Reasons for Judgment

Court and Parties

Court File No.: CV-24-00723205-00CL
Date: 2025-04-25
Ontario Superior Court of Justice [Commercial List]

Between:
LPF NRStor Holdings LTP, LPF NRStor Holdings GP Inc., IP Successor Fund 21 L.P., and AGP II, LLC (Applicants)
And:
NRStor Incorporated, Annette Verschuren, and Jason Rioux (Respondents)

Before: Jana Steele
Counsel:
Sam Rogers and Cole Pizzo for the Applicants
Jason M. Berall and Shaan P. Tolani for the Respondents
Heard: 2025-04-14

Overview

[1] The application before the court concerns an issue of contractual interpretation. The applicants sold their interest in the respondent, NRStor Incorporated (“NRStor”), under a Purchase and Sale Agreement (the “PSA”). The consideration under the PSA includes three types of earn-outs. The PSA requires unresolved disputed items to be referred to an independent accountant. The parties have a dispute about whether certain compensation received by the respondents in a transaction is included in the PSA earn-out calculation. The applicants seek to refer the dispute to an accountant under the PSA. However, the respondents take the position that the underlying dispute does not involve accounting expertise and the accountant has no jurisdiction to adjudicate this dispute.

[2] For the reasons set out below, the parties are directed to submit their dispute to an independent chartered accountant in accordance with section 2.4.9 of the PSA.

Background

[3] NRStor is a corporation in the business of developing industrial scale battery storage systems.

[4] The applicants were investors in NRStor. The applicants made a significant financial contribution of almost $18 million into NRStor.

[5] The applicants sold their shares back to two other NRStor shareholders, the respondents, Jason Rioux and Annette Verschuren, on or about September 18, 2019, and pursuant to the PSA, received the following consideration in return for their shares:

a. $965,000; and
b. “Earn-Out” entitlements if certain triggering events occurred in connection with certain projects set out in the PSA.

[6] Under the PSA, there are three types of Earn-Outs contemplated: “Sale Earn-Out Amounts”, “Development Payment Earn-Out Amounts”, and “Cash Earn-Out Amounts”. The issue before the court primarily concerns “Development Payment Earn-Out Amounts”, which are described in section 2.4.1.3 of the PSA as follows:

2.4.1 As additional consideration for the Shares, the Company shall pay or cause to be paid to the Vendors the following additional amounts:

2.4.1.3 if any development fee or other similar fee (which for clarity shall include any payment made in respect of recovery of expenses) or amount relating to any Project (each such fee or amount, a “Development Payment”) is paid to any member of the Group or any Shareholder at any time during the period commencing on the Closing Date and ending on the 7th anniversary of the Closing Date, then the Company shall pay to the Vendors an amount in immediately available funds equal to 45% of each Development Payment (the “Development Payment Earn-Out Amounts”, and together with any Cash Earn-Out Amounts and any Sale Earn-Out Amounts, the “Earn-Out Amounts”).

[7] The Earn-Out provisions in the PSA relate to eight specific Projects which the applicants had helped develop and finance.

[8] Under section 2.4.2 of the PSA, NRStor is prohibited from taking an action that “could reasonably be expected to avoid or reduce payment of any Earn-Out Amount to the Vendors.”

[9] If NRStor expects to pay an earn-out in respect of a Development Payment, NRStor must provide a written statement to the applicants in accordance with section 2.4.5 of the PSA, which provides:

No later than 30 Business Days prior to the anticipated date of payment of any Development Payment, the Company shall prepare and deliver to the Vendors a written statement (in each case, an “Estimated Development Payment Earn-Out Calculation Statement”) setting forth in reasonable detail the estimated amount of the Development Payment and the Company’s estimate of the Development Payment Earn-Out Amount. The Company shall (i) provide the Vendors a reasonable opportunity to review and comment upon the Estimated Development Payment Earn-Out Calculation Statement and (ii) consider in good faith the comments of the Vendors to such Estimated Development Payment Earn-Out Calculation Statement.

[10] The PSA contemplates that after the payment of a Development Payment or the sale or disposition of any Project, NRStor must provide the applicants with a written statement in accordance with section 2.4.8 of the PSA:

Within five Business Days after the payment of a Development Payment or the sale, transfer, conveyance or disposition of any Project, any interest in any Project or any assets of any Project, the Company shall prepare and deliver to the Vendors a written statement (in each case, a “Payment Earn-Out Calculation Statement”, and in either the case of a Cash Earn-Out Calculation Statement or a Payment Earn-Out Calculation Statement, an “Earn-Out Calculation Statement”) setting forth in reasonable detail the amount of the Development Payment and the Company’s determination of the Development Payment Earn-Out Amount or the proceeds of such sale, transfer, conveyance or disposition, as applicable (in each case, a “Payment Earn-Out Calculation”, and in either the case of a Cash Earn-Out Calculation or a Payment Earn-Out Calculation, an “Earn-Out Calculation”).

