Court File and Parties
ONTARIO
SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)
BETWEEN:
JASON SANTOMERO, KATHY SANTOMERO and 11168843 CANADA LTD. Plaintiffs
– and –
CLEARESULT CANADA INC. and CLEARESULT CONSULTING INC. Defendants
COUNSEL:
Aaron Kreaden & Brittany A.S. Davis, for the Plaintiffs
Sarah Whitmore & Grant Goldberg, for the Defendants
HEARD: April 29 and 30, 2026
BEFORE: Kimmel J.
REASONS FOR DECISION – SUMMARY JUDGMENT MOTIONS
1This action arises out of a Share Purchase Agreement dated June 27, 2022 between the plaintiffs (“Vendors”) and defendants (“Purchasers”) (the “SPA” or the “Agreement”) pursuant to which the Vendors sold their interests in Eco-Fitt Corporation (the “Corporation”) to the Purchasers. The Vendors and Purchasers have both brought dispositive summary judgment motions. The Parties have previously been before the court in connection with their ongoing disputes in this action and another application.
Contractual and Procedural Background
2The SPA contemplated a two-part purchase price comprised of: (i) a base payment; and (ii) two variable Reverse Earn-Out Payments (the First and Second “Earn-Out Payment(s)”) to be calculated for two Reverse Earn-Out Periods (the First and Second “Earn-Out Period(s)”, the first ending on December 31, 2022 and the second ending on April 30, 2023.). A significant amount of the purchase price could be earned through the Earn-Out Payments.1
3Sections 2.8 and 2.9 of the SPA deal with the Earn-Out component of the Purchase Price. The Earn-Out Payments are dependent upon the calculation of the Corporation’s earnings from operations before interest, income taxes, depreciation and amortization (“EBITDA”), as adjusted according to the SPA (“EBITDA Calculations”).
4The Parties agreed to use a bespoke EBITDA definition as the foundational metric for the Earn-Out Calculations. In addition to agreed-upon adjustments to EBITDA, the Parties turned their minds to the accounting rules that would govern the calculation of EBITDA and agreed on applying Accounting Standards for Private Enterprises in effect in Canada (commonly known as ASPE). The Parties refer to the standards to be applied throughout the SPA as “GAAP” (which is not the same as “U.S. GAAP”).
5EBITDA is defined in s. 1.1 (hh) of the SPA to exclude a lengthy list of items, but ultimately to be determined in accordance with GAAP, applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies, that were used in the preparation of the Corporation’s Financial Statements for the most recent financial year end (subject to certain specified exceptions that are not relevant to this dispute).
6In the lead up to this proceeding, the Purchasers had delivered a first Earn-Out calculation (“First Earn-Out Calculation”) to the Vendors on March 30, 2023. After deductions, the First Earn-Out Payment was $0. The Vendors objected to the First Earn-Out Calculation and the matter was referred to BDO, the “Independent Auditor” that the parties had agreed to appoint under the SPA.
7The Purchasers delivered a second earn-out calculation (“Second Earn-Out Calculation”) to the Vendors on July 28, 2023, which indicated a Second Earn-Out Payment owing, after deductions, of $2,491,500. The Vendors also objected to the Second Earn-Out Calculation.
8The Purchasers delivered their Earn-Out Calculations in “Calculation Statements”. The SPA requires that any dispute over the Earn-Out Calculation Statements (the “Earn-Out Disputes”) be referred to the agreed Independent Auditor, BDO, for determination. In this case, the parties agreed that their disputes regarding both the First and Second Earn-Out Calculations would be determined together, since they were still negotiating the process for determining the objections to the First Earn-Out Calculation Statements when the Second Earn-Out Calculation Statement and Objection Notice were exchanged.
9Subsequently, on May 24, 2024 the Purchasers delivered a Revised EBITDA Calculation for the Second Earn-Out Period (the “Revised EBITDA Calculation for the Second Earn-Out Period”) that reduced the indicated amount of the Second Earn-Out Payment to $0. No formal objection was made by the Vendors to this Revised EBITDA Calculation for the Second Earn-Out Period. Their position in this proceeding is that the SPA did not provide for or contemplate any revised Earn-Out Calculations, so it was invalid under the SPA and no response or objection to it was required.
10At the time that the Revised EBITDA Calculation for the Second Earn-Out Period was delivered, the Parties were already negotiating a broader investigative mandate for BDO, which would have involved more than just determining the objections raised to the Earn-Out Calculations. However, they never agreed to the final terms of that BDO mandate, and, in the meantime, ended up in litigation.
11The Vendors commenced this action raising various claims and seeking relief arising out of alleged breaches of the SPA. The Purchasers defended the claims and asserted a counterclaim in this action. They also initiated an application shortly after this action was commenced which, among other things, sought an order and directions from the court regarding BDO’s mandate as the Independent Auditor. It included a request (in the alternative to other relief sought) that the court direct BDO to calculate the EBITDA for the First and Second Earn-Out Periods and determine the amount of the First and Second Earn-Out Payments based on its EBITDA Calculations.
12That application was heard first and the court’s decision, granting the alternative relief, was released on November 4, 2024: CLEAResult Canada Inc. v. Santomero, 2024 ONSC 6054. The court directed, at para. 83:
Mr. Alan Mak of BDO to undertake the expert evaluation process agreed to at section 2.9(c) of the SPA as follows:
a. Except as clarified herein, BDO shall proceed in accordance with the terms of the BDO Engagement Letter, including the “proposed process” that is outlined on pages 3-4 of the BDO Engagement Letter;
b. BDO’s mandate is restricted to (1) calculating EBITDA (as defined at section 1.1(hh) of the SPA) for the First Earn-Out Period and the Second Earn-Out Period and (2) determining a numerical amount for both the First Earn-Out Payment and the Second Earn-Out Payment on the basis of its EBITDA calculations; and
c. BDO’s mandate does not include investigating or reporting on any factual or mixed fact and law issues underlying the Respondents’ allegations of breach of covenants that are alleged in the Respondents’ Statement of Claim in Court File No. CV-24-00718895-00CL (formerly Court File No. CV-23-00708840-0000).
13In that application, the court also made a procedural direction that the information to be used by BDO to make its determination was a matter for BDO itself to decide: see e.g. at paras. 79, 81. BDO was thereafter instructed to carry out its mandate with regard to the court’s prior directions to BDO made in the application (the “BDO Direction”).
The BDO Mandate and Report
14BDO’s mandate was informed by the Earn-Out Process prescribed under s. 2.9 of the SPA and the BDO Direction, but the Parties and BDO entered into a formal letter of engagement, which is the document that sets out what BDO was instructed to do (the “BDO Mandate”).
15It was in this context that the BDO Mandate was incorporated into BDO’s December 11, 2024, Joint Engagement Letter, signed by the Vendors, the Purchaser and BDO (the “BDO Engagement Letter”), as follows:
Pursuant to the Order of Justice Kimmel, dated November 4, 2024, we understand that our engagement will include:
Calculating EBITDA [as defined at section 1.1(hh) of the SPA] for the First Earn-Out Period and the Second Earn-Out Period and determining a numerical amount for both the First Earn-Out Payment and the Second Earn-Out Payment on the basis of its EBITDA calculations.
A review of the written submissions provided by the Purchaser and Vendors pertaining to the above issues that are referred to BDO. Our review will encompass copies of the relevant business records, calculation working papers, schedules, documents, accounting books, records and information pertaining to the contested matters.
Conduct technical research and analysis of the issues and written submissions, as necessary.
Prepare a report outlining our determination of the financial matters in dispute with respect to the Calculation Statements. It is our understanding that our determination of financial matters in dispute will serve as the final and binding decision for all parties involved.
