CV-24-00714432-00CL
SUPERIOR COURT OF JUSTICE - ONTARIO
BETWEEN: AVTAL INVESTMENTS LTD. AND TALIA MEZUMAN, Applicants
AND
BRAULT & BOUTHILLIER LTÉE, Respondent
AND BETWEEN:
BRAULT & BOUTHILLIER LTÉE, Applicant
AND
AVTAL INVESTMENTS LTD. AND TALIA MEZUMAN, Respondents
BEFORE: Cavanagh J.
COUNSEL: Nathaniel Read-Ellis and Ritika Rai for Avtal Investments Ltd. and Talia Mezuman
Kimberly Potter and Chris Casher, for Brault & Bouthillier Ltée
HEARD: June 10, 2024
ENDORSEMENT
Introduction
1There are two applications before me.
2Both relate to a transaction by which Avtal Investments Ltd. (“Avtal”) and Talia Mezuman and her children (the “Mezuman family” and, together with Avtal, the “Vendors”) sold the shares of Avron Foods Limited (“Avron”) to Brault & Bouthillier Ltée (“B&B”).
3The share purchase transaction was completed pursuant to a Share Purchase Agreement made as of May 9, 2022 (the “SPA”). Talia Mezuman is the “Vendors’ Delegate” under the SPA.
4The SPA provides for a contingent payment which depends on and the amount, if any, by which the “TTM EBITDA” (a defined term in the SPA) in the year following closing exceeds a specified threshold amount. Under the SPA, B&B was required to and did deliver a written statement setting forth its determination of the TTM EBITDA, whether an earn-out is payable pursuant to section 2.7 of the SPA, and the Earn-Out Amount to be paid to the Vendors, if applicable (the “TTM Calculation Statement”). Based on the TTM Calculation Statement, no amount of contingent consideration is payable.
5The Vendors sent an Objection Notice and an Updated Objection Notice setting out their objections to the TTM Calculation Statement, as provided for by the SPA.
6Avtal and Ms. Mezuman, as applicants, have brought an application for an order appointing an independent firm chartered accountants to resolve their unresolved objections to the TTM Calculation Statement pursuant to section 2.5.2(d) and 2.7.3 of the Share Purchase Agreement and section 5(b) of a Promissory Note given as part of the transaction and also made as of May 9, 2022 (the “Promissory Note”). They contend that this is provided for by the SPA.
7B&B opposes this application on the ground that an independent firm of chartered accountants does not have the authority under the SPA to determine the remaining objections to the TTM Calculation Statement because these objections raise questions of contractual interpretation that must be decided by the courts.
8B&B has brought an application for a declaration that an independent firm of chartered accountants does not have the authority to determine the remaining objections to the TTM Calculation Statement under the SPA. Avtal and Mezuman oppose this application.
9Both applications were heard together.
10For the following reasons, the application by Avtal and Ms. Mezuman is granted and the application for declaratory relief by B&B is dismissed.
Background
Parties
11B&B purchases and sells educational, childcare and other products to school boards and daycares across Canada.
12The Vendors are the former owners of the shares of Avron which had two wholly-owned subsidiaries, Avron Distribution Inc. and Avron School & Daycare Supplies Inc. (Avron, together with its subsidiaries, “Avron”). Avron’s business relates to, among other things, the sale of childcare products, including food, disposables, arts and crafts, furniture, health and cleaning supplies, toys, and sensory equipment to daycares across Canada.
The transaction
13On May 9, 2022, B&B purchased from the Vendors all of the issued and outstanding shares of Avron pursuant to the SPA. The SPA and the Promissory Note provided for payments that depended on the financial performance of Avron after closing of the transaction.
14Under the SPA and the Promissory Note, in addition to payments totalling $14.25 million, Avtal is entitled to a contingent payment of $6 for every $1 by which the TTM EBITDA is greater than $2,380,000 in the year following closing - July 1, 2022 to June 30, 2023 (the “Calculation Period”) - with a maximum potential payable amount to Avtal of $4,750,000 (the “Earn-Out Amount”).
15The issues in respect of the Promissory Note are the same as those that arise in respect of the SPA and I do not address them separately.