[11] Section 2.4.9 sets out the process by which the applicants may object if they disagree with an Earn-Out Calculation Statement. This provision contemplates the appointment of an independent accountant for unresolved disputes. It provides:

The Vendors shall have 45 days after receipt of an Earn-Out Calculation Statement (in each case, the “Review Period”) to review the Earn-Out Calculation Statement and the Earn-Out Calculation set forth therein. During the Review Period, the Vendors and their accountants and other Representatives shall have the right to inspect the Company’s books and records during normal business hours at the Company’s offices, upon reasonable prior notice and for purposes reasonably related to the determinations of the Earn-Out Amount. Before the expiration of the Review Period, the Vendors may object to the Earn-Out Calculation set forth in the Earn-Out Calculation Statement by delivering a written notice of objection (an “Objection Notice”) to Company. Any Objection Notice shall specify the items in the applicable Earn-Out Calculation disputed by the Vendors and shall describe in reasonable detail the basis for such objection and the amount in dispute. If the Vendors fail to deliver an Objection Notice to the Company before the expiration of the Review Period, then the Earn-Out Calculation set forth in the Earn-Out Calculation Statement shall be final and binding on the Parties. If the Vendors timely deliver an Objection Notice, the Company and the Vendors shall negotiate in good faith to resolve the disputed items and agree upon the resulting amount of the applicable Earn-Out Amount. If the Company and the Vendors have not reached an agreement within 30 days after such an Objection Notice has been given, all unresolved disputed items shall be promptly referred to an impartial nationally recognized firm of independent chartered professional accountants appointed by mutual agreement of Company and each Vendor (the “Independent Accountant”). The Independent Accountant shall be directed to render a written report on the unresolved disputed items with respect to the applicable Earn-Out Calculation as promptly as practicable but in no event greater than 30 days after such submission to the Independent Accountant, and to resolve only those unresolved disputed items set forth in the Objection Notice. The Company and the Vendors shall each furnish to the Independent Accountant such work papers, schedules and other documents and information relating to the unresolved disputed items as the Independent Accountant may reasonably request. The Independent Accountant shall resolve the disputed items as an expert and not as an arbitrator based on the applicable definitions and other terms in this Agreement and the presentations by the Company and the Vendors. The resolution of the dispute that is the subject of the applicable Objection Notice by the Independent Accountant shall be final and binding on the Parties. The fees and expenses of the Independent Accountant shall be borne by the Vendors, on the one hand, and the Company, on the other hand, in proportion to the amounts by which their respective calculations of the Earn-Out Calculation differ from the Earn-Out Calculation as finally determined by the Independent Accountant.

[12] Article 7.9 of the PSA provides that “the courts of the Province of Ontario will have jurisdiction to entertain any action arising under this Agreement.”

[13] In January 2022, NRStor notified the applicants that it was seeking to raise debt to fund construction of the Oneida Project, one of the eight Projects covered in the PSA.

[14] In accordance with the PSA, the applicants were given the first opportunity to participate in the proposed debt financing for the Oneida Project, which they declined. The applicants were given a second opportunity to participate in the financing, which they again declined.

[15] On or about February 9, 2023, NRStor provided the applicants with an “Estimated Development Payment Earn-Out Notice”. The estimated payment was $1,476,419, and included the following:

a. A development fee of $1,000,000; and
b. Reimbursable expenses of $476,419.

[16] The applicants requested information regarding the transaction. However, NRStor did not provide the information to the applicants. The applicants obtained publicly available information that they understood confirmed the Oneida Project had been sold to third parties, but NRStor had not notified the applicants or provided an “Estimated Sale Earn-Out Calculation Statement.” In April 2023, the applicants commenced an application seeking orders that NRStor provide the Estimated Sale Earn-Out Calculation Statement, among other things (the “2023 Application”). However, the applicants were subsequently informed that NRStor had not sold the Oneida Project but had secured investors for the project. Specifically, on May 15, 2023, Northland Power and Aecon Concessions agreed to invest in the Oneida Project (the “Transaction”) through a series of interrelated agreements.

