Court File and Parties

Court File No.: CV-24-00000035-0000

Superior Court of Justice

Between:

1000197094 ONTARIO INC. Plaintiff

• and -

1872488 ONTARIO INC. Defendant

And Between:

1872488 ONTARIO INC. Plaintiff

• and -

SUNRISE UNIVERSAL METAL INC. ET AL Defendant

Reasons for Decision

Before the Honourable Justice P. Roger on June 7, 2024, at BELLEVILLE, Ontario

Appearances:

R. Huang Counsel for 1000197094 ONTARIO INC. R. Huang Counsel for SUNRISE UNIVERSAL METAL INC. ET AL

E. Tingley Counsel for 1872488 ONTARIO INC.

Table of Contents

Reasons for Decision

1

Legend [sic] Indicates preceding word has been reproduced verbatim and is not a transcription error. (ph) Indicates preceding word has been spelled phonetically [Indiscernible] Indicates word or phrase is indiscernible

Transcript Ordered: July 10, 2024 Transcript Sent to Judge: August 26, 2024 Transcript Completed: Ordering Party Notified:

Reasons for Decision

ROGER, J. (Orally):

This is an application relating to the interpretation of the Asset Purchase Agreement concluded between the parties on November 17, 2021. The vendor seeks a finding that the agreement is an arbitration agreement. The purchaser argues that the agreement is not an arbitration agreement, and, alternatively, that contractual and statutory preconditions have not been met.

The purchaser also brought a cross-application seeking a determination by this court that the agreement requires the vendor to produce all information used in preparing the value assigned to Work in Progress and Net Earned Revenue and to cooperate in good faith, and that if after this process is exhausted some items remain in dispute, then the parties shall jointly appoint an independent accounting firm to value both Work in Progress and Net Earned Revenues in determining the parties’ payment obligation, and that this process is not an arbitration but some sort of helpful valuation.

The parties have filed a list of combined issues, which helpfully lists the issues to be addressed.

Both applications were heard together, and these are the Reasons on these applications.

For reasons that follow, I find the following:

[1] Section 3.04 of the Agreement is an arbitration agreement.

[2] Both parties have an ongoing obligation to disclose information and documents relevant to the value they respectfully assigned to Work in Progress and Net Earned Revenue.

[3] Unless the parties can agree otherwise, the above ongoing obligation to disclose relevant information and documents (relevant to disputed issues) does not extend to an obligation, at this late time, to seek to resolve any differences in writing within 20 days.

[4] Unless the parties agree otherwise, the independent accounting firm shall be that of Ernst and Young LLP. If there is any issue of bias or other jurisdictional issue, these shall be addressed by the arbitrator as part of that process.

[5] What is in dispute and to be resolved between the parties is the value of the Work in Progress and of the Net Earned Revenue.

This is an arbitration agreement because it is an agreement by which two persons or parties have agreed to submit to arbitration a dispute that may arise between them.

When reading this agreement as a whole, it is clear that the parties’ objective intent was to provide an expedited and binding process to resolve such differences. The agreement refers to a final and binding determination after a process of written submissions. Here, the parties have a dispute, and they provided in the agreement for a process to resolve such a dispute by an independent accounting firm, provided in the agreement for the independent accounting firm to make a final and binding determination of their issues such that this involves the exercise of a judicial function, they have an opportunity to present evidence and make submissions in writing, and they agreed that the decision shall be final and binding. This meets the factors of an arbitration agreement.

As such, the facts in this case are very different from those in the decision of Zitter v Sport MUSKA, Inc., [1988] 1 S.C.R. 564, which involved a Quebec matter with its specific law, but more importantly where the court found that there was no dispute, and where the language of the relevant provisions was also drastically different as it referred to a “written opinion” and a “valuation,” not a final determination as is provided in the agreement before us.

