. It was also his opinion that this was not a situation in which it would have been appropriate for Andy to rely upon an implied consent to act while in conflict of interest.

[159] Andy was the accountant for Connie and Sheila and their businesses. He was also the accountant for Mike and his businesses. Andy’s relationship with Mike was long-standing, whereas his relationship with the Houles was more recent.

[160] Notwithstanding that he had professional relationships with all parties to the Transaction, Andy neither implemented a conflict management system nor did he have any of the parties sign documents confirming their knowledge about potential conflicts of interest.

[161] It was Andy’s evidence that he spoke to Connie about a conflict of interest early in the Transaction; he spoke to him about the fact that he was the accountant both for Connie and Mike and their respective businesses.

[162] From Andy’s perspective, his knowledge of and prior involvement with both parties was an asset to them during the Transaction. He did not discuss any potential problems with the arrangement with Connie, because he did not consider that it could be problematic. He did not discuss conflicts of interest with Sheila. There was no evidence that he discussed conflicts of interest with Mike.

[163] When Andy became aware that Connie was reluctant to part with the lands, he did not revisit the potential for a conflict of interest to arise due to the diverging positions of his clients.

[164] Andy did not consider whether his involvement in the determination of PCA would be problematic. He did not consider whether it was a conflict of interest to act as the escrow agent or to prepare the closing financial statements. He did not consider what would happen if his clients’ positions diverged on the calculation of PCA.

[165] Andy insisted during his evidence that he was acting for the Houle Plaintiffs during the Transaction, and not for Mike or WAS. I do not accept this as fact. In reality, he was acting for both the Houle Plaintiffs and Mike and WAS. I find that this was the case regardless of the fact that he did not invoice Mike for his services.

[166] As I reviewed the documentary evidence, it was impossible at times to discern who was Andy’s client. Andy gave Mike advice about structuring the Transaction. He disclosed Alesia’s emails to Mike, even though she was supposed to be acting for the Houles. He made candid statements to Mike, both by email and verbally, about Connie’s position during negotiations and problems that he and Alesia were having with Connie. Those disclosures would have been inappropriate if he were acting solely for Connie. Andy weighed and considered Mike’s position and interests when evaluating options and giving input about draft documents.

[167] Andy also took the position that he was acting under the authority of the implied consent of his clients. I also do not accept this position. Implied consent requires that parties be aware of the conflict. I concur with Mr. Mak’s opinion that Andy failed to recognize the conflicts of interest arising from his involvement in the Transaction. It defies logic that Andy’s clients would have provided their implied consent to conflicts that he did not recognize himself.

[168] I find that Andy was in a conflict of interest. Not only did he act in a contentious Transaction involving two of his ongoing clients, but he also provided professional advice to both of his clients in that Transaction. It is difficult to imagine a more clear and unambiguous conflict of interest than that which was present in this case.

Andy Sostarich was not an agent for the Houle Plaintiffs or the Gougeon Defendants

[169] The burden of proof to establish an agency relationship is that of the party who asserts its existence: see Hav-A-Kar Leasing Ltd. v. Vekselshtein, 2012 ONCA 826, [2012] OJ No 5592, at para. 38.

[170] As noted by the Court of Appeal in Hav-A-Kar Leasing, at para. 42:

It is well-established that the actual authority of an agent requires a “manifestation of consent” by the principal to the agent that the agent should act for or represent the principal: Monachino v. Liberty Mutual Fire Insurance Co. (2000), 2000 CanLII 5686 (ON CA), 47 O.R. (3d) 481 (C.A.), at para. 33. Further, apparent or ostensible authority in favour of an agent only arises where the alleged principal has impliedly represented that another person has the authority to act on the principal’s behalf. The implied representation must be that of the principal, not that of the agent. See Monachino, at paras. 35-36; Hunter’s Square Developments Inc. v. 351658 Ontario Ltd. (2002), 2002 CanLII 49491 (ON SC), 60 O.R. (3d) 264 (S.C.), at para. 23, aff’d (2002), 2002 CanLII 9163 (ON CA), 62 O.R. (3d) 302 (C.A.), at para. 9.

[171] Connie’s role as the master of his own ship was apparent throughout the documentary record. On several occasions, Andy was required to conscript Ken’s assistance to move Connie away from what he viewed to be an untenable position in the negotiation of the Transaction. Connie received advice from Andy (and Ken) and made decisions about whether to act on that advice. Connie was in control of his position in the negotiation – sometimes much to Andy’s chagrin.

[172] Likewise, the documentary record was clear that Mike was his own spokesperson during the negotiations. With few exceptions, when Mike wanted to negotiate terms, he spoke directly to Connie. While Mike reported to Andy about the progress of his negotiations, there is no evidence that he enlisted Andy to act as his envoy.

[173] At no time did Andy have the authority, explicit or implied, to act on either Connie’s or Mike’s behalf or to bind them in the negotiation. While Andy provided guidance to Alesia and Ian regarding the preparation of the SPA documents, those documents were drafted to reflect the ongoing negotiations between Mike and Connie. Both Mike and Connie could accept Andy’s recommendations and suggestions, or not, and on more than one occasion Andy was required to coax one or both of them back to the bargaining table.

[174] On the evidentiary record before me, I find that Andy acted as a facilitator in the Transaction and as a professional advisor to both the Houle Plaintiffs and the Gougeon Defendants. I do not find that he acted as an agent for either or both parties.

Witnesses’ demeanour and credibility

[175] Connie’s evidence was taken in advance of trial, on October 21^st and 22^nd, 2021. He testified virtually before me. In submissions, Connie’s lawyer candidly acknowledged that his recollection of events was likely to be of little assistance to the court. Connie was clearly suffering from the effects of his Alzheimer’s disease in that he was a combative witness with a poor recollection of events. He denied that he signed documents when, undoubtedly, he had signed them. He was adamant throughout his testimony that he never intended to sell the lands and that everyone was aware of his position.

[176] Sheila was a pleasant witness who was credible and made a bona fide effort to be helpful to the court with her testimony. Her involvement in the Transaction was limited and, as such, she was unable to provide much assistance regarding the negotiation of the Transaction beyond what was communicated to her by her husband. She was unable to recall some specific details of her meetings with Alesia and Ken and acknowledged that she had not taken notes during the meetings.

[177] Alesia acknowledged that her timeline of events was “a bit fuzzy.” Her file documentation consisted primarily of emails; she had very few handwritten notes of any discussions or meetings, which was surprising to me. She was candid in acknowledging aspects of the Transaction or the interactions between the parties which were unusual. She acknowledged that she was not aware that her brother was sending her emails to Mike and that she would have been more observant of their content had she been aware. Overall, I found that she was a straightforward witness, however, given her own admissions about her memory of events and the absence of supporting notes, to the extent that her evidence conflicted with that of other witnesses whose recollection was sharper or supported by notes, I preferred the evidence of the other witnesses.

[178] Ian was a credible and objective witness. It was his evidence that he had reviewed his file in advance of testifying. He made appropriate admissions and acknowledged information that he did not know or could not recall. Overall, he had a good recollection of his involvement in the Transaction and afterwards.

[179] Andy answered the questions that were put to him; however, his demeanour was that of a person who was mystified that anyone would suggest that he had conducted himself improperly during the Transaction. He appeared to be principally focussed on money and the interests of the business to the exclusion of all else. I was left with the impression that he viewed his client to be the business and not its owners. He lacked insight into the nature and the impact of his conflicts of interest. This caused me to approach his evidence with caution.

[180] Of all the lay witness evidence that I heard, I was most persuaded by the evidence of Ken Koppes. Ken was a straightforward witness who impressed me as being both credible and reliable in his recollection of events. He was not partisan and made reasonable concessions during cross-examination. His notes of his meetings with parties to the Transaction were detailed and provided good insight into the negotiations leading the completion of the Transaction.

[181] Mike was a straightforward witness, and I found his evidence to be both credible and reliable. He was a bit combative under cross-examination and made a few uncharitable comments about Connie. I did not find that this undermined his credibility as a witness. Instead, I attributed it to his frustration with being involved in protracted litigation.

[182] Alan Mak was called as an expert witness by the Houle Plaintiffs to testify about the standard of care of Chartered Professional Accountants. I found that his evidence was not undermined in any substantial way on cross-examination and I accepted his evidence.

[183] Richard Walker was called as an expert witness by the Gougeon Defendants to testify about Andy’s failure to file the loss notice in accordance with the Escrow Agreement, and about his preparation of the closing financial statement for T&W. I found that his evidence was not undermined in any substantial way on cross-examination and I accepted his evidence.

Analysis: PCA Claim And HST Claim Against the Houle Plaintiffs

The Law

[184] Determining a party’s obligations under a contract is an exercise in interpretation. As noted by Saunders J.A. in Gilchrist v. Western Star Trucks Inc. 2000 BCCA 70, [2000] B.C.J. No. 164, at para. 108:

The goal in interpreting an agreement is to discover, objectively, the parties’ intentions at the time the contract was made. The most significant tool is the language of the agreement itself. The language must be read in the context of the surrounding circumstances prevalent at the time of contracting. Only when the words, viewed objectively, bear two or more reasonable interpretations may the Court consider other matters such as the post-contracting conduct of the parties.…

[185] In Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 SCR 633, at para. 47, the Supreme Court of Canada summarized the law as it applies to contractual interpretation as follows:

Regarding the first development, the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read 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. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.…

[186] As noted by the Supreme Court of Canada in Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 SCR 129, at para. 54, “[e]vidence of one party’s subjective intention has no independent place in this determination.”

[187] Good faith performance, “is a general organizing principle of the common law of contract” (Bhasin v. Hrynew, 2014 SCC 71 , [2014] 3 SCR 494, at para. 33). When a party seeks to avoid their contractual obligations, their conduct and reasons for doing so are relevant considerations; the court must be satisfied that the party has acted reasonably and in good faith (Mason v. Freedman, 1958 CanLII 7 (SCC), [1958] SCR 483, at pp. 487-488). A party cannot rely on their own breach or default of a contract to escape their contractual obligations (McCallum et al. v. Zivojinovic, 1977 CanLII 1151 (ON CA), [1977] OJ No 2341).

[188] The Houle Plaintiffs have also advanced a limitation period defence. In this case, the relevant sections of the Limitations Act are as follows:

Basic limitation period

4 Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. 2002, c. 24, Sched. B, s. 4.

Discovery

5 (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). 2002, c. 24, Sched. B, s. 5 (1).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved. 2002, c. 24, Sched. B, s. 5 (2).

Ultimate limitation periods

15 (1) Even if the limitation period established by any other section of this Act in respect of a claim has not expired, no proceeding shall be commenced in respect of the claim after the expiry of a limitation period established by this section. 2002, c. 24, Sched. B, s. 15 (1).

