COURT OF APPEAL FOR ONTARIO

CITATION: Unique Broadband Systems, Inc. (Re) 2014 ONCA 538

DATE: 20140710

DOCKET: C57884

Sharpe, Gillese and Hourigan JJ.A.

BETWEEN

In the
    Matter of the Companies Creditors Arrangement Act,

R.S.C.
    1985, c. C-36, as amended

And in the Matter of a Plan of Compromise or
    Arrangement of Unique Broadband Systems, Inc.

Clifford I. Cole and Benjamin Na, for the appellant,
    Unique Broadband Systems, Inc.

Joseph Groia and Tatsiana Okun, for the respondents,
    Jolian Investments Limited and Gerald McGoey

Heard:  June 17, 2014

On appeal from the order of Justice Ruth E. Mesbur of the
    Superior Court of Justice, dated May 21, 2013, with reasons reported at 2013
    ONSC 2953.

Hourigan J.A.:

[1]

Unique Broadband Systems Inc. (UBS) appeals the judgment of Justice
    Mesbur, dated May 21, 2013, rendered in connection with a claim made by Gerald
    McGoey and his personal company, Jolian Investments Limited (Jolian),
    pursuant to s. 20 of the
Companies Creditors Arrangement Act
, R.S.C.
    1985, c. C-36 (the
CCAA
).

[2]

The trial judge ordered UBS to pay Jolian and Mr. McGoeys claim for an
    enhanced severance payment that was the equivalent to 300% of Mr. McGoeys
    compensation (the Enhanced Severance). That order is the subject of UBS
    appeal.

[3]

The trial judge dismissed Mr. McGoey and Jolians claims for payment of
    a SAR Cancellation Award, a Bonus Award, and indemnification for legal and
    other professional Services expenses.
[1]
That order is the subject of a cross-appeal by Mr. McGoey and Jolian.

[4]

For the reasons that follow, I would grant the appeal and dismiss the
    cross-appeal.

FACTS

[5]

UBS is a public company listed on the TSX Venture Exchange. It is incorporated
    under the Ontario
Business Corporations Act
, R.S.O. 1990, c. B.16 (the

OBCA
).

[6]

In 2002, Mr. McGoey was appointed a director and acting CEO of the
    corporation. Eventually, Mr. McGoey took on the role of CEO on a permanent
    basis. His employment relationship with UBS was first governed by a personal employment
    contract and later by a management services agreement between UBS and Jolian dated
    May 3, 2006 (the Jolian Management Services Agreement). Both the personal employment
    contract and the Jolian Management Services Agreement contained a golden
    parachute provision which granted Mr. McGoey enhanced termination benefits in
    certain situations.

[7]

Since November 2006, UBS had in place an incentive-driven share
    appreciation rights plan (SAR Plan) for its directors and senior management.
    Upon certain triggering events, a SAR unit holder would be paid an amount equal
    to the difference between the market trading price of a UBS share and a strike
    price specified in the SAR Plan.

[8]

In 2003, UBS acquired a controlling 51.8% equity interest in Look
    Communications Inc. (Look), a telecommunications company. Mr. McGoey also
    served as a director and CEO of Look. UBS and Look were parties to a services
    agreement pursuant to which Mr. McGoey performed management services for Look.
    Other than those services, UBS was essentially a holding company and did not
    engage in any active business.

[9]

Looks primary asset was a band of telecommunications spectrum. In early
    2009, Look engaged in a process to sell the spectrum through a court-supervised
    plan of arrangement. Ultimately the spectrum was sold for $80 million on May 4,
    2009 to Inukshuk Wireless Partnership (Inukshuk), a consortium of Rogers
    Communications Inc. (Rogers) and Bell Canada (the Spectrum Sale). Mr.
    McGoey expected that the sale would generate a significantly higher sale price
    and was very disappointed with the figure offered by Inukshuk.

[10]

The
    board of directors of UBS (the UBS Board) resolved to treat the Spectrum Sale
    as a triggering event pursuant to the SAR Plan. Prior to the announcement of
    the Spectrum Sale, UBSs shares were trading at approximately $0.15 per share. The
    UBS shares were anticipated to appreciate as a consequence of the Spectrum Sales
    announcement. However, the anticipated share price increase did not materialize
    and the shares continued to trade at the $0.15 range after the announcement.

[11]

After court approval of the Spectrum Sale on May 14, 2009, Mr.
    McGoey engaged in negotiations with Rogers for a potential purchase of the
    balance of Looks assets, including roughly $300 million in tax losses and
    similar assets, subscribers, and real estate. Rogers withdrew from the negotiations
    on July 20, 2009 and the transaction never came to fruition.

[12]

Also
    after the Spectrum Sale, the UBS Boards compensation committee, which
    consisted of Mr. McGoey and two other UBS Board members, began reviewing the
    SAR Plan. Each member of the compensation committee had a considerable number
    of SAR units.

[13]

Executive
    compensation was on the agenda for the UBS Board meeting of June 17, 2009. In
    anticipation of that meeting, Mr. McGoey sought the advice of UBS outside
    legal counsel, David McCarthy, regarding board approval of executive bonuses. Mr.
    McCarthy advised that, while s. 3.15 of National Policy 58-201 (which deals
    with the Corporate Governance Guidelines) says that a board should appoint a
    compensation committee entirely of independent directors, this was a guideline
    only and was not a requirement either pursuant to securities law or TSX
    Rules.

[14]

Mr.
    McGoey also requested that Mr. McCarthy provide the UBS Board with a letter outlining
    its authority, duties, and obligations in making payments to officers and
    employees. Mr. McCarthy provided such a letter, dated June 17, 2009. In that
    letter, he specifically advised the UBS Board that, in exercising its power to compensate
    officers and employees, the directors were obliged to meet their fiduciary
    obligations to the corporation.

[15]

At
    the June 17, 2009 UBS Board meeting, the directors considered the issue of the
    SAR Plan. Mr. McCarthys letter was before the UBS Board and Mr. McCarthy
    was present for a portion of the meeting. Mr. McCarthy was not asked to opine
    on the UBS Boards decision at the meeting. He also did not provide the UBS
    Board with advice regarding the UBS Boards process or about the quantum of the
    benefits being considered.

[16]

At
    the meeting, each director disclosed his conflict of interest regarding their SAR
    unit holdings. The directors then unanimously resolved to cancel the SAR units
    and establish a SAR cancellation payment pool of $2,310,000, based on a fixed
    unit price of $0.40 per share. Under this new arrangement, Mr. McGoey, along
    with three other directors and one member of management, would receive a SAR
    cancellation award (the SAR Cancellation Awards) based upon the $0.40 per unit
    figure.

[17]

The
    payment was contingent on: Look receiving the full compensation of $80 million from
    the Spectrum Sale; UBS receiving adequate cash resources; Mr. McGoey and
    the other SAR Plan unit holders relinquishing all rights to the SAR units
    awarded to them as of May 31, 2009; and the SAR Plan unit holders executing
    releases with respect to the SAR Plan and a stock option plan established in
    2002.

[18]

The
    UBS Board met on July 8 and 9, 2009. At that meeting, the directors considered
    the issue of awarding bonuses for certain personnel. Mr. McGoey proposed the
    establishment of a bonus pool of $7 million. That plan was not approved.
    However, the UBS Board did approve the establishment of a bonus pool in the
    amount of $3.4 million (the Bonus Pool).

[19]

The
    SAR Cancellation Awards and the Bonus Pool were allocated to the recipients in August
    2009. Under the SAR Cancellation Awards, Mr. McGoey was allocated to receive
    $600,000 and, under the Bonus Pool, he was allocated to receive $1,200,000.

[20]

In
    addition to the SAR Cancellation Awards and the Bonus Pool, Mr. McGoey and
    the other directors of Look also established a SAR cancellation payment pool
    and a bonus pool for that company. The total amount funded directly by UBS or
    indirectly, through its 51.8% equity interest in Look, in the new compensation
    plans of the two companies was $14,637,025, or approximately 97.6% of the
    market capitalization of UBS.

[21]

The
    disclosure of the SAR Cancellation Awards and the Bonus Pool was met with resistance
    by UBS shareholders. Faced with this resistance, Mr. McGoey caused UBS to
    advance to him $200,000 for the payment of anticipated legal fees.

[22]

A
    special shareholders meeting was held pursuant to s. 122 of the
OBCA
on
    July 5, 2010. At that meeting, Mr. McGoey and the other directors were removed
    and not re-elected as directors of UBS. Mr. McGoey then resigned as CEO of UBS
    and took the position that he was terminated without cause because he was not
    re-elected to the UBS Board.