Objections to TTM Calculation Statement
16The TTM Calculation Statement was delivered and states that the TTM EBITDA for the Calculation Period was $2,081,615, and that an Earn-Out Amount is not payable because the TTM EBITDA for the Calculation Period was below the threshold amount of $2,380,000.
17On September 28, 2023, the Vendors delivered an Objection Notice pursuant to section 2.7.2 of the SPA, notifying B&B that the Vendors objected to the TTM Calculation Statement and the determination of the TTM EBITDA for the Calculation Period.
18On November 23, 2023, the Vendors provided an updated objection notice (the “Updated Objection Notice”) setting out the matters that remained in dispute with respect to the TTM Calculation Statement.
19On December 20, 2023, the Avtal and Ms. Mezuman commenced an application against B&B for, among other things, an order appointing an Independent Firm to determine the matters in dispute in connection with the TTM Calculation Statement.
20B&B opposes the application brought by Avtal and Ms. Mezuman. On February 7, 2024, B&B brought a cross-application seeking a declaration that the Independent Firm does not have the authority under the SPA to determine the matters in dispute in connection with the TTM Calculation Statement as set out in the Updated Objection Notice.
Analysis
Does the Independent Firm have authority under the SPA to resolve the unresolved objections to the TTM Calculation Statement in the Updated Objection Notice?
21The underlying dispute between the parties involves the amount of the TTM EBITDA under the SPA, which is used to determine the amount, if any, of the Earn-Out Amount under the SPA.
22The issue on this motion is whether the Independent Firm (as defined in the SPA) has authority under the SPA to determine objections made by the Vendors in the Updated Objection Notice to the TTM Calculation Statement.
23The term “TTM EBITDA” is defined in the SPA:
1.1.151 “TTM EBITDA” means the trailing twelve (12) months earnings of the Group before interest, taxes, depreciation, and amortization, calculated in accordance with the ASPE and as adjusted in accordance with this Agreement, including: (i) if applicable, to conform to the Approved Budget if, for example, budget expenditures are exceeded without consent; and (ii) to exclude items included in Closing Indebtedness or Closing Working Capital as a liability or otherwise funded by the Vendors that relate to Closing or post-Closing operations (e.g. accrued or funded bonuses);
24B&B submits that the Updated Objection Notice shows that the Vendors do not dispute any of the “items or calculations” in the TTM Calculation Statement. B&B submits that the Vendors, instead, argue that B&B breached section 2.7.4 of the SPA and that by virtue of section 2.7.5, the TTM EBITDA should be adjusted.
25B&B submits that the Independent Firm does not have authority under the SPA to determine the matters in dispute with respect to the TTM Calculation Statement Earn-Out Dispute because (i) these matters arise from a dispute involving an alleged breach of the SPA which will require determination of issues of contractual interpretation, and (ii) the dispute is not over the “items or calculations” (words found in section 2.5.2(d) of the SPA) in the TTM Calculation Statement.
26Section 2.7.4, which B&B says the Vendors allege was breached, reads:
2.7.4 From the Closing and until the end of the Calculation Period (the “Covenant Period”), neither the Purchaser nor the Group shall take any action, the primary purpose of which, is intended to reduce TTM EBITDA or reduce or frustrate the payment of the Earn-Out Amount or make any change or modification that could cause a Material Adverse Change in the ability of the Vendors to earn the full Earn-Out Amount, including:
(a) directly or indirectly, redirect the revenues related to any sales of the members of the Group to the Purchaser or any of its Affiliates;
(b) impose requirements on the members of the Group that would increase the cost of sales or overhead, other than those provided for in the Approved Budget;
(c) impose any new costs on the members of the Group associated with the Purchaser’s ownership of the Group, other than those provided for in the Approved Budget; and
(d) maintain books and records with respect to separately tracking and accounting for the TTM EBITDA and Earn-Out Amount and all components related thereto.