General

(2) No proceeding shall be commenced in respect of any claim after the 15th anniversary of the day on which the act or omission on which the claim is based took place. 2002, c. 24, Sched. B, s. 15 (2).

Day of occurrence

15 (6) For the purposes of this section, the day an act or omission on which a claim is based takes place is,

(a) in the case of a continuous act or omission, the day on which the act or omission ceases;

(b) in the case of a series of acts or omissions in respect of the same obligation, the day on which the last act or omission in the series occurs;

(c) in the case of an act or omission in respect of a demand obligation, the first day on which there is a failure to perform the obligation, once a demand for the performance is made. 2002, c. 24, Sched. B, s. 15 (6); 2008, c. 19, Sched. L, s. 2 (1).

Same

22 (5) The following exceptions apply only in respect of business agreements:

1. A limitation period under this Act, other than one established by section 15, may be varied or excluded by an agreement made on or after October 19, 2006.

2. A limitation period established by section 15 may be varied by an agreement made on or after October 19, 2006, except that it may be suspended or extended only in accordance with subsection (4). 2006, c. 21, Sched. D, s. 2; 2008, c. 19, Sched. L, s. 4 (1).

[189] In Georgian Properties Corporation v. Robins Appleby LLP, 2022 ONCA 245, [2022] O.J. No. 1421, at para. 39, the Court of Appeal noted that a discoverability analysis pursuant to s. 5 of the Limitations Act is a fact-based analysis centered on the circumstances of the case. The Court of Appeal went on to find at para. 45:

In general, the mere fact that allegations are made in a proceeding that could trigger a claim … if successful should not automatically signify that the requirements of s. 5(1) of the Act are met and that the party with the potential claim must immediately commence action ... Further investigation and assessment may be required. To hold otherwise could lead to costly and unnecessary litigation.

[190] In Presidential MSH Corporation v. Marr Foster & Co. LLP, 2017 ONCA 325, [2017] OJ No 2059, at paras. 45 and 48, the Court of Appeal discussed the application of the principle of discoverability in cases in which an issue is being adjudicated using an alternative process. It noted:

Many of the cases dealing with the effect of alternative processes on the appropriateness of a court proceeding have applied the concept of a proceeding being “legally appropriate” articulated by this court in Markel. Markel involved a dispute between sophisticated insurers claiming indemnity under statutory loss transfer rules. The limitations issue that arose concerned whether a legal proceeding was "inappropriate" while settlement discussions between the parties were ongoing and, thus, whether a claim was not discovered until these negotiations broke down.

These cases instruct that if a plaintiff relies on the exhaustion of some alternative process, such as an administrative or other process, as suspending the discovery of its claim, the date on which that alternative process has run its course or is exhausted must be reasonably certain or ascertainable by a court. In Markel, the date on which settlement discussions between the parties ran their course, and thus the date on which the plaintiff's claim was purportedly discovered, was not [page333] sufficiently certain or ascertainable by the court. By contrast, in Figliolini it was reasonably certain that the foreign appeal process had been exhausted on the day that the foreign appellate court had released its judgment, and in Lipson it was reasonably certain that the CCRA appeal process ran its course on the date that the 2008 test cases were settled.

[191] The prejudice caused by allowing a claim to proceed in the face of a limitation period is also a relevant consideration. In Klassen v. Beausoleil, 2019 ONCA 407, [2019] O.J. No. 2580, at paras. 26-28:

The expiry of a limitation period is one form of non-compensable prejudice. A party cannot circumvent the operation of a limitation period by amending their pleadings to add additional claims after the expiry of the relevant limitation period: Frohlick v. Pinkerton Canada Ltd., 2008 ONCA 3, 88 O.R. (3d) 401, at para. 24; 1100997 Ontario Ltd. v. North Elgin Centre Inc., 2016 ONCA 848, 409 D.L.R. (4th) 382, at paras. 21-23; United Food and Commercial Workers Canada, Local 175 Region 6 v. Quality Meat Packers Holdings Limited,2018 ONCA 671, at paras. 64; Davis v. East Side Mario’s Barrie, 2018 ONCA 410, at paras. 31-32. In this regard, the “addition of new statute-barred claims by way of an amendment is conceptually no different than issuing a new and separate Statement of Claim that advances a statute-barred claim” (emphasis added): Quality Meat Packers,at para. 64; citing Frohlick, at para. 24.

An amendment will be statute-barred if it seeks to assert a “new cause of action” after the expiry of the applicable limitation period: North Elgin, at paras. 19-23, 33; Quality Meat Packers, at para. 65. In this regard, the case law discloses a “factually oriented” approach to the concept of a “cause of action” – namely, “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person”: North Elgin, at para. 19; Quality Meat Packers, at para. 65.

An amendment does not assert a new cause of action – and therefore is not impermissibly statute-barred – if the “original pleading … contains all the facts necessary to support the amendments … [such that] the amendments simply claim additional forms of relief, or clarify the relief sought, based on the same facts as originally pleaded”: Dee Ferraro,at paras. 4, 13-14;North Elgin Centre Inc., at paras. 20-21; East Side Mario’s Barrie, at paras. 31-32; Quality Meat Packers, at para. 65. Put somewhat differently, an amendment will be refused when it seeks to advance, after the expiry of a limitation period, a "fundamentally different claim" based on facts not originally pleaded: North Elgin, at para. 23.

Are the Houle Plaintiffs liable to the Gougeon Defendants in respect of PCA or HST audit amounts?

Relevant Contractual Terms and Evidence

[192] The SPA provided for two categories of PCAs: an adjustment to the Transaction purchase price and adjustments arising from the incorrectness or misrepresentation of representations and warranties. It also provided generally for adjustments and specified expiry dates for representations and warranties. In addition to signing the SPA on closing, the Houle Plaintiffs signed undertakings and certificates. They also signed an Escrow Agreement.

1. Purchase Price Adjustment

[193] The adjustment for the Transaction purchase price was established in Article 2.6 of the SPA, which provided:

Adjustment to Purchase Price – It is anticipated that the Net Worth of the Company as set out in the Financial Statements shall be equal to $11,000.000.00.

If the Net Worth of the Company as set out on the Financial Statements is less than $11,000,000.00 then the Purchase Price shall be reduced on a dollar for dollar basis by the aggregate amount that the Net Worth on the Financial Statements is less than $11,000.000.00 by deducting same from the payment made to the Vendors referred to in paragraph (b)(i) of Section 2.3 hereof.

If the Net Worth of the Company as set out on the Financial Statements is more than $11,000,000.00 then the Purchase Price shall be increased on a dollar for dollar basis by the aggregate amount that the Net Worth on the Financial Statements is more than $11,000,000.00 by adding same to the payment made to the Vendors referred to in paragraph (b)(i) of Section 2.3 hereof.

[194] The “Financial Statements” were defined in the SPA to be “the review engagement financial statements of the Company for the period ended March 31, 2014, consisting of a balance sheet and the statements of income, retained earnings, Statement of Cash Flows and all notes thereto as reported upon by Messrs. SOSTARICH, ROSS, WRIGHT & CECUTTI LLP, Chartered Accountants, a copy of which is annexed as Schedule “A” hereto.”

[195] Article 5.4 of the SPA provided that “[t]he financial statements of the Company for the period ending March 31, 2014 shall be prepared by Messrs. SOSTARICH, ROSS, WRIGHT & CECUTTI LLP in accordance with generally accepted accounting principles applied on a basis consistent with that of the preceding period.”

[196] The Financial Statements were not, in fact, attached as a Schedule to the SPA. As of the date of closing, they had not been completed. Nowhere in the SPA was it stated who was responsible for directing the preparation of the Financial Statements, only that Andy’s firm would be preparing them. No timeline was provided for the preparation of the Financial Statements, other than the requirement that they were to be prepared “in accordance with generally accepted accounting principles.”

[197] It was Andy’s evidence that there was no expectation that the Financial Statements would be completed prior to closing as information including bank balances, accounts receivable, and accounts payable were not yet available. This information was required to produce a financial statement that the parties could rely upon. It was Andy’s evidence that the PCA clauses were included in the SPA in anticipation of the fact that the Financial Statements would not be completed prior to closing.

[198] Andy issued the Financial Statements, including the signed Review Engagement Report, and a Purchase Price Reconciliation, on August 18, 2016. It was his evidence that they were completed in early to mid-2015. The Financial Statements were disclosed to the parties on September 27, 2016. It is undisputed that this represented a significant delay. From the evidence of the witnesses, I conclude that the “generally accepted” timeframe for producing Financial Statements was within six (6) months from the date of a company’s year-end.

[199] Andy attributed the delayed disclosure of the Financial Statements to the litigation. He testified that he was uncertain whether he ought to be issuing an assurance financial statement while he was being sued by the parties for whom he was preparing it. He sought advice. He testified that a “collective” decision was made for him to release the Financial Statements in 2016.

[200] The Gougeon Defendants submitted that it was the responsibility of the Houle Plaintiffs to prepare and file the Financial Statements. Mike and Ian testified that it was their expectation on closing that the Financial Statements would be completed by the Houle Plaintiffs.

[201] It was Alan Mak’s evidence that there is a deemed year-end when a change in the control of a business occurs, and the owner at the time of the deemed year-end would be responsible for the completion of final financial statements. He noted that, in some cases, the parties’ agreement may address who is responsible for the preparation and filing of closing financial statements.

[202] It was Richard Walker’s evidence that it was the responsibility of the Houle Plaintiffs as the Vendors to have the Financial Statements, which he referred to as the “stub financial statements,” prepared and disclosed to the Gougeon Defendants.

[203] There is no evidence that either Andy or Alesia advised the Houles, either verbally or in writing, who was responsible for preparing and filing the Financial Statements. Andy rendered an account to the Houles, but there is no evidence that he provided a reporting letter to them. The reporting letter from Alesia to the Houles, dated September 9, 2014, made the following statement regarding the Financial Statements:

The Share Purchase Agreement contained Schedule A through to Q. The copy provided to you is a fully complete copy with all schedules except for Schedule B, Financial Statements which we are currently awaiting from your accountant, Andrew L. Sostarich….

[204] On December 19, 2014, PricewaterhouseCoopers LLP (“PWC”) wrote to Andy advising that they had been retained by CS Houle Holdings Inc. and KKP to act as their accountants. They requested financial statements and other financial information, including information regarding their transactions with T&W. There is no responding correspondence in the documentary evidence, nor is there any evidence to suggest that Andy communicated with PWC regarding the Financial Statements.