[23]

Mr.
    McGoey commenced an action against UBS seeking,
inter alia
, payment of
    Enhanced Severance in the amount of $9,500,000. He successfully moved for partial
    summary judgment before Marrocco J. on the issue of the payment of legal fees.
    However, Marrocco J.s decision was subject to any finding of misfeasance that
    the court might make against Mr. McGoey.

[24]

On
    July 5, 2011, UBS was granted
CCAA
protection. It was ordered that Mr.
    McGoeys lawsuit be determined pursuant to the claims process under s. 20(1) of
    the
CCAA
. Mr. McGoey filed a proof of claim in the amount of
    $10,112,648, which the monitor disallowed in its entirety. Mr. McGoey sought to
    reverse that denial and a trial was ordered on the issue. That trial is the
    subject of this appeal and cross-appeal.

DECISION OF THE TRIAL JUDGE

[25]

After
    thoroughly reviewing the underlying facts, the trial judge considered the law
    with respect to the business judgment rule. She concluded that the business
    judgment rule would only be of assistance to Mr. McGoey if he acted honestly
    and in good faith, with a view towards the best interests of the corporation.

[26]

The
    trial judge then examined Mr. McGoeys actions to determine whether they would
    be protected by the business judgment rule or whether they constituted a breach
    of his fiduciary duty. She noted that, since Mr. McGoey was the only UBS
    director who testified, she had no independent evidence of what the
    compensation committee or the UBS Board discussed and considered when deciding
    on the SAR Cancellation Awards and the Bonus Pool. In particular, she had no
    evidence as to how or if the UBS Board followed Mr. McCarthys advice that the
    directors were obliged to meet their fiduciary duties to the corporation when
    setting executive compensation.

[27]

The
    trial judge accepted the evidence of Michael Thompson, a partner at Mercer, who
    was qualified as an expert regarding executive compensation and best practices for
    establishing executive compensation. She noted that Mr. Thompson opined that Mr.
    McGoeys compensation package did not pass any test of reasonableness and that she
    had heard no other independent evidence to refute Mr. Thompsons opinion. The
    trial judge found that Mr. Thompsons evidence gave her a helpful context to
    consider the UBS Boards decision-making process as part of her fiduciary duty
    analysis.

[28]

The
    trial judge focused on the decision of the UBS Board to cancel the SAR Plan and
    set a price of $0.40 per unit at a time when the board knew, or ought to have
    known, that the market had not reacted to the Inukshuk sale as they had hoped:
    at para. 140.

[29]

The
    trial judge noted that the UBS compensation committee did not have any independent
    members, as all of the directors on that committee held SAR units.

[30]

The
    trial judge made the following findings with respect to the SAR Cancellation
    Awards and the Bonus Pool, at paras. 145-147:

The decision to cancel the SAR plan really came out of the
    blue, and only when it was apparent to the board members, who were the majority
    of the SAR unit holders that their SARs units would have little or no value on
    the triggering date.

Absent
    any evidence to the contrary (and there is really none), I am led to the
    inescapable conclusion the decision to cancel [the] SARs and replace them with
    a fixed amount must have been driven by the boards own self interest, and not
    the interests of the corporation. There was nothing in it for UBS shareholders.

As
    for Mr. McGoeys bonus, there was no business rationale for it. UBS was a
    holding company. It had no real employees, other than bookkeeping and
    secretarial staff. I fail to see how it was in UBS interests to pay such a
    staggering amount of money to Mr. McGoey in order to incentivize him to
    remain with UBS. The situation at Look might be viewed differently; that issue,
    however, is not for me to decide.

[31]

The
    trial judge went on to find that the $0.40 unit value was not determined by any
    objective means, did not reflect the actual market price for the shares, and
    represented more of a hope for share value based in large part on a Rogers
    sale transaction that was fraught with difficulty, and nowhere near a firm
    transaction: at para. 154. She stated that any valuation based on the possible
    Rogers transaction should have been discounted for the real possibility the
    transaction might not close, or the purchase price might be significantly
    reduced: at para. 155.

[32]

With
    respect to the Bonus Pool, the trial judge found that it was not based on any
    objective criteria. She noted that, previously, Mr. McGoeys bonuses had been
    in the range of $400,000 to $440,000 and stated that she had heard no evidence
    to support any reasonable rationale for a bonus at the level of $1.2 million:
    at para. 157.

[33]

The
    trial judge rejected the argument advanced by Mr. McGoey that the UBS Boards
    actions were done on the advice of Mr. McCarthy, finding that he was not asked
    to opine on the reasonableness of the changes to the SAR and bonus plans: at
    para.159.

[34]

The
    trial judge concluded that the UBS Board breached its fiduciary duties to UBS
    in establishing the SAR Cancellation Awards and the Bonus Pool. She set aside
    the allocations to Mr. McGoey and Jolian pursuant to the SAR Cancellation
    Awards and the Bonus Pool.

[35]

The
    next issue was whether Mr. McGoey and Jolian triggered the default provisions
    in the Jolian Management Services Agreement, such that they were disentitled to
    the golden parachute benefits under the agreement. Specifically, Mr. McGoey and
    Jolian are disentitled to golden parachute benefits if Mr. McGoey and Jolian
    are in default as that term is defined in the agreement. The trial judge concluded
    that a breach of fiduciary duty did not qualify as a default under the Jolian
    Management Services Agreement and, therefore, UBS was obliged to pay the
    amounts due under the golden parachute provisions of the agreement.

[36]

UBS
    relied upon the oppression remedy provisions in the
OBCA
. However, the
    trial judge found, at para. 180, as follows:

Since I have determined the enhanced benefits represented a
    breach of the boards fiduciary duties and have set those benefits aside, it
    seems to me the potentially oppressive acts have been cured and I need not deal
    with whether the boards actions might also constitute oppressive conduct.

[37]

The
    trial judge concluded that UBS had no obligation to indemnify Mr. McGoey for
    his legal fees because he had breached his fiduciary duties to the corporation.

[38]

In
    her costs decision, the trial judge found that there was divided success at
    trial and ordered that there be no costs.

ISSUES

[39]

The
    appeal and cross-appeal raise the following issues:

(i) Did the trial judge err in
    finding that Mr. McGoey breached his fiduciary duties to UBS?

(ii) Did the trial judge err
    in finding that Mr. McGoey is not entitled to indemnification from UBS?

(iii) Did the trial judge err
    in finding that Mr. McGoey is entitled to Enhanced Severance under the Jolian
    Management Services Agreement? and

(iv) Did the trial judge err
    in failing to consider the oppression remedy argument advanced by UBS?

POSITIONS OF THE PARTIES

[40]

UBS
    submits that the trial judge did not err in finding that Mr. McGoey had breached
    his fiduciary duties to UBS by virtue of his involvement in establishing the SAR
    Cancellation Awards and the Bonus Pool. Nor did the trial judge err in finding
    that, as a consequence of the breach, Mr. McGoey was not entitled to indemnification
    from UBS. However, UBS submits that the trial judge erred in finding that Mr.
    McGoeys conduct did not amount to Cause or a Jolian Default under the Jolian
    Management Services Agreement and that Mr. McGoey was entitled to Enhanced Severance.
    Specifically, UBS argues that the trial judges interpretation of the Jolian
    Management Services Agreement is inconsistent with s. 134(3) of the
OBCA
and leads to a commercially absurd result. In addition, UBS submits that the trial
    judge, having rejected UBSs interpretation of the Jolian Management Services
    Agreement, was obliged to consider the oppression remedy argument it had
    advanced.

[41]

In
    his cross-appeal, Mr. McGoey submits that the trial judge erred in finding a
    breach of fiduciary duty. His position is that the actions taken regarding the SAR
    Cancellation Awards and the Bonus Pool were within a range of commercially reasonable
    decisions and are, therefore, protected by the business judgment rule. He also
    submits that the trial judge erred in finding that he was not entitled to
    indemnification from UBS under the terms of the Jolian Management Services
    Agreement. Mr. McGoey argues that the trial judge otherwise correctly
    interpreted the Jolian Management Services Agreement and that, because the
    oppression remedy does not apply, the trial judge was under no obligation to
    consider that argument.

ANALYSIS

(i) Breach of Fiduciary Duty

[42]

As
    mentioned above, Mr. McGoey asserts that the trial judge erred in finding that
    he had breached his fiduciary duties. At the heart of Mr. McGoeys submission
    is that the decisions he made with respect to the SAR Cancellation Awards and
    the Bonus Award were done with the advice of experienced legal counsel and are
    protected by the business judgment rule.

[43]

In
    my view, the trial judges finding that Mr. McGoeys breached his fiduciary
    duties to UBS was well supported in the evidence before her and by the lack of
    any clear explanation from Mr. McGoey as to how the UBS Board decided to
    establish the SAR Cancellation Awards and the Bonus Pool. For the reasons set
    forth below, I see no error in the trial judges reasoning and in her
    conclusion that Mr. McGoeys actions were driven by self-interest, unsupported
    by any reasonable or objective criteria, and contrary to the best interests of
    UBS.