[17] As part of the Transaction, NRStor received the following payments:

a. A cash “development fee” of $1,000,000;
b. A cash payment of $476,419 on account of reimbursable expenses; and
c. Units in the New Oneida limited partnership. NRStor received Class A Special Note, which was converted for 13,062,363.10 Limited Partner Units and 1 Class B Special Unit in New Oneida on financial close. The Class B Special Unit converts to a variable number of Limited Partner Units depending on the performance of the Oneida Project.

[18] NRStor states it was previously a limited partner of Old Oneida and the restructuring allowed NRStor to retain its limited partnership interest in the Oneida Project following third-party investment in the project through New Oneida.

[19] NRStor provided a Development Payment Earn-Out Calculation Statement to each of the applicants on or about May 23, 2023, which included NRStor’s determination of the Earn-Out Amount. The calculation provided by NRStor is based on the $1,000,000 development fee and the $476,419 of reimbursable expenses, but not the units in the New Oneida limited partnership.

[20] In response to NRStor’s calculation of the Earn-Out Amount, the applicants delivered an objection notice on or about July 4, 2023, which stated the applicants’ objection that “[t]he Earn-Out Calculation does not accurately reflect the total development fee received by [NRStor].”

[21] The “Dispute” between the parties is whether the interest in the New Oneida limited partnership ought to be included in the Earn-Out Amount.

Analysis

[22] The applicants ask the Court to direct the parties to submit the Dispute to an independent chartered accountant under s. 2.4.9 of the PSA. The issue for the court to decide is whether, based on the terms of the PSA, it is appropriate to do so. The applicant says that the matter ought to be referred to an accountant. The respondents argue that the Dispute between the parties is a legal issue and should not be referred to an accountant under s. 2.4.9 of the PSA.

[23] As noted above, the issue before the court is one of contractual interpretation. As set out in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, para 16, principles of contractual interpretation include the following:

When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity.

[24] Both parties point to prior decisions regarding whether to refer a dispute to an expert pursuant to an expert determination provision, which I have considered.

[25] In Guttman et al v. Dube et al., 2013 ONSC 6284, relied upon by the respondents, the respondents wanted a third accountant appointed under a provision of the agreement which contemplated the appointment of a third accountant if the two accountants tasked with the Final Closing Statements could not agree. The court determined that there was nothing for the accountants to consider in respect of the Final Closing Statements because the respondents did not make any comments regarding obsolete inventory within the designated time period. However, the respondents also raised the concern that there had been a reduction of shareholder loans in breach of the underlying agreement. The court stated, at para. 31, that “if the reduction of the shareholder loans was a breach of the Agreement, [...] that would be something for [the respondent] to take up in another forum, whether under the arbitration clause or in the courts.” The court further stated, at para. 33, “[s]o far as wanting a third accountant to deal with this issue, it is entirely outside the purview of an accountant. It is a legal issue. [...] An accountant is not an expert in legal matters.”

[26] In Maurice v. Alles et al., 2013 ONSC 6046, 19 B.L.R. (5th) 164, also relied upon by the respondents, an agreement among shareholders provided for a valuator to determine the fair market value of shares to be transferred between shareholders. One of the shareholders asserted oppression and breach of contract claims that would impact the valuation. The court determined that the oppression and breach of contract claims should be determined before any valuator is appointed. The court noted, at para. 35: “I do not think that a valuator is qualified to deal with oppression or breach of contract claims. Such claims are in the nature of a judicial inquiry regarding evidence and hearing the respective cases of the parties which is not the purview of a valuator.”

[27] In Haisla Nation v. Bear Creek Contracting Ltd., 2012 BCSC 1912 the parties agreed to submit to an accountant any disputes “regarding any financial calculations or determinations to be made under this Agreement.” The Court determined, at para. 25, that the agreement “outlines a narrow area of disagreement which is to be referred to the accountant.” The agreement contemplated that any disagreement “regarding any financial calculations or determinations” were to be referred to an accountant. The court determined, at para. 30, that the dispute provision “applies to limited situations involving financial calculations.” At para. 27, the Court explained that the disagreement between the parties related to contractual entitlements, not the accuracy of the financial calculations:

Section 7.03 of the Agreement states any disagreements regarding “financial calculations or determinations” are to be submitted to McAlpine & Co. Bear Creek has characterized the dispute between the parties as a disagreement over financial calculations or determinations. However, Haisla does not dispute the accuracy of the financial calculations. What is in issue is the entitlement of Bear Creek to be paid for management, administration and profit. The crux of Haisla’s claim is that Bear Creek was not entitled, under the terms of the Agreement, to make the contested deductions from the revenue, thus reducing Haisla’s profit share. While there is always some form of calculation involved in determining net income or profit, the question as to what Bear Creek is entitled to be paid for management, administration and profit is not a simple question of financial calculation. The question as to whether Bear Creek is entitled to receive the amounts it has allocated to management, administration and profit raises an important issue of contract interpretation that must be resolved before the question of financial calculation or determination can be considered.

