Waxman v. Waxman | Jun 27, 2002

Ontario Supreme Court

Waxman v. Waxman,

Date: 2002-06-27

Morris Waxman and Morriston Investments Limited, Plaintiffs

and

Chester Waxman, Chester Waxman, in trust, Chesterton Investments Limited, Robert

Waxman, Gary Waxman, Warren Waxman, I. Waxman & Sons Limited, The Greycliffe

Holdings Limited, Robix Financial Corporation Limited, Circuital Canada Inc., RKW

Standardbred Associates Inc., RKW Standardbred Management Inc. and Glow Metal Trading

Inc., Defendants

I. Waxman & Sons Limited and Chester Waxman, Plaintiffs by Counterclaim

and

Morris Waxman, Michael Waxman, Shirley Waxman, Douglas Waxman, The Waxman

Holding Corporation Inc., Morriston Investments Limited, Solid Waste Reclamation Limited,

Solid Waste Reclamation Inc. and General Environmental Technologies Corporation,

Defendants to Counterclaim

Morris Waxman, Plaintiff

and

I. Waxman & Sons Limited, Defendant

Morris Waxman, Michael Waxman and Solid Waste Reclamation Limited, Plaintiffs

and

Chester Waxman, Robert Waxman, Gary Waxman and I. Waxman & Sons Limited,

Defendants

Chester Waxman, Warren Waxman, Robert Waxman, Gary Waxman, Brenda Halberstadt

and I. Waxman & Sons Limited, Plaintiffs by Counterclaim

and

Morris Waxman, Michael Waxman, Douglas Waxman, Solid Waste Reclamation Limited and

The Waxman Holding Corporation Inc., Defendants to Counterclaim

Morris Waxman and Morriston Investments Limited, Plaintiffs

and

Paul Ennis, Q.C. and Ennis & Associates, Defendants

Morris Waxman and Morriston Investments Limited, Plaintiffs

and

Taylor Leibow, Wayne Linton and I. Waxman & Sons Limited, Defendants

Ontario Superior Court of Justice Sanderson J.

Heard: December 7, 1998 - December 18, 2000

Judgment: June 27, 2002^{1 2}

Docket: 33234/88, 36583/89, 37616/89, 42114/89, 44142/89

Robert S. Harrison, Richard B. Swan, for Plaintiffs/Defendants by Counterclaim

Alan Lenczer, Lorne Silver, for Defendants/Plaintiffs by Counterclaim

Frank Bowman, Chris Hulchan, for Defendants in the fourth action, Taylor

Leibow Barbara Murchie, Trent Horne, for Defendant, Paul Ennis in fifth action

Sanderson J.:

Part I - Introduction

[1] Chester Waxman remarked during his evidence that this has not been a “civil” civil action.³

It has been a “war,”⁴which has publicly split a once loving family into two hostile camps.

[2] Since 1988, brothers Morris (“Morris”) and Chester Waxman (“Chester”) have battled over

significant spoils, most notably the Waxman family business, I. Waxman & Sons Ltd. (“IWS”),

which they and their late father Isaac (“Isaac”), built from a horse and wagon into a

multi-million dollar enterprise. This is not just a commercial dispute. It is also a family tragedy.

Morris and his family—wife Shirley, sons Michael and Douglas, daughter Karen—are pitted

against Chester and his family—wife Bailey, sons Warren, Robert and Gary and daughter

Brenda.

[3] The tenor and themes of the trial were established during opening statements.

[4] Counsel for the Plaintiffs said:

[There] is a mean-spirited arrogance and greed in this case that is palpable. [It] amounts

to the defendants saying that Morris was not really entitled to his 50%. And he, in

effect… was being raped and he should have been and he should not have had the gall

to complain then or now.

¹A corrigendum issued by the court has been incorporated herein.

²Additional reasons at 2002 CarswellOnt 3047 (Ont. S.C.J.).

³Chester, October 5, 1999

⁴Chester, October 5, 1999

A. If you, Mr. Harrison, were subject to everything I and my family were subject to between September 7th and November 18th, you would

have realized that that war had started long before November 18th.

[5] Counsel for the Defendant Chester said:

Morris is crafty. Morris is devious. In respect of our counterclaim, Solid Waste falsified

documents. He’s cheated his own family, and he cheated his co-partner, Philip

Enterprises and Mr. Fracassi.