[44]

Below
    I consider the general principles of the law of fiduciary duties, an analysis of
    the trial judges decision regarding the SAR Cancellation Awards and Bonus
    Pool, and the defences raised by Mr. McGoey.

General Principles

[45]

It
    is undisputed that, Mr. McGoey, as a director and CEO of UBS, owed the company
    fiduciary duties. The imposition of fiduciary duties on directors and officers
    of a corporation is consistent with the origins of the doctrine in trust law. A
    director or senior officer of a corporation is in a position of trust. He or
    she is charged with managing the assets of a corporation honestly and in a
    manner that is consistent with the objects of the corporation. Courts will be
    loath to interfere with the legitimate exercise of corporate duties, but they
    will intervene where a fiduciary breaches the trust reposed in him or her.

[46]

Mr.
    McGoeys fiduciary duties included an obligation to act in good faith and in
    the best interests of the corporation. He had a specific obligation to
    scrupulously avoid conflicts of interest with the corporation and not to abuse
    his position for personal gain:
Peoples Department Stores Inc. (Trustee of)
    v. Wise
,
2004 SCC 68, [2004] 3 S.C.R. 461, at paras. 35 and 42; and
BCE Inc. v. 1976 Debentureholders
, 2008 SCC 69, [2008] 3 S.C.R. 560,
    at paras. 39 and 89.

[47]

As
    Granger J. stated in
Moffatt v. Wetstein
(1996), 29 O.R. (3d) 371, at p.
    390 (Gen. Div.):

Subsumed in the fiduciarys duties of good faith and loyalty is
    the duty to avoid a conflict of interest. The fiduciary must not only avoid a
    direct conflict of interest but must also avoid the appearance of a possible or
    potential conflict. The fiduciary is barred from dividing loyalties between
    competing interests, including self-interest.

[48]

Disclosure
    of a directors interest in a transaction is just the first step. Disclosure
    does not relieve a director of his or her obligation to act honestly and in the
    best interests of the corporation:
UPM-Kymmene Corp. v. UPM-Kymmene
    Miramichi Inc.
(2002), 214 D.L.R. (4th) 496 (Ont. S.C.), affd (2004), 183
    O.A.C. 310 (C.A.).

[49]

It
    is against these standards that the trial judge was obliged to consider the
    actions of Mr. McGoey.

SAR Cancellation Awards

[50]

With
    respect to the SAR Cancellation Awards, the trial judge concluded that there
    was no evidence as to how the UBS Board arrived at the non-market price of
    $0.40 per unit and how it determined that it was in the best interests of the
    corporation. The UBS Board provided no credible analysis to justify why they
    considered that these payments, which represented a significant percentage of
    UBS market capitalization, were fair and reasonable in the circumstances.

[51]

In
    considering the reasonableness of the UBS Boards actions in this regard, I
    find that the following facts are germane.

[52]

As
    of May 4, 2009, when the UBS Board resolved to treat the Spectrum Sale as a
    triggering event pursuant to the SAR Plan, it anticipated that the trading
    price of UBS shares would rise from $0.15 to a range of $0.30 to $0.50 per
    share.

[53]

On
    June 17, 2009, the shares of UBS were still trading at $0.15 per share. Thus,
    the anticipated gains between the strike price and the trading price had not
    materialized. It was in these circumstances that the UBS Board decided to
    implement the SAR Cancellation Awards without the benefit of any independent or
    third party advice that could speak to the reasonableness of their decision.

[54]

As
    found by the trial judge, the potential Rogers share transaction never went
    beyond the negotiation stage and was completely off the table by July 20, 2009
    and could not serve as a justification for the $0.40 unit price.

[55]

Mr.
    McGoeys SAR Cancellation Award was allocated to him on August 28, 2009,
    pursuant to which he was entitled to receive a payment from UBS of $600,000,
    whereas, under the SAR Plan, he would have been entitled to a payment of $75,000.

[56]

Given
    these facts, and in the absence of any credible evidence regarding the
bona
    fides
of the SAR Cancellation Awards or the process by which they were created,
    the trial judge reached the reasonable conclusion that the decision to
    implement the new scheme was driven by UBS Boards self-interest. I see no
    error in that conclusion.

[57]

I
    also agree with the trial judges conclusion that the $0.40 unit value was
    unjustified and unrealistic. It was notionally based on a transaction with Rogers
    that was far from certain and which had been terminated at the time when the
    SAR Cancellation Awards were allocated. What the SAR Cancellation Awards really
    achieved was the removal of the uncertainty that was part of the SAR Plan.
    Under this new scheme, the recipients awards were not dependant on an increase
    in the share price, the awards would be granted regardless of the trading price
    of the shares.  This removal of the uncertainty was to the benefit of the
    recipients and was of no benefit to the corporation.

Bonus Pool

[58]

The
    trial judge rejected the position of Mr. McGoey that there was a reasonable
    rationale for the establishment of the Bonus Pool and his allocation of $1.2
    million. This finding was well supported by the evidence at trial, including
    the following.

[59]

The
    UBS Board did not seek or receive any expert advice on an appropriate bonus
    structure. Nor did they have any comparable or other data regarding executive
    compensation in the marketplace.

[60]

There
    was no documentation that stipulated the performance factors or criteria by
    which Mr. McGoeys performance would be evaluated. The trial judge rejected Mr.
    McGoeys evidence that the services he provided for Look qualified as the
    criteria under which he could be awarded a bonus by UBS.  She concluded that,
    when the UBS bonus was awarded, there were, in fact, no criteria.

[61]

Similarly,
    there was no documentation that showed how the Bonus Pool was quantified. The
    best evidence we have is that Mr. McGoey went to a UBS Board meeting seeking to
    establish a $7 million bonus pool but the UBS Board found that amount too
    high and established a $3.4 million bonus pool instead.

[62]

In
    my view, on these facts, the trial judge was correct to conclude that Mr. McGoeys
    establishment of the Bonus Pool and the allocation of a part of the Bonus Pool
    to him breached his fiduciary duties to UBS.

Defences

[63]

I
    do not accept Mr. McGoeys rather novel argument that there can be no finding
    of a breach of fiduciary duty because, before he could be paid under the SAR
    Cancellation Awards or the Bonus Pool, he was removed from office by the
    shareholders of UBS. Counsel for Mr. McGoey suggests that the breach is incomplete
    because no damages have been suffered.

[64]

This
    submission is not correct at law. As stated by Mark Ellis in his text,
Fiduciary
    Duties in Canada
,
[2]
in the context of a discussing conflicts of interest:

Entering into a
potential

conflict of interest
    is a breach whether or not the conflict is operative; once such a conflict
    becomes operative to jeopardize the beneficiary or his property, the fiduciary
    breach would then give rise to the remedies available in law. The point is
    important: to wait until damage or prejudice actually occurs is to prejudice
    the beneficiarys right to utmost loyalty and avoidance of conflict. If such a
    schism in theory is allowed, the law would be encouraging a finding that the
    duty piggy-backs the damage caused rather than premising damage on the basis
    of duty. [Emphasis in original.]

[65]

Similarly,
    in
Canson Enterprises Ltd. v. Boughton & Co
.
, [1991] 3 S.C.R.
    534, at p. 553, McLachlin J. (as she then was) stated that [a] breach of
    fiduciary duty is a wrong in itself, regardless of whether a loss can be
    foreseen.

[66]

It
    would be a remarkable result if a fiduciary could be allowed to act in a manner
    contrary to his duty with impunity, on the basis that he was prevented by the beneficiarys
    vigilance from receiving a personal benefit.

[67]

Mr.
    McGoeys counsel also argued that the trial judge erred in simply comparing the
    payments under the SAR Plan and the SAR Cancellation Awards, without
    considering that the SAR Cancellation Awards also required the recipients to
    execute releases and were contingent upon Look receiving the full payment of
    funds from the Spectrum Sale and UBS having sufficient resources.

[68]

I
    do not find this argument persuasive. The last payment under the Spectrum Sale
    was received on September 11, 2009. Mr. McGoeys release was executed four days
    later. It is true that the funds from the Spectrum Sale had not been paid over
    to UBS; however, it was hardly a doubtful proposition that the money would have
    found its way to UBS, given Mr. McGoey and his associates control over Looks
    board.

[69]

The
    trial judge also rejected Mr. McGoeys argument that his actions were
    undertaken with the assistance of independent legal advice from Mr. McCarthy
    and, therefore, could not constitute a breach of his fiduciary duties. I agree
    with the trial judges conclusion on this issue. The UBS Board never sought an
    opinion from Mr. McCarthy regarding the reasonableness of the changes to the
    SAR Plan and the bonuses. Indeed, the evidence is clear that Mr. McCarthy did
    not have any information during the relevant time regarding the quantity of the
    Bonus Award or the SAR Cancellation Awards allocated to Mr. McGoey or to any
    other director or officer of UBS.