27Section 2.7.5 of the SPA reads:
2.7.5 Covenant Period. Notwithstanding anything to the contrary in this Agreement, to the extent that the Purchaser proceeds to any changes described in Section 2.7.4 (other than expenditures in accordance with, or deemed to be in accordance with (pursuant to the last sentence of this Section 2.7.5, the Approved Budget), without having obtained the prior written consent of the Vendors’ Delegate, the costs associated with these changes will be excluded from the calculation of the TTM EBITDA. During the Covenant Period, the Purchaser shall deliver to the Vendors’ Delegate on a quarterly basis, within thirty (30) days of each calendar quarter end, the reports in respect of each month in each such quarter or on an aggregated basis in respect of each such quarter, in either case, the reports will be substantially similar to the financial reports attached hereto as Schedule 2.7.5 (the “Quarterly Reports”). The Vendors’ Delegate will have thirty (30) days from the date the Vendors’ Delegate receives a Quarterly Report to ask questions or request reasonable supporting information and raise any reasonable objections the Vendors’ Delegate may have with respect to such Quarterly Report and the Business’ respect of the Approved Budget. Should the Vendors’ Delegate fail to raise any objections during such thirty (30) day period, the expenses set out in such Quarterly Report shall be deemed to be in line with the Approved Budget and the Vendors will be precluded from raising any objections in respect of such Quarterly Report in connection with the final determination of the TTM Calculation Statement.
28The TTM Calculation Statement includes items stated to have been extracted from “Audited Schedule of Net Earnings” including an item for “Consolidated Net Earnings”, interest on capital leases, fair value adjustment on foreign exchange contracts, non-recurring expenses, and a total for TTM EBITDA.
29The Vendors respond that the Updated Objection Notice does not include a claim for breach of contract, but an objection to the amount of TTM EBITDA, an item in the TTM Calculation Statement. They point to the language of the definition of TTM EBITDA which expressly provides that it is subject to adjustment.
30The Vendors state that the primary basis for their remaining objections to the TTM Calculation Statement is that it fails to include adjustments that are required to the calculation of TTM EBITDA pursuant to the terms of the SPA, on the basis that B&B exceeded the “Approved Budget” without the Vendors’ consent. They state that the Objections can generally be grouped into three categories:
a. the calculation of TTM EBITDA must be adjusted due to B&B’s failure to raise prices in key categories which resulted in lost revenue and a corresponding reduction in TTM EBITDA, contrary to the Approved Budget;
b. the calculation of TTM EBITDA must be adjusted because B&B inappropriately included foreign-exchange losses and other line items that were not contemplated in the Approved Budget; and
c. the calculation of TTM EBITDA must be adjusted because B&B incurred expenses that exceeded the Approved Budget without the consent of the Vendors.
31B&B submits that it does not agree with the Vendors’ interpretation of the SPA in relation to section 2.7.4 and, therefore, the dispute is one of contractual interpretation. B&B submits that under the SPA, the Independent Firm does not have authority to perform the arbitration-like function of making a legal determination as to which party’s interpretation of the SPA is correct and that such a determination is required to resolve the disputes in connection with the TTM Calculation Statement. B&B submits that this determination is required to be made by the courts.
32I first review the legal authorities cited by the parties.
33B&B cites several cases in support its submission that the Independent Firm does not have authority under the SPA to resolve the matters in dispute with respect to the TTM Calculation Statement.
34In Zittrer c. Sports Maska Inc., 1988 68 (SCC), [1988] 1 S.C.R. 564, the Supreme Court of Canada considered whether the parties to an agreement of purchase and sale of assets agreed to submit a dispute to arbitration by a third party. This question needed to be determined because the third party, an accounting firm, claimed immunity from civil liability because it acted as an arbitrator. The Supreme Court of Canada concluded that the parties did not intend to submit a dispute to arbitration but simply agreed to rely on the opinion of the respondents as accounting experts on one aspect of the contract, namely, the value of the assets sold. The Court held that as a result of this conclusion, the question of immunity does not arise.
35This case involved interpretation of the contract which was different than the SPA. The issue was whether there was an agreement to submit the dispute to arbitration, which does not arise on the applications before me. The Supreme Court of Canada, at para. 61, confirmed that when an arbitration procedure arises from a contractual provision, it becomes necessary to draw the parties’ intent from the relevant documents. On these applications, it is necessary to determine the parties’ intent by interpreting the SPA.