16Following the BDO Direction, BDO requested various documents from the Purchasers to prepare its report, which was eventually delivered to the parties on October 28, 2025 (the “BDO Report”). Under the SPA, BDO’s Report is final and binding “absent manifest error”, to be reviewed by this court.
17The BDO Report contains the following chronology of undisputed facts:
a. Under the SPA the Purchasers agreed to buy all of the Shares of the Corporation on June 27, 2022, for $21 million plus a Reverse Earn-Out amount as specified in the SPA.
b. On or about March 30, 2023, the Purchasers delivered the First Earn-Out Calculation Statement.
c. On or about May 19, 2023, the Vendors issued an Objection Notice to the First Earn-Out Calculation.
d. On or about July 28, 2023, the Purchasers delivered the Second Earn-Out Calculation Statement.
e. On or about August 25, 2023, the Vendors issued a second Objection Notice to the Second Earn-Out Calculation.
f. On or about May 17, 2024 the Purchasers delivered a Revised EBITDA Calculation for the Second Earn-Out Period.
g. The Vendors did not respond or object to that Revised EBITDA Calculation for the Second Earn-Out Period prior to BDO’s engagement.
18In their objections to the First and Second Earn-Out Calculation Statements, the Vendors disputed the Purchasers’ calculation of EBITDA relating to twelve different categories of disputes, including six categories of expenses. The Vendors also objected to the Purchasers’ accrual practices with respect to the six categories of expenses. Separately, the Vendors objected that the Corporation recognized too little revenue or profit related to certain sales (therefore reducing EBITDA).
19The BDO Report describes that what it considered were the twelve items in dispute identified by the Vendors as proposed adjustments to the Purchasers’ Earn-Out Calculations. The items in dispute that s. 2.9 of the SPA contemplates being referred to the Independent Auditor to resolve would be those specified in the Vendors’ Objection Notices. Some of the Vendors’ proposed adjustments were not explicitly contained in their Objection Notices.
20In the BDO process, which involved multiple rounds of submissions from the Parties, the Purchasers defended their accounting for expenses, accrual practices and revenue recognition based on, among other things, the Corporation’s past practices. The Purchasers also raised their own concerns. In particular, the Purchasers had previously identified concerns about the data contained in a Legacy Eco-Fitt SQL Database established by the Vendors before the sale (the “Legacy Database”) that was used to invoice a major customer, IESO, and used to calculate revenue accruals. The SPA mandated that the Purchasers use the (allegedly inaccurate) Legacy Database for the EBITDA Calculations that fed into their Earn-Out Statements.
21The Purchasers’ allege that they discovered issues with the data they had used from the Legacy Database after they were no longer required under the SPA to use it. The discovery of those issues is what led to the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period delivered on May 17, 2024. BDO was aware and had a copy of the Revised EBITDA Calculation for the Second Earn-Out Period.
22Before issuing the BDO Report, BDO released a draft report on October 3, 2025, which was predicated upon the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period. The Vendors objected to BDO’s adoption of the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period, asserting that it had been delivered out of time and not in compliance with the SPA process for such calculations.
23BDO subsequently delivered and signed the BDO Report that contained two Earn-Out Calculations for the Second Earn-Out Period: one based on the Purchasers’ original EBITDA Calculation and the other based on the Purchasers’ Revised EBITDA Calculation for the Second Earn Out Period. The BDO Report found that the “validity of the [Revised EBITDA Calculation] requires a contractual interpretation of the SPA, which is beyond the scope of [its] mandate as Independent Auditor.”
24The BDO Report appears to contemplate that the court will decide which of the Purchasers’ EBITDA Calculations should be used for the Second Earn-Out Period. BDO did not evaluate whether either of these EBITDA Calculations were GAAP compliant.
Summary Judgment
25Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, provides that the Court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.
26While the Court is being asked to determine two competing motions for summary judgment (by agreement of the parties), these motions are essentially two sides of the same coin: the Vendors are seeking Earn-Out Payments based on the calculations prepared by BDO using the original, rather than the Revised, EBITDA Calculation for the Second Earn-Out Period and based on BDO’s findings in all other respects. The Purchasers, on the other hand, ask the court to: (i) order that the Revised EBITDA Calculation for the Second Earn-Out Period is the applicable EBITDA Calculation for determining the Second Earn-Out Payment; or in the alternative, direct the Parties to jointly instruct BDO to resolve the issue of which EBITDA Calculation should be used for the Second Earn Out Calculation; and (ii) make an order correcting the alleged manifest errors in the BDO Report that the Purchasers have identified, or, in the alternative, direct the Parties to submit joint instructions to BDO to correct any manifest errors.
27The parties agree that the issues they have each raised on these competing summary judgment motions are appropriate for summary judgment. The issues do not depend upon competing factual determinations. Rather, they depend upon the interpretation of the SPA, the court’s BDO Direction, and the Parties’ joint instructions to BDO under the BDO Mandate contained in the BDO Engagement Letter.
28The parties submit, and the court agrees, that there is no genuine issue requiring a trial for the issues they have raised to be determined, and that summary judgment is appropriate, in that it is more efficient and proportionate and less expensive than a trial would be in these circumstances.
29The Vendors only go so far as to concede that if they are granted the relief sought by their motion, that will resolve what remains of the action in its entirety. However, they do also concede that many of the issues raised in their Statement of Claim have now become moot. The Purchasers say the issues in the action are moot, regardless of the outcome on these motions (in other words, regardless of who wins). I agree with the Purchasers that the issues raised in this action (claim and counterclaim) have all now been substantively disposed of or rendered moot and this proceeding will be at an end upon the judgment rendered at the conclusion of this decision. The Parties have been invited at the end of this decision to identify any loose ends that may need to be tied up to bring this proceeding to a conclusion, in light of the result.
Issues to be Decided
30Beyond the question of whether summary judgment is appropriate (the only issue on which the Parties agree), the Parties articulate the issues to be decided on these two summary judgment motions differently. They do agree that any review of and challenge to BDO’s Report requires demonstration by the Purchasers that BDO committed manifest errors when completing its report.
31The Purchasers ask the court to determine whether:
a. BDO incorrectly found that the issue of which EBITDA Calculation ought to be used for the Second Earn-Out Payment was a legal issue to be determined by this Court?
b. BDO committed manifest errors when it calculated EBITDA for the Earn-Out Payments with respect to: (i) calculating revenue from Kits sales; (ii) excluding subcontractor costs; and (iii) adjusting the exclusion for gross profits from related party sales?
c. the BDO Report is still pending and not “final and binding” such that no interest is payable even if any amounts are found to be owing in respect of the Earn Out Payments?
32The Vendors ask the court to determine:
a. The validity of the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period (which the Vendors refer to as the Disputed Calculation Statement); and
b. The amount of the Earn-Out Payment owing, based on the BDO Report.
Summary of Outcome
33The specific orders and directions made in this decision are summarized at the end. By way of overview, the alternative relief sought by the Purchasers on the threshold question of the determination of what EBITDA should be used to calculate the Second Earn Out Payment is granted, and the court directs BDO to make that determination.
34Most of the other errors that the Purchasers have alleged were committed by BDO do not rise to the level of manifest errors that require this court to interfere with BDO’s analysis. Those issues have been decided in favour of the Vendors. The two exceptions where manifest errors have been found that require adjustments to the BDO analysis in favour of the Purchasers are in respect of: (i) the Kits revenue adjustment, that resulted in the double counting of revenues (which the Vendors conceded should be adjusted shortly prior to the hearing), and (ii) the starting point for the adjustments made by BDO in respect of the labour expenses for related party sales.
