COURT OF APPEAL FOR ONTARIO

CITATION: Whiteside v. Celestica International Inc., 2014
    ONCA 420

DATE: 20140523

DOCKET: C56676

Blair, Watt and Lauwers JJ.A.

BETWEEN

Jim Whiteside
, Jason Wright, Steve Wilson
    and
3077187 Canada Ltd.

Plaintiffs (Appellants)

and

Celestica International Inc.

Defendants (Respondents)

Peter N. Mantas, for the appellants

R. Seumas M. Woods and Dustin Kenall, for the respondent

Heard: January 20, 2014

On appeal from the judgment of Justice Paul Lalonde of
    the Superior Court of Justice, dated January 21, 2013, with reasons reported at
    2013 ONSC 323.

R.A. Blair J.A.
:

OVERVIEW

[1]

In August 2005, Celestica International Inc. acquired the shares of an
    Ottawa-based electronics company, CoreSim Inc.  Mr. Whiteside was the major
    shareholder of CoreSim.  Roger DHollander was the President and CEO of the
    company, although not a shareholder.  Through 3077187 Canada Inc., Mr. DHollander
    had a separate agreement with Celestica entitling the corporate appellant to
    receive certain monies that were tied to the purchase price in the CoreSim
    purchase agreement.

[2]

The Share Purchase Agreement between Celestica and the CoreSim
    shareholders provided that Celestica would pay the shareholders: (i) an initial
    payment; and (ii) an Earn-Out Payment if the CoreSim business met certain
    performance targets after the acquisition.  The Share Purchase Agreement also
    set out a formula for determining whether those targets were met.

[3]

Shortly after acquiring CoreSim, Celestica won a large contract to
    design a product for a Japanese company, NEC.  The project was run from
    CoreSims old offices in Ottawa and involved some of CoreSims former staff.  The
    dispute revolves around whether Lalonde J. was correct in refusing to include
    the revenue from the NEC project in the calculation of the Earn-Out Payment.  This,
    in turn, depends on the interpretation to be given to the term Total EBIAT of
    CoreSim as defined in the Share Purchase Agreement.  EBIAT is an acronym for earnings
    before interest, amortization and taxes.

[4]

Mr. Whiteside and the corporate appellant allege that the trial judge
    erred in arriving at this conclusion.  They assert that the revenue from the
    NEC project should have been included in the calculation of the Earn-Out Payment
    and that, had it been, they would have been entitled to their
pro rata
shares of the maximum Earn-Out Payment of $1.75 million.  In Mr. Whitesides
    case, as a 40.4% shareholder, the amount would be $707,792.23. The corporate
    appellant was entitled to 15% of the Earn-Out Payment under its Letter
    Agreement with Celestica  an amount of $262,000.

[5]

The trial judge ruled in favour of Celestica.  He concluded that the
    EBIAT of the NEC Project was not to be included in the calculation of the Total
    EBIAT for purposes of determining the Earn-Out Payment.  He also concluded
    that, even if it were, the threshold requirements for triggering the Earn-Out
    Payment had not been met.

[6]

Respectfully, in my view, the trial judge erred in two respects in
    arriving at these conclusions:

(i)  his
    interpretation of the Share Purchase Agreement failed to give effect to the
    contractual provisions governing the calculation of Earn-Out Payments, when the
    Shareholder Purchase Agreement is read as a whole and in context, and therefore
    the NEC Project EBIAT should have been included in the calculation of the
    Earn-Out Payments; and,

(ii)  he made
    palpable and overriding errors in assessing the evidence of the appellants
    expert, Mr. Clarke, and Celesticas witness, Mr. Tareque, and therefore erred
    in concluding that the contractual thresholds for triggering entitlement to
    Earn-Out Payments were not met, even if the NEC Project EBIAT were included in
    the calculation.

[7]

I would therefore allow the appeal, but I would order a new trial on the
    issue of whether the threshold requirements for triggering the Earn-Out Payment
    were met. The following are my reasons for arriving at this decision.

FACTS

Celesticas Acquisition of CoreSim

[8]

CoreSim was an Ottawa-based high-tech business formed in 2002 by Mr.
    Whiteside and others.  It specialized in providing value engineering and design
    analysis services to electronic companies, particularly those in the
    telecommunications and aeronautics sectors.  Value engineering involves analyzing
    the functions of an existing system, product or piece of equipment, with the
    goal of improving the items performance, reliability, quality safety, and/or
    cost. Design analysis involves analyzing a prospective products design with a
    view to discovering potential flaws and suggesting improvements to the product
    in advance, when those changes can be made in a more cost-effective manner.

[9]

The CoreSim business was successful.  It soon grew to be an operation
    with some 30 employees under the direction of Mr. Whiteside, as Chief
    Technology Officer and Chairman of the Board, and Mr. DHollander, as President
    and Chief Executive Officer.  Celestica became interested.

[10]

Headquartered
    in Toronto, Celestica operates a global manufacturing network that provides a
    wide range of services and solutions to original equipment manufacturers in the
    communications, computing, industrial, and consumer sectors.  It saw a fit with
    the specialized services and intellectual property provided by CoreSim.

[11]

In
    the negotiations that ensued, however, the parties could not agree on the value
    of CoreSims specialized services and intellectual property.  The end result
    was a Share Purchase Agreement dated August 5, 2005, in which Celestica
    acquired the vendors shares at an initial purchase price of $1,031,200 plus
    additional Earn-Out Payments, if the CoreSim business achieved certain
    specified performance targets over a stretch of three Earn-Out Periods.  The
    Earn-Out Payments were to be based upon the Total EBIAT Amount for the former
    CoreSim business.  The maximum Earn-Out Amount was fixed at $1,750,000.

[12]

This
    appeal is about how the Earn-Out Payment for the third period is to be
    determined.  Mr. Whiteside says the targets were met and that the shareholders
    are entitled to the full additional payment of $1,750,000.  Celestica says the
    targets were not met, and the appellants are entitled to nothing.  Both sides
    agree that the appellants entitlement to receive Earn-Out Payments was based
    upon the former CoreSim business meeting certain specified earnings targets in
    the years following its acquisition by Celestica.  However, for purposes of
    determining and calculating the Earn-Out Payments, they disagree on the whether
    those earnings targets were met for the relevant periods.

[13]

Roger
    DHollander had been a shareholder of CoreSim but was not a shareholder at the
    time of the Share Purchase Agreement.  His arrangement was incorporated into
    the Letter Agreement between Celestica and his corporation, the appellant
    3077187 Canada Ltd. (307 Canada) which, in turn, incorporated the provisions
    of an earlier Letter of Intent.  The Letter of Intent pre-dated the Share
    Purchase Agreement and set out the broad terms of the contemplated agreement.  307
    Canada was entitled to receive an initial amount of $150,000 plus 15% of any
    Earn-Out Payments made to the shareholders as a performance bonus for Mr.
    DHollanders management services.

[14]

After
    the closing, Celestica maintained the former CoreSim operations in Ottawa, but
    did so as a part of Celesticas Global Design Services group operating as the
    Celestica Ottawa site.

The NEC
    Project

[15]

All
    went well until Celestica won its very profitable contract with NEC.

[16]

NEC
    retained Celestica to design and build a highly-sophisticated
    telecommunications device which NEC would sell to telecommunications companies
    in North America.  The device was described as a packet and service aware
    transport platform and, although the project was generally known as the NEC
    Project, it was sometimes called the PSTP development project.

[17]

The
    Project came online in 2008 after a great deal of work and negotiations on the
    part of Mr. Whiteside and other former CoreSim employees, as well as by groups
    of Celestica designers and engineers in China, India, and New Hampshire.  It
    called for Celestica to design both hardware and software (about 35% and 65%,
    respectively) for NEC.  It is agreed that the hardware portion was led by Mr.
    Whiteside and his team in Ottawa and that some of the hardware used CoreSims
    former proprietary intellectual property.  The CoreSim technology did not
    relate to the software, although the software portion of the Project was also
    led by Ottawa-based employees working in conjunction with a Celestica joint
    venture partner in India.  There seems to be little doubt that the NEC Project
    was an Ottawa site project.

[18]

Celestica
    made a $15 million profit on the Project before it was terminated in late 2008
    and early 2009 because of the downturn in the global economy.  Whether those
    profits should have been included in the Total EBIAT of the Ottawa site is the
    crux of these proceedings.

The Share Purchase Agreement

[19]

Central
    to this appeal is the interpretation to be given to the terms of the Share
    Purchase Agreement relevant to the Earn-Out Amounts.  They are based on the
    Total EBIAT Amount for the relevant Earn-Out Period.

[20]

Here,
    the relevant Earn-Out Period is the Third Period.  Section 2.4(h) of the Share
    Purchase Agreement provides that if, during that Period, (i) the Total EBIAT
    Amount is equal to or greater than $4,500,000, and (ii) the Total EBIAT Amount
    for the last six calendar months is equal to or greater than $975,000, each vendor
    was to receive his or her percentage share of the maximum Earn-Out Amount, less
    any amounts previously paid.

[21]

Section
    1.1 defines Total EBIAT Amount:

Total EBIAT Amount means, for any period, the amount equal to
    the EBIAT of the Acquired Business for such period, determined in accordance
    with Section 2.5.

[22]

Section
    1.1 also defines other terms that matter to the appeal, as outlined below, and s.
    2.5 provides for the manner in which the Total EBIAT Amount is to be
    determined.  The relevant provisions of s. 2.5 are as follows:

2.5(a) The Total EBIAT Amount for the First Earn-Out Period,
    the Second Earn-Out Period, the Third Earn-Out Period or any portion thereof
    (each, an
Earn-Out Period
) shall be
calculated
by
    the Purchaser
in accordance with GAAP
in a manner consistent with the
    accounting methods used by the Purchaser in the preparation of its audited
    financial statements,
as adjusted in accordance with sections 2.5(b),
    2.5(c) and 2.6.
[Emphasis added]

(b) [Not
    applicable]

(c) For the purposes of calculating the
    Total EBIAT Amount for any Earn-Out Period, the Purchaser shall include (i) all
    Qualified Overhead (but shall exclude all Non-Qualified Overhead), and (ii) any
    portion of the EBIAT of the Purchaser or any of its Affiliates for such
    Earn-Out Period that is attributable exclusively to the provision of NRE Design
    Services by the Purchaser or such Affiliate (or any business unit of any of the
    foregoing) using the Unique IP, provided that (x) the Purchaser or such
    Affiliate was awarded the NRE Design Services due specifically to the Unique
    IP, and (y) the Unique IP is required for the provision of such NRE Design
    Services.

The portion of the EBIAT of the Purchaser or any
    Affiliate to be included in any Total EBIAT Amount pursuant to clause (ii)
    above shall be based on the Purchaser's reasonable estimates, acting in good
    faith, based on the Purchaser's then current accounting policies, and shall not
    be subject to dispute by any Vendor pursuant to Section 2.7.