[70]

Finally,
    the trial judge carefully considered Mr. McGoeys argument that his actions
    were protected by the business judgment rule. She reviewed the law and
    identified the critical issue at para. 122 of her reasons:

I must now examine the boards and Mr. McGoeys actions and
    decide whether business judgment is what was exercised here, or whether it was
    self help, or worse, breach of fiduciary duty, dressed in business judgments
    clothes.

[71]

The
    trial judge properly concluded that the business judgment rule was of no assistance
    to Mr. McGoey because he did not satisfy the rules preconditions of honesty,
    prudence, good faith, and a reasonable belief that his actions were in the best
    interests of the company
:
Corporacion Americana de Equipamientos Urbanos
    S.L. v. Olifas Marketing Group Inc
.
, (2003), 66 O.R. (3d) 352, at
    paras. 13 and 14 (S.C.).

[72]

It
    must be remembered that the business judgment rule is really just a rebuttable
    presumption that directors or officers act on an informed basis, in good faith,
    and in the best interests of the corporation. Courts will defer to business
    decisions honestly made, but they will not sit idly by when it is clear that a
    board is engaged in conduct that has no legitimate business purpose and that is
    in breach of its fiduciary duties. In the present case, there was ample
    evidence upon which the trial judge could base her conclusion that the
    presumption had been rebutted.

[73]

In
    summary, I conclude that the trial judge did not err in finding that Mr. McGoey
    breached his fiduciary duties to UBS.

(ii) Eligibility for Indemnification

[74]

The
    trial judge noted that UBS indemnity obligations arise under various sources
    and documents: the Jolian Management Services Agreement; Article 7 of the UBS
    by-laws; specific indemnity agreements between Mr. McGoey and UBS; and s.
    134(4.1) of the
OBCA
.

[75]

The
    trial judge also referred to Marrocco J.s finding that the indemnification
    provisions under the UBS by-laws are only available if the director or officer
    acted honestly and in good faith with a view to the best interests of the
    Corporation: at para. 183.

[76]

The
    trial judge concluded that, given her finding of a breach of fiduciary duty, the
    indemnity obligations were not operative.

[77]

I
    see no error in this finding. The purpose of statutory and contractual
    indemnity provisions is to ensure that officers and directors who are acting in
    good faith and in the best interests of a corporation are not exposed to legal
    costs. It is commercially sensible and good public policy to offer this
    protection. The rationale for offering the protection is eliminated, however,
    where the officer or director has not acted in good faith and in the best
    interests of the corporation.

[78]

In
    a related case, this court upheld an application judges decision to refuse advanced
    funding for the legal costs of Looks directors and officers because the
    corporation had established a strong
prima
facie
case of bad
    faith on the part of the parties seeking the funding:
Cytrynbaum v. Look
    Communications Inc.
, 2013 ONCA 455, 116 O.R. (3d) 241, leave to appeal
    refused, [2013] S.C.C.A. No. 377.

[79]

In
    the present case, while the trial judge did not specifically state that Mr.
    McGoey acted in bad faith, she did conclude that he was ineligible to receive
    indemnification because he had not met the standard of acting honestly and in
    good faith. This decision was open to the trial judge to make on the evidence
    before her and there is no basis for appellate interference.

(iii) Interpretation of the Jolian Management Services
    Agreement

[80]

The
    trial judge held that, pursuant to the terms of the Jolian Management Services
    Agreement, a breach of fiduciary duty did not constitute Cause or a Jolian
    Default as defined in the agreement, and, consequently, Mr. McGoey was
    entitled to receive Enhanced Severance. However, this payment was to be
    calculated on the basis of what the entitlement would have been prior to the
    SAR Plan cancellation and the establishment of the Bonus Pool.

[81]

Mr.
    McGoey and Jolian were directed to file a revised proof of claim within 30 days
    to reflect the trial judges finding. The revised claim filed pursuant to this
    direction was in excess of $4 million.

[82]

For
    the reasons that follow, I am of the view that the trial judge erred in law in
    her interpretation of the Jolian Management Services Agreement and in her
    finding that Mr. McGoey was entitled to Enhanced Severance under the contract.
    Set forth below, I consider some general principles of contractual
    interpretation, the specific terms of the Jolian Management Services Agreement,
    and the trial judges analysis of the agreement.

General Principles

[83]

The
    following principles of contractual interpretation are relevant in considering
    the trial judges analysis of the Jolian Management Services Agreement.

[84]

In
Manulife Bank of Canada v. Conlin
, [1996] 3 S.C.R. 415, at pp. 439-40,
    quoting Ruth Sullivan,
Driedger on the Construction of Statutes
, 3d.
    ed. (Toronto: Butterworths, 1994), at p. 131, LHeureux-Dubé J., dissenting, described
    the interpretation of statutes in the following way that applies equally to
    contractual interpretation:

There is only one rule in modern interpretation, namely, courts
    are obliged to determine the meaning of [that which is to be judicially
    interpreted] in its
total context
, having regard to [its] purpose , the
consequences of proposed interpretations,
the
presumptions and special rules of interpretation,
as well as
admissible external aids.
In other words, the
courts must consider and
    take into account all relevant and admissible indicators of [] meaning. After
    taking these into account, the court must then adopt an interpretation that is
    appropriate
.
An appropriate interpretation is one that can be
    justified in terms of (a) its plausibility, that is, its compliance with the
    [] text; (b) its efficacy, that is, its promotion of the [] purpose; and (c)
    its acceptability, that is, the outcome is reasonable and just.

[Emphasis added by LHeureux-Dubé J.]

[85]

The
    subjective intent of one party to a contract has no independent place in interpreting
    contractual provisions:
Eli Lilly & Co. v. Novopharm Ltd
.,
[1998] 2 S.C.R. 129, at para. 54.

[86]

While
    the plain meaning of the words used by the contracting parties is important, the
    contract must be read as a whole and in the context of the circumstances as
    they existed when the contract was created:
Dumbrell v. The Regional Group
    of Companies Inc.
, 2007 ONCA 59, 85 O.R. (3d) 616, at para. 52.

[87]

Courts
    will avoid a contractual interpretation which results in rendering the
    agreement unlawful. As Blair J.A. discussed in
Ventas, Inc. v. Sunrise
    Senior Living Real Estate Investment Trust
, 2007 ONCA 205, 85 O.R. (3d)
    254, at para. 57, quoting John D. McCamus,
The Law of Contracts

(Toronto:
    Irwin Law, 2005), at p. 729,
[3]
where an agreement admits of two possible constructions, one of which renders
    the agreement lawful and the other of which renders it unlawful, courts will
    give preference to the former interpretation; see also
Cantor Art Services
    Ltd. v. Kenneth Bieber Photography Ltd
.
, [1969] 1 W.L.R. 1226
    (C.A.).

[88]

A commercial contract will be interpreted in a manner that is consistent
    with commercial principles and that avoids a commercial absurdity. In
Consolidated-Bathurst
    Export Ltd. v. Mutual Boiler and Machinery Insurance Co.
, [1980] 1 S.C.R.
    888, at p. 901, Estey J. stated:

[w]here words may bear two constructions, the more reasonable
    one, that which produces a fair result, must certainly be taken as the
    interpretation which would promote the intention of the parties. Similarly, an
    interpretation which defeats the intentions of the parties and their objective
    in entering into the commercial transaction in the first place should be
    discarded in favour of an interpretation of the policy which promotes a
    sensible commercial result.

[89]

As
    stated by the House of Lords in
Mannai Investment Co. Ltd. v. Eagle Star
    Life Assurance Co. Ltd.,
[1997] 2 W.L.R. 945, at p. 964 (H.L.), commercial
    contracts should be interpreted in the way in which a reasonable commercial
    person would construe them. And the standard of the reasonable commercial
    person is hostile to technical interpretations and undue emphasis on niceties
    of language.

[90]

The
    interpretation of a contract is a question of law. Accordingly, the standard of
    review by an appellate court is correctness:
Bell Canada v. The Plan Group
,
    2009 ONCA 548, 96 O.R. (3d) 81.

Jolian Management Services Agreement

[91]

UBS
    and Jolian entered into the Jolian Management Services Agreement in 2006.
    However the terms of the agreement were not disclosed to UBS shareholders until
    May 2010, when it was filed on SEDAR.

[92]

The
    relevant sections of the agreement are as follows:

Cause
 means an act of fraud, embezzlement or
    misappropriation or other act which constitutes Cause at common law, and, in
    each case, which is materially injurious to the Company.