36In Haisla Nation v. Bear Contracting Ltd., 2012 BCSC 1912, the applicant sought an order that proceedings commenced by the claimant be stayed pursuant to the applicable commercial arbitration statute based on a clause in a limited partnership agreement. The application judge, at para. 30, held that the clause in question applies to limited situations involving financial calculations and for the applicant to succeed, the clause would have to be interpreted in a way which is not clear and certain. The application judge held that it would make little sense to appoint the auditors chosen by the applicant to consider questions of contractual interpretation. The application judge held that the function the accountants are expected to undertake is investigation and calculation from an accounting perspective, where the agreement does not contemplate evidence or submissions being placed before them. The application judge concluded that the parties did not intend to remit contractual disputes to the accountant. The application was dismissed.
37In Haisla, the application judge decided against the applicant, in part, because the clause in question did not support the applicant’s position. I accept that the SPA must be interpreted to decide whether the Independent Firm has authority under the SPA to resolve the Vendors’ objections to the TTM Calculation Statement.
38In Guttman v. Dubé, 2013 ONSC 6284, the purchase price in a share purchase agreement was subject to adjustment. The accountants for both sides were to amend the draft closing statements to the extent they considered appropriate in light of comments received from the parties, and if they could not agree, a third accountant who would act as expert and not as an arbitrator was to be appointed to determine the final closing statement. One issue was whether a payment should be characterized as a dividend instead of as repayment of a shareholder loan. The application judge held that this issue is a legal issue outside the purview of an accountant who is not an expert in legal matters.
39In Guttman, the application judge interpreted the clause in the agreement as not authorizing the third accountant to deal with a legal issue, the characterization of a payment as a dividend or repayment of a shareholder loan. The language used in the contract in Guttman with respect to the mandate of the third accountant differs from the language in the SPA with respect to the Independent Accountant. The interpretation of the SPA, to the extent that it is needed to resolve the disputes in respect of the TTM Calculation Statement, would involve questions of mixed fact and law that, depending on the interpretation given to the SPA on these applications, all are not necessarily outside the purview of the Independent Firm acting as an expert.
40In Maurice v. Alles, 2013 ONSC 6046, a settlement agreement contained a provision for an independent business valuator to determine the fair value of the shares to be sold on a date determined by reference to the event giving rise to the transaction of purchase and sale. One party had made claims for oppression which raised a dispute as to the valuation date. The motion judge held that a valuator is not qualified to deal with oppression or breach of contract claims which require evidence and hearing the respective cases of the parties which is not the purview of a valuator. The motion judge ruled that the oppression and breach of contract claims be dealt with by the court before any valuator is appointed.
41The issues involved in a claim for oppression are different than those that arise when a contract must be interpreted and applied. I do not regard Maurice as a helpful authority on the questions before me.
42In Elad Canada Operations Inc. v. Rester Ontario Investments Inc., 2022 ONSC 2327, a dispute resolution clause with respect to a working capital adjustment in a share purchase agreement provided for the dispute to be submitted for determination to an independent firm of chartered accountants, acting as expert and not as arbitrator, who was to decide the issue in accordance with the terms and definitions of the agreement and based solely on the written submissions of the purchaser and the vendor of the appropriate amount of each of the matters that remain in dispute. The parties disagreed as to whether the respondent was permitted under the agreement to provide the independent accountant with narrative written submissions. The motion judge, at paras. 15-16, held that on his reading of the agreement and in the context of how working capital is defined and to be calculated under the agreement, the interpretation of the provisions governing what the parties must or are entitled to provide to the independent accountant is a question for the court and the application was properly brought.
43I agree with the motion judge in Elad that the question before him on that motion was properly brought to the court. In the same way, I accept that the question before me on these applications is properly before the court.
44The Vendors cite two additional authorities.