[205] The first correspondence in the evidentiary record regarding the production of the Financial Statements is an email from Fogler, Rubinoff to counsel for the Sostarich Defendants, dated October 6, 2015. It noted:

Article 2.6 of the Share Purchase Agreement (the “SPA”) contemplates that the $13 million purchase price, which consisted of $11 million plus $2 million for goodwill, would be reduced by “the aggregate amount that the Net Worth on the Financial Statements is less than $11 million. Article 1.1(j) of the SPA (the definition section) defines “Financial Statement” as the review engagement financial statements of the Company for the period ended March 31, 2014.” No such financial statement has been produced. Presuming that such a statement exists, would you please produce it together with the requisite working papers relating to the preparation of that financial statement. As well, any statements of account, time dockets, emails or other documents relating to the preparation of those statements ought to be produced.

If no March 31, 2014 review engagement financial statement has been prepared, then we would ask you to confirm same, and provide us with any documents or correspondence relating to the failure to produce that statement.

[206] There is no evidence of a response to this email.

[207] On August 30, 2016, the Houle Plaintiffs served a motion seeking, among other things, to withdraw their claim for recission of the SPA and for production of financial statements and other financial information for T&W for the period from 2009 to 2014.

[208] It was after being served with the motion that Andy elected to produce the Financial Statements and the Purchase Price Reconciliation. There is no evidence before me that either the Houle Plaintiffs or the Gougeon Defendants produced their own version of the Financial Statement or a Purchase Price Reconciliation prior to August 30, 2016.

2. Representation and Warranty Adjustments

[209] The specific representation and warranty at issue in this litigation pertains to the collectability of accounts receivable (“A/R”). I will therefore focus my analysis on this issue.

[210] The representations and warranties made by the Houle Plaintiffs were specified in Article 3.1 of the SPA. With respect to A/R, Article 3.1 (p) provided:

Collectability of Accounts Receivable – The accounts receivable shown in the Financial Statements or acquired subsequent to the date thereof and prior to the date of this Agreement by the Company either have been collected or are good and collectible within ninety (90) days of the date the invoice in respect thereof was issued/of the Effective Date at the aggregate recorded amounts thereof (subject to no defiance, counterclaim or set off), except to the extent of any reserves provided for such accounts in the Financial Statements as adjusted in the ordinary and usual course of business….

[211] Article 3.5 of the SPA fixed the terms for the survival of the representations, warranties, and covenants. It provided:

3.5 Nature and Survival of Representations, Warranties and Covenants – All statements contained in any certificate or other instrument delivered by or on behalf of a Party pursuant to or in connection with the transactions contemplated by this Agreement shall be deemed to be made by such Party hereunder. All representations, warranties, covenants and agreements herein contained on the part of each of the Parties shall survive the Closing, the execution and delivery hereunder of share or security transfer instruments and other documents of title to the Purchased Shares and the payment of the consideration therefor, provided that:

(a) the representations and warranties contained in Section 3.1 (except with respect to tax matters), Section 3.2 and Section 3.3 shall only survive for a period of two (2) years from the Closing Time (such time hereinafter called the “Warranty Expiry Time”); and

(b) the representations and warranties in respect of tax matters relating to fiscal years:

(i) in respect of which the Canadian Minister of National Revenue has the right to assess, reassess or make additional assessments pursuant to the Income Tax Act (Canada) as amended from time to time: or

(ii) in respect of which any taxation authority of competent jurisdiction administering any tax legislation pursuant to which any of the Company or the Subsidiaries is required to report its income or file an income tax return has the right to assess, reassess or make additional assessments pursuant to the taxation legislation of such jurisdiction,

shall survive until the date following the day that the rights of assessment or reassessment referred to in this sentence cease (such time hereinafter called the “Tax Warranty Expiry Time”).

If no claim has been made by a Party hereto with respect to any incorrectness or misrepresentation in any such representation or warranty prior to the Warranty Expiry Time or within thirty (30) days of the expiry of the Tax Warranty Expiry Time, such Party shall have no further liability hereunder with respect to such representation and warranty.

[212] “Closing Time” was defined in the SPA as 11:00 a.m. on July 16, 2014.

[213] Upon closing, the Houle Plaintiffs also signed an A/R Undertaking, dated July 16, 2014, which provided as follows:

In consideration of the closing of this transaction, the Vendors, Conrad Houle, Sheila Houle & CS Houle Holdings Inc., hereby undertake as follows:

1. To re-adjust for any and all Accounts Receivable of Tracks & Wheels Equipment Brokers Inc., as of the Effective Date, if necessary, in accordance with the terms of the Share Purchase Agreement.

[214] The “Effective Date” was identified in the A/R Undertaking as Thursday, April 3, 2014.

3. Other Relevant Articles and Documents

[215] The SPA included an Entire Agreement clause at Article 1.3, as follows:

This Agreement, including the Schedules hereto, together with the agreements and other documents to be delivered pursuant hereto, constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties and there are no warranties, representations or other agreements between the Parties in connection with the subject matter hereof except as specifically set forth herein and therein.

[216] Upon closing, the Houle Plaintiffs executed an Undertaking to Readjust, dated July 16, 2014, which provided as follows:

In consideration of and notwithstanding the closing of the above transaction, the undersigned hereby undertake to readjust the statement of adjustments after closing should the same be found to contain any errors or omissions, forthwith upon written demand.

[217] No copy of the statement of adjustments was attached to the Undertaking to Readjust. As such, it was unclear to me whether it pertained to the adjustment of the purchase price or to some other adjustment. In an email dated December 17, 2014, Alesia advised Fogler, Rubinoff LLP that neither she nor Ian prepared a statement of adjustments; she directed them to an “Adjustments to Purchase Price” document prepared by Andy, dated April 1, 2014.

[218] The Houle Plaintiffs also signed Bring Down Certificates, dated July 16, 2014, which certified that they were familiar with the terms of the SPA, that their representations and warranties in the SPA were true and correct, that they had complied with all covenants in the SPA, and that there had been no material adverse change in the condition of T&W.

4. The Escrow Agreement

[219] The relevant sections of the Escrow Agreement are as follows:

1. Loss Notice; Dispute Notice.

(a) Loss Notice. If the Purchaser reasonably determines that it has a Claim, the Purchaser shall give a written notice of such determination to the Escrow Agent and to the Vendors, setting out the reasons for the dispute as well as the amount under dispute and reasonable details of the calculation of such amount (a “Loss Notice”);

Upon receipt of a Loss Notice, the Escrow Agent shall promptly notify the Vendors in writing that it has received a Loss Notice, including a copy thereof, and shall set aside from the Escrow Amount the amount claimed in the Loss Notice. The Escrow Agent shall hold the said amount until (i) it disburses such amount in accordance with Section 7(b) or is otherwise jointly instructed by Purchaser and Vendors in writing pursuant to Section 6(a); or (ii) it disburses such amount in accordance with Section 6(b);

2. No Limitation. The Purchaser’s rights and recourses against the Vendors for indemnification with respect to any Claims under the Purchase Agreement shall not be replaced, limited or deemed to be waived, in whole or in part, by the exercise of the Purchaser’s rights and recourses under this Agreement or any other terms and conditions of this Agreement except to the extent of any payment made by the Escrow Agent to the Purchaser pursuant hereto following delivery of a Loss Notice in respect of a Claim.

3. Dispute Resolution. It is understood and agreed that should any dispute arise with respect to the delivery, ownership, right of possession and/or disposition of the Escrow Amount, or should any claim be made upon the Escrow Agent or the Escrow Amount by a third party, the Escrow Agent, upon receipt of notice of such dispute or claim, is authorized and shall be entitled (at its sole option and election) to retain in its possession without liability, all or any of said Escrow Amount until such dispute shall have been settled either by the mutual written agreement of the parties involved or by a final order, decree or judgment of a court or arbitrator of competent jurisdiction, the time for perfection of an appeal of such order, decree or judgment having expired. A copy of any such settlement or final order, decree or judgment of a court or arbitrator of competent jurisdiction shall be delivered to the Escrow Agent by the Purchaser or the Vendors forthwith upon receipt thereof. The Escrow Agent may, but shall be under no duty whatsoever to, institute or defend any legal proceedings which relate to the Escrow Amount.

4. Miscellaneous

(f) No failure on the part of the Purchaser or the Vendors to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver of such right; nor shall any single or partial exercise of any such right preclude any other or further exercise of such right or the exercise of any other right.

[220] “Claims” are defined in the Escrow Agreement to be “any claims for damages suffered by, imposed upon or asserted against the Purchaser giving rise to indemnification pursuant to Article 3 and Article 6” of the SPA.

[221] As previously noted, Article 3 of the SPA addressed the parties’ representations and warranties. Article 6 of the SPA established the Houle Plaintiffs’ obligation to indemnify the Gougeon Defendants with respect to claims.

5. The Gougeon Defendants’ Counterclaim

[222] The Statement of Defence and Crossclaim of the Gougeon Defendants dated April 10, 2015 plead:

The Share Purchase Agreement contemplated final adjustments with respect to the purchase price. Those adjustments have not been completed. The escrow funds have not yet been released in accordance with the terms of the Escrow Agreement. The Defendants pleading claim that they are entitled to a portion of the escrow funds once a final accounting is completed.

[223] On May 11, 2018, the Gougeon Defendants added a Counterclaim against the Houle Plaintiffs seeking the payment of PCA, including adjustments of the purchase price, adjustments for uncollectible accounts receivable, and indemnification for the HST audit of T&W up to the date of closing. In their Reply to Counterclaim, the Houle Plaintiffs alleged that the claims were “excessively out of time.” They plead the Limitations Act, 2002, as a defence.

[224] The Gougeon Defendants addressed their form of pleadings with former counsel for the Houle Plaintiffs, Fogler, Rubinoff, in October 2016.

[225] On September 30, 2016, counsel for the Gougeon Defendants wrote to Fogler, Rubinoff LLP:

What is your position as to Mr. Sostarich's calculation as to the amounts payable to our respective clients? Would you be agreeable to dividing the monies or do you take the position that Mr. Sostarich did not properly advance a claim under the Escrow Agreement?

If it is the later, I take it that we can litigate the issue in the present litigation without the necessity of my issuing a counterclaim as against your clients. I would not think it necessary since the issue is alive in the current litigation. Please let me know if I need to issue a separate claim or whether we can litigate the issue of who is entitled to the escrow funds and to what extent in this lawsuit.

[226] On October 1, 2016, Fogler Rubinoff responded:

In response to your inquiry regarding a counterclaim against our client, my comments are these. First, the limitation period for commencing a claim against our client has passed. Second, our clients’ statement of claim seeks payment of the escrow funds. If we are unsuccessful in that claim, the fund will belong to your client in any event. However, we fail to see how our clients can be unsuccessful, in part for the reasons pleaded in the statement of claim issued by you.

[227] On October 2, 2016, counsel for the Gougeon Defendants responded:

Thanks Milt. I think that you answered my question. I do agree that if your client is wrong in their claim on the escrow funds, then then my client would get those monies due and owing to it.