CEO Designee
 means Gerald T. McGoey or such
    other individual designated by the parties in conformity with Section 1.3 of
    this Agreement.

CEO Services
 means the duties typically
    performed by, and responsibilities assumed by the chief executive officer of a
    company, including, without limitation, the overseeing of:

(a)     the preparation and
    administration of the annual      budget;

(b)     the hiring, firing and
    supervising of all senior staff;

(c)     UBS compliance with all
    regulatory requirements   and shareholder communication;

(d)     the monitoring and, where
    appropriate, the    updating of UBS broadcast and information         technology;
    and

(e)     customer service.

Jolian Default
means:

(a)     an act of fraud, theft or misappropriation or
    other act which constitutes Cause at common law committed by the CEO
    designee; and

(b)

the material failure by the CEO Designee to perform
    the CEO Services after having received written notice of such material failure
    and been given reasonable time to correct same;

in each case, which is materially injurious to USB or which has
    not been waived by UBS.

Interpretation by the Trial Judge

[93]

The
    trial judges analysis of the Jolian Management Services Agreement was limited
    to considering the term Jolian Default. After setting out the definition of
    that term found in the agreement, the trial stated, at paras. 172-77:

As I read the definition, both parts must be met before actions
    constitute Jolian Default. I say this because the drafters clearly chose to
    use and between the two paragraphs, thus making them conjunctive.

Here, regardless of whether subsection (a) of the definition
    has been met, there is no question subsection (b) has not. No one provided Mr.
    McGoey with written notice of any material failure to perform the CEO
    services together with a reasonable time to correct any such material failure.

As
    to subsection (a), in my view it has not been met either. It would have been an
    easy matter for the drafters to include breach of fiduciary duty or bad
    faith as enumerated items of cause. They did not.

It also would have been an easy matter for the drafters to
    define cause simply as cause at common law. They did not.

From this I infer that cause at common law in the context of
    this provision means acts of fraud and defalcation of the types enumerated. I
    cannot conclude breach of fiduciary duty falls into this category.

In any event, since both provisions of the section have not
    been met I therefore conclude there has been no Jolian Default under the
    Jolian Management Services Agreement. Thus UBS remains bound to pay the amounts
    due under the golden parachute provisions of the agreement. This is so unless
    there is another reason to find the obligation no longer exists.

[94]

In
    my view, the trial judge erred in law in her interpretation of the agreement
    for the following reasons.

[95]

First,
    the trial judges interpretation of the agreement ignores the provisions of s.
    134(3) of the
OBCA
. That section provides:

Subject to subsection 108(5), no provision in a contract, the
    articles, the by-laws or a resolution relieves a director or officer from the
    duty to act in accordance with this Act and the regulations or relieves him or
    her from liability for a breach thereof.

[96]

Pursuant
    to s. 134(1) of the

act, a director or officer of an
OBCA
corporation is required to act honestly and in good faith with a view to the
    best interests of the corporation. In addition, the director or officer must
    exercise the care, diligence, and skill that a reasonably prudent person would
    exercise in comparable circumstances.

[97]

The
    effect of the trial judges interpretation is to eviscerate the prohibition
    found in s. 134(3). If her interpretation were accepted, Mr. McGoey would be relieved
    of his obligation to act in manner that is consistent with his duties under the
    legislation (
i.e.
he could breach his fiduciary duties to the company). Such
    conduct would not constitute a Jolian Default under the agreement and he
    would be entitled to receive Enhanced Severance.

[98]

Second, the trial judges interpretation of the
Jolian
    Management Services Agreement leads to a commercially absurd result. Given her
    finding that subparagraphs (a) and (b) are conjunctive, Mr. McGoey could commit
    theft from the company but such conduct would not constitute a Jolian Default
    under the agreement unless UBS gave Mr. McGoey written notice of the theft and
    provided him with the opportunity to cure the fraud.

[99]

Clearly
    this type of result could not be consistent with the intentions of reasonable
    business people entering into a commercial transaction. While the word and generally
    imports a conjunctive sense, this is not an inexorable cannon of construction.
    In some cases the word and will be interpreted as or, in order to make
    sense and give effect to the contract:
Clergue v. H.H. Vivian and Co.
,
    (1909) 41 S.C.R. 607; and
Boy Scouts of Canada v. Doyle
(1997), 149
    D.L.R. (4th) 22 (Nfld. C.A.). This was one of those cases.

[100]

Third, the trial
    judges interpretation of the agreement has the effect of ignoring the phrase
    or other act which constitutes Cause at common law. If the intention of the
    parties was to limit the prohibited conduct to the enumerated grounds of fraud,
    theft, or misappropriation, this additional phrase would be unnecessary.

[101]

When the
    contract is read as a whole, it is evident that the parties sought to ensure
    that a Jolian Default would be limited to serious misconduct that was
    materially injurious to UBS. The enumerated grounds of fraud, theft and
    misappropriation are examples of the types of conduct which would constitute a
    default.

[102]

A serious breach
    of fiduciary duty would logically meet this definition, as it would constitute
    a breach of Mr. McGoeys statutory and common law duties to the corporation and
    would amount to cause at common law. The conduct of Mr. McGoey, in establishing
    the SAR Cancellation Awards and the Bonus Pool and thereby preferring his own
    interests to the interests of UBS, qualifies as a serious breach of fiduciary
    duty.

[103]

Given the amount
    of money involved in the SAR Cancellation Awards and the Bonus Pool, these
    plans would have been materially injurious to UBS had the payouts been made.
    Again, in my view, the fact that Mr. McGoey was prevented by shareholder
    vigilance from receiving the funds allocated to him cannot serve as a defence.
    It would be commercially absurd to interpret the agreement to mean that UBS
    would be obligated to pay Jolian and Mr. McGoey an amount  equivalent to 300%
    of Mr. McGoeys compensation because he had not succeeded in wrongfully
    diverting funds for his own benefit.

[104]

Interpreting Jolian
    Default to include a serious breach of fiduciary duty that was materially
    injurious to UBS, gives effect to the entirety of the words used in the
    definition of the term in their context. It is also commercially sensible and
    does not result in an interpretation that is inconsistent with the
OBCA
.

[105]

The trial judge
    erred in law in her contractual interpretation, and her finding that Mr. McGoey
    was entitled to Enhanced Severance cannot stand.

(iv) Oppression Remedy

[106]

Given my finding
    regarding the proper interpretation of the Jolian Management Services
    Agreement, it is not necessary to consider UBSs argument that the trial judge
    erred in failing to consider the oppression remedy argument advanced by UBS. I
    only note that the trial judge, having concluded that Mr. McGoey was entitled
    to receive Enhanced Severance, had an obligation to consider the oppression
    argument. Contrary to her conclusion, the setting aside of the SAR Cancellation
    Award and the Bonus Award did not cure Mr. McGoeys wrongful conduct. It
    was still necessary to determine whether the entitlement to Enhanced Severance
    was oppressive.

[107]

The oppression
    remedy is a flexible, equitable remedy that affords the court broad powers to
    rectify corporate malfeasance. It is an important remedy for shareholders and
    other corporate stakeholders. In the circumstances of this case, it may well
    have provided a remedy to protect the interests of the shareholders.

[108]

It was an error
    in law not to consider the oppression remedy in these circumstances.

DISPOSITION

[109]

I would allow
    the appeal and substitute paragraph 2 of the judgment with a finding that Mr.
    McGoeys actions constitute Cause and a Jolian Default under the Jolian
    Management Services Agreement, set aside paragraph 3 of the judgment, and substitute
    paragraph 4 of the judgment with a finding that Jolian/Mr. McGoey are not
    entitled to Enhanced Severance. I would dismiss the cross-appeal.

[110]

On the issue of
    costs of the trial, the trial judges decision that there be no order as to
    costs was premised on her finding that both parties had achieved some measure
    of success at trial. Given my findings, the costs order cannot stand. As the
    successful party, UBS is entitled to costs of the trial. If the parties cannot
    agree on the scale and/or quantum of the costs, they may attend before the
    trial judge to fix the costs.

[111]

The parties
    agreed that, if one party were successful on both the appeal and the cross
    appeal, then that party would be entitled to costs of the appeal in the amount
    of $60,000. Accordingly, I would order that Mr. McGoey and Jolian are jointly
    and severally liable to UBS for the costs of the appeal in the amount of
    $60,000, inclusive of fees, disbursements, and H.S.T.

Released: July 10, 2014 (RJS)

C.W.
    Hourigan J.A.

I
    agree Robert J. Sharpe J.A.

I
    agree E.E. Gillese J.A.

[1]
The capitalized terms are defined below.

[2]
Mark Ellis,
Fiduciary Duties in Canada
, loose-leaf (consulted on 25 June
    2014), (Carswell, Toronto: 2014), ch. 1 at 5.