(d) Subject to the provisions hereof and Section 2.7(e), in
    order to facilitate the determination of the Total EBIAT Amount for any
    Earn-Out Period pursuant to the terms hereof, until December 31, 2008 the
    Purchaser shall maintain the financial records of the Acquired Business (or
    cause such records to be maintained) in a manner so as to permit the Total
    EBIAT Amounts for any Earn-Out Period to be readily calculated by it.

[23]

The
    terms Acquired Business Business, Intellectual Property, NRE Design
    Services, and Unique IP are defined as follows:

Acquired Business
means the Business, as operated by the Purchaser or any of its Affiliates
    (including the Corporation) after the date hereof;

Business
means
    the business currently and heretofore carried on by the Corporation consisting
    of the provision of electronics design services utilizing schematic modeling,
    board vector capture and simulation, design verification, integrated static
    timing and signal integrity analysis, EMC/EMI analysis, power integrity
    analysis combined with the Corporations integrated design processes as applied
    to field programmable gate arrays (FPGAs) and application specific integrated
    circuits (ASICs), circuit board design and redesign, including electrical
    architecture, very-high-speed hardware description language (VHDL) and VERILOG
    coding and test bench simulation, schematic design, component selection and
    physical design;

Intellectual Property
means all domestic and foreign trade-marks, trade names, business names,
    patents, inventions (whether patentable or not), copyrights, service marks,
    brand names, industrial designs, Trade Secrets, urls, domain names and all
    other industrial or intellectual property owned or used by the Corporation, and
    all applications therefor and all goodwill in connection therewith, including all
    licences, registered user agreements and all like rights used by or granted to
    the Corporation;

NRE Design Services
means the design services that are provided by the Purchaser or any Affiliate
    of the Purchaser (other than the Acquired Business) using the Unique IP to any
    of their respective customers, for which the Purchaser or such Affiliate
    charges its customer on a "non-recurring expense basis", and for
    which it is not compensated as part of a "gain-sharing" or other
    profit-sharing arrangement with such customer;

Unique IP
means the proprietary Intellectual
    Property owned directly by the Business (as it exists on the date hereof) which
    neither the Purchaser nor any of its Affiliates uses or has the right to use on
    the date hereof.

[24]

The
    Corporation referred to in these provisions is CoreSim Inc.

[25]

Finally,
    the Share Purchase Agreement contains an entire agreement clause, as set out
    in section 1.6:

This Agreement constitutes the entire agreement between the
    parties with respect to the subject matter hereof and supersedes all prior
    agreements, understandings, negotiations and discussions, whether written or
    oral. There are no conditions, covenants, agreements, representations,
    warranties or other provisions, express or implied, collateral, statutory or
    otherwise, relating to the subject matter hereof except as herein provided.

307 Canada and the Letter
    Agreement

[26]

In
    addition to the Share Purchase Agreement with the CoreSim shareholders,
    Celestica entered into the Letter Agreement with Mr. DHollander, which
    provided for the performance bonus payments referred to above.  Paragraph 2 of
    the Letter Agreement sets out Celesticas commitment:

Consistent with the earn out mechanism identified in the Letter
    of Intent relating to the purchase of the equity of CoreSim by Celestica, or
    any subsequent definitive agreements, additional payments will become payable
    to 3077187 Canada Ltd. as a performance bonus for your management services if
    and when any earn out payments become payable to the shareholders of CoreSim,
    calculated as 15% of such earn out payments, and, if payable, will be paid at
    the time that such earn out payments are made.

[27]

The
    Letter of Intent referred to in this passage was a letter from Celestica to Mr.
    DHollander in his capacity as acting President of CoreSim.  Its purpose was to
    [outline] the business basis of [Celesticas] offer to acquire all the issued
    and outstanding shares of CoreSim Inc.  The letter listed the continued
    participation in the success of the CoreSim operations by way of an earn-out
    as one of the benefits to the CoreSim shareholders of the transaction.  It went
    on to outline in considerable detail the proposed earn-out scheme that was
    ultimately incorporated into the Share Purchase Agreement.

[28]

Some
    excerpts from the Letter of Intent are of interest:

Both earn out payments will be contingent upon achieving
    performance hurdles consistent with the management forecast [previously] put
    forward by CoreSim management.

...

The earn-out payments referred to above shall be released upon
    the successor within Celestica to the CoreSim business achieving, at the
    CoreSim site  the earnings before interest, amortization and taxes (calculated
    on a basis consistent with Canadian generally accepted accounting principles,
    and using accounting practices to be mutually agreed in the definitive
    documentation) (EBIAT) for the appropriate period as presented in the
    management forecast. The precise mechanics for making such calculations shall
    be developed and codified in the definitive documentation for the Transaction
    based on mutual agreement.

If the CoreSim technology or methodology acquired as a part of
    this transaction is deployed or employed at a Celestica site other than the
    CoreSim site and EBIAT is earned during the Earn Out Period at such other
    Celestica locations other than the CoreSim site from NRE related design
    projects which were awarded to Celestica by the customer due specifically to
    the unique CoreSim technology or methodology acquired as a part of this
    transaction and such technology or methodology was required for the completion
    of such projects, such EBIAT amount shall be counted in the total EBIAT used
    for the purpose of the earn out calculation above.

[29]

The
    appellants assert that the latter provision is what became the important s. 2.5(c)(ii)
    of the Share Purchase Agreement outlined above.

The Issues

[30]

Three
    issues raised by the appellants need to be addressed:

(i) Did the trial judge err in interpreting
    the Share Purchase Agreement for purposes of determining the correct Total
    EBIAT Amount to be applied to the Earn-Out calculation?

(ii) Did the trial judge err in failing to apply the
    correct agreement with respect to the claim of 307 Canada?

(iii) Did the trial judge make a palpable and
    overriding error in determining whether the Total EBIAT Amount met the
    threshold necessary to trigger the Earn-Out Payment?

[31]

The
    appellants also argued that the trial judge erred in law by accepting the
    non-expert testimony of Mr. Abu Tareque over that of the expert witness, Mr. David
    Clarke.  In my view, it is not necessary to resolve this legal question in
    order to determine the outcome of the appeal.

The Trial Judges Reasons

Total EBIAT and the Earn-Out Calculation

[32]

The
    trial judge concluded that the Total EBIAT Amount was to be calculated solely
    on the basis of s. 2.5(c) of the Share Purchase Agreement because it was that
    provision that details how to calculate the EBIAT for the purpose of the
    Earn-Out Payment.  In that respect, s. 2.5(c)(ii) was the relevant provision.

[33]

Unpacking
    s. 2.5(c)(ii), the trial judge listed the four requirements for determining
    whether EBIAT was eligible for an Earn-Out Payment:

(i)

The EBIAT must be attributable exclusively to     the provision of NRE
    Design Services;

(ii)

The charges must be for the use of the Unique IP;

(iii)

Celestica must have been awarded the NRE Design Services due
    specifically to the Unique IP; and

(iv)

The Unique IP was required for the provision of such NRE Design
    Services.

[34]

After
    carefully reviewing the evidence, the trial judge concluded that the NEC
    project [did] not fit squarely into the earn-out provisions of the agreement.
    Although the Project met the first requirement outlined above, it did not meet
    the second, third or fourth requirement.

The
    307 Canada Claim

[35]

Except
    to acknowledge it in his recitation of the facts, the trial judge did not address
    the Letter Agreement between Celestica and 307 Canada or the separate claim of
    the corporate appellant.  The appellants argue that he must therefore have
    applied the terms of the Share Purchase Agreement in determining the claim of
    the corporate appellant, and in doing so, he applied the wrong agreement.

Whether the Appellants Met the Thresholds Necessary
    to Trigger the Earn-Out Payments Even if the NEC Project EBIAT were Included in
    the Total EBIAT Amount

[36]

The
    trial judge answered this question in the negative, too.  After reviewing the
    evidence of the appellants Finance Controller for Global Design, Mr. Tareque,
    and the evidence of the appellants expert, Mr. Clarke, he found that the
    thresholds necessary to trigger an Earn-Out Payment had not been met, even with
    the total NEC Project EBIAT.  Central to this finding was his rejection of the
    appellants argument that Celestica had deferred approximately $2.2 million in
    NEC Project revenues from the 4
th
Quarter of 2008 (the end of the
    Third Earn-Out Period) to the 1
st
Quarter of 2009.  In doing so, he
    accepted the evidence of Mr. Tareque over that of Mr. Clarke.

ANALYSIS

[37]

Only
    the first and third of these issues needs to be analyzed further.  While the appellants
    are technically correct that the trial judge failed to deal with the claim of
    307 Canada in the context of the Letter Agreement, the reality is that 307
    Canadas claim is, in actual terms, derivative of the success of the
    shareholders claims under the Share Purchase Agreement.  If no Earn-Out
    Payment is triggered under the latter agreement, the corporate appellant has no
    claim to its performance bonus because the bonus is only payable if and when
    any earn out payments become payable to the shareholders of CoreSim, calculated
    as 15% of such earn out payments: Letter Agreement, at para. 2.

[38]

Accordingly,
    while the Letter Agreement and the Letter of Intent referred to in it may have
    some relevance to the exercise of interpreting the Share Purchase Agreement,
    nothing more need be said about it in this context.

Standard of Review

[39]

The
    interpretation of a contract is very much a legal issue.  The standard of
    review is therefore at or towards the correctness end of the standard-of-review
    spectrum.  However, factual findings, on which the interpretation is based, are
    to be reviewed with deference.  Generally, factual findings may only be
    interfered with in the case of a palpable and overriding error on the part of
    the trial judge:
Bell Canada v. The Plan Group
,

2009 ONCA 548,
    96 O.R. (3d) 81, at paras. 25-33.

[40]

Here,
    the factual findings underpinning the trial judges interpretation of the Share
    Purchase Agreement and related documents are not dispositive of the appeal.  The
    findings he made in this respect are supported by the evidence.  However, he gave
    an interpretation of the contract that was too narrow; this was an error in
    law.

[41]

On
    the second major issue on the appeal  whether the threshold for the Earn-Out
    Payments had been met even if the NEC Project revenues were included in the
    Total EBIAT  the trial judge made palpable and overriding errors of fact, in
    my view, and his decision on that issue cannot stand.

Total EBIAT and the Earn-Out Calculation

[42]

The
    trial judge focused on paragraph 2.5(c) of the Share Purchase Agreement in determining
    what was to be included in the calculation of the Earn-Out Amounts.  As noted
    above, he interpreted that provision as setting out four requirements that
    had to be met before revenues could be included in the Total EBIAT Amount.