45In Applied Industrial Technologies, LP v. Sirois, 2018 ABQB 818, the application judge addressed the legal principles that apply to an expert’s decision-making authority where the expert is appointed pursuant to a dispute resolution clause in a contract. In particular, the application judge was called on to decide whether an expert appointed under a contractual provision in a share purchase agreement can decide questions of mixed fact and law. The share purchase agreement provided that the purchase price was subject to adjustments including some based on closing statements of the company created after, and effective at, the closing date. The agreement provided for disputes over these statements to be determined by an accounting firm “as expert and not as arbitrator” and that the expert’s determination is final and binding “absent manifest error”.
46The application judge in Applied Industrial, at paras. 127-128, observed that there are very few limitations on parties’ contractual freedom in designing dispute resolution processes which they see necessary or desirable to suit their needs and held that contract law allows for the same flexibility in designing expert determination. The application judge then turned to the words of the share purchase agreement which provide that where the parties are unable to resolve “all matters in dispute ... all unresolved matters shall be submitted” to the accounting firm for resolution, as expert and not as arbitrator.
47The application judge in Applied Industrial, at para. 140, noted that judges do not hold a monopoly over deciding legal issues and cited Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 where Rothstein J., at para. 105, held that “where parties choose their own decision-maker, it may be presumed that such decision-makers are chosen either based on their expertise in the area which is the subject of the dispute or are otherwise qualified in a manner that is acceptable to the parties”.
48The application judge in Applied Industrial held that, objectively viewed, the parties must have known that there were issues of mixed fact and law that would arise in ascertaining the closing balance sheet. The application judge, at para. 144, noted that the agreement placed tight time limits on objections and imposed an obligation on the expert to use reasonable efforts to resolve the dispute within 30 days. The application judge considered that bifurcating issues between the expert and the court would potentially delay the dispute resolution into months or years. The application judge concluded that the words used in the agreement plainly meant that any dispute over any aspect of the closing statements was to be determined by an expert and that these words should be given effect.
49I regard Applied Industrial as a helpful authority which stands for the principle that parties to a contract are subject to few limitations on their contractual freedom in designing dispute resolution clauses, even those involving determinations by an expert. The contract in question must be interpreted to determine whether the parties agreed that the question, even one of mixed fact and law, should be decided by the expert, as opposed to the court.
50In KMH Cardiology Centres Incorporated v. Lambardar Inc., 2022 ONSC 7139, the applicant applied for an order referring specific disputes under three commercial leases to an “independent professional consultant” for resolution as an expert and not as an arbitrator as agreed by the parties in the leases. The respondent opposed the application on the ground that the issues to be determined call for legal interpretation of the leases and these determinations are required to be made by the courts and not an expert appointed by the parties. The application judge noted that the application turns on the identical wording in each of the three leases. The issues in dispute concerned the proper calculation of operating costs and included whether the landlord is entitled to charge an administration fee on taxes. The leases contained provisions that called for the landlord to refer for prompt decision disputes as to the accuracy of any statement of operating costs to a qualified independent professional consultant approved by the tenant who shall be deemed to be acting as an expert and not an arbitrator. The landlord argued that the disputes are matters of lease interpretation for the court and not simple mathematical disputes concerning the accuracy of the landlord’s statements.
51In KMH, the application judge explained the differences in the roles of an arbitrator and an expert. The application judge did not accept the landlord’s position that questions of “accuracy” of the operating costs are limited to simple technical points, observing that “it cannot be assumed that sensible parties must prefer expansive legal trappings to resolve their problems”. The application judge, at para. 37, held that in each case, one must construe the appointment language in the context of the agreement as a whole to discern the breadth and scope of the parties’ intentions.
52The application judge held, citing Applied Industrial, that the fact that some questions of interpretation or even questions of law may be involved is not a bar to the use of an expert. The application judge considered several attributes of the leases that led to his conclusion that the parties intended the disputes in issue to go to an expert. One of these was that the contractual process called for a prompt decision which, at para. 48, the application judge held, “means that formal processes are eschewed and civil litigation in courts is off the table”. The application judge made an order requiring the landlord to appoint an independent expert to deal with the remaining issues.