[28] The applicants rely on Avtal Investment Ltd. & Mezuman v. Brault & Bouthillier Ltée, 2024 ONSC 5370. The respondents state that Avtal is distinguishable because they say it is premised on materially different contractual language and factual circumstances. In Avtal the applicants brought an application for an order appointing an independent accountant to resolve their objections to the calculation statement produced in respect of a contingent payment, which was part of the consideration under a Share Purchase Agreement (“SPA”). The respondent took the position that the objections raised were matters of contractual interpretation that should be decided by the courts. The operative dispute resolution provision of the SPA in Avtal provided that it “shall apply in the event of any dispute” in connection with the disputed calculation statement. Cavanagh J. concluded at para. 70 that the parties had agreed that any unresolved disputed matters regarding the calculation statement were to be referred to the independent accountant. He stated:

[70] When 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.

[29] The respondents submit that Avtal is distinguishable because the relevant provision in Avtal applied to “any dispute in connection with the calculation statement” and provided that “items or calculations” in dispute would be submitted to an accountant. The PSA in the instant case contemplates the accountant’s role in resolving disputes about the Earn-Out Calculation contained in the Earn-Out Calculation Statement. The respondents point out that there is no similar language in the PSA covering other “items” outside of calculations or referring “any dispute” (other than calculation disputes) to an accountant. The respondents further note that in Avtal the parties were in agreement that an earn-out had been triggered. However, in the instant case there is no agreement on the threshold issue of whether an earn-out was triggered. The respondents say this is within the Court’s (not the accountant’s) jurisdiction.

[30] There are commercial reasons for parties’ choosing to send disputes to an accountant or other expert. As noted by Kimmel J. in CLEAResult Canada Inc. v. Santomero, 2024 ONSC 6054, para 54: “Courts have recognized that commercial agreements to refer certain disputes to independent experts are a deliberate indication of the parties’ intentions to swiftly and efficiently resolve such disputes outside the context of civil proceedings, which can be slow and expensive and create commercial uncertainty.” In CLEAResult, Kimmel J. held, at para. 5, that an earn-out calculation was to be referred to an accountant. She determined, at para. 59, that other contractual disputes between the parties, including the alleged breaches of the earn-out covenants, should be brought before the court. In that case, however, there were two distinct dispute resolution procedures contemplated under the share purchase agreement.

[31] The respondents submit that the accountant does not have jurisdiction to adjudicate this dispute. They argue that the PSA only grants jurisdiction to an accountant to determine a dispute where NRStor agrees that an earn-out has been triggered, NRStor delivers a calculation of the earn-out amount, and the applicants object to the calculation of the earn-out amount through an objection notice that sets out the amount in dispute. The respondents state that the applicants did not and were unable to comply with section 2.4.9 of the PSA when they provided their Objection Notice. Specifically, the Objection Notice provided by the applicants does not set out the amount in dispute because it was not possible to do so. The applicants’ objection was that a key part of the consideration on the Transaction was not included in NRStor’s calculation of the earn-out amount. Further, the respondents submit that section 2.4.9 of the PSA only applies where the parties agree that an earn-out payment has been triggered but disagree on quantum. They state that the provision does not apply at all where there is a disagreement over whether an earn-out has been triggered.

[32] The respondents’ position is that section 2.4.1.3 refers to the payment of a development fee or other similar fee. The respondents submit that the Independent Accountant would be necessary if there was a calculation dispute regarding the fee. However, in this case the dispute between the parties is whether the units in the New Oneida Project received by the respondents in the Transaction are subject to the Earn-Out regime at all. The respondents argue that the dispute between the parties over whether an earn-out has been triggered does not involve accounting expertise. However, as noted by Myers J. in KMH Cardiology Centres Incorporated v. Lambardar Inc., 2022 ONSC 7139, para 39: “The fact that some questions of interpretation or even questions of law may be involved however is not a bar to the use of an expert.”

[33] The respondents further note that section 2.4.9 of the PSA requires that the fees and expenses of the accountant are to be borne by the parties “in proportion to the amounts by which their respective calculations of the Earn-Out Calculation differ from the Earn-Out Calculation as finally determined by the Independent Accountant.” The respondents state that this calculation cannot be done given the nature of the dispute.