[43]

I
    begin by observing that the trial judges findings of fact  which support his
    conclusion that those four requirements had not been met  were open to him on
    the evidence.  After reviewing the record, he found (i) that the earnings from
    the NEC Project were not attributable exclusively to the provision of NRE
    Design Services; (ii) that the charges were not for the use of the Unique
    IP; (iii) that Celestica had not been awarded the NRE Design Services due
    specifically to the Unique IP; and (iv) the Unique IP was not required for
    the provision of such NRE Design Services.  There is no palpable or overriding
    error with respect to these findings.

[44]

However,
    these findings of fact are not determinative of the contractual interpretation
    exercise and the trial judge erred in treating them as if they were.

[45]

The
    guiding principles relating to the interpretation of a commercial contract have
    been articulated in a number of authorities in recent years: the text of a
    written agreement is to be read as a whole, without considering one provision
    in isolation from the others, and in the context of the circumstances existing
    at the time the agreement was made:
Dumbrell v. The Regional Group of
    Companies Inc.
, 2007 ONCA 59, 85 O.R. (3d) 616,
per
Doherty J.A., at
    para. 53;
Tercon Contractors Ltd. v. British Columbia (Transportation and
    Highways)
, 2010 SCC 4, [2010] 1 S.C.R. 69,
per
Cromwell J., at para.
    64; and
Schneeberg v. Talon International Development Inc
., 2011 ONCA
    687, 343 D.L.R. (4th) 486,
per
Epstein J.A., at paras. 38-42.

[46]

The
    trial judge correctly acknowledged these guiding principles. Respectfully,
    however, he failed to apply them.  He took an approach that concentrated on s. 2.5(c)
    of the Share Purchase Agreement in isolation, without giving effect to the
    purchase-price provisions of the Share Purchase Agreement as a whole, and
    without adequate consideration of the factual matrix underlying the contractual
    arrangements between Celestica and the appellants.  I say this for the
    following reasons.

[47]

The
    overall scheme for determining the purchase price for the Vendors shares is
    set out in Article 2 of the Share Purchase Agreement.  For purposes of the
    appeal, the relevant provisions are those contained in ss. 2.2, 2.3, 2.4, and
    2.5.

[48]

Section
    2.2 defines the purchase price to include a closing date payment of $1,031,200
    (to be divided amongst the shareholders in accordance with s. 2.3), together
    with
any additional amounts
(collectively, the Earn-Out Payments)
determined
    to be payable in accordance with Section 2.4
to a maximum aggregate
    addition amount of $1,750,000 [Emphasis added.].  Section 2.4 sets out the
    parameters for paying the additional earn-out amounts for the three Earn-Out
    Periods (we are only concerned with the Third Earn-Out Period here).  Those
    payments are triggered by the Total EBIAT Amounts reaching the thresholds
    described above.

[49]

Section
    2.5 is the provision which, as a whole, describes how the Total EBIAT Amounts
    are to be determined.  In this respect, s. 2.5(
a
) is very important.  To
    repeat, it says:

The Total EBIAT Amount for the First Earn-Out Period, the
    Second Earn-Out Period, the Third Earn-Out Period or any portion thereof (each,
    an Earn-Out Period)
shall be calculated
by the Purchaser
in
    accordance with GAAP
in a manner consistent with the accounting methods
    used by the Purchaser in the preparation of its audited financial statements,
as
    adjusted in accordance with Sections 2.5(b), 2.5(c) and 2.6
. [Emphasis
    added.]

[50]

Total
    EBIAT Amount means the amount equal to the EBIAT of the Acquired Business
determined
    in accordance with Section 2.5
: Share Purchase Agreement, s. 1.1 (emphasis
    added).  Significantly, the EBIAT of the Acquired Business is not to be
    determined in accordance with s. 2.5
(c)
only, but in accordance with s. 2.5
    as a whole.

[51]

The
    trial judges focus on the language of s. 2.5(c) alone, without regard to the
    context of s. 2.5 as a whole, in order to determine how the Total EBIAT Amount
    was to be calculated, led him mistakenly to miss the subtlety of the mechanism
    created for that purpose.  As the overarching provisions of s. 2.5(a) make
    clear, Total EBIAT Amounts are not
calculated
in accordance with s.
    2.5(c); they are
calculated

in accordance with GAAP
, generally,
    and then
adjusted
for the items referred to in ss. 2.5(b), 2.5(c), and
    2.6.

[52]

Sections
    2.5(b) and 2.6 are not relevant for purposes of the appeal.  The former deals with
    adjustments for bad accounts receivable and for software licensing amortization
    considerations.  The latter pertains to adjustments for various losses.

[53]

Section
    2.5(c) is relevant, however, because it provides for an adjustment of the Total
    EBIAT Amount, once calculated, to account for what is in essence the use of
    CoreSim IP in sites other than the Ottawa site where CoreSims Unique IP is
    used exclusively.  In addition, s. 2.5(d) is important because in order to
    facilitate the determination of the Total EBIAT Amount, Celestica was required
    to maintain separate financial records for the CoreSim business, as operated by
    Celestica, in a manner so as to permit the Total EBIAT Amounts for any
    Earn-Out Period to be readily calculated by it.  No such provision would have
    been needed if the s. 2.5(c) adjustment were the only calculation to be made,
    because s. 2.5(c) contemplates a self-contained and easily ascertainable item.

[54]

To
    understand the basis for arriving at an Earn-Out Payment, it is necessary to
    understand the notion of Total EBIAT Amount and to what that notion refers.  In
    my opinion, it is a reference to the EBIAT generated by Celesticas Ottawa
    site.

[55]

The
    Letter of Intent, cited above, is of some assistance in this regard.  It states
    that [t]he earn-out payments  shall be released upon the successor within Celestica
    to the CoreSim business
achieving, at the CoreSim site
, [the requisite
    EBIAT amounts] (emphasis added.).  It also distinguishes between the CoreSim
    site and other Celestica locations in the provision that appears to have
    formed the basis for s. 2.5(c) of the Sale Purchase Agreement.

[56]

Total
    EBIAT Amount is determined on the basis of the EBIAT of the Acquired
    Business. The Acquired Business means the former CoreSim business as
    operated by [Celestica] or any of its Affiliates.  The Ottawa site was that
    business.  As Mr. Tareque, the respondents witness, explained, there was only
    one business unit in Ottawa and the Earn-Out calculations were based on the
    Ottawa site only, until the NEC Project was undertaken:

A.

Let me put it this
    way, okay? Until we have the NEC project, everything was in order.
There was
    only one business unit
. Okay? And theres only  the direction from the management
    was  the earn-out only
you calculate it based on the Ottawa site only
.
    There was no NEC.
After
NEC comes on board and we won the project and,
    as the NEC, the Master Agreement was signed,
management decided we should
    track NEC project separately and NEC project
, PST project,
will not be
    included in  in our earn-out statement
. [Emphasis added.]

[57]

The
    Third Earn-Out Statement  prepared by Celestica and delivered to Mr. Whiteside
    after the commencement of these proceedings  confirms this approach and
    reinforces the calculation-subject-to-adjustments paradigm of s. 2.5(a).  It
    shows revenues less expenses to arrive at the EBIAT Calculation per Agreement
    (the Ottawa site EBIAT) and then provides for further Items for Adjustment at
    year-end.  Included in those items for adjustment is a line item for EBIAT
    incurred at other sites as a result of deploying CoreSim (i.e., the
    application of s. 2.5(c)(ii)).

[58]

Conduct
    of the parties to an agreement subsequent to the execution of the agreement is
    helpful in interpreting the provisions of that agreement where competing
    interpretations arise.  As Laskin J.A. put it, in
Montreal Trust Co. of
    Canada v. Birmingham Lodge Ltd.
, [1995] 24 O.R. (3d) 97 (C.A.), at p. 108:

Subsequent conduct may be used to interpret a written agreement
    because it may be helpful in showing what meaning the parties attached to the
    document after its execution, and this in turn may suggest that they took the
    same view at the earlier date: S.M. Waddams,
The Law of Contracts
, 3d
    ed. (1993), at para. 323.  Often, as Thomson J. wrote in
Bank of Montreal v.
    University of Saskatchewan
(1953), 9 W.W.R. (N.S.) 193 at p. 199 (Sask.
    Q.B.): there is no better way of determining what the parties intended than to
    look to what they did under it.

See also
Canadian National Railways v. Canadian
    Pacific Ltd
. (1979), 95 D.L.R. (3d) 242, at p. 262 (B.C.C.A.), affirmed [1979]
    2 S.C.R. 668; and
Arthur Andersen Inc. v. Toronto-Dominion Bank
(1994),
    17 O.R. (3d) 363, at p. 372 (C.A.).

[59]

The
    evidence of Mr. Tareque and the Third Earn-Out Statement support the appellants
    interpretation of the Share Purchase Agreement.  So, too, does the language of
    the Letter of Intent, which formed part of the factual matrix underlying the signing
    of the Share Purchase Agreement.  So, too, as well, does the fact that several other
    projects similar to the NEC Project and performed at the Ottawa site  but
    where the sales lead came from Celestica, not CoreSim  received full EBIAT
    credit for purposes of calculating the Total EBIAT Amount under s. 2.5.  Many
    of those contracts did not involve the exclusive use of CoreSims Unique IP and
    some did not involve any such use (for example, a contract with Nortel known as
    Nortel s8000).  However, all received full EBIAT credit for purposes of the
    Earn-Out calculation.  This confirms that contracts other than those that met the
    four requirements of Section 2.5(c)(ii) were being credited.  The only
    contract that was not included was the one that would have made a difference in
    calculating the Earn-Out: the NEC Project.

[60]

The
    evidence of Paul Barsley, the Vice-President of Design Services for Celestica
    and the person responsible for Celesticas Global Design Services at the
    relevant time, supports the evidence of Mr. Whiteside with respect to the foregoing.
     At para. 50 of his affidavit sworn on September 14, 2012, Mr. Barsley said:

Mr. Whiteside alleges that Celestica awarded CoreSims former
    shareholders 100% credit for other projects similar to NEC where the lead was
    generated outside of Ottawa.
I agree that there were cases in which projects
    owned by Celestica Ottawa arose from leads generated by other parts of
    Celestica
. Celestica Ottawa had its own dedicated sales team for design
    analysis and cost reduction projects. As a result, many of the projects the
    site owned were projects it won through its own sales efforts.
Other
    projects came in through the work of the rest of my business development team
    which promoted value engineering and design analysis services.

[These
    types of projects] were assigned to Celestica Ottawa since it had the available
    project managers and resources needed to carry out the projects.
To the
    extent the earnings generated by the projects met the requirements set out in
    the Agreement
they formed part of the calculation of EBIAT for the purposes
    of the Earn-Out Calculation. [Emphasis added.]

[61]

Interestingly,
    Mr. Barsley did not deny Mr. Whitesides evidence that these other projects
    received full EBIAT credit.  He merely says that to the extent the earnings
    generated met the requirements of the Share Purchase Agreement they were
    credited.  He stated specifically that [t]he NEC project as a whole was
    different than those projects because ultimately the work involved with it did
    not all meet the test in the Agreement.