35Given the work still to be done by BDO, the BDO Report is not yet final and binding. The court is not inclined to award costs to either side given the mixed outcome on these competing summary judgment motions, but will entertain the possibility of further submissions from the Parties about costs if they wish to pursue them.
Analysis
36Section 2.9 (c) of the SPA provides that:
the decision of the Independent Auditor with respect to any item in dispute is to be in writing and, absent any manifest error, is final and binding on the Vendors and the Purchaser with no rights of challenge, review or appeal to the courts in any manner. The Independent Auditor, in making its determination of any dispute, is acting as an expert and not as an arbitrator and is not required to engage in a judicial inquiry worked out in a judicial manner.
The Threshold Questions
37The Purchasers ask the court to find that it was a manifest error for BDO to decline, and defer to the court as a legal question, the determination of the appropriate EBITDA to use for the Second Earn-Out Calculation Statement.
38Section 3.2 of the BDO Report explains that BDO understood that the determination of the Vendors’ challenge to the validity of what BDO refers to as the 2023 Calculation Statement (which is the Revised EBITDA Calculation for the Second Earn-Out Period, that the Vendors call the “Disputed Calculation Statement”) requires a contractual interpretation of the SPA. BDO considered that to be beyond BDO’s Mandate as the Independent Auditor.
39The Vendor say the Revised EBITDA Calculation for the Second Earn-Out Period was not properly before BDO to consider because the SPA does not expressly provide for or contemplate the delivery of revised Earn-Out Statements. Although the Vendors did not deliver a formal “objection” under the SPA to the Revised EBITDA figures reflected in the Revised EBITDA Calculation for the Second Earn-Out Period, because they did not consider it to come within the SPA contractual provisions, they have since made it clear that they dispute those revised EBITDA Calculations. The Purchasers say that they have themselves disputed the original EBITDA Calculation for the Second Earn-Out Period by having delivered the Revised EBITDA Calculation for the Second Earn-Out Period.
40The Purchasers say that this Revised EBITDA Calculation for the Second Earn-Out Period existed when the BDO Mandate was established and that the parties did not limit BDO’s Mandate to only the objections formally raised in Objection Notices delivered under the SPA. BDO was asked it to determine all identified items in dispute in respect of the Calculation Statements. The Purchasers say this not only included the First and Second Earn-Out Calculation Statements, but also the Revised EBITDA Calculation for the Second Earn-Out Period. Further, and consistent with this, BDO’s Mandate required it to calculate EBITDA [as defined at section 1.1(hh) of the SPA] for the First Earn-Out Period and the Second Earn-Out Period and determine a numerical amount for both the First Earn-Out Payment and the Second Earn-Out Payment on the basis of its EBITDA calculations.
41The Revised EBITDA Calculation for the Second Earn-Out Period raises three threshold questions (corresponding with the first question identified by each side):
a. whether the Revised EBITDA Calculation was validly delivered under the SPA;
b. whether BDO can consider the Revised EBITDA Calculation for the Second Earn-Out Period at all under the BDO Mandate; and
c. whether the original EBITDA Calculation for the Second Earn-Out Period prepared using the Vendors’ Legacy Database complies with GAAP, and if not, what EBITDA Calculation should be used for the Second Earn-Out Calculation.
42The first two “interpretation” issues (the validity of the Revised EBITDA Calculation for the Second Earn-Out Period and whether it can be considered by BDO in its analysis) not only depend upon the interpretation of the SPA, but also the interpretation and scope of BDO’s Mandate that flows from the BDO Direction and was embodied in the BDO Engagement Letter. These are properly threshold matters for the court to determine. The third “calculation” issue is a matter for BDO to determine, with some limited further directions from the court as detailed below.
A. Threshold Interpretation Questions
43The Vendors ask the court to focus on the interpretation of the Earn-Out Procedure prescribed under s. 2. 9 of the SPA. The Earn-Out Procedure provides that, within 90 days of the end of each Earn-out Period, an Earn-out Calculation Statement will be prepared and delivered by the Purchasers. The Vendors will have 30 days within which to dispute any of the items, by a written Earn-out Objection Notice, after which, if the parties are not able to resolve all items in dispute within a further 30 day period, either party may submit the disputed items for determination by the Independent Auditor. They say that the plain language of that procedure, read together with the time of the essence (s. 8.9) and entire agreement (s. 8.7) provisions, does not allow for a revised Earn-out Calculation Statement.
44The Purchasers argue that the Revised EBITDA Calculation for the Second Earn-Out Period must be considered within the broader context and purpose of the SPA Earn-Out Provisions, the goal of which is to calculate the Earn-Out Payments based on GAAP compliant EBITDA Calculations. The Purchasers believed their original Second Earn-out Calculation Statement to have been calculated in this manner, having prepared it using the Vendors’ Legacy Database (as the Purchasers had covenanted and agreed to do during the Earn-Out Periods).
45The Purchasers’ covenant to use the Legacy Database corresponds with the Vendors’ representations and warranties that: its IT Systems were adequate and sufficient for the conduct of the Business of the Corporation (under s. 3.2 (r) of the SPA); that its financial statements had been prepared in accordance with GAAP (under s. 3.2 (x) of the SPA); and that the Corporation’s books and records had recorded transactions to permit the preparation of financial statements in accordance with GAAP (under s. 3.2 (y) of the SPA).
46After the Earn-Out Periods, the Purchasers transitioned the Legacy Database to Salesforce, and they say that is when they discovered that data recorded in the Legacy Database did not accurately reflect the amount of work completed and, specifically, it reflected that more work had been completed than could be substantiated through other objective sources.
47The Vendors’ response is that the Purchasers’ exclusive remedy for alleged breaches of the Vendors’ representations and warranties is to make an indemnity claim under Article 7 of the SPA, not to unilaterally recalculate a previously delivered Earn-out Statement. The Vendors’ position now is tied to the four-corners of the SPA. The difficulty with it is that when the BDO Mandate was settled, the Purchasers had already delivered the Revised EBITDA Calculation for the Second Earn-Out Period and the Vendors themselves had already staked out litigation dispute boundaries that extended beyond the dispute procedures prescribed under the SPA and that were carried over into the BDO Mandate.
48The parties then became side-tracked by a dispute about production of books and records, which was ultimately the subject of the BDO Direction from the court. Once the BDO Mandate and Engagement Letter were finalized, and after receiving preliminary submissions from each side, on March 4, 2025, BDO invited the parties to identify the specific accounting issues (e.g., components of the EBITDA Calculations) that were in dispute or that were to be referred to BDO for determination. The Purchasers sought to limit the Vendors to the issues that had been itemized in their previously delivered SPA Objection Notices (in correspondence to BDO dated March 11, 2025) and the Vendors resisted this (in correspondence dated March 17, 2025). In that context, the Vendors emphasized that BDO’s Mandate, as described in its Engagement Letter, was to calculate EBITDA and determine the amount of the Earn-Out Payments.