As well, the facts in this case are also different from the facts in the decision of Maisonneuve v. Clarke, 2021 ONSC 1760, where the court dealt with a limitation period. Here, reading the contract as a whole, in a manner that is consistent with the circumstances then existing, it is clear that the parties did not intend to delay a resolution between them until such time as both parties could be convinced to seek to resolve disputes in writing. The Agreement is clear that attempting to resolve disputed items in writing was available for 20 days and that if the parties had not resolved all such differences by the end of the 20-day period, then their dispute was to be submitted to the provided arbitration process as per their agreement. As indicated recently by the Supreme Court of Canada in a decision called Earthco, 2024 SCC 20, the focus is on the parties’ objective intentions and the scope of their understanding. In this case, the parties therefore no longer have this obligation to attempt to resolve this in writing before proceeding to arbitration. Obviously, the parties may agree otherwise if they wish to do so.

I note as well that with regards to statutory preconditions, that section 11 of the Arbitration Act, 1991 is applicable, and this relates to jurisdiction and can be addressed by the arbitrator as part of the arbitration process.

However, it is also clear from the Agreement that the parties agreed to exchange information and documents relevant to disputed items. The Agreement providing a limit of 20 days for in-writing efforts to resolve their differences on disputed items does not mean that they agreed that relevant disclosure would not thereafter be provided. This is so because this would or could nullify or could frustrate a fair arbitral process because having a fair arbitral process would require disclosure of relevant information and therefore this was their objective- obviously their objective intention. Not requiring or not providing for the disclosure of relevant information to their assessment of the value of disputed item would be contrary to the parties’ objective intention of holding a fair arbitral process which by definition requires disclosure of relevant information. The second paragraph under section 3.04 is limited to during the 20-day period for in-writing resolution. That paragraph is not applicable to the fourth paragraph under section 3.04 which deals with the arbitration process. There, under the fourth paragraph of section 3.04 the parties may make submissions in writing to the arbitrator, and it follows that to make effective submissions, they must have disclosure of relevant information to effectively make these submissions. Otherwise, they would be or could be making submissions blindly without relevant information which would frustrate the process of a fair arbitral decision which was obviously their objective intention.

The Agreement is clear that unless the parties agree otherwise or unless a firm is unable or unwilling to act, the arbitrator selected by the parties is the firm of Ernst and Young LLP. This is clear from paragraph 6 of section 3.04, where we also see the parties’ objective intention to proceed expeditiously to a final resolution that can be enforced, which an arbitral decision would provide.

Finally, the disputed items are Work in Progress and Net Earned Revenue. I arrive at this conclusion from the definition and ordinary meaning of these business expressions and from what is provided in the Agreement.

At paragraph 3.03(d) and (e) we see that Net Earned Revenue shall not duplicate Work in Progress and that any item contained in Net Earned Revenue is excluded from Work in Progress. This makes sense considering the ordinary dating of each of these expressions. If Net Earned Revenue shall not duplicate Work in Progress and if any item covered in Net Earned Revenue is excluded from Work in Progress, it follows that a dispute about one of these items necessarily involves a dispute about the other. As such, when the purchaser gave explicit notice of a dispute about Work in Progress on November 29, 2022, it implicitly gave notice of a dispute involving both Work in Progress and Net Earned Revenue. As such, the purchaser gave notice of both within the provided 6-month period.

Moreover, it would be impossible for the arbitrator to properly value Work in Progress without assessing, as is provided at paragraphs 3.03(d) and (e) of the Agreement, that Net Earned Revenue does not duplicate Work in Progress and that items covered in Net Earned Revenue are excluded from Work in Progress. Consequently, the dispute is about both items.

The following is therefore ordered:

[1] Section 3.04 of the Agreement is an arbitration agreement.

[2] Both parties have an ongoing obligation to disclose information and documents relevant to the value they respectfully assigned to Work in Progress and Net Earned Revenue. On consent of the parties, the information requested by the purchaser is the hourly rates used by the vendor for each Work in Progress item; the hourly rate that was reached by the vendor for each Work in Progress item; and how was the Work in Progress value calculated. If any other information is requested by any of the parties, it shall be requested of the other within the next 10 days.