53As was held in Applied Industrial and KMH, the fact that resolution of the disputes in respect of the TTM Calculation Statement raised by the Updated Objection Notice may involve questions of interpreting the words used by the parties in the SPA is not a bar to the use of the Independent Firm as an expert to resolve the matters in dispute. The question before me, as it were the questions in Applied Industrial and KMH, fundamentally involves interpretation of the contract in question. Here, the question is whether, when the SPA is read as a whole having regard to any relevant surrounding circumstances, the parties intended that any unresolved dispute in connection with the TTM Calculation Statement shall be submitted for resolution to the Independent Firm, even if those unresolved disputes may require interpretation of the SPA, or whether the parties intended that unresolved disputes that may call for interpretation of the SPA are required to be determined by the courts.
54With these principles in mind, I turn to the applicable provisions of the SPA.
55Section 2.7.1 of the SPA provides that the Purchaser shall pay to the Vendor an additional amount, at such time as provided in Section 2.7.3, if as at the end of the Calculation Period (the year following closing ending on June 30, 2023), the TTM EBITDA is greater than $2,380,000, defined as the “Target EBITDA”. The SPA provides that this amount shall be an amount equal to $6.00 per dollar by which the TTM EBITDA exceeds the Target EBITDA (defined as the “Earnout Amount”), up to a maximum possible amount of $4,750,000.
56Section 2.7.2 of the SPA provides that within 60 days following the last day of the Calculation Period, the Purchaser will prepare and deliver to the Vendors’ Delegate a written statement setting forth the Purchaser’s determination of the TTM EBITDA, whether an Earn-Out Amount is payable pursuant to section 2.7 and the Earn-Out Amount to be paid to the Vendors, if applicable (defined as the “TTM Calculation Statement”). This section of the SPA provides that the provisions of Sections 2.5.2(c) to 2.5.2(g) shall apply, mutatis mutandis, in the event of any dispute in connection with the TTM Calculation Statement.
57The last sentence of section 2.7.2 expressly provides that the dispute resolution provisions in sections 2.5.2(c) to 2.5.2(g) shall apply in the event of any dispute in connection with the TTM Calculation Statement. These words are mandatory and of broad application and section 2.7.2, plainly read, provides that any dispute, without limitation, shall be subject to the contractual dispute resolution provisions in the SPA. These words capture a dispute involving questions of mixed fact and law including questions of contractual interpretation.
58Section 2.5.2(c) of the SPA, as it applies pursuant to section 2.7.2, provides in the relevant part:
The Vendors may object to the [TTM Calculation Statement] by written notice to the Purchaser, as the case may be, within thirty (30) days following receipt thereof, which notice shall specify in reasonable detail those items or amounts as to which the Vendors’ Delegate objects (the “Objection Notice”) and the Parties shall be deemed to have agreed upon all other items and amounts contained in such [TTM Calculation Statement] which are not impacted by items or amounts objected to in the Objection Notice.
59Section 2.5.2(c) provides for the Vendors to object to the TTM Calculation Statement by written notice. The words “items or amounts” as to which the Vendors’ Delegate objects must be read as referring to the broad language in section 2.7.2 which captures “any dispute” in connection with the TTM Calculation Statement and, plainly read, is not limited to any particular categories of objections.
60Section 2.5.2(d) of the SPA provides:
If an Objection Notice is delivered in the manner and within the thirty (30) day period specified in the preceding paragraph, the Party shall in good faith attempt to resolve any matters in dispute with respect to the [TTM Calculation Statement] as promptly as practicable. If the Purchaser and the Vendors’ Delegate are unable to resolve all such items in dispute within ten (10) Business Days after receipt of the Objection Notice giving rise to such dispute, then those items or calculations in dispute shall be submitted for resolution within five (5) Business Days following such ten (10) Business Day period to such independent firm of chartered accountants as the Purchaser and the Vendors’ Delegate may agree in writing or, failing agreement, as appointed by the court (each being the “Independent Firm”). The Independent Firm, acting as an expert and not as arbitrator, will limit its review only to the specific items or calculations in dispute (except to the extent that ASPE requires adjustments to other items as a result thereof). The Parties shall use commercially reasonable efforts to cause the Independent Firm to submit its determination or opinion in a written statement delivered to the Purchaser and the Vendors as promptly as practicable, but in no event later than thirty (30) Business Days of the appointment of such Independent Firm, and such determination or opinion, together with those items accepted by the Purchaser and the Vendors’ Delegated in respect of the [TTM Calculation Statement] or otherwise resolved between the Purchaser and the Vendors’ Delegate, in accordance with the first sentence of this Section 2.5.2 (d) shall be conclusive, final and binding on all the Parties without possibility of amendment or appeal and shall constitute the final [TTM Calculation Statement].