[6] Counsel for the Defendant Ennis said:

…when it came time to tell the family that he had sold out to Chester, Morris couldn’t

take the heat. So he blamed Chester and that was in 1988. He went to a lawyer and he

issued the claim. And then in 1989 he turned on the professionals, when really, if he

wanted to look at who he ought to blame for the problems, he should have looked in the

mirror.

[7] Morris claims that his ambition in life was to work with Chester to build up IWS and then to

pass his 50% to his sons. One day in December 1983, at a time when Morris was especially

vulnerable, Chester “hoodwinked” him into signing documents selling all his shares to Chester

(the “Share Sale.”) Morris did not want to sell his shares and had no idea what he was

signing. Beginning in January 1984, when Morris learned about the Share Sale, until he sued

in 1988, he tried to get Chester to rip up the “papers.”⁵

[8] After the Share Sale, Morris also learned that Chester had earlier dramatically devalued

IWS without his consent by (1) declaring $6.6 million in IWS bonuses and allocating most of

them to himself and his sons, and (2) allowing the diversion of millions of dollars of IWS

profits to companies owned by his sons.

[9] Chester says that this litigation is nothing but Morris’ dishonest attempt to save face.

Morris asked him during a serious downturn in the business to buy his IWS shares. Morris

understood what he was doing. Chester took a big risk at the time. Morris started this litigation

only after economic conditions improved and he realised that he had made a very bad deal.

The Five Actions

There are five actions.

The Main Action

⁵Morris, February 22, 1999

[10] #33234/88 includes Morris’ claims in connection with the Share Sale. He seeks to be

restored to the position in which he would have been if he had not signed Share Sale

documents in December 1983. His numerous other claims are covered later in these

Reasons, including stripping of IWS equity before the Share Sale by way of bonuses and

profit diversions without his knowledge or approval. IWS has counterclaimed for $50,000,000

against Morris, Michael and Solid Waste Reclamation Inc. (SWRI), a company owned by

Morris’ sons, in respect of a “calculated, devious and deliberate plot” to divert IWS business

and opportunities to SWRI.

Wrongful Dismissal

[11] #36583/89 is the Wrongful Dismissal Action brought by Morris against IWS after he

was terminated as its President in October 1988.

[12] IWS defends, alleging that Morris breached his fiduciary duty to IWS, concocted a plan

to misappropriate its waste management business, deceived, misrepresented, misled, altered

documents, and abused IWS’ trust, “intentionally, callously, maliciously, furtively,

avariciously.”

Inducing Breach of Contract

[13] #37616/89 is an action brought by Morris, Michael, Douglas and SWRI for damages for

inducing a breach of SWRI’s contract with Philip Enterprises Inc. (“Philip”), with whom SWRI

had an important business relationship (the “Inducing Breach of Contract Action.”) The breach

virtually ruined SWRI’s business.

[14] Chester’s children counterclaimed in respect of the transfer of SWRI’s common shares,

alleging that the transfer to Michael and Douglas from all of Morris’ and Chester’s children

took place without their consent.

Action Against the Lawyer, Ennis

[15] #42114/89 is an action against Paul Ennis (“Ennis”), the long-time lawyer for IWS,

Chester and Morris, who acted for both Morris and Chester on the Share Sale.

Action Against the Accountants: Taylor Leibow & Linton/IWS

[16] #44142/89 is an action against the auditors and financial advisors, including IWS

comptroller, Linton.

Preliminary Comments

[17] This case turns upon disputed facts. The Plaintiffs’ and Defendants’ versions differed in

almost every major and minor detail.

[18] The fact-finding process here involved not only seeing and hearing the witnesses in

chief, comparing and analysing their evidence, but also considering the lengthy, often

gruelling, cross examinations, which frequently included reference to contemporaneously

prepared documents on a painstaking, almost line by line, basis. The process, while costly

and exhausting, proved to be very illuminating. Time after time, the credibility of witnesses

who had blustered in generalities throughout their evidence in chief with apparent confidence

(and with some plausibility), was largely destroyed in cross. Their evidence could not

withstand detailed scrutiny.

[19] The relevant facts are complex, the many issues in the five Actions interrelated. During

the trial, I had the advantage of excellent real-time court reporting (albeit an unofficial version

of the evidence.) I summarised and analysed the evidence on an ongoing, issue-by-issue

basis as the trial progressed. When I reviewed earlier evidence and compared it in detail to

later evidence, the clarity of the overall picture was enhanced. At the end of the trial I had a

summary of all of the evidence organised both chronologically and by issue, which I used in

writing these Reasons.