I think that it is implicit in the pleadings exchanged that there is a live issue as to the entitlement to the escrow funds. There is joinder on that issue. I do not see it necessary to issue a separate claim.

However, if you state that my client's entitlement will be barred by the Limitation Act, then I will issue a separate claim. This will in my view be a complete waste of time.

And the limitation period does not expire until the 90 days post closing which is October 21. Please let me know. We may wish to discuss. Thanks.

[228] On October 11, 2016, counsel for the Gougeon Defendants wrote as follows:

Milt, I want to set forth my understanding from our conversation last week in respect to the issue of the entitlement of our respective clients to the escrow amount still held in trust by Andy Sostarich.

Your client has made a claim for the entirety of this amount in the Statement of Claim. My clients have stated in their Statement of Defence that they are entitled to a portion of the escrow funds once a final accounting is completed.

There is joinder on the issue of the entitlement to the escrow funds and I believe that we are in agreement that I do not need to issue a separate statement of claim to assert my client's claim for entitlement to the escrow funds or a part thereof.

Please confirm that this is our agreement. Thanks.

[229] On October 11, 2016, Fogler Rubinoff responded:

Orlando, I believe that you and I are in agreement. To be clear, it is our clients’ position that in accordance with the terms of the Escrow Agreement, our client is entitled to the entirety of the fund. Your client has claimed a portion of the fund, which is a claim that we dispute. Since the issue is squarely before the court in the action commenced by our clients’, it makes sense that if it is determined that for some reason your client is entitled to a portion of the fund, it will be able to access that amount from the escrow funds. We say that without prejudice to any claim that our clients may have as against the co-defendants.

I trust that this email accurately sets our mutual understanding.

[230] Counsel for the Gougeon Defendants responded on October 12, 2016:

Thanks Milt. I believe we have an agreement. I certainly do understand your client’s position.

On the basis of our agreement, I will not issue a separate claim as against your client to recover that portion of the escrow amount which my client says is owing to him since that issue needs to be determined in the current litigation.

[231] On the record before me, no further correspondence was exchanged prior to the issuance of the Gougeon Defendants’ Counterclaim.

Positions of the Parties

[232] The Houle Plaintiffs submit that the Gougeon Defendants’ PCA claim was brought out of time. It is their position that the claim advanced in the Statement of Defence and Crossclaim, as well as any tolling agreement with Fogler, Rubinoff, pertained only to the entitlement to the escrow funds. They argue that claim was extinguished when the escrow funds were returned to the Houle Plaintiffs. They submit that any claim by the Gougeon Defendants with respect to the PCA should be advanced against the Sostarich Defendants. The only exception to this is the HST claim, which they concede was brought in time.

[233] The Gougeon Defendants assert that the Houle Plaintiffs breached the SPA by failing to prepare and file the Financial Statements. They allege that the Houle Plaintiffs misrepresented the collectability of A/R in the SPA and the Bring Down Certificates and breached the A/R Undertaking and the Undertaking to Readjust. The Gougeon Defendants submit that the Houle Plaintiffs cannot rely upon their own misrepresentations and breaches of contract and undertakings to defeat the Gougeon Defendants’ PCA claim.

[234] The Gougeon Defendants further submit that the Houle Plaintiffs have not been surprised or prejudiced by the manner in which the counterclaim has been advanced. They argue that they advanced a claim with respect to the PCA and the funds held in escrow in their Statement of Defence and that there was joinder on those issues. They also argue that, by raising a limitation period defence, the Plaintiffs are improperly seeking to resile from an agreement made by their former counsel and to collaterally attack the decision of Justice Akbarali which found that the reconciliation calculation was an issue to be determined by the trial judge.

[235] The Sostarich Defendants submit that the PCA claim was brought in time. In support of their argument, they rely upon the correspondence exchanged between counsel for the Gougeon Defendants and Fogler, Rubinoff, and the decision of Justice Akbarali.

[236] The Sostarich Defendants also question the necessity of a counterclaim. They argue that the Gougeon Defendants will not know if they have suffered a loss until the Court has ruled on the Houle Plaintiffs’ claim. They observe that, at the outset, the Houle Plaintiffs advanced a claim for recission, which would have resulted in no adjustment owing to the Gougeon Defendants. They argue that, at best, the PCA only became a live issue when the claim for recission was withdrawn. It was only at that point that the Gougeon Defendants could have concluded that a counterclaim was appropriate.

Is the PCA claim time-barred under the SPA?

[237] The purchase price adjustment at Article 2.6 of the SPA was tied to the disclosure of the Financial Statement. The Financial Statement contemplated in the SPA was disclosed on September 27, 2016. The entitlement to advance a claim for a purchase price adjustment based on the Financial Statement commenced on that date.

[238] The SPA did not specify a deadline for the completion and disclosure of the Financial Statement, nor did it specify a deadline for any claim for a purchase price adjustment pursuant to Article 2.6 or the Undertaking to Readjust.

[239] I find that the purchase price adjustment claim is not barred under the SPA. Instead, pursuant to s. 22(5) of the Limitations Act, as there is no agreement to the contrary, any such claim would be subject to the limitation periods in the Act.

[240] The A/R adjustment was collectible either pursuant to the Escrow Agreement or Article 3.5 of the SPA.

[241] As noted by Justice Akbarali, the ability to collect the A/R adjustment through the Escrow Agreement expired ninety (90) days after the Closing Date. After that date, the only mechanism available to the Gougeon Defendants to claim the A/R adjustment was Article 3.5.

[242] Pursuant to Article 3.5, the representations and warranties in the SPA expired two years after the Closing Date. If no claim was made alleging incorrectness or misrepresentation by July 16, 2016, at 11:00 a.m., the party that made the representations and warranties was no longer liable for them.

[243] The Gougeon Defendants submit that they made a claim in their Statement of Defence and Crossclaim of April 10, 2015. They submit that this claim was made within two years of the Closing Date and is not time-barred by the SPA.

[244] I have considered the argument of the Houle Plaintiffs that the claim advanced in the April 10, 2015 pleading was a claim for the escrow funds only. I have also considered the direction of the Court of Appeal in Klassen v. Beausoleil, at para. 30, which noted that, in reviewing an original pleading to determine the nature of the claims it advances, the court should review the pleading generously, giving consideration to potential drafting deficiencies.

[245] The Statement of Defence and Crossclaim advanced a claim for adjustments from the escrow funds. The Escrow Agreement was limited to claims pursuant to Article 3 and Article 6 of the SPA; Article 3, as noted, established the parties’ representations and warranties. As such, I find that the Statement of Defence and Crossclaim put the Houle Plaintiffs on notice of the intention to pursue a claim arising pursuant to Article 3. As this claim was advanced within two years of the Closing Date, I find that it is not time-barred by the SPA.

[246] I considered whether the Gougeon Defendants’ later amendment of the Statement of Defence and Crossclaim to add a counterclaim impacts this analysis. I find that it does not.

[247] Article 3.5 of the SPA contemplated that the Houle Plaintiffs would only avoid liability for their representations and warranties if “no claim” were made within two years of the Closing Date. It did not specify the form that the claim was required to take, only that it was required to be made.

[248] When the Statement of Defence and Crossclaim was filed, the action of the Houle Plaintiffs against the Gougeon Defendants was not settled and the allocation of the escrow funds was a live issue. The form of claim advanced by the Gougeon Defendants was appropriate in the context of the action as framed; it was also advanced with the acquiescence of the Houle Plaintiffs.

[249] The counterclaim was a response to Justice Akbarali’s decision. The Gougeon Defendants moved to ensure that their pleadings reflected the fact that the escrow funds were no longer a live issue. Nothing in Article 3.5 of the SPA prevented them from amending their pleadings to ensure that they could continue their litigation to hold the Houle Plaintiffs liable for representations and warranties for which they were already advancing a claim.

[250] The Statement of Defence and Crossclaim sought to hold the Houle Plaintiffs liable for their representations and warranties in the SPA. While the counterclaim was an independent action (Attorney-General for Ontario v. Palmer et al., 1979 CanLII 1633 (ON CA), [1979] OJ No 3440), it was still a claim which sought to hold the Houle Plaintiffs liable for their representations and warranties.

[251] I find that the A/R adjustment claim is not barred by the SPA. I further find that because the SPA and the Escrow Agreement fixed deadlines for bringing the A/R adjustment claim, it is not subject to the Limitations Act.

Is the PCA claim barred by the failure of the Gougeon Defendants to comply with the notice provisions of the SPA?

[252] It is undisputed that the Gougeon Defendants forwarded particulars of their escrow claim to Andy. It is also undisputed that they did not provide a Loss Notice to the Houle Plaintiffs as required by paragraph 7(a) of the Escrow Agreement. In his evidence, Mike acknowledged that he did not turn his mind to the formal requirements of the Escrow Agreement and relied on Andy to communicate with the Houle Plaintiffs.

[253] It is undisputed that Andy failed to act on the information that he received from Mike. He did not provide a Loss Notice to the Houle Plaintiffs, nor did he informally advise the Houle Plaintiffs that he had received notice of an escrow claim from Mike. It was his evidence that he intended to discuss the PCA with the Houle Plaintiffs during his meeting with them in October 2014, but that he did not have an opportunity to do so as the meeting devolved into a discussion about the options. The October 2014 meeting took place after the term of the Escrow Agreement had expired.

[254] As found by Justice Akbarali, the failure to provide notice under the Escrow Agreement barred a claim under the Escrow Agreement.

[255] Section 17(f) of the Escrow Agreement was a saving provision which allowed the Gougeon Defendants to exercise their other rights and remedies under the SPA regardless of whether they exercised them under the Escrow Agreement. There is no other provision in the SPA which serves to bar the Gougeon Defendants from advancing their PCA claims as a result of any failure to provide notice under the Escrow Agreement or otherwise.

[256] I find that the failure to provide notice does not bar the Gougeon Defendants from advancing their PCA claims under the SPA.

Is the PCA claim time-barred pursuant to the Limitations Act?

[257] As previously noted, the Gougeon Defendants’ claim for the purchase price adjustment provided in Article 2.6 of the SPA is subject to the Limitations Act.

[258] Section 4 of the Limitations Act requires that a claim be issued not more than two (2) years after the date on which it was discovered.

[259] The purchase price adjustment claim is tied to the disclosure of the Financial Statement, which was disclosed by Andy on September 27, 2016. The Gougeon Defendants advanced a claim for a purchase price adjustment in their Statement of Defence and Crossclaim of April 10, 2015, and later in their counterclaim of May 3, 2018. I find that both claims were issued within the two-year limitation period and are not time-barred by the Limitations Act.