49In advocating for their broader concerns to be considered, the Vendors also relied upon the broad mandate given to the Independent Auditor under s. 2.9(b) of the SPA, which provides the Independent Auditor with the jurisdiction to “resolve the remaining items in dispute”. The Vendors emphasized that once the matter is referred to BDO, section 2.9(c) of the SPA provides BDO with the authority to determine any and all disputes relating to the Earn-Out Calculations. It was the Vendors’ position, when justifying concerns raised about past practices to be considered by BDO, that “as long as they tie into the EBITDA definition, they are squarely within BDO’s jurisdiction”.2
50The Vendors continued to complain that they did not have the documents they needed to provide more detailed submissions to BDO. In a March 28, 2025 letter, the Purchasers provided a detailed chronology of the dealings between the parties on the EBITDA Calculations and document production issues, which included express reference to the June 17, 2024 delivery of an amended Second Earn-out Calculation Statement (based on the Revised EBITDA Calculation for the Second Earn-Out Period). The Purchasers explained in their April 18, 2025 submissions to BDO their specific concerns giving rise to the Revised EBITDA Calculation for the Second Earn -Out Period, namely: that there had been an overstatement of revenue from the IESO Low-Income Program in the amount of $602,361 (based on data derived from the Vendors’ Legacy Database), that had been incorporated into their EBITDA Calculation that formed the basis for their original Second Earn-Out Calculation Statement.
51BDO asked the Vendors to articulate and explain their concerns about the EBITDA calculations prepared by the Purchasers. The Vendors did so in a letter of April 18, 2025, letter. In a further May 23, 2025, letter, the Vendors once again took exception to limitations that the Purchasers were seeking to impose on the scope of concerns the Vendors had raised (that went beyond matters itemized in the original Objection Notices delivered by the Vendors or that related to the Purchasers’ operation of the Corporation).
52The Vendors’ detailed and itemized submissions regarding their concerns about the Purchasers’ EBITDA Calculations said nothing about the Revised EBITDA Calculation for the Second Earn-Out Period, even though it had been provided to BDO. None of the Vendors’ submissions objected to (or referred at all) to the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period.
53In the court’s earlier decision giving rise to the BDO Direction, the following principles of contract interpretation were outlined:
[40] The parties agree that the basic principles of contract interpretation to be applied in this case are as follows:
a. To give effect to the intentions of the parties by reading the SPA as a whole and giving the words of the SPA their ordinary and grammatical meaning: see Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation, 2021 ONCA 592, at para. 46, citing Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47.
b. To consider the surrounding circumstances, purpose of the agreement, objective evidence of background facts at the time of execution, and knowledge that was or "reasonably ought to have been within" the general knowledge of both parties: see Corner Brook (City) v. Bailey, 2021 SCC 29, [2021] 2 SCR 540, at para. 20, citing Sattva at paras. 48, 57-58.
54This contextual framework applies to the interpretation of the BDO Mandate and Engagement Letter, as well as to the SPA. This is not a situation of allowing the surrounding circumstances to overwhelm the words of the contract (which Sattva does not permit, as the Vendors point out). It is, rather, a matter of informing the interpretation of the BDO Mandate and Engagement Letter in the surrounding context, which includes the SPA, the BDO Direction from the court and the points of disagreement that had been generally raised by the Parties at the time the BDO Engagement Letter was signed. In the full context of their ongoing litigation, in which each side was accusing the other of breaches of covenants under the SPA, it was reasonable for the parties to agree to a broader BDO Mandate to address all of the accounting issues associated with the Earn-Out Calculation Statements, so that the Earn-Out Payments could be determined once and for all.
55The Engagement Letter did not need to expressly refer to the task of determining whether the Revised EBITDA Calculation for the Second Earn-Out Period, and corresponding Revised (disputed) Earn-Out Calculation Statement delivered by the Purchasers, are in compliance with GAAP for that to be part of the BDO Mandate. In the full context, the fact that these are not expressly mentioned in the BDO Engagement Letter is not determinative.
56The Vendors rely upon cases from the Delaware Court of Chancery regarding the enforcement of time limited, mandatory contractual mechanisms in commercial agreements, as part of their position that the Revised EBITDA Calculation for the Second Earn-Out Period and corresponding Revised Second Earn-Out Statement were not provided for under the SPA and should not form any part of the BDO analysis on a strict interpretation of the language of the SPA: see J&J Produce Holdings, Inc. v. Benson Hill Fresh, LLC, 2020 Del. Ch. LEXIS 394 (Del. Ch.); Schillinger Genetics, Inc. v. Benson Hill Seeds, Inc., 2021 Del. Ch. LEXIS 19 at pp. 1-2, 30-41 (Del. Ch.). The Purchasers challenge the applicability of these cases under Ontario law. I do not need to decide that or rely on those cases, as I have determined that it is the BDO Mandate and Engagement Letter that support the conclusion that the BDO analysis is intended to be broader than, and not restricted to, what the SPA provides for and that it started with the broad directive of BDO: “Calculating EBITDA [as defined at section 1.1(hh) of the SPA] for the First Earn-Out Period and the Second Earn-Out Period and determining a numerical amount for both the First Earn-Out Payment and the Second Earn-Out Payment on the basis of its EBITDA calculations”.
57In its draft report delivered to the parties on October 3, 2025, BDO stated: “Our analysis considers all components of the EBITDA calculation identified as being in dispute”. The immediately following Footnote 2 goes on to say:
As indicated in Tab A of the Vendors’ April 18, 2025 submission, being the adjustments noted in the “1st and 2nd Earn- out Calculation - Vendor Updated” schedules. We note that the Purchaser’s EBITDA calculation for the Second Earn-out Period is based upon a revised EBITDA of $2,524.1K, reflecting adjustments identified by Alix Partners (see letter of May 17, 2024 from Len Diplock to Jason Santomero). The Vendors’ calculation is based upon the original EBITDA value of $3,126.5K. The Vendors have not made submissions in respect of the revised Second Earn-out Period EBITDA. We have assumed the revised EBITDA of $2,524.1K in our calculations.
58Only after this did the Vendors indicate that they objected to the Revised EBITDA Calculation for the Second Earn-Out Period. The very existence of this revised statement put the original calculation statement into dispute well before the BDO Engagement Letter and Mandate were settled. The Vendors’ challenges reinforced the need for BDO to determine the EBITDA Calculation for the Second Earn-Out Period.
59Returning to the original threshold questions, it does not matter whether the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period was expressly provided for or delivered “on time” under the SPA, because the need to consider the issues raised by it clearly does fall under the broadly defined BDO Mandate in its Engagement Letter, of: “Calculating EBITDA [as defined at section 1.1(hh) of the SPA] for the First Earn-Out Period and the Second Earn-Out Period and determining a numerical amount for both the First Earn-Out Payment and the Second Earn-Out Payment on the basis of its EBITDA calculations”.
60Although the Vendors say the Purchasers were responsible for GAAP compliance after closing and had the books and records that could have allowed them to discover this within the time frame for preparation of the Second Earn-Out Statement under the SPA, the timing of the delivery of the revised statement was justified in the circumstances of this case. The SPA required the Purchasers to use the Vendors’ Legacy Database and the issues giving rise to the revisions were only discovered after the Purchasers were able to switch over to their own accounting program.
61In these circumstances, it cannot be said that the Vendors did not themselves contribute to the delayed timing of the discovery and delivery of the revised statement and thus they are not in a position to insist on strict compliance with the delivery deadlines under the SPA: see Silverberg v. 1054384 Ontario Limited (2008), 2008 CanLII 59325 (ON SC), 77 R.P.R. (4th) 102 (Ont. S.C.), at paras. 104-5, aff’d 2009 ONCA 698, 84 R.P.R. (4th) 185; see also Nutzenberger v. Mert, 2021 ONSC 36, 31 R.P.R. (6th) 131, at paras. 85-92. In any event, the BDO Mandate went beyond the SPA process (as discussed above) and it was not inappropriate for BDO to consider the Revised EBITDA Calculation for the Second Earn-Out Period under the BDO Mandate.