[34] The respondents also argue that the applicants attorned to the jurisdiction of the Court when they commenced the 2023 Application. However, as noted by the applicants, the 2023 Application was started when the respondents had not disclosed information about the Transaction and the applicants had understood there had been a sale. Accordingly, the applicants started the application to require the respondents to issue an Earn-Out Calculation Statement in respect of the Sale Earn-Out, among other things. No substantive steps were taken after the issuance of the 2023 Application. The issue in the 2023 Application that had been commenced based on a misunderstanding is distinct from the issue of the Development Payment Earn-Out.

[35] The applicants argue that the language in Avtal is similar, and the case should be followed. They note that the PSA provides in section 2.4.9 that “all unresolved disputed items shall be promptly referred” to the independent accountant. The applicants’ position is that the parties contracted for a quick, expedient process to resolve all disputed items and it is appropriate for their dispute to be referred to an independent accountant. The applicants state that the PSA places no limit on the nature or scope of objection that may be made in an Objection Notice to NRStor’s determination of an Earn-Out Amount and resolved by the Independent Accountant.

[36] The applicants further note that, among other things, section 2.4.9 of the PSA contemplates that the parties would furnish to the accountant “such work papers, schedules and other documents and information relating to the unresolved disputed items as the Independent Accountant may reasonably request.” The applicants note that the word “calculation” is not used to limit the purview of the accountant. The accountant is to “resolve the disputed items as an expert.” The applicants submit that large national accounting firms, as required by the PSA, have expertise that goes far beyond “bean counting.”

[37] The applicants submit that the relevant provisions of the PSA contain short time periods for notice, objection, and resolution of unresolved disputed items, evidencing the parties’ intention to take advantage of a fast, inexpensive, and commercially focussed dispute resolution process.

[38] The parties disagree on whether the limited partnership units received by NRStor trigger a Development Payment Earn-Out. The respondents did not include these units in their Earn-Out Calculation Statement because it was their view that they did not trigger a Development Payment Earn-Out.

[39] The consideration the applicants received for their shares was $965,000 plus the earn-out. The applicants had invested about $18 million in NRStor. The applicants would have expected a certain return on the Projects they were involved in within the seven years following the Closing Date. The earn-out was an important piece of the applicants’ consideration. As noted by the applicants, the interpretation of the PSA advanced by NRStor would give NRStor an effective veto over recourse to the independent accountant process by simply not including a payment component in the calculation statement. It would not be commercially reasonable for the parties to have contemplated that the respondents could structure transactions related to the various development projects in such a way that they would receive share or unit consideration and avoid the dispute resolution provisions in the PSA. Interpreting the contract in this way would run contrary to the Court of Appeal’s instruction in Salah that courts must “interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity” (at para. 16).

[40] I am of the view that the mandatory language used by the parties in the PSA reflects an intention that all unresolved disputed items would be determined by the independent accountant. As noted by the Supreme Court of Canada in Sattva Canada Corp. v. Creston Moly Corp., 2014 SCC 53, para 105: “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.” The parties contemplate that disputed items will be determined by “an impartial nationally recognized firm of independent chartered professional accountants.” There is no other dispute resolution contemplated in the PSA. The parties agreed that the independent accountant would base their decision on the definitions and other terms in the PSA—reflecting an intention to allow the independent accountant to assess disputed items in light of the PSA provisions. I agree with the applicants’ submission that this appointment is not limited to resolving calculation disputes. As stated by Myers J. in KMH Cardiology, at para. 43: “If all that the person was to do was to add up a column of numbers [...], an elementary school math teacher or a high school student could have been specified.”

[41] The language in section 2.4 of the PSA is not clear. On the one hand, the earn-out provisions contemplate numeric calculations, including the requirement that the Objection Notice set out “the amount in dispute.” On the other hand, the earn-out provisions contemplate that all disputed items shall be determined by an independent accountant, who “shall resolve the disputed items as an expert ... based on the applicable definitions and other terms of this Agreement and the presentations by the Company and the Vendors.”

[42] Reading the SPA as a whole, having regard to any relevant surrounding circumstances, I am satisfied that the parties intended that any unresolved disputes regarding the determination of the earn-out were to be referred to the independent accountant. This is also the commercially reasonable interpretation, given that the parties chose this expeditious process to resolve all unresolved disputed items regarding the earn-out calculation.

Disposition and Costs

[43] The parties are directed to submit their Dispute to an independent chartered accountant in accordance with section 2.4.9 of the PSA.

[44] The parties agreed that the successful party on the application is entitled to partial indemnity costs in the amount of $51,000 (inclusive of taxes and disbursements). Costs of the application are fixed at $51,000 and shall be paid to the applicants by the respondents.

Jana Steele
Date: 2025-04-25