[260] There was debate in the arguments of counsel about the impact of Andy’s delay in disclosing the Financial Statement on the commencement date of the limitation period. On the evidence before me, I find that the obligation to complete and disclose the Financial Statement was that of the Houle Plaintiffs. They cannot rely upon a delay occasioned by their failure to fulfill this obligation as a defence to the Gougeon Defendants’ claim for a purchase price adjustment.

[261] This finding does not limit any claim that the Houle Plaintiffs may have against either Andy or Alecia, or both, for damages suffered or expenses incurred as a result of their failure to advise the Houle Plaintiffs of their obligation to complete and disclose the Financial Statements. The determination of the causation and quantification of those damages, if any, will take place during the damages phase of the trial.

[262] Although I have found that the counterclaim of the Gougeon Defendants for an A/R adjustment was not time-barred by the SPA or subject to the Limitations Act, in the event that I am incorrect that the time to commence the counterclaim was governed by the SPA, I would find that the counterclaim was commenced within the time required by the Limitations Act.

[263] The timing of the counterclaim was specifically addressed between counsel. The Houle Plaintiffs agreed that the Gougeon Defendants’ A/R adjustment claim was joined to and could be litigated with the Houle Plaintiffs’ claim in the Main Action, thereby making a counterclaim unnecessary. The Houle Plaintiffs have argued that this agreement was limited to the escrow claim. I do not accept this argument.

[264] It was apparent from the early days of the litigation that the Gougeon Defendants were advancing a claim for PCA, including the A/R adjustment. While they took the position that the claim should be paid from the escrow funds, at no time did they suggest that they would abandon the claim in the event that they were incorrect about their entitlement to the escrow funds.

[265] In my view, when issue of a counterclaim was discussed between counsel in October 2016, it was incumbent upon the Houle Plaintiffs to clearly state their position rather than to reassure the Gougeon Defendants that a counterclaim was unnecessary only to pounce on a limitation defence once it was issued.

[266] Pursuant to s. 5(1)(a)(iv) of the Limitations Act, I find that it was only apparent that the counterclaim was the legally appropriate proceeding after the availability of the alternative process in the Escrow Agreement had been determined. The Houle Plaintiffs were not prejudiced by the amendment adding the counterclaim as they were advised of the intention of the Gougeon Defendants from the outset of the litigation, and another form of the same claim was advanced in the Statement of Defence and Crossclaim. Conversely, the Gougeon Defendants would be prejudiced if the counterclaim were denied due to a limitations defence because of their reliance upon their agreement with counsel for the Houle Plaintiffs.

[267] The discovery that a counterclaim was a legally appropriate proceeding occurred on November 1, 2017, when Justice Akbarali ordered the return of the escrow funds to the Houle Plaintiffs. That is the date that the limitation period for the counterclaim commenced, as the counterclaim was commenced on May 3, 2018, well within two (2) years of the limitation period, it is not barred by the Limitations Act.

Are the Houle Plaintiffs liable to reimburse or indemnify the Gougeon Defendants for the HST claim?

[268] The Gougeon Defendants claim that the Houle Plaintiffs are liable to indemnify and pay them for the HST audit amounts owing by T&W prior to March 31, 2014. Counsel for the Houle Plaintiffs conceded this liability in closing submissions. The quantum of the claim will be disputed during the damages phase of the trial.

[269] I, therefore, find that the Houle Plaintiffs are liable to indemnify and pay the Gougeon Defendants for the HST audit amounts owing by T&W for the period prior to March 31, 2014.

Analysis: Liability of the Sostarich Defendants

The Law

[270] The professional obligations of accountants in Ontario are governed by the CPA Ontario Code of Professional Conduct (the “Code”), a specialised code of conduct enacted and enforced by the accounting profession.

[271] Accountants have a professional obligation to act with integrity, due care, and objectivity, and to avoid conflicts of interest. Code Rule 210.2 provides that an accountant “shall not undertake or continue to provide any professional service to any client … in circumstances where there is a conflict of interest between … (i) the interest of the member or firm and that of the client … (ii) the interest of two or more clients.…”

[272] The presence of a conflict of interest does not necessarily prohibit an accountant from acting. Pursuant to Code Rule 210.3, an accountant may continue to act in the face of a conflict of interest provided that one of the following occurs:

a. (i) the member or firm is able to rely upon conflict management techniques that are generally accepted and the use of such techniques will not breach the terms of any agreement to provide professional services or any duty to another client…;

(ii) the member or firm informs each affected party of the existence of the conflict of interest and the techniques that will be used to manage it; and

(iii) the member or firm obtains the consent of each affected party to accept or continue the professional services engagement or engagements; or

b. the affected parties have knowledge of the conflict of interest and their agreement for the member or firm to accept or continue the professional services engagement is implied by their conduct, in keeping with commonly accepted practice.

[273] Pursuant to Code Rule 210.4, when an accountant elects to proceed in the face of a conflict of interest, they are required to document the basis on which they are proceeding.

[274] The Code notes in its Guidance comments that, in some instances, an accountant’s relationship with their client may constitute a fiduciary relationship with attendant fiduciary obligations. It confirms the state of the law with respect to the fiduciary obligations of accountants – their relationship with their clients is not one which is recognized as traditionally or automatically giving rise to a fiduciary obligation, but it is one in which a fiduciary obligation may be imposed on an ad hoc basis: see Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 SCR 377, [1994] S.C.J. No. 84.

[275] Determining whether an ad hoc fiduciary relationship exists involves a different analysis than determining whether a relationship is innately fiduciary. In Hodgkinson, at paras. 32-33, LaForest J. described the analysis as follows:

As I noted in Lac Minerals, however, the three­step analysis proposed by Wilson J. encounters difficulties in identifying relationships described by a slightly different use of the term “fiduciary”, viz., situations in which fiduciary obligations, though not innate to a given relationship, arise as a matter of fact out of the specific circumstances of that particular relationship; see at p. 648. In these cases, the question to ask is whether, given all the surrounding circumstances, one party could reasonably have expected that the other party would act in the former's best interests with respect to the subject matter at issue. Discretion, influence, vulnerability and trust were mentioned as non-exhaustive examples of evidential factors to be considered in making this determination.

Thus, outside of the established categories, what is required is evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party.…

[276] While the vulnerability of an injured party is a consideration in determining whether a fiduciary obligation exists it is not, in itself, determinative. In Hodgkinson, LaForest J. noted, at para. 25:

From a conceptual standpoint, the fiduciary duty may properly be understood as but one of a species of a more generalized duty by which the law seeks to protect vulnerable people in transactions with others. I wish to emphasize from the outset, then, that the concept of vulnerability is not the hallmark of fiduciary relationship though it is an important indicium of its existence. Vulnerability is common to many relationships in which the law will intervene to protect one of the parties. It is, in fact, the “golden thread” that unites such related causes of action as breach of fiduciary duty, undue influence, unconscionability and negligent misrepresentation.

[277] Whether an accountant’s relationship with their client has evolved to one which imposes fiduciary obligations upon them is a question of fact. The analytical approach to this question was discussed by LaForest J. in Hodgkinson, at para. 44:

Much of this caselaw was recently canvassed by Keenan J. in Varcoe v. Sterling (1992), 1992 CanLII 7478 (ON SC), 7 O.R. (3d) 204 (Gen. Div.), in an effort to demarcate the boundaries of the fiduciary principle in the broker-client relationship. Keenan J. stated, at pp. 234-36:

The relationship of broker and client is not per se a fiduciary relationship.... Where the elements of trust and confidence and reliance on skill and knowledge and advice are present, the relationship is fiduciary and the obligations that attach are fiduciary. On the other hand, if those elements are not present, the fiduciary relationship does not exist.... The circumstances can cover the whole spectrum from total reliance to total independence. An example of total reliance is found in the case of Ryder v. Osler, Wills, Bickle Ltd. (1985), 1985 CanLII 2044 (ON SC), 49 O.R. (2d) 609, 16 D.L.R. (4^th) 80 (H.C.J.). A $400,000 trust for the benefit of an elderly widow was deposited with the broker. An investment plan was prepared and approved and authority given to operate a discretionary account.... At the other end of the spectrum is the unreported case of Merit Investment Corp. v. Mogil, Ont. H.C.J., Anderson J., March 23, 1989 (summarized at 14 A.C.W.S. (3d) 378), in which the client used the brokerage firm for processing orders. He referred to the account executive as an “order-taker”, whose advice was not sought and whose warnings were ignored.

The relationship of the broker and client is elevated to a fiduciary level when the client reposes trust and confidence in the broker and relies on the broker’s advice in making business decisions. When the broker seeks or accepts the client’s trust and confidence and undertakes to advise, the broker must do so fully, honestly and in good faith.... It is the trust and reliance placed by the client which gives to the broker the power and in some cases, discretion, to make a business decision for the client. Because the client has reposed that trust and confidence and has given over that power to the broker, the law imposes a duty on the broker to honour that trust and respond accordingly.

In my view, this passage represents an accurate statement of fiduciary law in the context of independent professional advisory relationships, whether the advisers be accountants, stockbrokers, bankers, or investment counsellors. Moreover, it states a principled and workable doctrinal approach. Thus, where a fiduciary duty is claimed in the context of a financial advisory relationship, it is at all events a question of fact as to whether the parties’ relationship was such as to give rise to a fiduciary duty on the part of the advisor.

[278] In considering the liability of a professional advisor, the court must also consider whether the conduct at issue constitutes a breach of contract, a breach of the duty and standard of care or both: see Central Trust Co. v. Rafuse, [1986] 2 SCR 147, 1986 CanLII 29 (SCC),.

[279] It is well-recognized at law that an accountant owes a duty of care to their own client: see Haig v. Bamford, 1976 CanLII 6 (SCC), [1977] 1 SCR 466, [1976] SCJ No 31, p. 477.

[280] In Bloor Italian Gifts Ltd. v. Dixon, 2000 CanLII 14727 (ON CA), [2000] O.J. No. 1771, at paras. 25-26 and 31, the Ontario Court of Appeal summarized the duty and standard of care required of an accountant as follows:

It is undisputed that the relationship between Dixon and Bloor Italian was such that the accountant Dixon owed the appellant a duty of care to exercise reasonable skill and care in the performance of his professional duties: see Haig v. Bamford, supra, and Hercules Managements Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165, 146 D.L.R. (4^th) 577. This duty arises quite apart from any contractual obligations between the parties: see Central Trust Co. v. Rafuse, supra, and Jackson and Powell on Professional Negligence, 4^th ed. (London: Sweet and Maxwell, 1997), at p. 827.

The real question is whether Dixon breached the duty he owed by not meeting the standard of care of the reasonable professional person in the circumstances of his relationship with Bloor Italian. This question needs to be addressed in the context of both the accounting and the bookkeeping services provided by Dixon to Bloor Italian.