B. Threshold Calculation Question
62This then leads into the third threshold question about whether the original EBITDA Calculation for the Second Earn-Out Period, prepared using the Vendors’ Legacy Database, complies with the applicable GAAP. The Purchasers say it does not (blaming the failings of the Legacy Database), and they say their Revised EBITDA Calculation (using their accounting systems) does comply with GAAP. That is squarely a question for BDO to decide.
63BDO’s instructions under the BDO Mandate and the Engagement Letter were to determine the appropriate EBITDA for the First and Second Earn-Out Periods, and to make appropriate adjustments, having regard to any points of disagreement or dispute. There is clearly a dispute or disagreement about the Earn-Out Calculation for the Second Earn-Out Period. It does not matter that the dispute was raised by the Purchasers themselves against their own original Earn-Out Calculation for the Second Earn-Out Period or whether it arose from the Vendors’ objection to BDO’s use in its Draft Report of the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period (which the Vendors themselves refer to as the “Disputed Calculation Statement”). The BDO Mandate requires that the appropriate EBITDA be determined by BDO, the expert Independent Accountant appointed to do so.
64According to the SPA, the EBITDA of the Corporation for purposes of the reverse earnout are to be prepared in accordance with the applicable GAAP. BDO’s report identified its mandate to include determining the accounting treatment that results in a fair presentation of Eco-Fitt’s (the Corporation’s) financial results for the purposes of the SPA. BDO did not do that. BDO has not independently calculated the EBITDA for the Second Earn-Out Period.
65Instead, in the face of the Vendors’ objection to it considering the Revised EBITDA Calculation for the Second Earn-Out Period (on the basis that it was invalidly delivered under the SPA and therefore outside of BDO’s Mandate, because the SPA did not expressly provide for it), the BDO Report and analysis was prepared on the basis of two scenarios, depending on whether or not the original or Revised EBITDA Calculation for the Second Earn-Out Period was to be used as the starting point. BDO left it for the court to determine which statement to use, concluding that: if the court determines that the Disputed Calculation is invalid, the Second Reverse Earn-Out Payment would be $8,165,500; and, if the court accepts the Disputed Calculation Statement, the Second Reverse Earn-Out Payment would be $3,948,700.
66This approach assumes that one or the other of the original or Revised EBITDA Calculations for the Second Earn-Out Period prepared by the Purchasers had been properly prepared in accordance with the applicable GAAP. However, BDO’s Mandate very clearly was for it to make that determination, e.g.: “Calculate EBITDA [as defined at section 1.1(hh) of the SPA] for … the Second Earn-Out Period and determine a numerical amount for both the Second Earn-Out Payment on the basis of its EBITDA calculations”. In making that determination, BDO was to consider the specific disputes raised regarding the GAAP compliance of the original vs. Revised Earn-Out Calculation for the Second Earn-Out Period, but it was not constrained or restricted to considering only those specific disputes.
67Following a recognized line of cases in Canada, in Applied Industrial Technologies, LP v. Sirois, 2018 ABQB 818, 80 Alta. L.R. (6th) 312, Eamon J. summarized, starting at para. 161, the limited circumstances in which a court may find an expert determination under a contract to be subject to review, explaining that the first such circumstance is where the expert departed from the contractual instructions in a material respect, and did not do what they were appointed to do: citing Smiechowski v. Preece, 2015 ABCA 105, at para. 5; Saputo Inc. v. Dare Holdings Ltd, 2012 ONSC 4981, 111 O.R. (3d) 733, at paras. 4-8; Ivaco Inc. (Re), 2007 ONCA 746, 87 O.R. (3d) 561, at para. 3, leave to appeal refused, [2007] S.C.C.A. No. 612; Veba Oil Supply & Trading GmbH v Petrotrade Inc, [2001] EWCA Civ 1832, [2002] 1 All E.R. 703, at para. 26; Jones v. Sherwood Computer Services PLC, [1992] 1 W.L.R. 277, [1992] 2 All E.R. 170, at p. 179; Shinkaruk Enterprises Ltd et al. v. Commonwealth Insurance Co. et al. (1990), 1990 CanLII 7738 (SK CA), 71 D.L.R. (4th) 681 (Sask. C.A.), at para. 15.
68BDO did not do what it was appointed and instructed to do: it did not determine a “numerical amount” for the Second Earn-Out Payment. Rather, it deferred to the court the question of whether it should use the Purchasers’ Original EBITDA or Revised EBITDA Calculation, without actually determining the EBITDA for the Second Earn-Out Period, having regard to the applicable GAAP prescribed under the SPA. This was a material departure from the BDO Mandate and Engagement Letter.
69I say that without direct criticism of BDO. It was caught between a rock and a hard place, given the position that the Vendors took after the delivery of the BDO draft report. The Vendors had not, until then, indicated they were objecting to BDO proceeding on the basis of the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period. The Vendors had also, until then, taken a very broad view of BDO’s mandate for their own purposes.
70However, for the court’s review purposes, determining a numerical amount for the Second Earn-Out Payment qualifies as something that has still not been done and needs doing, which was very clearly under BDO’s Mandate and I am thus directing BDO to do it now.
71In summary, the BDO Mandate was broader than just determining the disputes arising from the Objection Notices. Insofar as there is a dispute about the Revised EBITDA Calculations for the Second Earn-Out Period, it is part of the BDO Mandate to determine that dispute. But, even more broadly, BDO’s mandate was to determine the appropriate calculation of EBITDA for the [First and] Second Earn-Out Period, in accordance with the relevant GAAP prescribed under the SPA.3 It was a material departure from its instructions (the BDO Mandate) for BDO not to undertake this analysis.
72Specifically, and as requested in the draft order submitted by the Purchaser, I am directing BDO, pursuant to the process set out in its December 11, 2024 Engagement Letter, to determine a numerical amount for EBITDA for the Second Earn-Out Period. In so doing, this will resolve the dispute that arises from the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period, which regard to the $602,361 in overstated revenue from the IESO Low-Income Program said to have been included in the EBITDA calculation for the original Calculation Statement for the Second Earn-Out Period.
73This answers the “threshold” questions identified by both the Purchasers and the Vendors.
74The court is not in a position to determine the second issue that the Vendors have identified, which would be to determine the amount of the Reverse Earn-Out Payment owing, based on the BDO Report, since BDO has been directed to undertake further work. Once the EBITDA for the Second Earn-Out Period has been determined by BDO, that number can be plugged into its existing analytical framework, as appropriate (e.g., at Table 1 of the BDO Report). Insofar as other adjustments arising from the remainder of this decision are directed, those will also need to be made in order for BDO to ultimately determine the amount of the Second Earn-Out Payment.
Alleged Manifest Errors by BDO in the EBITDA Calculations for the Earn-Out Payments
75As previously noted, the court regards an expert determination as binding unless the expert departed from the contractual instructions in a material respect, or the contract otherwise provides: see Applied Industrial, at para. 161. Under the SPA in this case, the parties agreed, as they had done in Applied Industrial (see, e.g., para. 1590, that decisions in “manifest error” were the only exceptions to the contractually binding effect of the appointed Independent Auditor’s expert determination.
76In Applied Industrial, a circumstance warranting the court’s review of an expert’s determination included a failure to follow instructions (discussed in the previous section of this decision). This might, in my view, be considered to be a prima facie example of a manifest error. However, the case law treats them as different categories of review. In Applied Industrial, at para. 168, the court explained that:
The phrase “manifest error”, in connection with the standard of review by Canadian appellate courts of judicial decisions in civil cases, has been equated with conclusions which are clearly wrong or palpable errors (Housen at paras 20-23). Palpable errors are those which are clear to the mind or plain to see; so obvious that can easily be seen or known; readily or plainly seen (Housen at paras 5-6). They may arise where the judge applied the wrong principle, ignored conclusive or relevant evidence, misunderstood evidence or drew erroneous conclusions from it. Palpable and over-riding error is not a low standard, when applied to questions of mixed fact and law and there is no indication that the judge ignored a relevant consideration.