[3]
See also John D. McCamus,
The Law of Contracts
(Toronto: Irwin Law,
    2012), at p. 773.


COURT OF APPEAL FOR ONTARIO

CITATION: United States
    v. Singh, 2014 ONCA 559

DATE: 20140721

DOCKET: M44027

Strathy C.J.O. (In Chambers)

BETWEEN

The Attorney General of Canada on Behalf of the
    United States of America

Respondent

and

Gursharan Singh

Applicant

Frank Addario, for the applicant

Nancy Dennison, for the respondent

Heard: July 18, 2014

On application pursuant to s. 18(2) of the
Extradition
    Act
, S.C. 1999, c. 18, to review a detention order by Justice Todd
    Ducharme of the Superior Court of Justice, dated May 27, 2014, pending a
    request for extradition.

ENDORSEMENT

[1]

Gursharan Singh was denied judicial interim release pending his
    extradition hearing. He applies to this court for review of that order and asks
    to be released on strict terms, including house arrest, electronic monitoring,
    four
sureties and a recognizance in the amount of $850,000.

[2]

Mr. Singh is sought for extradition by the United States with respect to
    two sets of offences, one in Massachusetts and the other in New York. The
    allegations relate to the importation and trafficking of very substantial
    amounts of cocaine and MDMA.

[3]

At the hearing, the Crown did not advance the tertiary ground and the
    application judge found any concerns on the secondary ground could be met by
    imposing strict conditions of release. However, he dismissed the application on
    the primary ground.

[4]

He noted the strict sentencing regime for drug trafficking offences in
    the United States, with the potential for a maximum sentence of life
    imprisonment in New York and 20 years in Massachusetts.

[5]

The application judge also noted that although Mr. Singh has no criminal
    record, he is facing charges in Canada for trafficking in cocaine, possession
    of cocaine for the purposes of trafficking, conspiracy to traffic in cocaine
    and possession of proceeds of crime. Those charges pre-date the extradition
    requests by the United States.

[6]

The application judge observed that the case against Mr. Singh in the
    United States appears strong and the amount of drugs involved, over 350 kilograms
    in one case, make the allegations very serious. He observed that, if convicted,
    Mr. Singh would likely be sentenced to imprisonment of 20 years or more. He
    concluded that in light of these penalties, and the nature and extent of his
    involvement in drug activity, Mr. Singh had not discharged the onus with
    respect to the primary ground.

[7]

The standard of review on this application requires demonstration that
    the application judge made an error in principle:
United States of America
    v. Pannell
(2005), 193 C.C.C. (3d) 414 (Ont. C.A.);
United States of
    America v. Ugoh
, 2011 ONSC 1810, 269 C.C.C. (3d) 380, at para. 9. In
Pannell
,
    at para. 24, MacPherson J.A. referred to the observation of Sharpe J.A. in
United
    States of America v. Chan
(2002), 144 C.C.C. (3d) 93 (Ont. C.A.), at para.
    2, [t]he issue, accordingly, is not whether I would grant bail if the matter
    came before me at first instance, but rather, whether the applicant can
    demonstrate reviewable error on the part of [the application judge].

[8]

Mr. Singh points to three alleged errors that he says permit the
    intervention of this court.

[9]

First, he says the application judge misapprehended the evidence in
    apparently accepting the Crowns submission that he was capable of accessing
    large sums of money, thereby making him a flight risk. In my view, this
    conclusion was open to the application judge and does not reflect an error in
    principle. There was evidence that Mr. Singh was an important participant in a
    sophisticated trafficking operation lasting several years, and that he
    trafficked large quantities of cocaine capable of generating millions of
    dollars of revenue. The observations of the Supreme Court of Canada in
R.
    v. Pearson
, [1992] 3 S.C.R. 665, at p. 696, are apt:

Drug importers and traffickers, however, have access both to a large
    amount of funds and to sophisticated organizations which can assist in a flight
    from justice. These offenders accordingly pose a significant risk that they
    will abscond rather than face trial.

[10]

Second,
    Mr. Singh contends there was no evidence to support the application judges
    statement that he would likely spend a minimum of 20 years in prison. The Crown
    concedes there was no such mandatory minimum sentence and that this observation
    was in error. In my view, however, it was not an error in principle. There was
    evidence that Mr. Singh faced a mandatory minimum of 10 years and a maximum
    sentence of life imprisonment. Under the applicable sentencing guidelines, if
    convicted after trial he could receive an advisory range of sentence of
    between 30 years and life in New York. The application judge was entitled to
    conclude that the possibility of a very long sentence increased the flight
    risk.

[11]

Third,
    Mr. Singh says the application judge made an error in principle in failing to
    balance his flight risk against his absence of a criminal record, his family
    support and impending marriage in Canada, his exemplary conduct on bail for the
    Canadian charges and the strict terms he proposed for house arrest and
    electronic monitoring.

[12]

I
    do not find the application judge made an error in this regard. The applicant
    proposed that he would live with some of his sureties, namely his mother and
    father and brother and sister-in-law. The application judge heard evidence from
    Mr. Singhs mother and father. I agree with the respondent that their evidence
    does not demonstrate a high level of awareness of the seriousness of the
    charges facing their son. The application judge was well-positioned to assess
    Mr. Singhs submission concerning the pull of bail:
United States of
    America v. Ugoh
, at para. 12.

[13]

Mr.
    Singh relied on the fact that, while on bail for the Canadian charges, the
    court, with the consent of the Crown, approved a variation of his bail to
    permit him to travel to India to attend a family wedding. He duly returned. Mr.
    Singh contends this is strong evidence of his trustworthiness. I agree with the
    Crown that the playing field has changed dramatically in the interim  he is
    now facing very serious charges in the United States and the possibility of
    lengthy imprisonment. As well, as the application judge noted, the case in the
    United States appears strong, notwithstanding its reliance on cooperating witnesses
    who were themselves facing long sentences. The application judge also noted
    that although Mr. Singhs parents and siblings are in Canada, he has relatives
    in India.

[14]

I
    do not find it persuasive that two of the other participants in one of the
    alleged offences in the United State were granted interim release by a judge of
    the British Columbia Supreme Court. The judge in that case found that the
    evidence against the accused was of questionable reliability and the
    identification evidence was weak. The application judge here found the evidence
    appears to be strong. The Supreme Court judge in British Columbia found that
    the co-conspirators were not available to assist the accused in flight,
    presumably because they had been arrested. That conclusion is not available in
    Mr. Singhs case because it is a reasonable inference that the alleged
    conspiracy involved parties outside North America.

[15]

I
    have not overlooked the submission based on
United States of America v.
    Cheema
, 2007 BCCA 624, 255 B.C.A.C. 35, at para. 17, that there is
    always, in these cases, some possibility of flight. Prowse J.A. made that
    observation in the context of being satisfied that the applicant would
    surrender into custody.

[16]

The
    application judge expressly referred to Mr. Singhs constitutional right to a
    reasonable bail. In my view, he undertook an appropriate balancing of all
    relevant considerations and made no error in principle in concluding Mr. Singh
    had not discharged the onus on him.

[17]

Mr.
    Singh points to the sophisticated electronic monitoring system that he has
    agreed to implement and pay for as a term of his release. This proposal was not
    before the application judge. As Trotter J. observed in
R. v. Sotomayor
,
    2014 ONSC 500, [2014] O.J. No. 359, at para. 40, [e]lectronic monitoring is not
    a primary ground panacea. It does not prevent absconding, it merely notifies
    the authorities when someone has moved out of the zone in which they are meant
    to remain. In my view, the electronic monitoring proposal does not tip the
    balance in favour of release.

[18]

For
    these reasons, the application is dismissed.

G.R.
    Strathy C.J.O.


COURT OF APPEAL FOR ONTARIO

CITATION:
Van Allen v. Vos, 2014 ONCA
    552

DATE: 20140721

DOCKET: C56289

Juriansz, Tulloch and Strathy JJ.A.

BETWEEN

G. Boyd Van Allen and Van Allen Health Facility
    Ltd.

Plaintiffs (Appellants)

and

Leo Vos and Vos Health Facility Ltd.

Defendants (Respondents)

Marc Munro, for the appellants

Michael R. White, for the respondents

Heard: May 2, 2014

On appeal from the judgment of Justice Joseph R.
    Henderson of the Superior Court of Justice, dated October 22, 2012, with
    reasons reported at 2012 ONSC 5989.

Tulloch J.A.:

A.

OVERVIEW

[1]

The
    appellant and respondent were partners in a dental practice for twenty years. During
    the partnership, they concluded an agreement addressing the allocation of
    annual profits and the accounting upon the partnerships termination. Later, for
    tax reasons, they sought to negotiate an agreement to terminate the partnership
    in a manner different than that set out in the original agreement. In the
    course of the negotiations, the respondents accountant discovered that, for
    several years, the partnership profits had not been distributed in conformity
    with that agreement. The parties relationship broke down soon thereafter. This
    litigation ensued.