Professional standards of conduct such as those prescribed in the CICA Handbook provide a persuasive guide as to what constitutes the standard of reasonable care for a professional: see ter Neuzen v. Korn, 1995 CanLII 72 (SCC), [1995] 3 S.C.R. 674 at pp. 696-98, 127 D.L.R. (4^th) 577.…

[281] In Hodgkinson, at para. 52, the Supreme Court found that the standard of care of an accountant included an obligation to disclose conflicts of interest:

In sum, the rules set by the relevant professional body are of guiding importance in determining the nature of the duties flowing from a particular professional relationship; see MacDonald Estate v. Martin, 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235. With respect to the accounting profession, the relevant rules and standards evinced a clear instruction that all real and apparent conflicts of interest be fully disclosed to clients, particularly in the area of tax-related investment advice. The basis of this requirement is the maintenance of the independence and honesty which is the linchpin of the profession’s credibility with the public. It would be surprising indeed if the courts held the professional advisor to a lower standard of responsibility than that deemed necessary by the self-regulating body of the profession itself.

[282] It is also well-recognized at law that an accountant owes contractual duties to their client. The Code observes in its Guidance comments to Rule 202:

Members and firms have duties to those to whom they provide professional services that arise from the nature of the relationships with the recipients of the services. Members and firms have a professional duty to act with integrity and due care and a contractual duty to provide services as defined by the terms of their engagement or employment.…

[283] In Hodgkinson, at para. 94, the obligation of an accountant to disclose conflicts of interest was found to be a contractual duty of their retainer:

In view of my finding that there existed a fiduciary duty between the parties, it is not in strictness necessary to consider damages for breach of contract. However, in my view, on the facts of this case, damages in contract follow the principles stated in connection with the equitable breach. The contract between the parties was for independent professional advice. While it is true that the appellant got what he paid for from the developers, he did not get the services he paid for from the respondent. The relevant contractual duty breached by the respondent is of precisely the same nature as the equitable duty considered in the fiduciary analysis, namely the duty to make full disclosure of any material conflict of interest.… [Emphasis added.]

Are the Sostarich Defendants liable to the Houle Plaintiffs in the Main Action for breaches of professional, contractual, and fiduciary duties owed by Andy Sostarich to the Houle Plaintiffs?

[284] The Sostarich Defendants were retained by the Houle Plaintiffs to provide professional advice to them regarding the Transaction. This was a contractual relationship. It was also a professional relationship in which they owed a duty of care to the Houle Plaintiffs.

[285] The Houle Plaintiffs argue that their relationship with the Sostarich Defendants was also a fiduciary relationship. Respectfully, I do not agree.

[286] As I have previously found, Connie was not a vulnerable party in the Transaction. He was an active participant in the negotiation who clearly communicated and advanced his position, sometimes to the frustration of the other involved parties. Almost all of the significant discussions regarding the Transaction were conducted directly between Mike and Connie. Indeed, by the end of the Transaction, Connie had succeeded in significantly narrowing the scope of the options which Mike had identified as a non-negotiable condition of his purchase of T&W.

[287] The Sostarich Defendants did not bargain away the Houle Plaintiffs’ business and lands while they stood on the sidelines. Neither Connie nor Sheila relinquished their bargaining rights or their decision-making authority to the Sostarich Defendants. While they acted on the advice that they received from Andy (as well as Ken and Alesia), I find that they were aware that they could accept or reject that advice. Ultimately, they were unhappy with the advice and the bargain they made because of it, but that does not diminish their role as decision-makers, nor does it elevate their relationship with the Sostarich Defendants to a fiduciary relationship.

[288] Having determined that there was no fiduciary relationship, the issue to be determined is whether the Sostarich Defendants breached their contractual and professional duties to the Houle Plaintiffs. Having considered the witness evidence, including the expert opinion of Alan Mak, and having reviewed the documentary evidence, I find that they did.

[289] As a result of their contractual relationship with the Houle Plaintiffs, the Sostarich Defendants owed contractual duties to them including the following:

a. The duty to provide the services for which they were engaged; and

b. The duty to disclose any material conflict of interest.

[290] The duty of care owed by the Sostarich Defendants to the Houle Plaintiffs gave rise to an obligation to meet standards of care. Specifically, I find that the Sostarich Defendants were required to meet the following standards of care:

a. To act with integrity and due care;

b. To exercise reasonable skill and care in the performance of their duties; and

c. To disclose all real and apparent conflicts of interest.

[291] Andy submitted that the interests of the Houle Plaintiffs were his paramount concern throughout the Transaction. He testified that his objective always was to move the Transaction to completion. Andy submitted that it would not have been in the financial best interests of the Houle Plaintiffs if the Transaction were to fail. His position was echoed by Ken.

[292] I accept that Andy was well-intentioned in his efforts on behalf of the Houle Plaintiffs. Nevertheless, well-intentioned breaches of contractual duties and standards of care are still breaches. If damages are caused by those breaches, the offending party is still liable for them.

[293] In this case, the Sostarich Defendants’ breaches were numerous. Among other things, they acted for the Houle Plaintiffs in the face of actual and potential conflicts of interest; they failed to ascertain the fully informed instructions of the Houle Plaintiffs and to act upon those instructions; they failed to involve and advise Sheila Houle at critical points during the Transaction; and they failed to fulfill their post-closing responsibilities on behalf of the Houle Plaintiffs or alternatively to ensure that the Houle Plaintiffs were aware of their obligation to fulfill those responsibilities.

[294] In his evidence, Andy was either oblivious to these breaches or he attributed them to circumstances beyond his control.

[295] In my view, the most glaring breach was the decision of the Sostarich Defendants to act for the Houle Plaintiffs notwithstanding the conflict of interest that existed due to the relationship between the Sostarich Defendants and the Gougeon Defendants.

[296] In my view, it was shocking that Andy was not alive to the fact that the Transaction was rife with actual and potential conflicts of interest. He took no steps to advise either of his clients about the risks associated with his involvement in the Transaction. In doing so, he deprived them of the opportunity to provide their informed consent to his involvement. He took no steps to protect his clients when their disparate objectives became apparent. He gave no thought to a potential conflict of interest when he conscripted his sister to act as the lawyer for the Houle Plaintiffs.

[297] It is my view that, faced with a difficult negotiation, Andy performed a juggling act in an effort to satisfy the competing interests of his two clients and to close a Transaction that he believed was best for both of them. In the case of the Houle Plaintiffs, this involved urging Connie to cross the Transaction’s finish line without considering the possibility that he would be unhappy with his choice after the dust settled. It was akin to a marriage that was doomed to end badly, and it did.

[298] I find that the Sostarich Defendants breached their contractual and professional duties to the Houle Plaintiffs and that they are liable for any damages caused by those breaches. The nature and extent of those damages, if any, will be addressed in the damages phase of the trial.

[299] The Houle Plaintiffs also argued that the Gougeon Defendants were vicariously liable for the breaches of the Sostarich Defendants. As I have found that the Sostarich Defendants were not acting as agent for the Gougeon Defendants, it is not necessary for me to consider the issue of vicarious liability.

Are the Sostarich Defendants liable to the Gougeon Defendants for professional negligence and breach of contract for failing to pursue claims available to them for PCA?

Failure to file a Loss Notice

[300] The Sostarich Defendants owed contractual and professional duties to the Gougeon Defendants. This included a contractual duty to provide the services for which they were engaged and a professional duty to exercise reasonable skill and care in performing services on their behalf.

[301] I find that the Sostarich Defendants breached their contractual and professional duties to the Gougeon Defendants by failing to file a Loss Notice as required by the terms of the Escrow Agreement. Andy acknowledged this breach and his liability for it in his evidence but took the position that he was only liable to the extent that the funds which would be payable under the Loss Notice were not recovered from the Houle Plaintiffs.

[302] I find that the Sostarich Defendants are liable to pay any damages or expenses to the Gougeon Defendants arising from their failure to file a Loss Notice, except to the extent that those damages or expenses are not otherwise payable by the Houle Plaintiffs to the Gougeon Defendants in the Main Action.

Failure to prepare a year-end statement for T&W

[303] I find that the Sostarich Defendants breached their contractual and professional duties to the Gougeon Defendants by failing to prepare and disclose the Financial Statement in accordance with the terms of the SPA. While the obligation to prepare the Financial Statement was that of the Houle Plaintiffs, the SPA designated the Sostarich Defendants to fulfill that obligation.

[304] The Sostarich Defendants were liable to any party who suffered damages and expenses as a result of their failure to fulfill the obligation knowingly undertaken by them in the SPA.

[305] I find that the Sostarich Defendants are liable to pay any damages or expenses arising from their failure to prepare and disclose the Financial Statement, except to the extent that those damages or expenses are not otherwise payable by the Houle Plaintiffs to the Gougeon Defendants in the Main Action.

Analysis: The Specific Performance Action

The Law

[306] Specific performance is an equitable discretionary remedy which is granted when damages are an inadequate response to a claim for breach of contract: see Matthew Brady Self Storage Corporation v. InStorage Limited Partnership, 2014 ONCA 858, [2014] OJ No 5783, at para. 29. The applicable law with respect to specific performance was well-summarized by Braid J. in McLaughlin v. Canadian Service Management Inc., 2018 ONSC 1937, [2018] O.J. No. 1620, at paras. 58-62 and 64-65:

Specific performance should not be granted as a matter of course, absent evidence that the property is unique to the extent that its substitute would not be readily available: Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415, at para. 22.

The plaintiff bears the onus of proving that the property is unique. He is not required to demonstrate the complete absence of comparable properties, but he must show that the property in question has a quality that cannot be readily duplicated elsewhere. This should relate to the proposed use of the property, and be a quality that makes it particularly suitable for the purpose for which it was intended: see John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd., 2003 CanLII 52131 (ON CA), [2003] O.J. No. 350 (C.A.).

The court should consider the nature and function of the property in relation to a prospective purchaser: see 904060 Ontario Ltd. v. 529566 Ontario Ltd., [1999] O.J. No. 355 (S.C.).

Property can be considered unique where the purchaser has invested money or effort in the subject property: see McGrath v. B.G. Schickedanz Homes Inc., [2000] O.J. No. 4161 (S.C.); and 1376273 Ontario Inc. v. Woods Property Development Inc., [2001] O.J. No. 2372 (S.C.), aff’d [2001] O.J. No. 6010 (S.C.).

Owner occupied property will tend to be unique enough to warrant specific performance. Anything acquired with the primary intention of speculation or investment purposes will be insufficiently unique because the plaintiff can be adequately compensated in damages.