77The Purchasers allege that BDO committed other manifest errors and/or failed to follow the instructions when it calculated EBITDA for the Earn-Out Payments with respect to: (i) the inclusion of revenue from energy savings kits provided to NB Power Corporation (the “Kits revenue adjustment”) in both Earn-Out Periods, resulting in a double counting of revenue from those sales; (ii) excluding subcontractor costs, and in so doing, failing to follow the past practice of matching expenses to revenues, and failing to test for matching at the detailed transaction or invoice level in accordance with the EBITDA definition at s. 1.1(hh) of the SPA (the “sub-contractor costs adjustment”); and (iii) applying a proxy gross profits from related party sales contrary to the Corporation’s past practice and the definition of EBITDA in s. 1.1 (hh) of the SPA (the “related party sales adjustment”).
78These three categories of alleged manifest errors will be discussed in turn in more detail in the balance of this decision. By way of high-level overview, the first category of alleged manifest error, relating to the Kits sales, is for all intents and purposes conceded by the Vendors. The Purchasers have made detailed and comprehensive submissions in both of the other areas of alleged manifest errors (seeking a reversal of BDO’s adjustments to the EBITDA Calculations in the 2022 and 2023 Calculation Statements for subcontractor expenses at ss. 7.64-7.70 of the BDO Report, and for gross profit from related party sales at ss. 7.111-7.113 of the BDO Report). These latter two alleged categories of manifest errors are grounded in the Corporation’s past practices that the Purchasers say were not adequately accounted for by BDO.
79BDO was tasked with the responsibility of determining what the past practices were for the purposes of calculating the EBITDA adjustments provided for under the SPA. Ultimately, these are matters that must be determined based on applicable GAAP as prescribed under the SPA. There are discretionary aspects to this that are particularly suited to the expertise of an Independent Auditor, such as BDO. BDO stated that it understood it was to consider past practices, and it did so in various aspects of its work. How it decided to do this in each instance was a matter of professional discretion and expertise and not a failure to follow instructions. The court is not in a position to conclude that there was a manifest error in how BDO approached this.
80Further, these other two categories of alleged manifest errors (with one exception regarding the related party sales adjustment discussed below) do not meet the high threshold for judicial interference with the method adopted by the expert Independent Auditor in reaching its final and binding determination of any disputed items on the Purchasers’ Earn-Out Calculation Statements. Canadian courts have interpreted the use of “manifest” as intending “to express a higher standard than simply looking to see whether some error is apparent from the papers”: Applied Industrial, at para. 172. These other categories of error have not been demonstrated by the Purchasers to be “manifest” in that sense and I do not (aside from the one exception noted) consider judicial intervention to be warranted.
A. Sub-contractor Costs Adjustment
81With respect to sub-contractor expenses, the Purchasers argue that BDO failed to properly consider and adjust EBITDA in accordance with the Corporation’s historic practice to match and accrue revenue at the time expenses were incurred. Instead, BDO removed the full amount of subcontractor expenses from the Purchasers’ EBITDA calculation for each Earn-Out Period, resulting in significant upward adjustments to EBITDA, totaling $144,000 and $734,600 for each of the First and Second Earn-Out Period respectively. These result in corresponding increases of $1,008,000 for the First Earn-Out Payment and $4,134,200 for the Second Earn-Out Payment.
82To find BDO, the expert Independent Auditor appointed by the parties, committed a manifest error in its EBITDA calculations, as the Purchasers are asking the court to do, the court would have to be satisfied, as explained above, that BDO either (i) departed in a material respect from its instructions (the BDO Mandate), or (ii) made a manifest or obvious error in arriving at a conclusion that was outside the range in which experts could reasonably differ. Conversely, if the conclusion is within the range and sufficiently intelligible in the context of any contractually required reasons, an error is not “obvious” or manifest, because reasonable minds can differ: Applied Industrial, at para. 176.
83The Purchasers first contend that BDO failed to follow instructions by not following the Corporation’s past practice of matching sub-contractor expenses to revenues in the period in which the work was done for a customer. They argue that this is an error reviewable by the court: see Applied Industrial, at para. 161. However, it is apparent from the BDO Report that BDO was very much attuned to the need for matching. In section 7 of the BDO Report, it goes through a detailed review of the approach to expense recognition. The need to match expenses to revenues in order to calculate profits is specifically recognized in s. 7.12, and the approach adopted is outlined in detail through to s. 7.21. With this level of analysis, I cannot accept the Purchasers’ contention that BDO failed to follow the instruction in the SPA to match revenues to expenses.
84In substance, the Purchasers’ complaint is about how BDO went about its attempt at matching these sub-contractor expenses with the associated revenue. In the case of sub-contractor expenses, the past practice was to record revenues and associated expenses with sub-contractor work in the period in which the work was done, and to make accounting adjustments in later periods when the invoices for the expenses were delivered and payment for the work actually occurred.
85According to the Purchasers, this required general ledger accounting adjustments, including some reversals of later period expense accruals and revenue, to account for revenue and expenses already accounted for in prior periods when the work was done. The unmatching only became an issue because BDO saw an expense reversal in a later period (e.g. after December of 2022 or April of 2023), so it removed the expense from the earlier period, ostensibly to avoid including an expense that had later been reversed.
86The problem that the Purchasers highlight is that the later period expense reversal was part of a more complex accounting exercise and was not just a straight reversal of the earlier expense. The Purchasers contend that BDO’s adjustments in these months, which straddle two reporting periods for the purposes of the Earn-Out Calculations, resulted in an “un-matching” of the subcontractor expenses from related revenue in the period in which the work was done. The Purchasers seek to demonstrate this through a limited example that they have extracted from the record that was before BDO. To illustrate their point here, the Purchasers engaged in a detailed exercise of filtering data from a single transaction that happened to have the documentary support in the record before BDO.
87This mis-matching was not obvious or demonstrable without this fairly detailed level of investigation. Whereas a manifest error should be obvious and demonstrable without extensive investigation: see e.g. Flowgroup PLC v. Co-Operative Energy Limited, [2021] EWHC 344, at para. 13.4
88The Purchasers also complain that BDO does not show any transaction or invoice-level testing of the assumption underlying their subcontractor expense adjustments to the Purchasers’ EBITDA Calculations, nor does the BDO Report explain the rationale for their adjustments. The Purchasers say the concerns go beyond simply an appearance that BDO did not properly match revenues and expenses in the same reporting periods, or actually consider the past practices. They say that BDO did not have the transaction-level documents and therefore could not have done the transaction level testing or matching.
89Sections 7.65-69 of the BDO Report outline BDO’s findings and adjustments with respect to the sub-contractor expense that the Purchasers disagree with. The disagreement said to amount to a manifest error is that BDO did not seek out the detailed expense documents and undertake the matching at the transaction level, but instead made adjustments based on the available general ledgers without drilling down into the specific accounting periods ending in December of 2022 and April of 2023 to see if the expenses had been properly recorded when incurred. The Purchasers say BDO did adopt a transaction-level approach to other adjustments it considered and/or made to EBITDA and BDO did not explain why it chose not to adopt a similar approach of transaction level testing and review to determine the appropriate adjustments to make to sub-contractor expenses for each Earn-Out Period.