61Section 2.5.2(d) first directs the parties to attempt to resolve “any matters in dispute” with respect to the TTM Calculation Statement and then provides that if they are unable to resolve “all such items” in dispute, then “those items or calculations in dispute” shall be submitted for resolution to the Independent Firm. When this provision is read as a whole, and giving the words used their plain and unambiguous meaning, the words “items or calculations in dispute” mean “any matters in dispute” which are not resolved by agreement. The use of the words “items or calculations” does not limit the scope of the matters in dispute in connection with the TTM Calculation Statement, all of which are, under the SPA, required to be resolved under the specified SPA provisions.
62Section 2.5.2(g) provides:
The accounting and audit procedures provided for by this Section 2.5.2 shall be the exclusive and conclusive methodology for determination of the matters covered thereby and shall be binding upon the Parties and shall not be contested by any of them other than as provided for in this Section 2.5.2.
63In section 2.5.2(g), the words “accounting and audit procedures provided for by this Section 2.5.2” must be read and understood by reference to the entirety of section 2.5.2, read in the context of the SPA as a whole. Section 2.5.2(d) provides that the Independent Firm, acting as an expert, will limit its review “only to the specific items or calculations in dispute (except to the extent that ASPE requires adjustments to other items as a result thereof)”. If section 2.5.2(g) is read as limiting the scope of the mandate of the Independent Firm and excluding any determinations of issues of mixed fact and law or contractual interpretation (insofar as such determinations are needed to resolve “any matters in dispute”), the effect would be to limit the matters in dispute to be resolved by the Independent Firm to something less than “any matters in dispute”. I do not accept this narrow reading of section 2.5.2(g). I read the words “accounting and audit procedures provided for by this Section 2.5.2”, in the context of the SPA as a whole, as describing the specialized methodology to be used by the Independent Firm and not as limiting the scope of the review.
64B&B points to section 7.2 of the SPA which provides in the relevant part:
7.2 Indemnification by Purchaser
Liability. Subject to Section 3.4.2 and 7.3.2, the Purchaser shall indemnify, defend and save harmless the Vendors in each of the Vendors’ Representatives from and against any and all Loss suffered or incurred by them, as a direct or indirect result of, or arising in connection with or related in any manner whatsoever to:
7.2.2 any failure by the Purchaser or Champlain Education Canada LP to observe or perform any covenant or obligation contained in this Agreement;
65Section 7.5 of the SPA provides that if the Parties fail to agree as to the validity of a claim for indemnification, or its amount, any Party may exercise all remedies as may be available to such party.
66B&B points to section 7.18 of the SPA which provides, in the relevant part:
7.18 Exclusive Remedy
Except in the case of Fraud, or remedies for injunctive or equitable relief or for recourse in connection with the restrictive covenants in Section 4.2, the indemnification provisions set forth in this Article 7 and the R&W Policy, shall be the exclusive post-Closing remedies available to any Party with respect to any breach of any representation, warranty, covenant, or agreement in this Agreement or any Closing Documents.
67B&B submits that under the SPA, the parties agreed that disputes in connection with the TTM Calculation Statement, to the extent that they involve alleged breaches of any covenant or agreement in the SPA, would be determined in accordance with Article 7 which, under section 7.5, allows recourse to the courts.
68I disagree with the submissions of B&B in respect of Article 7 of the SPA. The indemnity provisions in Article 7 of the SPA are of general application and do not specifically address how unresolved objections to the TTM Calculation Statement are to be determined. In Fuller v. Aphria, 2020 ONCA 403, the Court of Appeal, at para. 83, held that a contractual provision of general application in an option plan with respect to options generally did not displace specific contractual provisions in the grant of the option that defined the exercise period for certain options, which had priority when all of the terms of the grant were considered, as required by the option plan.