[2]

Two
    core issues emerged at trial: whether the parties had reached a new and binding
    termination agreement outside the original agreement, and whether the
    allocation of partnership profits had been consistent with provisions of the
    original agreement. The trial judge concluded that a new agreement had not been
    finalized and that the profits had been misallocated. The appellant challenges
    both conclusions.

[3]

For
    the reasons below, I would dismiss the appeal.

B.

FACTUAL BACKGROUND

[4]

The
    appellant and respondent practiced together as dentists for approximately 28
    years. Initially, the respondent worked as an associate dentist for the
    appellant. In 1989, the respondent became a partner in the practice. He
    purchased a 49% interest in the business, and profits were allocated in accordance
    with each partners respective share.

[5]

That
    profit-sharing arrangement did not last. The appellant consistently generated
    greater income than the respondent, giving the latter a disproportionately
    large share of the profits. In 1997, the parties agreed to change the terms of
    their partnership in two respects. First, the respondents ownership share
    would be reduced to 47%. Second, a new formula would govern the distribution of
    the partnership profits. The ultimate product of the parties negotiation was
    the 2004 agreement.

(1)

The 2004 Agreement

[6]

In
    drafting a new agreement, the parties sought advice from Lloyd Wright, the
    partnerships former accountant at Deloitte & Touche LLP, and Tim Leonard,
    Wrights replacement as the partnerships accountant from 1995 onwards.

[7]

The
    parties opted for an eat what you kill arrangement. They understood that to
    mean that each partner would be allocated 100% of the income he produced, minus
    the specific expenses incurred to generate the income. The parties signed a
    one-page memorandum of agreement in June 1997 as evidence of their arrangement.
    The memorandum mentioned a new sharing formula according to Lloyd Wright and
    Tim Leonard, but provided no further details.

[8]

The
    parties concluded an agreement on January 21, 2004 (the 2004 agreement). The
    agreement was generally effective as of October 31, 1997, and effective as to
    the allocation of profits and losses as of February 1, 1999. The specific
    provisions of the 2004 agreement are described below. At the relevant times,
    Lorraine Van Allen, the appellants wife, kept the books and records for the
    partnership.

(2)

The Termination Agreement

[9]

On
    November 14, 2008, pursuant to the terms of the 2004 agreement, the appellant
    gave notice to the respondent that he wished to terminate the partnership. He
    asked the respondent to vacate the premises of the practice. The respondent
    accepted the notice and request.

[10]

The 2004 agreement
    contained specific provisions dealing with the termination of the partnership.
[1]
However, in order
    to gain a tax advantage, the parties attempted to negotiate a new and discrete
    agreement regarding termination. The parties consulted several accountants at
    Deloitte, including Lana Hillier. Hillier advised that the conclusion of a new
    termination agreement required satisfaction of three conditions: 1) agreement
    on the value and split of equipment; 2) agreement on the value of leaseholds;
    and 3) recommendation of a split of goodwill and any remaining assets. The
    parties were together responsible for the first two steps, while Deloitte was
    responsible for the third. As part of the third step, Deloitte was required to
    prepare a tax plan and make recommendations to the parties. Upon completion of
    the three steps, a final written agreement would be drafted based on the
    approved plan for termination.

[11]

After a series of
    meetings, the parties came to an agreement on several aspects of the
    termination, including the termination date, division of staff, division of
    equipment, and the value of the leasehold improvements. The trial judge found
    that at their last meeting on May 22, 2009, the parties agreed that the
    appellant would pay the respondent $24,000 for the associate goodwill.

[12]

In short, by May 2009,
    the parties had fulfilled the first and second steps of the process of reaching
    a new termination agreement. However, the third step  the provision of a tax
    plan and recommendations by Deloitte  was outstanding, and had to remain as
    such until the year-end financial statements were completed. When these statements
    were delivered in draft form in August 2009, the respondent and Wright  who
    became the respondents accountant  raised concerns about the allocation of
    partnership profits (discussed below). This dispute over profits created a rift
    between the parties. As a result, the year-end financial statements were not
    finalized, and the third step in the process of reaching a new termination
    agreement was never completed.

(3)

The Misallocation of the Partnership Profits

[13]

The parties dispute
    about profit allocation related to the treatment of the expenses of the
    practices associate dentist. The associate, who was also the appellants
    daughter, was an employee of the partnership. She did dental work for patients
    of both partners, in addition to having patients of her own. Her remuneration
    was 40% of the billings for the work that she did, regardless of whose patients
    she worked on. Wright testified that this 40%  the associates expense  was
    to be treated as a
direct
expense. In other words, the associates
    expense for each patient was to be deducted against the income generated by the
    associates work on that patient. In the partnership books, the associates
    expense would be apportioned to reflect the work that the associate did for the
    patients of each dentist. For example, the respondent would receive credit for
    the billings generated by the associate for her work on the respondents
    patients, minus the associates expense for those patients. Wrights testimony
     which the trial judge accepted  was that he directed Lorraine Van Allen to
    treat the associates expense in this fashion in the partnership books.

[14]

Contrary to Wrights
    instructions and the wording of the 2004 agreement, however, Lorraine treated
    the associates expense as a
shared
expense in allocating partner
    profit. That is, Lorraine allocated revenue from the associates work on a
    partners patients to that partner, but treated the associates expense as a
    shared expense between partners, rather than a direct expense against each
    partners production. The beneficiary of this method was the appellant, who
    referred far more patients to the associate than the respondent. The result was
    that the respondent bore a disproportionate share of the associate expense.

[15]

Lorraine treated the
    associates expense as a shared expense for each year after 1997, and forwarded
    the books and records to Leonard, the partnership accountant, to prepare the
    financial statements. The financial statements were then circulated to and
    approved by the appellant and respondent.

[16]

As noted above, Wright
    questioned the allocation of profits in August 2009. Wright made inquiries of Hillier,
    who in turn referred the matter to Lorraine. By e-mail dated October 23, 2009,
    Lorraine confirmed her application of the shared expense method in apportioning
    profits.

C.

THE TRIAL JUDGES REASONS

[17]

The trial judge
    concluded that the 2004 agreement is valid and binding. He rejected the
    appellants contention that because the 2004 agreement was intended to codify
    the manner in which Lorraine had been keeping the books, the portion of the
    2004 agreement dealing with the associates expense is incorrect. There was no
    meeting of the minds as to the allocation of partnership profits before 1997 or
    anytime until 2004. In contrast, the written agreement of 2004 was detailed,
    considered, and unambiguous on its face.

[18]

Nor did the trial
    judge accept the appellants submission that the parties made a binding
    termination agreement outside the 2004 agreement. This contract to make a
    contract did not become binding because there was no agreement on all of its
    essential provisions. The oral agreements between the parties were contingent
    on receipt of the tax plan and recommendations from Deloitte and acceptance of
    those recommendations by the parties. As these never occurred, a new
    termination agreement was never finalized.

[19]

The trial judge
    declared the partnership terminated effective May 31, 2009. On the basis that
    the 2004 agreement continues to be in force, the trial judge also ordered an
    accounting pursuant to paragraph 11 of that agreement. As a remedy for the
    improper treatment of the associates expense  which constituted a breach of
    the 2004 agreement  the trial judge ordered that the appellant pay the
    respondent $119,056.00. Finally, the trial judge rejected the appellants claim
    that the respondents action was out of time. The limitation period commences
    on the date the respondent knew or ought to have known that the profits were
    being misallocated. The respondent here did not know  or have reason to know
    of the misallocation until his action was well within the two-year limitation
    period.

D.

THE ISSUES ON APPEAL

[20]

The appellant advances
    four grounds of appeal.

[21]

First, he says the
    trial judge erred in determining that the limitation period for the
    respondents action had not expired. The alleged breach of the agreement was
    discoverable at the outset, and the requirements of the
Limitations Act
,
    2002 S.O. 2002, c. 24, cannot be rendered inoperative by blind indifference
    to a prospective claim.

[22]

Second, the appellant
    submits that the doctrine of laches precludes the respondents claim. The
    respondent effectively acquiesced in the profit allocation formula, and it
    would be unfair to now retroactively amend the formula in his favor.

[23]

Third, there was a
    meeting of minds regarding the profit allocation formula in 1997. The conduct
    of the parties represented their shared understanding, and the respondent is estopped
    from arguing otherwise.

[24]

Fourth, the trial
    judge erred in ordering a judicial accounting, because the parties had
    negotiated several aspects of the termination between themselves.

[25]

As I explain below, I
    would reject all of the appellants submissions.

E.