[62]

Whether
    that is so or not is the nub of the issue, of course.

[63]

For
    the reasons articulated above, I conclude that a proper interpretation of the
    Share Purchase Agreement results in the profits from the NEC Project being
    included in the calculation of the EBIAT of the Ottawa site and, therefore, in
    the Total EBIAT Amount to be applied in determining the relevant Earn-Out
    Payments.

Whether
    the Appellants Met the Thresholds Necessary to Trigger the Earn-Out Payments Even
    if the NEC Project were Included in the Total EBIAT Amount

[64]

The
    trial judge also found that, even if the NEC Project were included in the Total
    EBIAT Amounts, those earnings were not sufficient to meet the threshold
    necessary to trigger the Earn-Out Payments.  In making this finding, he relied
    principally on the evidence of Mr. Tareque, which he accepted over that of the
    appellants expert, Mr. Clarke.

[65]

This
    issue turned on whether Celestica had understated the NEC Project earning for
    the 4
th
Quarter of 2008 and deferred those revenues to the 1
st
Quarter of 2009.  December 31, 2008 was the last date of the Third Earn-Out
    Period and therefore earnings after that date were not to be included in the
    calculation of the Earn-Out Amounts.  The appellants alleged that approximately
    $2.25 million in earnings were deferred.  Mr. Tareque denied there had been any
    revenue deferral.  Mr. Clarkes expert opinion, as expressed in his Original
    Report, was that the appellants were correct.  In his Supplementary Report
    prepared following the production of a newly revised NRE Tracker ver. 17  Mr.
    Clarke testified that at least $1 million had been deferred, which was enough
    to trigger the Earn-Out Payments.

[66]

Needless
    to say, it is within the purview of a trial judge to weigh and assess the
    evidence and to prefer the testimony of one witness over another in making his
    or her findings.  Absent a palpable and overriding error, a trial judges
    findings are entitled to deference and this Court will not interfere with them
    or substitute its own view of the facts.

[67]

Respectfully,
    however, the trial judge made two palpable and overriding factual errors in assessing
    the evidence. In addition, he failed to consider an important piece of evidence.
     These errors significantly affected his review of the evidence and it follows
    that his findings and conclusions on the threshold issue cannot stand.

The
    Clarke Methodology and the SAP Data

[68]

First,
    the trial judge criticized Mr. Clarkes methodology on the basis that he had failed
    to base his opinion on what is known as the SAP data and that he had not
    reviewed the affidavit of Mr. Tareque before providing his opinion.

[69]

The
    SAP document was an internal Celestica document containing data showing
    Celesticas actual revenue and expenses.
[1]
This was in contrast to another internal document, the NRE Tracker document, which
    everyone agreed was a project management tool containing only projections.  Or
    at least, it contained only projections until the final NRE Tracker document
    NRE Tracker ver. 17 (new)  was produced on the eve of trial.

[70]

The
    trial judge was under the impression, erroneously, that Mr. Clarke had not
    considered the SAP documentation and information in arriving at his opinion.  This
    was an important consideration in his rejection of Mr. Clarkes evidence.  At para.
    114 of his reasons, the trial judge observed that [a] serious issue in this
    case is the fact that in his expert report, Mr. Clarke did not take the SAP document
    into account and concluded, at para. 117, that Mr. Clarkes failure to take
    the SAP into account in his expert report renders his expert report incomplete.

[71]

The
    finding that Mr. Clarke did not take the data in the SAP document into account
    is contrary to the evidence.

[72]

First,
    it was on the basis of the SAP records that Mr. Clarke initially opined that
    the $2.25 million had been deferred.  His Original Report contains the
    following statements:

II - Executive Summary and Conclusions

The CoreSim Shareholders allege that Celestica deferred between
    $2.5 million and $2.7 million in revenues from the 2008 fiscal year to the
    first two quarters of Celesticas 2009 fiscal year. The effect of the revenue
    deferral was to reduce the EBIAT such that no further earn-out amount was owed
    to the CoreSim shareholders.

Our analysis of the revenues and expenditures for the NEC PST
    project as recorded in the general ledger (
referred to as SAP lines
    information
) reflected an understatement of revenues in the 2008 fiscal
    year end of approximately $2.2 million. The understatement consisted of an
    under billing for work to the end of fiscal 2008 of approximately $2.7 million
    less 2008 accrued revenue of approximately $0.5 million. [Emphasis added.]

IV  Scope of Review

Information Relied Upon

During the course of this assignment we have reviewed and relied
    upon the following information:

i)

A copy of the spreadsheet titled
NEC PL HC Ottawa from celine.xls

V  Background

NEC PL HC Ottawa from celine

The
NEC PL HC Ottawa from celine
(the NEC PL)
    spreadsheet was provided to us. The NEC PL is the internal Celestica accounting
    record for the PST project.
The spreadsheet includes the detailed SAP
    (Celesticas accounting software) accounting output related to Celesticas
GCS
    Division, which includes all North American design sites, including
Ottawa
    and the NEC PST project
. [Emphasis added.]

The spreadsheet reports quarterly P&Ls for the NEC project
    for all of Celesticas sites servicing the NEC contract including NEC Ottawa. In
    addition, to the P&L,
the spreadsheet contains the detailed SAP lines
    (or general ledger account details) for PST contract transactions specific to
    NEC Ottawa.

The quarterly P&L account totals for NEC Ottawa
    can be agreed to the total SAP lines related to that account number in the SAP
    Line detail for the same quarter.
We note that the NEC Project entries
    start in mind-January 2008. [Emphasis added.]

[73]

Secondly,
    it is quite clear from Mr. Clarkes testimony at trial  both in chief and in
    cross-examination  that he did in fact rely on the SAP documents in
    formulating his opinions.  Counsel for Celestica at trial appears to have
    accepted this and was careful to clarify that Mr. Clarkes opinion was based on
    two documents:

Q.  Your  your report, fair to say is predominantly based on
    on two documents: the NRE Tracker  Youre agreeing with that?

A.  Yes, I am.

Q.   and then the  the SAP lines.

A.  Yes.

[74]

The
    trial judge placed considerable emphasis on the difference between the NRE
    Tracker documents (containing projections only) and the SAP documents (containing
    actual financial data).  In his view, Mr. Clarke had not taken the latter into
    account.  The appellants counsel at trial conceded that, if that were the case,
    it would undermine Mr. Clarkes opinion.  However, the foregoing excerpts from
    the Original Report and the testimony at trial confirm that that was not the
    case.  The trial judge mistakenly found that it was.

The Failure to Consider Mr. Tareques Affidavit

[75]

Mistaken,
    too, was the trial judges conclusion that Mr. Clarkes report could not be
    said to be entirely comprehensive because, among other things, he did not
    review  the affidavit of the defendants finance controller Mr. Tareque
    before preparing it.

[76]

However,
    Mr. Clarke could not have reviewed Mr. Tareques affidavit at the time he
    prepared his Original Report because Mr. Tareques affidavit had not yet been
    sworn.  Mr. Clarkes Supplementary Report  prepared after disclosure by
    Celestica of the new NRE Tracker ver. 17  refers specifically to Mr. Tareques
    affidavit.  Mr. Clarkes testimony at trial confirmed this and, indeed, he was
    cross-examined at some length about what he had or had not done following
    receipt of a copy of the affidavit.

NRE Tracker ver.17 (new)

[77]

Finally,
    the trial judges failure to consider the significance of the revised NRE
    Tracker ver. 17, on which Mr. Clarkes Supplementary Report was based, significantly
    undermines his findings on this issue as well.  He makes no reference to the
    new version in this part of his analysis.

[78]

Central
    to the trial judges finding that the threshold for triggering the Earn-Out
    Payment had not been met was his view that Mr. Clarke did not take the SAP
    document into account but instead relied on the NRE Tracker ver. 17 which
    [was] a cost projection document only whereas the SAP document [was] the
    document to rely on to find out what happened financially.  For the reasons
    explained above, the first of these findings is incorrect.  The second is as
    well.

[79]

The
    trial judge appears to have been under the misapprehension that Mr. Tareques
    evidence in his affidavit and at trial established that all of the NRE Tracker
    documents were projections.  However, that is not the case.

[80]

It
    may well be that earlier versions of the NRE Tracker were based on projections to
    be used as project management tools because they came from the project manager.
     Whatever may have been the case with earlier versions of the NRE Tracker
    documents, however, the NRE Tracker ver. 17 (new) was different; on Mr.
    Tareques own evidence, it was prepared by him and it showed
actual
expenses
    and revenue recognition.

[81]

That
    this is so is clear from Mr. Tareques cross-examination on NRE Tracker ver. 17
    (new) and on the new information it disclosed:

Q. Okay? Do you recognize this document (NRE Tracker 17 (new))?

A. Yes.

Q. Okay. And the new  the boxes  the bottom three boxes here.

A.  Okay.

Q. Okay?
I can tell you they werent in the previous
    version of the NRE Tracker version 17
.

A.  I think I explained that why
because the previous
    versions of the NRE Tracker came from the program officer, not from me
. So
    the process is we get the NRE Tracker from the program office and then we
    create at the bottom table so that we can book our accounting entry.

Q.
So this is something that you, your team, created, not
    the project team.

A.  Bottom part
.

Q.  Just the bottom part.

A. Taking their data, the same data, and just summarizing in
    there
so that we can book accounting entry
.

Q.  Okay. So to some degree, you are using the NRE Tracker.

A.  We are using NRE Tracker
for recognizing revenue
for
    labour, recognizing revenue for travel, reimbursement  consultant, and to some
    degree, material.

Q.  And  and the figures that are here, they would be more
    recent and therefore more accurate than what we would find in version 13.1.

A.  Because version 13, December was projected. So

Q.
And this one now has got
    figures that were projected then, have now become actual
.

A.
Actual.

[Emphasis
    added.]

[82]

This
    was a meaningful admission because it cast the latest NRE Tracker ver. 17 in an
    entirely different light than the previous versions, which were projections
    only.  NRE Tracker ver. 17 (new) recorded actual financial information, not
    projections.  Given the importance placed by the trial judge on the distinction
    between relying on documents that were projections only (the previous NRE
    Tracker documents) and on those that provided actual financial data (the SAP
    documents), this development  and the fact that NRE Tracker ver. 17 (new) showed
    understated revenues of a little over $1 million in the fourth quarter of 2008
     may well have changed his views on the evidence of Mr. Clarke and on the
    appellants arguments.  In Mr. Clarkes opinion, the application of these
    additional revenues to the calculation of the Earn-Out Amount would have been
    sufficient to trigger the Earn-Out Payments.