90The Purchasers contend that this approach adopted by BDO was, absent any explanation, arbitrary, unreasonable and amounted to a manifest error: see Applied Industrial, at paras. 155, 196-97. On this basis, the Purchasers ask the court to direct BDO to undertake the exercise of requesting the required documents for the periods surrounding the end of the Earn-Out Periods and do the transaction/invoice-level testing before determining its final EBITDA adjustments, on account of sub-contractor expenses for each Earn-Out Period.
91This must be considered with regard to how the courts have defined “manifest errors”. Manifest errors refer to “oversights and blunders so obvious and obviously capable of affecting the determination as to admit no difference of opinion”: see Veba Oil, at para. 33; see also Applied Industrial, at paras. 160, 172-74, and 176.
92The Vendors argue that the record before the court of the “un matching” that the Purchasers complain of, based on the limited example available, does not amount to such an obvious oversight or blunder. At best, the Purchasers have raised questions for further investigation that were in their own control to have provided for more precise analysis all along.
93The Vendors point out that it was open to the Purchasers to provide all of the underlying transaction documents to allow for the transaction-level matching of revenue and expenses as part of the BDO process. In fact, one of the Vendors’ original objections to the Earn-Out Statements was that insufficient information had been provided to enable verification of the Purchasers’ Earn-Out Calculations. The Purchasers maintained that the additional information sought by the Vendors was not necessary and declined to provide it.
94On the issue of subcontractor costs in particular, on July 9, 2025, BDO asked the Purchasers to confirm how they assessed whether subcontractor costs incurred should be charged in the various periods, and requested “details of the post-Transaction accounting treatment of costs incurred for Subcontractors”, including how costs are matched to customer revenue. Having been on notice of this issue and given an opportunity to respond, the Purchasers cannot reasonably suggest that BDO committed a manifest error by not requesting and/or sampling further documentation.
95As was noted by this court in Saputo, at para. 25: “... it matters not that the valuer has proceeded on the basis of error or has failed to take into account matters which he should have taken into account. That is a matter of judgment left to the valuer”.
96Similarly, in Flowgroup, at para. 69, the High Court of England and Wales (Commercial Court) rejected the same essential argument:
So her options were either to calculate the number on a fairly rough and ready basis, which had some logic attached to it but which did not have the granularity necessary to make it demonstrably accurate, or to open this matter up for further submissions and further evidence. This is, once more, as it seems to me, a matter of judgment. I do not find that the Expert's judgment was in error, or in manifest error.
97The BDO Report reflects the determinations made by BDO about adjustments to be made to the subcontractor expenses included in the Purchasers’ EBITDA Calculations for the two Earn-Out Periods, based on what it was provided with by the Purchasers. If the records provided were incomplete, that was because of the Purchasers’ own production choices. Ultimately, BDO determined that it was able to make its determinations based on the available records, even if those determinations do not, in hindsight, reflect the level of granular analysis that the Purchasers say might have produced a different result. In the circumstances, I do not find BDO’s judgment in doing so to have been in error or in manifest error.
98The BDO Direction and subsequently signed Engagement Letter put BDO in control of the process. It is the one to decide whether it can do the work, based on the documents it was given. It did so in this instance, and that was within its prerogative. The level and extent of testing is itself something that the court should defer to the expert on.
99Nor was BDO required to give reasons for why it did what it did: see Applied Industrial, at paras. 184-85, 191. If BDO had said it was not going to match expenses to revenues in the period in which the work was done, despite that being the past practice, that would be the type of obvious and manifest error that Applied Industrial is concerned with and might require some explanation. However, it is clear from the scope of review and other sections of the BDO Report that it was cognizant of this practice of matching and it does undertake matching at the level of the general ledger, albeit in a way that the Purchasers say was too superficial and lacking in granularity.
100BDO’s lack of explanation and/or apparent lack of transaction level testing do not amount to manifest errors in connection with BDO’s subcontract costs adjustment.
B. Related Party Sales Adjustment
101The next area of alleged manifest error is in relation to the labour costs for related party sales that BDO assumed and adjusted for. The definition of EBITDA in the SPA carves out gross profit generated from the Purchasers’ sales to its affiliates. The effect of this prescribed adjustment is that, once EBITDA gets calculated, a reduction is applied to the benefit of the Purchasers such that the Vendors do not get credit for the profits attributable to the Purchasers’ related party sales. However, if the profit attributed to related party sales is inflated and too much profit gets removed from the calculation, that would be to the detriment of the Vendors.
102Part of BDO’s adjustments to the Purchasers’ EBITDA Calculations involved netting out labour costs associated with generating the revenues associated with the related party sales. As I understand it, the effect was that the overall profits attributed to related party sales and deducted from EBITDA for purposes of the Earn-Out Calculations was lower than what the Purchasers had indicated, with the result that the BDO’s calculation of the Earn-Out Payments increased.
103The Purchasers contend that BDO used the wrong numbers and made a “manifest error” when it determined that labour costs associated with the related party sales had not been accounted for, and then assumed a proxy for those labour costs to adjust the excluded profits for related party sales downwards. Like the last issue, this too was a function of the gaps in the documentary support that BDO was given by the Purchasers in respect of the labour costs for related party sales.
104The Purchasers attempted to illustrate the manifest error with reference to a spreadsheet for the First Earn-Out Period that was provided to BDO without supporting documents or any direct accounting to support the claimed indirect labour costs for related party sales. This example again may raise questions but falls short of establishing (as required, per Flowgroup, at para. 13) an obvious and demonstrable error in BDO’s approach or its determination of this issue that does not require extensive further investigation. The alleged error here is neither obvious nor demonstrable based on the record before the court.
105Specifically, the Purchasers did not provide detailed support for how labour costs were attributed between related companies. As noted above, the Purchasers produced an Excel spreadsheet. BDO concluded that it did not appear to account for indirect labour costs. As a result, BDO assumed they had not been accounted for and came up with a proxy or estimate for labour costs based on overall profit margins, which it used to determine the related party costs and, ultimately, the profits from related party sales to be deducted from the EBITDA Calculations it used.
106I agree with the Vendors’ submission that: selecting proxies, extrapolating from incomplete records, and assessing the reliability of internal data are quintessential expert functions. The Purchaser's criticism that BDO erred by not using “actual” gross profits is unsustainable given that the limits in the Purchasers’ own records made it impossible for BDO to ascertain the “actual” gross profits.
107The Purchasers have, however, raised one challenge to the related party transaction labour costs adjustment that does amount to a manifest error. It is noted that the Purchasers’ EBITDA calculation for the First Earn-Out Period only excluded $361,112 of gross profits from related party sales, yet the starting point for BDO’s adjustment was based on a calculation that excluded $526,756 from EBITDA on account of gross profits from related party sales and then adjusted for expenses based on a percentage of those. Similarly, BDO’s adjustment in the Second Earn-Out Period was based on an exclusion of $577,500 on account of gross profits from related party sales, yet the Purchasers’ Second Earn-Out EBITDA calculation only excluded $411,855 from EBITDA on account of gross profits from related party sales.
108While I will confess to not fully understanding the math associated with these adjustments, the Purchasers contend that the use of higher starting figures runs contrary to the record before BDO and the Purchasers’ calculations of EBITDA, which BDO was purporting to adjust. This resulted in an erroneous windfall, as BDO’s adjustments are based on a proxy percentage of cost of related party sales that was applied to amounts that the Purchasers had not excluded from EBITDA to begin with. If that is in fact the case, that is an obvious and demonstrable (i.e. manifest) error that can and should be corrected. BDO’s adjustments for labour costs for related party sales should be made from the right starting point, if they have not been.