When a tenant occupies a commercial property, the premises is unique when it is strategically located and when the tenant makes an investment in the property: see Pioneer Petroleums Ltd. Partnership v. 2049904 Ontario Inc., 2009 ONCA 122; leave to appeal refused [2009] S.C.C.A. No. 151.

Goodwill is built up when a tenant occupies a commercial property. A tenant would be forced to pay relocation fees and incur loss of profits and loss of goodwill if they were required to move from the premises. In these circumstances, the property is unique to the tenant: see One Stop Fireplace Shop Ltd. v. Parigon Industries Inc., 2013 ONSC 1562.

[307] Options to purchase land are generally treated as unilateral contracts which require strict performance by the party holding the option unless, as a result of the conduct of the owner of the land, the holder of the option is relieved from strict performance on equitable grounds (Sail Labrador Ltd. v. Challenge One (The), 1999 CanLII 708 (SCC), [1999] 1 SCR 265, at para. 37).

[308] The law with respect to good faith performance in contract is applicable to the determination of equitable relief. Where there has been conduct by a party in procuring a bargain giving rise to an equitable defence of unfairness, specific performance may not be granted (O’Neil et al. v. Arnew, 1976 CanLII 758 (ON SC), 16 OR (2d) 549).

Is T&W entitled to specific performance with respect to the optioned lands, or only with respect to the leased lands as conceded by the Houle Plaintiffs?

[309] At the outset of trial, I made a ruling that KKP, the Defendant in the Specific Performance Action, was precluded from making arguments regarding the validity and enforceability of the options. They were also precluded from making technical arguments regarding the tendering process for the options. This ruling was the result of the settlement between the parties in the Main Action which was the subject of Justice Gordon’s Order of September 2, 2021.

[310] KKP was permitted to argue what lands were included in the options and whether specific performance was an appropriate remedy.

[311] Given the decision at the outset of trial, KKP did not challenge T&W’s request for specific performance in respect of the Sudbury Leased Lands and Timmins Leased Lands.

[312] T&W submitted that, in respect of Timmins, it was only seeking the Timmins Leased Lands and the Timmins Severed Lands. It was prepared to consent to an order that the entirety of Timmins be conveyed to T&W, subject to KKP being permitted to sever and reconvey the Timmins Excess Lands at its own expense within one (1) year of the conveyance to T&W.

[313] T&W is seeking specific performance with respect to all of the lands in Sudbury.

[314] Mike was transparent from the early days of the negotiation that he required the options as a condition of completing the Transaction. It was his evidence, which I accept, that he advised Connie early in the process that they should end their negotiations if he was not prepared to grant the options. Connie continued with the negotiations and ultimately completed the Transaction.

[315] Mike’s position regarding the options was not unreasonable or predatory. T&W had been operating on the lands for many years. The buildings on the lands were adapted to the operational needs of T&W. The continuity of T&W’s operations at its existing locations was an important element of its goodwill. Moving T&W’s business premises would have been inconvenient and disruptive and would have exposed the business to undetermined expenses.

[316] The final form of the options represented a compromise of the Gougeon Defendants’ and the Houle Plaintiffs’ respective positions regarding the lands. The Houle Plaintiffs were reluctant vendors and would have preferred not to grant the options. The Gougeon Defendants would have preferred to purchase all of the lands, but were prepared to agree to severances which, if granted, would have resulted in them receiving only those lands that they required to operate the business.

[317] The Houle Plaintiffs (specifically, KKP) have conceded that specific performance should be granted with respect to the Timmins Leased Lands and the Sudbury Leased Lands. This is an order that I would have granted even in the absence of this concession. I find that the Timmins Leased Lands and the Sudbury Leased Lands are integral components of T&W’s business operations, and that specific performance is the most appropriate remedy with respect to T&W’s claim against KKP.

[318] What remains is the question of how to address the balance of the lands. I will address each property in turn.

[319] The Sudbury Option was not limited to the Sudbury Leased Lands. It provided for the purchase of both PINs comprising Sudbury unless, in advance of the exercise of the option, the Houle Plaintiffs applied to sever Sudbury pursuant to Section 4.3 of the Sudbury Lease. The severance was available to the Houle Plaintiffs in the event that they wished to make material improvements to the Sudbury Severed Land.

[320] The onus was on the Houle Plaintiffs to apply for the severance before the Sudbury Option was exercised. There is no evidence before me that they have made an application, or that the severance would be granted if an application were made.

[321] The order proposed by the Houle Plaintiffs with respect to Sudbury is not relief which is available to be granted. The court has no jurisdiction to order a severance to separate the Sudbury Leased Lands from the Sudbury Severed Lands; severances require municipal approval. KKP has not requested an order in its pleadings allowing it to apply for a severance at this late date, after T&W has taken steps to exercise the Sudbury Option. Even if such relief were requested, I would not grant it given their failure to take any steps before now to apply for a severance and the absence of evidence that they wish to make material improvements to the Sudbury Severed Land.

[322] In the absence of the severance, the only options for relief are either to grant T&W’s request for specific performance of the Sudbury Option, which would result in the conveyance of all of Sudbury, or to deny it which would require T&W to renegotiate the Sudbury Lease or to vacate the Sudbury Leased Lands.

[323] I find that the only appropriate and equitable relief having regard to all of the circumstances is to grant an order for specific performance of the Sudbury Option. KKP shall transfer PIN 73497-0146 (LT) and PIN 73497-0147 (LT) to T&W or its designate.

[324] The Timmins Option was limited to the Timmins Leased Lands, unless a severance application were granted in advance of the exercise of the option, in which case the Timmins Severed Lands were to be included as well. The onus was on the Gougeon Defendants to apply for the severance.

[325] The Gougeon Defendants took steps immediately after the Closing Date to apply for the severance, with the consent of the Houle Plaintiffs. They submitted an application to the Timmins Committee of Adjustments, and a date for a hearing before the Committee was scheduled. Before the hearing was scheduled, the Houle Plaintiffs withdrew their consent in breach of the Timmins Lease and the agreement between KKP and T&W regarding the severance application. They threatened to sue the Gougeon Defendants and to report their counsel to the Law Society if they took steps to revive the application.

[326] When the Gougeon Defendants exercised the Timmins Option, they purported to do so with respect to all of Timmins. The Houle Plaintiffs argue that this was a deficiency in the exercise of the Timmins Option which should relieve the Houle Plaintiffs of their obligation to perform the option. I disagree.

[327] The Timmins Option contemplated the Houle Plaintiffs would work co-operatively with the Gougeon Defendants to complete the severance application. When they failed to do so, they left the Gougeon Defendants with no choice but to serve notice with respect to all of Timmins when they exercised their option. This was necessary to protect their position with respect to the Timmins Severed Lands in the midst of the litigation. The alternative was to serve notice only with respect to the Timmins Leased Lands, which was not the option that they were seeking to exercise.

[328] The Houle Plaintiffs should not be permitted to benefit from a situation that they created through their breach of contract. It would be inequitable if they were permitted to limit the Gougeon Defendants’ remedy of specific performance to the Timmins Leased Lands by interfering with the process to sever the Timmins Severed Lands.

[329] While I agree that the Gougeon Defendants should be permitted to seek the transfer of the lands contemplated in the Timmins Option, I do not agree with the manner in which they have proposed to complete the transfer. The Gougeon Defendants propose that all of the Timmins lands be transferred to them, subject to KKP’s ability to apply for a severance and to reconvey the Timmins Excess Lands to KKP upon the severance being granted.

[330] The relief proposed by the Gougeon Defendants does not consider what will happen if the severance is denied; this is a decision within the discretion of the Timmins Committee of Adjustments and a severance is not guaranteed. The Houle Plaintiffs argue that it would result in a windfall for the Gougeon Defendants, as Timmins would be transferred to them for a substantially reduced purchase price. I agree.

[331] I find that it was never the intention of the parties that Timmins would be transferred before the severance application was determined. The Timmins Option provided for the purchase of the Timmins Leased Lands and, subject to a severance, the Timmins Severed Lands. When the severance was added to the Timmins Option, the purchase price was reduced from $705,000.00 to $555,000.00 in recognition of the fact that lands were being removed from the option. If the severance were not granted, the Gougeon Defendants would have been left to decide whether to exercise their option with respect to the Timmins Leased Lands alone.

[332] The court has the ability to craft an order for specific performance that better implements the intended agreement of the parties than the relief proposed by the Gougeon Defendants.

[333] Section 1.1 of the Timmins Option provides that the Gougeon Defendants shall apply for a severance and, upon obtaining consent, the Houle Plaintiffs shall register the consent at the Land Registry Office. Thereafter, the Timmins Option shall be amended to include the Timmins Leased Lands and the Timmins Severed Lands. Having regard to this agreement between the parties, I grant an order for specific performance of the Timmins Option as follows:

a. The Gougeon Defendants shall re-apply to the Timmins Committee of Adjustments for the severance stipulated in section 1.1 of the Timmins Option. The Houle Plaintiffs shall co-operate with the severance application, including but not limited to signing any consents or other documents as may be required by the Timmins Committee of Adjustments in order to process the application.

b. In the event that the severance is granted, the Houle Plaintiffs shall forthwith register the consent to sever at the Land Registry Office #6 (District of Cochrane). Following the registration, KKP shall transfer all of PIN 65416-0017 (LT) and the severed portions of PIN 65416-0015 (LT) and part of PIN 65416-0018 (LT) as contemplated in the Timmins Option to T&W or its designate.

c. In the event that the severance is denied, the Gougeon Defendants shall, within (60) days of the denial or the completion of any appeals, advise the Houle Plaintiffs whether they will be exercising their option to purchase the Timmins Leased Lands, submitting a proposal to extend the Timmins Lease, or vacating the Timmins Leased Lands.

[334] Failing agreement, the parties may make submissions during the damages phase of the trial regarding the lease or other payments, if any, to be made by T&W to KKP pending the completion of the severance application for Timmins.

Analysis: Costs

The Law

[335] The court’s authority to award costs is set out in s. 131(1) of the Courts of Justice Act, R.S.O. 1990, s.C.43. The award of costs is solely within the discretion of the court. In exercising that discretion, the court may consider the factors set out in r. 57.01.

[336] While the award of costs is discretionary, it is a well-established principle in litigation that the successful party in a proceeding is presumptively entitled to their costs. Costs are intended to indemnify a successful party for the expense of being compelled to seek the assistance of the court to resolve a dispute: British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, [2003] SCJ No 76, at paras. 19-21.

[337] In the case of a contested motion costs are, by and large, a foregone conclusion. Rule 57.03 provides that, absent unusual circumstances, the court is required to fix costs following a motion and to order them to be payable within 30 days.

[338] Motions for summary judgment attract unique costs consequences. Pursuant to r. 20.06, the court may order costs on a substantial indemnity basis following a motion for summary judgment if it finds: (1) a party acted unreasonably by making or responding to the motion; or (2) a party acted in bad faith for the purpose of delay.