Remedy
    in Relation to the Threshold Issue

[83]

I
    have concluded that the trial judges misapprehension of the evidence led him
    into palpable and overriding error on two of the main factual pillars
    underlying his acceptance of Mr. Tareques evidence over that of Mr. Clarke:
    his finding that Mr. Clarke did not take the SAP documents into account in
    arriving at his opinion; and his finding that Mr. Clarke failed to consider the
    affidavit evidence of Mr. Tareque, Celesticas main witness on this issue.  In
    addition, the trial judges failure to consider the newest version of NRE
    Tracker ver. 17 and to recognize its difference from earlier versions and its
    potential significance for the deferral-of-revenue argument may well have
    affected his assessment of the competing testimonies of Mr. Clarke and Mr.
    Tareque as well.

[84]

At
    the very least, these errors call into question the trial judges findings and
    conclusions in determining whether the threshold for payment of the Earn-Out
    Amounts had been met.  In my opinion, those findings and conclusions must be
    set aside.

[85]

That
    said, I do not think this Court is in the position to substitute its own view
    on whether the threshold has been met.  It is one thing to conclude that the
    trial judges findings on the assessment of the evidence should be set aside.  It
    is quite another thing for an appellate court to speculate on what different
    findings may have been made or, indeed, whether the findings would ultimately
    have been different if it cannot be clearly determined on the record.  Here, it
    cannot be determined on the record.  Mr. Clarke and Mr. Tareque were each
    cross-examined effectively by opposing counsel and there may be issues arising
    with respect to the testimony of each of them, as well as with respect to the
    calculation of the Total EBIAT itself.

[86]

As
    a result, I would set aside the trial judges ruling that the threshold
    necessary to trigger the Earn-Out Payment had not been met, even if the total
    NEC Project EBIAT were included in the Total EBIAT Amount.  And I would order a
    new trial for the determination of that issue alone.

Choosing
    Between an Expert and a Non-Expert Witness

[87]

In
    light of the foregoing conclusions it is not necessary to deal with the
    discrete issued raised by the appellants with respect to whether the trial
    judge erred in law in favouring the evidence of a non-expert witness over that of
    an expert witness.  The trial judge erred in misapprehending the evidence, as
    explained above.  That error is sufficient to dispose of the appeal.

DISPOSITION

[88]

For
    the foregoing reasons, the appeal is allowed, the order of the trial judge is
    set aside, and judgment is granted:

(a)

declaring that the
    total NEC Project EBIAT is to be included in the calculation of the Total EBIAT
    Amounts for purposes of determining the appellant Whitesides entitlement to Earn-Out
    Payments and the corporate appellants entitlement to its contractual percentage
    of any such Earn-Out Payments;

(b)

setting aside the trial judges finding that, even if the total NEC
    Project EBIAT were included in the calculation of the Total EBIAT Amounts, the
    thresholds necessary to trigger the Earn-Out Payments had not been met, and
    directing a new trial for the determination of that issue; and

(c)

declaring that the appellant Whiteside is to be paid his
pro rata
share of any Earn-Out Payments found to be payable under the Share Purchase
    Agreement, and that the appellant, 307 Canada is to be paid 15% of any such
    Earn-Out Payments.

[89]

We
    were provided with draft bills of costs by counsel for each party.  However, in
    view of the disposition above  if they are unable to agree  the parties may
    make brief further submissions as to costs, not to exceed four pages in length,
    within two weeks of the release of these reasons.

Released: May 23, 2014

(R.A.B.)
    R.A. Blair J.A.

I
    agree David Watt J.A.

I
    agree P. Lauwers J.A.

[1]
The SAP document is described in its electronic format as NEC PL HC Ottawa from
    celine.xls.


COURT OF APPEAL FOR ONTARIO

CITATION: Zurich Insurance Company v. Chubb Insurance Company
    of Canada, 2014 ONCA 400

DATE: 20140515

DOCKET: C57553

Juriansz, Pepall and Pardu JJ.A.

BETWEEN

Zurich Insurance Company

Applicant (Respondent)

and

Chubb Insurance Company of Canada

Respondent (Appellant)

Claude Blouin and George Kanellakos, for the appellant

Kevin S. Adams, for the respondent

Heard: January 27, 2014

On appeal from the order of Justice
Robert
    F. Goldstein
of the Superior Court of Justice, dated April 3, 2013, with
    reasons reported at 2012 ONSC 6363.

Pardu J.A.:

[1]

This appeal concerns the application of the pay first and dispute later
    rules governing insurers that receive an application for Statutory Accident
    Benefits (SABS) following a motor vehicle accident. To reduce delays in
    payments of the benefits, the regulatory scheme requires that the first insurer
    who receives the application for benefits pay them, provided that there is some
    non-random nexus or connection between the claimant and the insurer. If that
    insurer takes the position that another insurer should be responsible for
    payment of those benefits, it must nonetheless pay them, but give notice within
    90 days to the other insurer; and follow the statutory scheme of arbitration to
    determine which insurer should pay the SABS.

[2]

The issue on this appeal is whether any insurer of any kind, or only
    motor vehicle liability insurers are obliged to pay first and dispute later.

Factual background

[3]

Sukhvinder Singh rented a vehicle from Wheels 4 Rent. The rental
    vehicle was insured pursuant to a motor vehicle liability policy issued by
    Zurich Insurance Company (Zurich). Chubb Insurance Company of Canada (Chubb) issued
    an accident policy (the Chubb policy) to Wheels 4 Rent. This policy contained
    no coverage for liability to others as a result of a motor vehicle accident.
    Rather it provided optional death and dismemberment insurance to Wheels 4 Rent
    customers, and extended to death or dismemberment unrelated to a motor vehicle
    accident, provided it occurred during the rental period.

[4]

Ms. Singh did not purchase Chubbs optional coverage. She had a single
    vehicle motor vehicle accident on September 23, 2006. Having at some point obtained
    a pamphlet for the optional Chubb policy made available by Wheels 4 Rent, she
    submitted a claim for SABS to Chubb on November 17, 2006.

[5]

Chubb refused to pay. Zurich ultimately began payment of the SABS and
    the two insurers submitted their dispute to arbitration before Stanley C.
    Tessis.

[6]

The arbitration agreement provided:

1. The arbitrator shall determine all
    matters in dispute among the parties arising out of a dispute regarding
    priority of payment of Statutory Accident Benefits with respect to Sukhvinder
    (Susan) Singh, arising out of a motor vehicle accident which occurred on or
    about September 23, 2006.

2. The questions submitted for
    determination by the Arbitrator with respect to the priority of payment of
    Statutory Accident Benefits with respect to Sukhvinder (Susan) Singh, are as
    follows:

1)

Is Chubb Insurance
    Company of Canada an insurer under Section 268 of the
Insurance Act
and Ontario Regulation 283/95  Disputes Between Insurers;

2)

If it is decided that
    Chubb Insurance Company of Canada is an insurer under Section 268 of the
Insurance
    Act
and Ontario Regulation 283/95  Disputes Between Insurers, then there
    will be an issue as to whether Chubb Insurance Company of Canada has complied
    with the provisions of the Ontario Regulation 283/95; and

3)

What amounts, if any,
    is Chubb responsible for indemnifying Zurich?

3. The Arbitrator shall have the power
    to grant any relief to the facts and circumstances that would be within the
    jurisdiction of a Judge of the (Ontario) Superior Court of Justice at trial in
    that Court.

The Decisions Below

[7]

The manner in which the parties structured the issues for the arbitrator
    reflects their agreement in correspondence that Chubbs liability depended on
    whether Chubb was an insurer within the meaning of s. 268 of the
Insurance
    Act
.

[8]

The arbitrator concluded that Chubb was not an insurer for the
    purposes of the priority dispute settlement statutory regime because there was
    no sufficient nexus existing between Chubb Insurance Company of Canada and
    Ms. Singh. As a result, Chubb was not obligated to pay her benefits under the
    pay first and dispute later rules. In his view, no nexus existed because Chubb
    had never issued a motor vehicle liability policy to either Wheels 4 Rent or
    Ms. Singh. He noted that Zurich had submitted a number of cases where a
    sufficient nexus had been found, and that:

In all of those cases, the Arbitrators and Judges found a nexus
    or substantial connection because:

(a)     An insurer has at one time or
    at the time of the accident issued a policy of insurance on a motor vehicle,
    regardless of whether statutory accident benefits were payable pursuant to the
    policy; or

(b)     A motor vehicle liability
    policy of insurance had been presented at the scene of the accident or to an
    investigating officer, but the policy had expired or was fraudulent.

In this Arbitration, there is no suggestion that Chubb had ever
    issued a motor vehicle liability policy on a motor vehicle owned by Wheel 4
    Rent or Ms. Singh that had expired or was cancelled, that a Certificate of
    Insurance or Pink Motor Liability Insurance Slip had been produced to Ms. Singh
    showing Chubb as a motor vehicle liability insurer, or that Chubb had issued a
    motor vehicle liability insurance policy for a vehicle somehow connected with
    the accident of September 23, 2006.

[9]

Zurich appealed from this ruling. The application judge allowed the
    appeal, concluding that Chubb was an insurer under the statutory regime,
    because the Chubb policy was a motor vehicle liability policy as defined by
    the
Insurance Act
, R.S.O. 1990, c. I.8, and there was a sufficient
    nexus between Ms. Singh and Chubb to require Chubb to pay the SABS first.

Issue

[10]

The
    sole issue on this appeal is whether the application judge erred in deciding
    that Chubb is an insurer for the purposes of the pay first and dispute later
    rules. If Chubb is an insurer for the purposes of these rules, then it was
    required to pay benefits to Ms. Singh.

[11]

Embedded
    within this issue are the questions of whether (a) the Chubb policy is a motor
    vehicle liability policy for the purposes of s. 268 of the
Insurance Act
,
    and (b) whether there was a sufficient nexus between Chubb and Ms. Singh to
    justify payment.

Standard of Review

[12]

The
    arbitration agreement between Chubb and Zurich provided:

The decision of the Arbitrator shall be binding upon the
    parties, but any party may appeal the Arbitrators decision on a point of fact
    or on a point of law or on a point of mixed fact and law to a Judge on the
    Ontario Superior Court of Justice, without leave of the Court, within thirty
    (30) days of the date of the Arbitrators written decision. The standard of
    review to be applied on appeal with respect to the Arbitrators decision(s) on
    questions of law shall be correctness. The standard of review to be applied on
    appeal with respect to the Arbitrators decision(s) on questions of fact and
    questions of mixed fact and law shall be reasonableness.

[13]

The
    application judge adopted a standard of review of correctness, on the ground
    that there were no factual issues in dispute. Mesbur J. summarized the
    applicable standards of review in
Aviva Insurance Co. of Canada v. Royal
    & SunAlliance Insurance Co.
(2008),
66
    C.C.L.I. (4th) 262 (Ont. S.C.), at para. 7:

First, on a question of law, the standard is one of
    correctness. Second, on a question of fact, the decision below can only be set
    aside on the basis of an overriding and palpable error. Last, on a question of
    mixed fact and law, the standard is one of reasonableness.