[3] On consent of the parties: (a) Mr. Rohan Sethi at KPMG is to act as arbitrator unless he is unwilling or unable to act. (b) If Mr. Sethi is unable or unwilling to act within the next three months, then the parties will agree on someone else at KPMG who is able and willing to act. If the parties are not able to agree on another person at KPMG who is willing or able to act, then the parties may return before me by way of a case conference for me to choose who else at KPMG, a list to be prepared by both sides, shall act as arbitrator. All that would be required for the parties would be to request a case conference from the local coordinator and provide information required for me to deal with this and deal with this case conference by Zoom. (c) Within 10 business days from today’s date, the vendor shall disclose the above information and any other information reasonably requested by the purchaser to the purchaser. If the vendor requires any new information from the purchaser, it shall request same within the next five days. (d) Within 20 days after the information has been disclosed, the parties shall attempt to settle the matter between them prior to referring the matter to arbitration. The parties may define the very process they wish in order to achieve that purpose. That shall be completed within 20 days after new information being disclosed. (e) If no settlement is reached by the parties, then the matter shall be referred to arbitration as provided above.

[4] What is in dispute and to be resolved by the arbitrator is the value of the Work in Progress and Net Earned Revenue.

On the topic of costs, both parties seek their respective costs. However, when I consider the results, I find that each party is equally successful, or fairly equally successful and unsuccessful. I also find that none of the offers that I was referred to is applicable to trigger a higher scale of costs in favour of one of the parties, because none of the offer is entirely applicable.

Whether the Agreement created the requirement of arbitration was an extremely important issue to the parties and that was disputed throughout this litigation, and which is not impacted by any of the offers.

Similarly, whether Net Earned Revenue was included within the dispute was also an equally important issue to the parties and was also disputed to the end. Similarly, what I find, that none of the offers is applicable as none of the offers compromised on that issue. The parties seeking it includes it, the parties resisting it do not include in their offer. As they do [indiscernible] arbitration. The party avoid arbitration includes it, and not- the party not including it doesn’t. The offer of the purchaser is close, but a very important difference- a very important difference is the fact that the process provided, although very similar to what is ordered, is not an arbitration process and is not [indiscernible]. That is an important difference for the enforcement and makes the offer not applicable.

Disclosure was found in favour of the purchaser, but the purchaser was not successful on whether ongoing negotiation was also included. Consequently, when I consider the issues, they seem to be fairly balanced between the parties, each parties having one or what was to them the most important issue. The vendor won on arbitration. The purchaser won on Net Earned Revenue. And then each party won on less important items. So that is fairly closely balanced. It never is equally balanced but here it is fairly closely balanced.

I find that what is fair, what is reasonable considering the offers that are not applicable but considering the parties each attempted to resolve this, but slightly in its favour, winning and losing some of those issues, I find that what is fair and reasonable in the circumstances is to order that there be no costs to either party for either application. So, both applications are dealt with on a no-cost basis and in my order, you can add there shall be no costs payable on either of these applications, when you prepare the order. Thank you.

End of Reasons for Decision

Electronic Certificate of Transcript

Form 3 Electronic Certificate of Transcript [Evidence Act, Subsection 5(2)]

I, Carolyn Fledderus, certify that this document is a true and accurate transcript, to the best of my skill and ability of the recording in the matter of 1000197094 ONTARIO INC. v 1872488 ONTARIO INC. and 1872488 ONTARIO INC. v SUNRISE UNIVERSAL METAL INC. ET AL, in the Superior Court of Justice, held at 15 Bridge St. W., Belleville, Ontario and taken from Recording No. 1311_CR201_20240607_091624__6_ROGERSJ.dcr which has been certified in Form 1 by Candice Noll and dated this 2nd day of September 2024.

Carolyn Fledderus, A.C.T. #1953065913