ANALYSIS

[26]

I preface my analysis
    with a brief comment on the interpretation of the 2004 agreement. This issue
    was not explicitly raised as a ground of appeal. However, in both his factum
    and in argument, the appellants counsel suggested that the trial judge erred
    in his interpretation of the provision of the 2004 agreement dealing with the
    allocation of partnership profits.

[27]

Schedule A of the
    agreement says, in relevant part, the following:

A Partners Portion of the Associate Staff Expense is an
    amount equal to the ratio that the fees charged by the Partnership to the
    Partners Clients in respect of Associate Billings bears to the total of all
    fees charged by the Partnership in respect of Associate Billings to the Clients
    of all the Partners.

[28]

On my reading, this
    provision is unambiguous: each partners share of the associate expense is
    determined according to the proportion of the partners clients referred to the
    associate. In other words, the associate expense is to be treated as a direct
    rather than shared  expense. In my view, the trial judges interpretation is plainly
    correct.

[29]

I now turn to the grounds
    of appeal.

[30]

The appellants first
    three arguments rest on a common premise, namely, that the respondent knew or ought
    to have known that Lorraine was not allocating the profits in accordance with
    the terms of the 2004 agreement. The respondents failure to raise objections
    to the profit-sharing within a reasonable time defeats his claim.

[31]

In my view, this premise
    is unfounded.

[32]

The issue of whether
    the respondent knew of the misallocation is one of fact, and the trial judges
    finding cannot be reversed absent a palpable and overriding error:
Housen
    v. Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 10. The question
    of whether the respondent
ought to have known
of the error is one of
    mixed fact and law. Such questions lie along a law-fact spectrum. Where a
    matter is closer to the fact end of the spectrum  as it is here  appellate
    courts should be wary of interfering with a trial judges findings absent some
    extricable error in principle:
Housen
, at para. 36.

[33]

The appellant locates
    no error in the trial judges findings with regard to the respondents
    subjective and objective knowledge. The judge found, consistent with the evidence,
    that the respondent did not know that the associates expense was being treated
    as a shared expense until October 2009. The method of allocating partnership
    profits is not apparent on the face of the financial statements, as these
    statements contain only net figures for each partners allocation. Moreover,
    the respondent had no reason to believe that the profit-sharing was based on
    anything other than an eat what you kill arrangement. In these circumstances,
    the respondent was entitled to rely on the clear wording of the 2004 agreement.

[34]

That the respondent did
    not know and could not have reasonably known of the misallocation is fatal to
    the appellants first three arguments. On the issue of the limitation period, the
    appellant submits, as he did at trial, that the respondent would have
    discovered the error had he retained his accountant to review the documentation
    supporting the financial statements. The observation, even if true, is
    immaterial. It is reasonable discoverability  rather than the mere possibility
    of discovery  that triggers a limitation period:
Lawless v. Anderson
,
    2011 ONCA 102, at para. 22. To preclude the respondent from recovery because of
    his failure to review the underlying financial statements would, in the
    circumstances of this case, hold him to an unreasonably high standard.

[35]

The same is true for
    the appellants laches and estoppel arguments.  The doctrine of laches provides
    a defence to an equitable claim where the plaintiffs delay in bringing a claim
    constitutes acquiescence or results in circumstances that make prosecution of
    the action unreasonable:
M. (K.) v. M. (H.)
, [1992] 3 S.C.R. 6, at pp.
    77-78. However, a plaintiff cannot acquiesce without knowledge of the facts
    giving rise to her claim:
ibid.
, at p. 78. The respondent here lacked
    this requisite knowledge.

[36]

With regard to
    estoppel, the appellant cites this courts decision in
Shelanu Inc. v.
    Print Three Franchising Corp.
(2003), 64 O.R. (3d) 533 (C.A.), at para.
    54, for the proposition that [w]here the parties have, by their subsequent
    course of conduct, amended the written agreement so that it no longer
    represents the intention of the parties, the court will refuse to enforce the
    written agreement. That principle has no application here. In
Shelanu
,
    the intention of the parties could be inferred from their course of conduct. No
    such inference can be drawn where, as here, one party is entirely unaware of
    the relevant conduct:
Lauren International, Inc. v. Reichert
, 2008
    ONCA 382, 237 O.A.C. 94, at paras. 31-33.

[37]

Therefore, I would not
    give effect to the appellants first three submissions.

[38]

This leaves the
    appellants fourth argument, namely, that the trial judge erred in ordering a
    judicial accounting with regard to termination. The appellant suggests
    contrary to the explicit findings of the trial judge  that the agreements
    between the parties were not contingent on a future understanding, but were
    instead discrete and enforceable agreements. In other words, the appellant contests
    the trial judges factual findings regarding the parties intentions, rather
    than his application of principles of contractual interpretation. These
    findings are owed deference, and the appellant has failed to show that they are
    tainted by a palpable and overriding error. Accordingly, I would dismiss this
    ground of appeal.

F.

CONCLUSION

[39]

The appeal is
    dismissed. Costs of $15,000 inclusive are awarded to the respondent.

Released: MT July 21, 2014

M. Tulloch J.A.

I agree. R.G.
    Juriansz J.A.

I agree. G.R.
    Strathy J.A.

[1]
Paragraph 11 of the agreement provided for matters
    related to the dissolution, including the respondents vacation of the
    premises, allocation of equipment, accounting of leasehold improvements,
    payment for the associates goodwill, and the allocation of liabilities and
    obligations between partners.


COURT OF APPEAL FOR ONTARIO

CITATION:
Verschuren v. Verschuren, 2014 ONCA 518

DATE: 20140703

DOCKET: C57746

Sharpe, Simmons and Benotto JJ.A.

BETWEEN

Paul Verschuren

Applicant/Appellant in Appeal

and

Deborah Verschuren

Respondent/Respondent in Appeal

Paul McInnis, for the appellant

Robert Snell, for the respondent

Heard and released orally: June 26, 2014

On appeal from the order of Justice Peter Z. Magda of the
    Superior Court of Justice dated September 10, 2013.

ENDORSEMENT

[1]

The appellant appeals the order of Magda J. which dismissed his motion
    to change his child and spousal support obligations.

[2]

The parties had been married for nearly 15 years when they separated in
    2006. It was a so-called traditional marriage in which the appellant worked
    outside the home and the respondent was a full-time homemaker. At the time of
    the separation, the two children of the marriage then aged nine and thirteen
    were in the custody of the respondent.

[3]

The parties entered into a separation agreement in December 2008, which
    was incorporated into the terms of a divorce order on May 29, 2009. Pursuant to
    the agreement and subsequent order:

(a)      the
    appellants imputed income was $200,000 and he was to pay child and spousal
    support on this basis; and

(b)     there
    was to be no variation unless the appellants income changed by more 10%.

[4]

Specifically, paragraph 23 of the order read:

[The appellant] shall pay child
    and spousal support based on an imputed income of $200,000 and child and
    spousal support in any given year shall not be subject to variation unless [the
    appellants] income changes by more than 10%.

[5]

In December 2011, the appellant brought a motion to change alleging that
    his income had changed by more than 10%. He requested an order retroactive to
    January 1, 2010 reducing the child support, terminating the spousal support and
    rescinding the arrears. By the time of the hearing, those arrears were more
    than $100,000.

[6]

The motion judge heard two days of evidence and then had the benefit of
    written submissions.

[7]

The appellant argued before the motion judge, as he argues here, that
    the support should be based on his line 150 income, not the $200,000 attributed
    to him.

[8]

We disagree. The motion judge made a finding that the $200,000 figure
    agreed to, and incorporated into the Divorce Order, included income that would
    be received from the appellants interest in the company MAD Designs.

[9]

In October 2009, 10 months after the separation agreement and four
    months after the Divorce Order, the appellant transferred his interest in MAD
    Designs to his common law spouse. The motion judge found that the transfer of
    shares from the appellant to his common law spouse was simply a voluntary non-
    arms-length transfer of an income producing asset for nominal if any
    compensation. The motion judge concluded that the only purpose of the transfer
    was to remove income that would properly be used to calculate support.

[10]

The
    motion judge also determined that the lavish lifestyle enjoyed by the appellant
    and his common law spouse was the result, at least in part, of the lucrative
    business interest that the appellant had transferred to her.

[11]

The
    motion judge concluded that the appellant had failed to demonstrate that his
    income had changed outside the range contemplated by the separation agreement
    as incorporated into the divorce order.

[12]

We
    see no error in fact, law or in principle in the motion judges dismissal of
    the appellants claim.

[13]

The
    appeal is dismissed. Costs are payable to the respondent fixed at $7,500
    inclusive of disbursements and taxes. These costs may be enforced by the Family
    Responsibility Office.

Robert J. Sharpe J.A.

Janet Simmons J.A.

M.L. Benotto J.A.