The Ontario Court of Appeal has also commented that on a
    question of mixed fact and law, where the decision is highly dependent on a
    factual finding, the standard is more akin to overriding and palpable error.
    It is noteworthy that this case also dealt with an appeal from an arbitrators
    decision under the provisions of the
Insurance Act
. The court
    commented that arbitrators have a special expertise in evaluating facts for
    determination of dependency for statutory accident benefits entitlement, and
    unless the arbitrator was unreasonable, he is entitled to deference. I infer
    arbitrators have similar special expertise in determining issues of loss
    transfer, and thus their conclusions should be equally afforded deference. [Citations
    omitted.]

[14]

Here
    I would characterize the issue of whether Chubb was a motor vehicle liability
    insurer as a question of law reviewable on the standard of correctness and the
    issue of whether there was a sufficient nexus between Chubb and the claimant as
    a question of mixed fact and law reviewable on the standard of reasonableness.

Statutory Regime

[15]

The
    relevant portions of the
Insurance Act
are as follows:

2. In this Act, except where inconsistent with the
    definition sections of any Part,

insurer
 means the person who undertakes or
    agrees or offers to undertake a contract;

motor vehicle liability policy

    means a policy or part of a policy evidencing a contract insuring,

(a) the owner or driver of an automobile, or

(b) a person who is not the owner or driver
    thereof where the automobile is being used or operated by that persons
    employee or agency or any other person on that persons behalf,

against liability
arising out of bodily injury to or the death of a person or loss or damage to
    property
caused by an automobile
or the use of
    operation thereof; (police de responsabilité automobile)

224.  (1)  In this Part,

contract
 means a contract of automobile
    insurance that,

(a) is undertaken by an insurer that is licensed
    to undertake automobile insurance in Ontario, or

(b) is evidenced by a policy issued in another
    province or territory of Canada, the United States of America or a jurisdiction
    designated in the Statutory Accident Benefits Schedule by an insurer that has
    filed an undertaking under section 226.1;

Statutory accident benefits

268. (1) Every contract evidenced by a
motor vehicle liability policy
, including every such
    contract in force when the Statutory Accident Benefits Schedule

is
    made or amended, shall be deemed to provide for the statutory accident benefits
    set out in the Schedule

and any amendments to the Schedule, subject to
    the terms, conditions, provisions, exclusions and limits set out in that
Schedule
.

[Emphasis added.]

[16]

Disputes
    Between Insurers
, O. Reg. 283/95, governing disputes between insurers
    provides:

0.1 In this Regulation,

application means an application for accident
    benefits (OCF-1) approved by the Superintendent for the purposes of the
    Schedule;

1. All disputes as to which insurer is required to
    pay benefits
under section 268
of the Act shall be
    settled in accordance with this Regulation. O. Reg. 283/95, s. 1.

2. (1) The first insurer that receives a completed
    application for benefits is responsible for paying benefits to an insured
    person pending the resolution of any dispute as to which insurer is required to
    pay benefits under section 268 of the Act. O. Reg. 283/95, s. 2. [Emphasis added.]

Analysis

[17]

This
    court has dealt with these priority disputes in the SABS context a number of
    times.

[18]

In
Kingsway General Insurance Co. v. Ontario (Minister of Finance)
,
2007 ONCA 62
, 84 O.R. (3d) 507, this court stated, at
    para. 19:

Section 2 of Regulation 283 is critically important in the
    timely delivery of benefits to victims of car accidents. The principle that
    underlies section 2 is that the first insurer to receive an application for
    benefits must pay now and dispute later. The rationale for this principle is
    obvious: persons injured in car accidents should receive statutorily mandated
    benefits promptly; they should not be prejudiced by being caught in the middle
    of a dispute between insurers over who should pay, or as in this case, by an
    insurer's claim that no policy of insurance existed at the time.

[19]

Further,
    this court noted in
Kingsway General Insurance Co. v. West Wawanosh
    Insurance Company
(2002), 58 O.R. (3d) 251 (C.A.), at para. 10:

The Regulation sets out in precise and specific terms a scheme
    for resolving disputes between insurers. Insurers are entitled to assume and
    rely upon the requirement for compliance with those provisions. Insurers
    subject to this Regulation are sophisticated litigants who deal with these
    disputes on a daily basis.
The scheme applies to a
    specific type of dispute involving a limited number of parties who find
    themselves regularly involved in disputes with each other.
In this
    context, it seems to me that clarity and certainty of application are of
    primary concern. Insurers need to make appropriate decisions with respect to
    conducting investigations, establishing reserves and maintaining records. Given
    this regulatory setting, there is little room for creative interpretations or
    carving out judicial exceptions designed to deal with the equities of
    particular cases. [Emphasis added.]

[20]

In
    my view the application judge erred in concluding that the Chubb policy was a
    motor vehicle liability policy. There was no element of that accidental death
    and dismemberment policy that insured against liability to others arising out
    of property damage or injury caused by an automobile or the use or operation
    thereof.

[21]

The
    content of motor vehicle liability policies is highly regulated. These
    policies must provide for payment of SABS, and a statutory minimum amount of
    liability coverage. The Chubb policy has none of these characteristics.

[22]

The
    rationale expressed in
Kingsway General Insurance Co. v. West Wawanosh
    Insurance Co.
would not be furthered by requiring insurers other than
    motor vehicle liability insurer[s] to respond to a claim for SABS. An insurer
    providing fire or life insurance or some group or accident or disability
    insurance not having the features of a motor vehicle liability policy may
    have no expertise in adjusting these claims, and should not be expected to
    respond to them where it has not issued a motor vehicle liability policy even
    if there is a nexus or relationship between the claimant and such insurer.

[23]

The
    priority and dispute resolution regime established under O. Reg. 283/95 applies
    to disputes as to which insurer is required to pay benefits
under s. 268
of the
Insurance Act
 (emphasis
    added).

[24]

Section
    268 says every contract evidenced by a motor vehicle liability policy shall
    be deemed to provide for SABS. These benefits are not incorporated into
    insurance policies which are not motor vehicle liability policies and those
    insurers may have no expertise in adjusting these claims.

[25]

All
    of the cases cited in which an analysis is made to ascertain whether there was
    a sufficient nexus between the claimant and the first insurer to review an
    application for SABS are premised on there having been an actual or purported
    motor vehicle liability policy in place at some time.

[26]

For
    example, in
Ontario (Minister of Finance) v. Royal & Sun Alliance
    Insurance Co.
(January 2003, Arbitrator M. Guy Jones), the investigating officer
    was given a certificate of insurance issued by Royal which had expired four
    years earlier and covered a different vehicle. This was found to be a
    sufficient nexus to a motor vehicle liability insurer to justify an obligation
    to pay. In
Ontario (Minister of Finance) v. Progressive Casualty Insurance
    Co. of Canada
, 2009 ONCA 258, 95 O.R. (3d) 219, and
Lombard Canada Ltd.
    v. Royal & SunAlliance Insurance Co.
(2008), 94 O.R. (3d) 62 (S.C.), motor
    vehicle liability policies expired two months before the accident. In these
    cases the claimants choice of recipient of the claim for SABS was not random
    or arbitrary and was connected to a motor vehicle liability policy. Similarly
    in
Danilov v. Unifund Assurance Co.
, [2009] O.F.S.C.D. No. 69 (FSCO
    Arb.), there was a fraudulent pink motor vehicle liability policy slip
    purporting to evidence a motor vehicle liability insurance policy.

[27]

Ms.
    Singhs choice to send her application to Chubb was not random or arbitrary,
    but was based on the optional coverage provided to Wheels 4 Rent customers.
    Nonetheless Chubb was not required to respond as it was not a motor vehicle
    liability insurer, nor had it held out or represented to have ever provided
    such coverage at any relevant time.

[28]

Both
    the plain meaning of s. 268 of the
Insurance Act
and O. Reg. 283/95,
    and the underlying policy behind the legislation, favour excluding non-motor vehicle
    liability insurers from the obligation to pay first and dispute later.

Disposition

[29]

Accordingly,
    I would allow the appeal. I would set aside the order of the application judge
    of April 3, 2013, setting aside the decision of Arbitrator Stanley Tessis and
    awarding costs to Zurich, and substitute an order dismissing the application
    and awarding costs in favour of Chubb in the sum of $7,149.00.

[30]

I
    would award Chubb the costs of this appeal fixed in the agreed upon sum of
    $12,000 inclusive of all disbursements and H.S.T.

G.
    Pardu J.A.

I
    agree S.E. Pepall. J.A.

Juriansz J.A. (Dissenting):

[31]

I
    have read the decision of Pardu J.A. and, with respect, I am unable to agree
    with either the reasons or the result. I would simply apply the established
    nexus test to determine whether Chubb, as the first insurance company to
    receive a completed application for benefits, was obliged by O. Reg. 283/95
    (the Regulation) to pay those benefits while disputing coverage.

[32]

There
    is a mature and stable jurisprudence relating to the nexus test and the
    application of the Regulation. Both the courts and arbitrators of the Financial
    Services Commission of Ontario have applied the nexus test on numerous
    occasions to determine whether an insurance company must pay benefits under s.
    2: see, for example,
Allstate Insurance Co. of Canada v. Brown
(1998),
    40 O.R. (3d) 610 (Div. Ct.);
Lombard Canada Ltd. v. Royal & SunAlliance
    Insurance Co.
(2008), 94 O.R. (3d) 62 (S.C.);
Kingsway General
    Insurance Co. v. Ontario

(Minister of Finance)
, 2007 ONCA 62, 84
    O.R. (3d) 507;
Rozmerets v. Wawanesa Mutual Insurance Co.
, [2002] O.F.S.C.D.
    No. 99 (FSCO Arb.);
Bianca v. Wawanesa Mutual Insurance Co.
, [2004]
    O.F.S.C.D. No. 185 (FSCO Arb.);
Vieira v. Royal & SunAlliance Insurance
    Co. of Canada
, [2005] O.F.S.C.D. No. 7 (FSCO Appeal). It is, in my view,
    both unnecessary and unwise to adopt a new and different interpretation of the
    Regulation.

[33]

Further,
    I am unclear as to the meaning of the term non-motor vehicle liability
    insurer, which Pardu J.A. introduces in concluding that [b]oth the plain
    meaning of s. 268 of the
Insurance Act
and O. Reg. 283/95, and the
    underlying policy behind the legislation, favour excluding non-motor vehicle
    liability insurers from the obligation to pay first and dispute later.

[34]

If
    the term non-motor vehicle liability insurer were used broadly to denote an insurer
    that does not offer motor vehicle liability policies to the public, I would
    agree with Pardu J.A. that the legislature could not have intended that the
    Regulation would apply to such insurers. The scope of the Regulation does not
    permit a nexus to be found between a claimant and an insurer that does not
    write motor vehicle liability policies in Ontario. However, counsel for Chubb
    acknowledged that Chubb does regularly write motor vehicle liability policies
    in Ontario. Chubb is not a non-motor vehicle liability insurer in the broad
    sense.