[339] In addition to the result of the proceeding, the court may consider any offers to settle exchanged by the parties. Pursuant to r. 49.10, subject to certain conditions, a party who obtains a judgment as or more favourable than their offer to settle is entitled to substantial indemnity costs from the date of the offer. Pursuant to r. 49.13, the court has discretion to consider any offer to settle made in writing, notwithstanding that the offer may not strictly comply with the conditions in r. 49.10.

[340] The nature of the allegations raised by a party are another relevant consideration. A party who levels unsubstantiated allegations of improper conduct by another party may be exposed to substantial indemnity costs upon the completion of the proceeding. This is the case even if the claim is discontinued, as the resolution deprives the offended party of the opportunity to defend their actions and reputation in court: Enerworks Inc. v Glenbarra Energy Solutions Inc., 2016 ONSC 4291, [2016] O.J. No. 4542, at paras. 46-52.

Liability Phase Costs Determination

[341] The parties have agreed that, while the issue of the entitlement to costs for various proceedings and motions ought to be decided in the liability phase of this trial, the quantum and scale of costs ought to be determined in the damages phase of the trial.

Who, if anyone, is entitled to and liable for costs in the Main Action?

1. Costs of the motion before Justice Akbarali which resulted in her decision, dated November 30, 2017

[342] The Houle Plaintiffs seek an order entitling them to substantial indemnity costs with respect to the motion before Justice Akbarali. The Gougeon Defendants seek an order entitling them to substantial indemnity costs of the motion. The Sostarich Defendants admit that they are liable to pay some costs to the Houle Plaintiffs with respect to the motion but argue that the Court ought to consider the motion in the larger context of the litigation when determining the nature and quantum of those costs.

[343] This motion resolved the debate between the Houle Plaintiffs, the Gougeon Defendants, and Andy regarding the disbursement of the escrow funds. This debate was a direct result of Andy’s failure to file a Loss Notice within the time required by the Escrow Agreement. I find that the Sostarich Defendants should be responsible for paying the costs of the Houle Plaintiffs and the Gougeon Defendants on the motion.

[344] The Houle Plaintiffs were successful on the motion and should be awarded substantial indemnity costs. Their demand for the return of the escrow funds predated the litigation. They were required to bring the motion after Andy and the Gougeon Defendants refused to return the funds and instead made efforts to negotiate the release of the funds in accordance with the Escrow Agreement which, by then, had expired.

[345] The Gougeon Defendants were aware that they were relying on an expired agreement. They had other outstanding litigation against both the Houle Plaintiffs and the Sostarich Defendants in which they were claiming payment of the PCA; they could have consented to the motion without prejudicing their position in that parallel litigation. I also recognize, however, that the motion would not have been necessary, had Andy fulfilled his obligations to the Gougeon Defendants under the agreement. While the Gougeon Defendants were unsuccessful on the motion, I find that they should recover their partial indemnity costs from the Sostarich Defendants.

2. Costs of the summary judgment motion of May 30, 2018

[346] The Gougeon Defendants seek an order entitling them to substantial indemnity costs of their motion for summary judgment, which was settled with the Houle Plaintiffs in advance of argument.

[347] For the reasons set out below with respect to the costs of the dismissal of the Houle Plaintiffs’ claim against the Gougeon Defendants, I find that the Gougeon Defendants are entitled to partial indemnity costs for the preparation and service of this motion, including all partial indemnity costs incurred with respect to the motion up to the date of its settlement.

3. Costs of the dismissal of the Houle Plaintiffs’ claim against the Gougeon Defendants pursuant to the Order of Justice Gordon, dated September 2, 2021

[348] The Gougeon Defendants seek an order entitling them to their substantial indemnity costs following the dismissal of the claim of the Houle Plaintiffs against them in the Main Action.

[349] Considering the litigation as a whole, one can understand why the Houle Plaintiffs elected to include the Gougeon Defendants as a party to the Main Action. Initially, the Houle Plaintiffs were seeking recission and rectification of the SPA, to which the Gougeon Defendants were a party. In considering this, however, I must also consider the fact that the Gougeon Defendants offered to rescind the Transaction early in the litigation, and that offer was declined by the Houle Plaintiffs as they were no longer in possession of all of the proceeds of sale.

[350] It is also arguable, given the manner in which the Transaction was negotiated, largely through oral discussions most of which were not confirmed in writing to the Houle Plaintiffs, that the Gougeon Defendants were necessary parties at least until the completion of discoveries. In considering this, however, I must also consider the fact that Ken was not named as a party Defendant notwithstanding that he was also arguably a necessary party.

[351] What is inexplicable was the Houle Plaintiffs’ decision to resile from the settlement agreement that they negotiated with the Gougeon Defendants on August 15, 2018. In doing so, they compelled the Gougeon Defendants to bring a motion to enforce the settlement, which was ultimately successfully argued before Justice Gordon. In my view, all steps taken by the Gougeon Defendants after the date of the settlement were the result of the unreasonable position taken by the Houle Plaintiffs. If they took issue with the authority of their counsel to negotiate the settlement, that was an issue to address with him. It was unnecessary to visit the consequences and the expense of that dispute on the Gougeon Defendants.

[352] For these reasons, I find that, with the exception of the costs any motions resolved by this decision or in prior costs orders, the Gougeon Defendants are entitled to their partial indemnity costs of defending the Main Action up to the date of settlement on August 15, 2018. After that date, I find that they are entitled to their substantial indemnity costs.

Is KKP entitled to costs with respect to its Counterclaim in the Specific Performance Action?

[353] After the attempt by T&W to exercise the Timmins Option and the Sudbury Option failed, they terminated their lease payments for Timmins and Sudbury but continued to occupy the Lands.

[354] On October 21, 2019, KKP issued a counterclaim in the Specific Performance Action seeking, among other things, damages for rent and taxes owing for Sudbury and Timmins.

[355] The parties subsequently negotiated terms for the resumption of the lease payments pending the outcome of the litigation. Those terms were the subject of an Order of Justice Gordon, dated August 4, 2020.

[356] KKP seeks an order entitling it to substantial indemnity costs of its counterclaim. I find that the counterclaim was made necessary by the refusal of KKP to honour the terms of the options, and that the counterclaim was substantially resolved on consent by T&W. In the circumstances, I find that KKP is entitled to its partial indemnity costs of the counterclaim in the Specific Performance Action.

Disposition

[357] In summary, I find the following with respect to the trial issues raised by the parties:

In the Main Action

1. The PCA claim is not time-barred under the SPA;

2. The PCA claim is not barred by the failure of the Gougeon Defendants to comply with the notice provisions of the SPA;

3. The PCA claim is not time-barred pursuant to the Limitations Act;

4. The Houle Plaintiffs are liable to reimburse or indemnify the Gougeon Defendants for the HST claim;

5. The Sostarich Defendants are liable to the Houle Plaintiffs for breaches of professional and contractual duties. The Sostarich Defendants and the Houle Plaintiffs were not in a fiduciary relationship and, therefore, there were no breaches of any fiduciary duties.

6. The Sostarich Defendants are liable to the Houle Plaintiffs for their substantial indemnity costs and to the Gougeon Defendants for their partial indemnity costs of the motion before Justice Akbarali.

7. The Houle Plaintiffs are liable to the Gougeon Defendants for their partial indemnity costs for the preparation and service of the summary judgment motion of May 30, 2018, including all partial indemnity costs incurred with respect to the motion up to the date of its settlement.

8. With the exception of the costs of any motions resolved by this decision or in prior costs orders, the Houle Plaintiffs are liable to the Gougeon Defendants for their partial indemnity costs of defending the Main Action up to the date of settlement on August 15, 2018. After that date, they are liable for their substantial indemnity costs.

In the Specific Performance Action

1. The following order for specific performance is granted in favour of the Gougeon Defendants with respect to Sudbury: KKP shall transfer PIN 73497-0146 (LT) and PIN 73497-0147 (LT) to T&W or its designate.

2. The following order for specific performance is granted in favour of the Gougeon Defendants with respect to Timmins:

a. The Gougeon Defendants shall re-apply to the Timmins Committee of Adjustments for the severance stipulated in section 1.1 of the Timmins Option. The Houle Plaintiffs shall co-operate with the severance application, including but not limited to signing any consents or other documents as may be required by the Timmins Committee of Adjustments in order to process the application.

b. In the event that the severance is granted, the Houle Plaintiffs shall forthwith register the consent to sever at the Land Registry Office #6 (District of Cochrane). Following the registration, KKP shall transfer all of PIN 65416-0017 (LT) and the severed portions of PIN 65416-0015 (LT) and part of PIN 65416-0018 (LT) as contemplated in the Timmins Option, or as otherwise granted by the Timmins Committee of Adjustments, to T&W or its designate.

c. In the event that the severance is denied, the Gougeon Defendants shall, within sixty (60) days of the denial or the completion of any appeals, advise the Houle Plaintiffs whether they will be (1) exercising their option to purchase the Timmins Leased Lands; (2) submitting a proposal to extend the Timmins Lease; or (3) vacating the Timmins Leased Lands.

3. Failing agreement, the parties may make submissions during the damages phase of the trial regarding the lease or other payments, if any, to be made by T&W to KKP pending the completion of the severance application for Timmins.

4. T&W is liable to KKP for its partial indemnity costs with respect to its counterclaim in the Specific Performance Action.

In the Escrow Action

1. The Sostarich Defendants are liable, as a result of professional negligence and breach of contract, to pay any damages or expenses to the Gougeon Defendants arising from their failure to file a Loss Notice, except to the extent that those damages or expenses are not otherwise payable by the Houle Plaintiffs to the Gougeon Defendants in the Main Action.

2. The Sostarich Defendants are liable, as a result of professional negligence and breach of contract, to pay any damages or expenses to the Gougeon Defendants arising from their failure to prepare the Financial Statement for T&W, except to the extent that those damages or expenses are not otherwise payable by the Houle Plaintiffs to the Gougeon Defendants in the Main Action.

The Honourable Madam Justice K.E. Cullin

Released: October 3, 2023

COURT FILE NO.: CV-6887-17

DATE: 2023-10-03

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Conrad Houle, by his Litigation Guardian, Boris Naneff, Sheila Houle, CS Houle Holdings Inc. and KKP Investments Inc.

Plaintiffs

– and –

Andrew Sostarich, Alesia Sostarich, Tracks & Wheels Equipment Brokers Inc., Michael Gougeon, Sostarich Ross Wright Cecutti LLP, Arseneau Poulson and Workers Auto Services Ltd.

Defendants

TRIAL DECISION – LIABILITY

K.E. Cullin, J.

Released: October 3, 2023