69Section 2.7.2 of the SPA specifically provides that sections 2.5.2(c) to 2.5.2(g) shall apply in the event of any dispute in connection with the TTM Calculation Statement. This provision of specific application is not displaced by Article 7.
70When I read the relevant provisions of the SPA in the context of the SPA as a whole, and give the words used their ordinary and grammatical meaning, I conclude that, objectively viewed, the parties intended and agreed that any unresolved matters in dispute in respect of the TTM Calculation Statement, including the matters in the Updated Objection Notice, and including any matters which require the SPA to be interpreted, shall be referred for resolution to the Independent Firm. This intention excludes recourse to the courts.
71In reaching this conclusion, I take into account that the SPA provides for an expeditious dispute resolution process. The parties agreed to this expeditious process and, in so agreeing, must be taken to have agreed that they would not have recourse to the judicial process, with all of its procedural protections, appeal rights, and systemic delays. In so agreeing, the parties must be taken to have preferred the advantages of timely resolution of their disputes over the advantages and disadvantages of a judicial adjudication of their disputes in the courts.
72I also note that section 2.5.2(e) of the SPA provides that the parties shall not communicate with the Independent Firm on the subject matter of its review “except by joint conference call, joint meeting, or letter with copy simultaneously delivered to the other Parties”. This provision allows the parties to communicate to the Independent Firm in respect of the subject matter of its review and would not prohibit written or oral communications, if needed, supporting a party’s position on the proper interpretation of the SPA.
Appointment of Independent Firm
73The parties have advised that they are unable to agree to the independent firm of chartered accountants to be selected to act as the Independent Firm under the SPA. As a result, under section 2.5.2(d) of the SPA, they ask me to appoint the independent firm of chartered accountants to act in this capacity.
74The Vendors ask me to appoint Alan Mak from BDO or Scott Davidson from Kroll. Based on their CVs and the submissions of counsel, both are very experienced and well qualified to act in this capacity and do not have any conflicts that would disqualify them.
75B&B asks me to appoint Chris Polson of PricewaterhouseCoopers or Patrice Dumais from Ernst & Young. Based on their CVs and the submissions of counsel, both are very experienced and well qualified to act in this capacity and do not have any conflicts that would disqualify them.
76B&B submits that one of the “Big Four” firms should be selected, without offering valid reasons for why this should be so. I do not agree that this is a proper basis to distinguish the experience and qualifications of the candidates being proposed by the parties.
77In their submissions, the parties have not offered reasons, based on the qualifications and experience of the candidates proposed, why the candidates they propose are more qualified than the candidates proposed by the opposing party. Neither of B&B or the Vendors suggests that the candidates proposed by the opposing side are not well qualified or are not independent.
78In these circumstances, counsel have given me no proper grounds upon which to select one candidate over another. I again ask counsel to revisit this question with their clients and make a diligent attempt to agree on the Independent Firm, even if it is a firm not now being proposed. If they are still unable to do so, I will select one of the proposed qualified candidates, even in the absence of grounds given to me to distinguish among them.
79If the parties are unable to agree on the Independent Firm, I ask counsel to arrange a case conference with me for 30 minutes through the Commercial List Office.
Disposition
80For these reasons:
a. The application by Avtal and Ms. Mezuman is granted, in part, and an independent firm of chartered accountants shall be appointed (if not agreed upon by the parties) to resolve the applicants’ objections in the Updated Objection Notice to the TTM Calculation Statement.
b. The application by B&B for declaratory relief is dismissed.
c. The parts of the applications seeking appointment of the Independent Firm are adjourned. If the parties are again unable to agree upon the Independent Firm, counsel shall arrange a case management conference with me through the Commercial List Office.
81The parties agree that the successful party on the applications is entitled to costs on a partial indemnity scale in the amount of $75,000 all-inclusive. Costs of the applications are fixed in the amount of $75,000 and shall be paid by B&B to Avtal and Ms. Mezuman within 30 days.
Cavanagh J.
Date: September 27, 2024