[35]

The
    policy that Chubb offered to Ms. Singh in this case was not a motor vehicle
    liability policy as it did not provide liability coverage. However, it is also
    apparent that Pardu J.A. does not use the term non-motor vehicle liability
    insurer in the narrow sense to denote an insurer who, as a matter of fact, has
    not issued a motor vehicle liability policy that provides coverage to the
    applicant. To apply this narrow sense of the term would effectively overturn
    existing case law under the Regulation. Instead, Pardu J.A. avoids overruling
    the earlier case law by suggesting that the Regulation will continue to apply
    to an insurance company that has not issued a policy to any relevant person so
    long as there was purported or represented coverage. On this basis, she
    distinguishes
Danilov v. Unifund Assurance Co.
, [2009] O.F.S.C.D. No.
    69 (FSCO Arb.), which involved a fraudulent insurance certificate, and
Ontario
    (Minister of Finance) v. Royal & Sun Alliance Insurance Co.
(January
    2003, Arbitrator M. Guy Jones), which involved a long-expired certificate that
    covered a different vehicle. Justice Pardus use of the term non-motor vehicle
    liability insurer does not exclude such insurers despite the fact they have
    not issued a relevant motor vehicle liability policy.

[36]

I
    expect that adjudicators in future cases will struggle with determining whether
    an insurer is a non-motor vehicle liability insurer. They will have difficulty
    reconciling the conclusion that the plain meaning of the Regulation excludes non-motor
    vehicle liability insurers with the proposition that the pay first obligation will
    continue to apply in cases where there is no actual coverage, but only purported
    or represented coverage.

[37]

In
    the earlier cases, the rationale for applying the Regulation in cases of purported
    or represented coverage was that the applicant chose the insurance company
    based on a non-arbitrary belief that the insurance company provided coverage on
    the relevant vehicle. This is the crux of the nexus test. If the claimants
    non-arbitrary but mistaken belief is a basis for requiring the insurance
    company to pay benefits in cases of purported or represented coverage, I
    see no reason to treat claimants differently if their non-arbitrary beliefs are
    based on information other than a false representation. In my view, it would be
    best to allow adjudicators to continue to consider whether there is some
    connection between the parties as set out in the familiar and established nexus
    test. I now turn to the application of that test.

[38]

With
    the advantage of hindsight, it is evident that, as a matter of fact, Zurich is
    the motor vehicle liability insurer of Wheels 4 Rents vehicles, and Chubb is
    not. However, there is no hint in the record that Ms. Singh knew anything about
    the relationship between Wheels 4 Rent and Zurich when she was injured in the
    rental car or when she applied to Chubb. The application judge reasoned that:

The connection between Ms. Singh and Chubb may have been
    remote, but it was not arbitrary. Ms. Singh rented a vehicle from Wheels4Rent.
    Wheels4Rent was insured by Chubb. Chubb made the optional policy available to
    Ms. Singh through Wheels4Rent. Although Ms. Singh did not take up the optional
    policy, the obvious inference that the parties agree can be drawn is that she
    learned of it through Wheels4Rent when she rented the vehicle.

[39]

The
    mistaken inference that Chubb insured Wheels 4 Rents vehicles could not be
    described as completely arbitrary. Justice Pardu states that Ms. Singhs
    choice to send her application to Chubb was not random or arbitrary. I agree.
    Given the non-arbitrariness of Ms. Singhs choice of insurer, I see no reason
    why the result should be different than it would have been had someone falsely
    represented to her that Chubb was the insurer.

[40]

The
    overriding public policy of the Regulation is to
provide
    timely delivery of benefits to all persons injured in car accidents in Ontario,
    despite the inconvenience to insurance companies who must provide benefits
    immediately and seek reimbursement from the correct insurance company later. As
    Laskin J.A. said at para. 21 of
Kingsway General Insurance Co. v.
    Ontario

(Minister of Finance)
,

I am inclined to agree[o]nly in the most extreme cases, where the
    connection with the insurers is totally arbitrary should the insurer refuse to
    pay
. In my view, that public policy would be seriously eroded
    by allowing an insurance company that writes motor vehicle liability policies
    in Ontario to argue, in a case in which the nexus test is satisfied, that it is
    a non-motor vehicle liability insurer.

[41]

For
    these reasons, I would apply the established nexus test and find that it is
    satisfied on the facts of this case. Consequently, I would dismiss the appeal.

Released: May 15, 2014

(G.P)                                                                     R.G.
    Juriansz J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: 806480 Ontario Limited v. RNG Equipment Inc., 2014
    ONCA 488

DATE: 20140624

DOCKET: C58077

Laskin, Pepall and Pardu JJ.A.

BETWEEN

806480 Ontario Limited cob as Kens Sunoco
    Service

Plaintiff (Appellant)

and

RNG Equipment Inc. and
ZCL
    Composites Inc
.

Defendants (
Respondent
)

John H. McNair, for the appellant

Benjamin G. Blay, for the respondent

Heard: May 9, 2014

On appeal from the order of Justice Andrew J. Goodman of
    the Superior Court of Justice, dated November 27, 2013.

ENDORSEMENT

[1]

On May 9, 2013 the court allowed the appeal with reasons to follow. This
    was an action for damages arising out of the failure of a fuel storage tank. The
    registrar dismissed the action for delay, and the appellant appealed from the
    refusal of the motion judge to restore the action.

[2]

The following chronology was established by the record:

1.

Notice
    of action issued May 7, 2010

2.

Statement
    of Claim issued June 4, 2010

3.

Notice
    of Intent to Defend filed August 25, 2010

4.

Statement
    of Defence issued January 13, 2011

5.

Amended
    Statement of Defence issued March 24, 2011

6.

Defendants
    motion for summary judgment dismissing action because of expiry of limitation
    period, served July 18 2011

7.

Summary
    judgment motion dismissed December 5, 2011

8.

Costs
    decision on summary judgment motion January 17, 2012

9.

Status
    notice issued by registrar September 13, 2012

10.

Registrars
    order dismissing action for delay December 4, 2012

[3]

The status notice issued in this matter was made pursuant to Rule 48.14
    and indicated that more than two years had passed since a defence in the action
    was filed. Rule 48.14(1) provides that if an action has not been listed for
    trial or terminated within two years after the first defence is filed, the registrar
    shall serve a status notice on the parties. For the purposes of this Rule,
    defence is defined in Rule 48.14 (0.1) as including a notice of intent to
    defend. The status notice provided that the action would be dismissed unless it
    was set down or otherwise terminated within 90 days of service of the status
    notice. The registrars order dismissing the action for delay was made before
    this 90 day period had elapsed. Both parties now agree that the registrar had
    no jurisdiction to dismiss the action, and the registrars order dismissing the
    action must be set aside.

[4]

Counsel for the appellant argued that the motion judge erred in his
    application of the factors set out in
Reid v. Dow Corning Corp.
(2001)
    11 C.P.C. (5
th
) 80 in refusing to set aside the dismissal. The motion
    judge considered that the respondent was prejudiced because it lost an
    opportunity to conduct an examination of the tank during the first months of
    the litigation. The tank in question here was removed and discarded five months
    after the Statement of Claim was delivered and two months before the respondent
    delivered its Statement of Defence. This is not prejudice arising from steps
    taken following dismissal, or which would result from restoration of the action
    following the registrars dismissal. In our view, the motion judge erred in
    considering this as prejudice in relation to the issue of whether to set aside
    the registrars dismissal.

[5]

In any event the registrars order dismissing the action must be set
    aside as of right. The orders of the motion judge of November 27, 2013 and
    January 2, 2014 are set aside, and the registrars order of December 4, 2012
    dismissing the action is set aside. Costs of the appeal are awarded to the
    appellant in the agreed sum of $8,000.00.

John Laskin J.A.

S.E. Pepall J.A.

G. Pardu J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: 1634584 Ontario Inc. v. Canada (Attorney General),
    2014 ONCA 465 DATE: 20140613

DOCKET: C58058

MacPherson, Simmons and Gillese JJ.A.

BETWEEN

1634584 Ontario Inc.

Plaintiff (Appellant)

and

Attorney General of Canada

Defendant (Respondent)

Glen W. Ackerley and  Faren Bogach, for the appellant

Jacqueline Dais-Visca, for the respondent

Heard and released orally: June 12, 2014

On appeal from the judgment of Justice Stephen E.
    Firestone of the Superior Court of Justice, dated November 13, 2013.

ENDORSEMENT

[1]

The appellant 1634584 Ontario Inc. appeals from the judgment of
    Firestone J. of the Superior Court of Justice dated November 13, 2013.  In that
    judgment, the motion judge granted summary judgment to the respondent Attorney
    General of Canada and dismissed the appellants action against the respondent
    grounded in an allegation that the respondent, through the Department of Public
    Works and Government Services Canada, conducted an unfair tender process
    relating to the lease of premises in Peterborough.

[2]

There were four bidders in the first tender process.  PWGSC decided that
    all four bids were non-compliant with the Invitation to Tender.  The appellants
    bid was the second highest.  PWGSC ordered a second round of bidding.  The
    appellant, for business reasons, chose not to participate and was not awarded
    the contract.

[3]

The appellant appeals on two grounds.

[4]

First, the appellant contends that this was not an appropriate case for
    summary judgment; a trial was required.

[5]

We disagree.  The standard of review with respect to a motion judges
    exercise of fact finding powers under Rule 20 is palpable and overriding error:
    see
Hryniak v. Mauldin
, 2014 SCC 7.  We see no basis for interfering
    with the motion judges conclusion that, applying the new test in
Combined
    Air Mechanical Services Inc. v. Flesch
, 2014 SCC 7, this was an
    appropriate case to be dealt with by way of summary judgment.  In particular,
    we agree with paragraphs 41 and 42 of the motion judges reasons on this
    point.

[6]

Second, the appellant submits that the motion judge erred in his
    fairness and good faith analysis.

[7]

Again, we are not persuaded by this submission.  On the basis of the
    record, it was entirely within PWGSCs discretion to determine that the first
    tender produced four non-compliant bids and to order a second tender process.
    Nor are we persuaded that, given the wording of the Invitation to Offer
    document, PWGSC had an obligation to seek clarification of possible weaknesses
    in the offers received from various bidders, including the appellant.  In our
    view, the first process was fair and the appellant chose not to participate in
    the second process and cannot, therefore, complain about the ultimate result
    flowing from that process.

[8]

The appeal is dismissed.  The respondent is entitled to its costs of the
    appeal fixed at $2,500, inclusive of disbursements and HST.

J.C. MacPherson
    J.A.

Janet Simmons
    J.A.