109Since this is the only category of alleged manifest error that has been accepted by the court that arises from work that BDO did, in this context, I will briefly address the Vendors’ argument that the Purchasers should have submitted expert evidence to the court to demonstrate the alleged manifest “accounting or auditing” errors made by BDO. I do not accept as a blanket proposition that expert evidence would be necessary, or necessarily appropriate, for the court to consider when reviewing alleged manifest errors made by an expert Independent Accountant. I do not foreclose that there might be a circumstance where that is necessary and appropriate. I agree with the Purchasers, however, that expert evidence was not required, and may not have been appropriate or admissible, in this case given the nature of the alleged manifest errors.
C. Kits Revenue Adjustment
110The last category of manifest error (involving the Kits sales) that the Purchasers have alleged is, for all intents and purposes, conceded by the Vendors. BDO double counted the revenue from the Kits sales ($39,600) because it is accounted for in both the First and Second Earn-Out Periods, whereas both Parties agree that the Kits sales are only relevant to, and should only have been included in, the First Earn-Out Period. While not conceding that this was a manifest error, the Vendors say that they are prepared to allow for this adjustment to avoid the effects of this double counting.
111BOD’s inclusion of these same sales in the Second Earn-Out Period is an obvious and demonstrable (e.g., manifest) error and it should be adjusted for. I agree with the Purchasers that a direction to BDO is required, given that they have already issued the BDO Report. Accordingly, and as requested in the draft order submitted by the Purchaser, I am directing BDO, pursuant to the process set out in its December 11, 2024 Mandate Letter, to determine a numerical amount for EBITDA for the Second Earn-Out Period. In so doing, with respect to the Kit Revenue Adjustment at ss. 7.99-7.1-01 of the BDO Report and reflected in Table 1 thereto, to reverse BDO’s adjustment that added $39,600 in earnings to the EBITDA calculation in the 2023 [Second Earn-Out] Calculation Statement.
Is the BDO Report Final?
112The last issue raised by the Purchasers seeks a determination by the court that the BDO Report is still pending and not “final and binding” such that no interest is payable on any Earn-Out Amounts ultimately payable, on the basis that some of the manifest errors alleged by the Purchasers have been established and EBITDA Calculations and Earn-Out Payment Amounts have not been finally determined.
113Given the findings on the threshold questions, which have been sent back to BDO to be determined, combined with the findings regarding the Kits revenue adjustment and the related party sales adjustment, I agree that the BDO Report is not final and binding. Interest only becomes payable on the Earn-Out Payment under the SPA if not made within 30 days of a final determination, which has not yet occurred. Accordingly, no contractual interest is yet payable by the Purchasers.
Costs
114Both sides seek their costs of these motions from the other side.
115The Vendors’ Costs Outline indicates total actual costs of over $200,000, and partial indemnity costs of approximately $125,000 (inclusive of all fees, disbursements and applicable taxes). The Purchasers’ Costs Outline indicates total actual costs of almost $175,000 and partial indemnity costs of almost $105,000 (inclusive of all fees, disbursements and applicable taxes).
116Both have provided Costs Outlines predicated on them succeeding on both motions. Neither side has been wholly successful, which leads me to the preliminary view that each side should bear their own costs of these summary judgment motions. If either side believes there are compelling reasons upon which they should be awarded costs that would not be offset by costs awarded in favour of the other side, they may request a case conference so that the parties can elaborate upon their costs positions. The court will provide further directions at that time if it determines that it would be appropriate to receive further written submissions on costs.
Recap of Outcome of the Summary Judgment Motions
117To recap, and for the foregoing reasons:
a. The court accepts the joint submission of the parties that the issues presented for determination do not require a trial and are appropriately dealt with by way of summary judgment.
b. BDO failed to follow the BDO Mandate and instructions contained in its Engagement Letter by deferring the threshold question of which EBITDA ought to be used for the Second Earn-Out Payment to the court to determine. BDO should determine the EBITDA for the Second Earn-Out Period.
c. Accordingly, BDO is directed to determine a numerical amount for EBITDA for the Second Earn-Out Period, and in so doing, to resolve the dispute that arises from the Purchasers’ Revised EBITDA Calculation for the Second Earn-Out Period (and specifically, but without limitation, to determine whether there was an overstatement of revenue from the IESO Low-Income Program in the amount of $602,361 included in the EBITDA Calculation for the Purchasers’ original Calculation Statement for the Second Earn-Out Period).
d. BDO committed manifest errors when it calculated EBITDA for the Earn-Out Payments with respect to: (i) the Kits revenue adjustment and the calculating revenue from Kits sales that added $39,600 in earnings to the EBITDA calculation in the 2023 Calculation Statement; (ii) by using the unexplained (higher) starting point of gross profits from related party sales in both the First and Second Earn-Out Period, to which it applied its proxy percentage formula to determine the related party sales expense adjustment.
e. BDO is directed to consider the identified manifest errors (above) and revise the BDO Report as appropriate, applying the applicable GAAP as established under the SPA in accordance with the Corporation’s past practices.
f. In light of the foregoing, the BDO Report is still pending and not “final and binding” such that no contractual interest has started to run.
g. Once the updated BDO Report has been re-issued, these related proceedings should be at an end, as the issues raised have either all been disposed of or overtaken by the orders made in the course of this litigation and the earlier application in which the BDO Direction was provided.
h. If any party considers that there are issues raised in these proceedings that have not been determined by this decision and/or the prior interlocutory and final decisions, order and directions of the court in these related proceedings, a case conference may be scheduled in the normal course for the court to consider what, if anything, remains to be determined, and, if so, the process for it to be determined.
i. If any party considers that it has grounds upon which to seek costs that would not be offset by costs awarded in favour of the other side, a case conference can be requested so that the parties can elaborate upon this position and further directions can be provided by the court, if deemed appropriate. Otherwise, each side shall bear their own costs of this action and counterclaim.
Kimmel J.
Released: June 29, 2026
Footnotes
- The terminology used in the SPA references “Reverse” Earn-Out Periods, Calculations, Payments etc. For ease of reference in this decision “Reverse” has been removed from the defined terms, but they are intended to correspond with those terms as used in the SPA.
- The Vendors argue that their conduct (e.g., how they approached the BDO Mandate for their own purposes) after the fact is “subsequent conduct” that is not permissible for the court to consider when interpreting the SPA, if those provisions are unambiguous: see Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512, at para. 41. The court is cognizant of these authorities but the Vendors objection to the Purchasers’ reference to, or the court’s consideration of, the Vendors’ positions is not for the purpose of interpreting the SPA. Rather, the Vendors’ behaviour is noted to illustrate that the approach to the interpretation of the SPA and the BDO Mandate contained in the BDO Engagement Letter, reading and considering those agreements together, harmoniously and purposefully in the context of the broader objective of reaching a GAAP-compliant EBITDA Calculation to determine the Earn-Out Amounts payable, is consistent with the approach that the Purchaser is urging upon the court now.
- The Purchasers based their revised calculation on the work done by an independent expert that they hired, Alix and Partners. The court has been provided with a copy of the Alix and Partners Memo but it was not provided to BDO for purposes of the original work it did under the BDO Mandate. Irrespective of whether BDO now has a copy of the memo prepared for the Purchasers by Alix and Partners, it should undertake its own analysis to arrive at the EBITDA Calculation for the Second Earn-Out Period.
- The parties agree that the manifest error standard is as originally articulated in Applied Industrial Technologies. The Vendors cite to cases from the United Kingdom (Veba, adopted in Flowgroup, for the clearer articulation of what they say is the same standard or test as stated in Applied Industrial Technologies). Insofar as Flowgroup suggests a different (higher) standard of review, the Vendors are not urging the court to adopt any different standard or test by the references to these UK cases.