E.E. Gillese
    J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: 1670002 Ontario Limited (Canadian Professional
    Recruiters) v. Redtree Contract Carriers Ltd., 2014 ONCA 501

DATE: 20140627

DOCKET: C56390

Laskin, Rouleau and Epstein JJ.A.

BETWEEN

1670002 Ontario Limited operating as Canadian
    Professional Recruiters

Plaintiff (Appellant)

and

Redtree Contract Carriers Ltd., Wilson Logistics
    Inc., and Wilson Transportation and Leasing Group (Canada) Inc.

Defendants (Respondents)

Raymond Colautti and Anita Landry, for the appellant

Christine Kilby and Andrea Campbell, for the respondents

Heard: June 3, 2014

On appeal from the judgment of Justice Bruce G. Thomas of
    the Superior Court of Justice, dated December 10, 2012.

By the Court
:

A.

Background

[1]

The events that gave rise to this litigation took place between 2003 and
    2005.  At the time, the respondent Wilson Transportation was in the business of
    trucking and leasing trucks in Ontario.  Its subsidiary, the respondent Wilson
    Logistics
[1]
,
    had a contract with the City of Toronto to transport waste from Toronto to
    Michigan.  Redtree, another Wilson Transportation subsidiary, was to implement
    the waste contract.  To do so, Redtree needed qualified drivers.

[2]

In the spring of 2003, Redtree approached the appellant Canadian
    Professional Recruiters (CPR), a driver recruitment agency, to obtain drivers
    for the waste contract.  In May 2003, CPR and Redtree entered into an oral
    agreement under which CPR would recruit drivers for Redtree in return for a
    fee.

[3]

In late 2004, the City of Toronto put pressure on Redtree to reduce the
    costs of the waste contract.  In response, Redtree decided to phase out the
    services of CPR and hire its own drivers.  In February 2005, one of the
    vice-presidents of Wilson Transportation told CPR that its contract with
    Redtree was terminated.

[4]

CPR then sued Redtree, Wilson Transportation and Wilson Logistics for
    damages for breach of contract, interference with economic relations and inducing
    breach of CPRs employment agreements.

B.

The trial

[5]

The action was tried before Abbey J. over 11 days in 2009.  He prepared
    lengthy draft reasons, but before finalizing them, he died.  In his draft
    reasons, Abbey J. found that Redtree ought to have given CPR six months notice
    of termination.  He did not quantify the amount of damages, nor did he deal
    with interest and costs.  And he made no findings of liability against Wilson.

[6]

In November 2010, Redtree went bankrupt.

[7]

Following Abbey J.s death, Thomas J. reviewed the draft reasons and
    adopted them.  Thomas J. confirmed liability against Redtree only and, to
    account for the six-month notice period, awarded CPR damages of $73,093.00 plus
    interest.  He also awarded CPR its costs against Redtree, but then awarded
    Wilson its costs against CPR.  His reasons were released on November 13, 2012,
    but his formal judgment was not entered until December 10, 2012.  However, on
    January 10, 2013, Thomas J. made a Sanderson order requiring Wilson to seek
    its trial costs against Redtree.

C.

The appeal and the cross-appeal

[8]

CPR makes two submissions on its appeal:

(1)

The trial judge erred by failing
    to take account of Wilsons participation in the contract between CPR and
    Redtree.  In particular, CPR submits that Wilson is liable for inducing the breach
    of the contract between CPR and Redtree.

(2)

Under the common employer
    doctrine, Wilson is liable for breach of CPRs contract with Redtree.

[9]

Wilson cross-appeals against Thomas J.s Sanderson order.  It submits
    that Thomas J. had no jurisdiction to make the order because it was made after
    his formal judgment was issued and entered.  Alternatively, Wilson submits that
    the order is not supported by the evidence.

[10]

We
    called on Wilson only on CPRs first ground of appeal.  And we did not call on
    CPR to respond to Wilsons cross-appeal.

D.

Discussion

(1)

Is Wilson liable for inducing the breach of the contract between CPR and
    Redtree?

[11]

CPR
    submits that the trial judge erred by failing to find that Wilson induced the
    breach of the contract between CPR and Redtree.  In support of its submission,
    CPR points out that it was a Wilson executive, James Cockburn, who advised CPR in
    February 2005 that the contract had been terminated.  CPR relies on para. 52 of
    Abbey J.s reasons, in which he said:

While the contrary position was argued on behalf of the
    defendants, in my opinion, the purpose and effect of what was said by Cockburn
    in this telephone call amounted to a termination of the contract between the
    plaintiff and Redtree.

[12]

Wilsons
    position is that we should not even entertain CPRs argument because the issue was
    not raised either at trial or before Thomas J., and thus is being raised for
    the first time on appeal.  Alternatively, Wilson maintains that on the trial
    record the tort has not been made out.

[13]

Wilsons
    contention that this issue was not raised in the trial proceedings has merit.  Although
    CPR claimed that Wilson induced the breach of CPRs employment contracts, CPR
    never alleged that Wilson induced the breach of the contract between CPR and
    Redtree.  A claim for inducing the breach of the CPR/Redtree contract was not
    advanced in the pleadings, in counsels opening submissions at trial, or in the
    original notice of appeal.

[14]

Even
    if we were to accept that CPRs claim is not a new issue on appeal, the
    evidence at trial does not make out this claim.  To prove Wilson is liable for
    inducing a breach of contract, CPR had to meet the four-part test in
Correia
    v. Canac Kitchens
, 2008 ONCA 506, 91 O.R. (3d) 353, at para. 99:

(1)

Wilson had knowledge of the
    contract between CPR and Redtree;

(2)

Wilson intended to procure a
    breach of that contract;

(3)

Wilsons conduct caused Redtree to
    breach the contract; and

(4)

CPR suffered damages due to the
    breach.

[15]

CPR
    does not meet the second element of this four-part test.  It cannot show Wilson
    had the required intent.  The contract between CPR and Redtree was an oral
    contract.  The parties made no provision for notice if either side terminated
    the contract.  Abbey J. found that [t]he decision of Redtree to terminate the
    contractual arrangement was driven, not by greed or malice, but by economic
    necessity.  In the light of these considerations, it cannot be said that
    Wilson intended to procure a breach of the contract.

[16]

The
    most CPR can say is that Wilson participated in the termination of the
    contract, a termination that the trial judge later concluded required six
    months notice.  That conclusion, however, was far from obvious at the time the
    contract was terminated.  As Lord Hoffman said in
OBG Ltd. v. Allan
,
    2007 UKHL 21, [2008] 1 A.C. 1, at para. 39
[2]
:
    to be liable for inducing breach of contract, you must know that you are
    inducing a breach of contract.  The record does not show that Wilson knew it
    was inducing a breach of the contract between CPR and Redtree.

[17]

For
    these reasons, CPRs first ground of appeal fails.

(2)

Are the Wilson companies liable under the common employer doctrine?

[18]

CPR
    argued at trial that under the common employer doctrine, Redtree and both
    Wilson companies were liable for breach of contract: see
Downtown Eatery
    (1993) Ltd. v. Ontario
(1993), 54 O.R. (3d) 161 (C.A.), leave to appeal to
    S.C.C. refused, [2001] S.C.C.A. No. 397.

[19]

Abbey
    J. accepted that in some circumstances, an employee may have more than one
    employer.  But he rejected the doctrines application to CPRs contract with
    Redtree.  Instead he found, at paras. 43-45 of his reasons:

In short, none of the documents to which I was directed during
    the course of the trial contain any reference to any defendant other than the
    defendant Redtree.

.

This is not a case in which the plaintiff supplied services to
    the defendants generally without regard to the precise entity with whom it was
    bound in contract.  It is, I believe, rather clear that those individuals
    representing the interests of the plaintiff considered that the plaintiffs
    services were being provided to the defendant Redtree which, in turn, was
    supplying labor to meet the obligations of the Toronto contract held by Wilson
    Logistics.

[20]

We
    need not decide whether the common employer doctrine could ever apply to a
    contract such as the one entered into between CPR and Redtree.  Abbey J.s
    finding that CPR contracted only with Redtree is fully supported by the record
    at trial.  Although Wilson executives later dealt with aspects of the contract,
    the contract itself was entered into at a meeting in May 2003 at which only CPR
    representatives and three representatives of Redtree were present.  Moreover,
    Mr. Snobelen, the Operations Manager of CPR, admitted at trial that he
    understood he was contracting with Redtree.

[21]

Accordingly,
    we decline to give effect to this ground of appeal.

(3)

The cross-appeal: should the Sanderson order for costs be set aside?

[22]

Wilson
    submits that Thomas J.s Sanderson order should be set aside because he had no
    jurisdiction to make it and because it was not supported by the evidence.  We
    do not agree with either branch of this argument.

[23]

The
    Sanderson order was made after the formal judgment awarding Wilson costs
    against CPR had been issued and entered.  The final costs order was, however,
    an accidental slip, correctable under Rule 59.06(1) of the Rules of Civil
    Procedure.

[24]

As
    we have said, Thomas J.s judgment was entered on December 10, 2012.  A month
    earlier, on November 14, one day after Thomas J. had released his reasons,
    counsel for CPR asked if he could make submissions on the Sanderson order.  On
    November 20, 2012, Thomas J. advised the parties that he would entertain
    submissions on the appropriateness of the Sanderson order.  On November 26,
    Wilson filed its submissions on the Sanderson order.  All of this
    correspondence took place well before the formal judgment had been entered.

[25]

Wilson
    did not raise before Thomas J. his jurisdiction to make a Sanderson order.  And
    we have no doubt had it done so, Thomas J. would have concluded the costs order
    in his judgment as issued and entered was an accidental slip and that he would
    have corrected it.  Accordingly, Wilsons jurisdiction argument must fail.

[26]

The
    Sanderson order itself was supported by the evidence and was reasonable.  CPR
    acted sensibly in joining the two Wilson companies as defendants in the light
    of their involvement in the performance of the contract and the overlapping
    responsibilities of some of the key employees.  Additionally, all three
    defendants were represented at trial by the same counsel.

[27]

As
    Thomas J. pointed out, the real issue was who should bear the burden of
    Redtrees bankruptcy.  Thomas J. concluded it was fair and just that Wilson
    bear this burden.  He did not err in that conclusion.  Accordingly, we dismiss
    the cross-appeal.

E.

Conclusion

[28]

We
    dismiss both the appeal and the cross-appeal. Having regard to the results of
    the appeal and the cross-appeal, we award Wilson costs of the appeal
    proceedings in the amount of $15,000 inclusive of disbursements and applicable
    taxes.

Released: June 27, 2014 (J.L.)

John
    Laskin J.A.

Paul Rouleau J.A.

Gloria Epstein J.A.

[1]
In these reasons we refer to Wilson Transportation and Wilson Logistics
    collectively as Wilson.

[2]
Lord Hoffmans test was adopted in
Canac
    Kitchens