[20] The documentary evidence here was important. I found it necessary to consider

allegations of tampering with SWRI corporate documents and other documents relevant to the

Counterclaims and Inducing Breach of Contract Action. Each side alleged that the tampering

was the work of the other. There is no question that documents were altered. I had to decide

who was responsible.

[21] In the early stages of the trial, the Defendants’ version of the facts as outlined in their

opening seemed more plausible. However, as I listened to the evidence, and as I gained an

increasingly detailed working knowledge of the thousands of contemporaneously prepared

documents, I realised that the Defendants must have charted their litigation positions before a

detailed review and analysis of those documents was, and in many cases, could have been,

done. I concluded that much of their evidence was fabricated after mid-1988, when they

learned that Morris had retained a lawyer. I shall give examples later.

[22] After a detailed analysis of all of the evidence, I eventually preferred the evidence of

two witnesses over the evidence of many: specifically, that of Morris and Michael over that of

Chester, his sons, Sheldon Kumer (“Kumer”) and others. I concluded, given the nature of the

allegations and my acceptance of the evidence of few over many, that it was necessary to set

out in some detail the basis for my factual findings.

(b) Document Production

[23] A number of important and relevant documents upon which the Defendants attempted

to rely were not available for my review. They were said to be missing, allegedly destroyed in

a flood, the ravages of which, in the Plaintiffs’ submission, were quite obviously selective.

They include but are not limited to the following:

• IWS’ original ledgers and books of accounts and several relevant IWS cheques;

• many of the banking documents dated late December 1983 and early 1984, relevant to

the Share Sale transaction;

[24] I shall comment later in more detail about specific “missing” documents.

[25] The Plaintiffs also submit that a number of their own documents, which would have

been helpful in proving their case, have disappeared. The Defendants admittedly reviewed

and initially withheld many of the Plaintiffs’ documents at the outset of the litigation. Although

they eventually purported to return them, they inadvertently mixed some of Morris’ documents

with their own, making it impossible for me to precisely determine which documents had been

in Morris’ files.

(c) Certain Evidence Arguably Relevant to Credibility of Robert, Kumer and Fracassi

[26] During the trial, I was urged to hear some evidence not directly relevant to the issues

before me, said to be relevant to credibility. I refer specifically to portions of the cross-

examinations of Allan Fracassi and of Robert with respect to ongoing litigation between Philip

Services and Robert, and of Kumer with respect to a Mr. Lax. I found all of that evidence to be

unhelpful, and I have given it no weight. My factual findings have been based on evidence

directly relevant to the issues in this litigation.

(d) Changes in Evidence

[27] Accounts of events, many of which occurred almost 20 years ago, often varied

significantly from examination-for-discovery to examination-in-chief to cross-examination. I

have considered these changes when weighing credibility. Witnesses frequently contradicted

themselves in the course of giving lengthy evidence. In argument, parties tended to cite the

portions most favourable to their positions and to omit reference to others that were less

favourable. I have considered all of the evidence as a whole. Given the length of the trial, it

has not been possible for me to set out here every nuance or change in account, nor to detail

every contradiction. I shall refer here only to the most significant. The references contained in

the end notes are not intended to be exhaustive but only illustrative, as there were often

several sources of information upon which my factual conclusions were eventually based. I

have quoted important evidence in the endnotes as well as in the body of these Reasons.

(e) Length of These Reasons

[28] Because I have accepted the evidence of few over many, I have not strained to keep

this judgment to a normal length. Instead, I have referred in some detail to precise language

in the documents and, where I have felt it necessary, in the transcript.

(f) Morris’ and Chester’s Relationship

[29] Throughout this trial, Morris seemed a reluctant warrior. Despite the events recounted

here, he seemed to hesitate before saying anything negative about Chester.

[30] Early in the trial, Morris explained his theory of his case:

Morris, February 16, 1999

A. …My case is about 40 years of doing exactly what I did that day without any

repercussions. My case is about trust, sir, trusting my brother… This case is about the

fact that Morris was looked after, when it came to money, all his life, by his brother.

Okay? This case is about the fact that I trusted him. This is… about the fact that I loved

him.

[31] Morris’ case depends in large part upon his exceptionally close relationship with

Chester, both personally and professionally. It depends upon the power and influence

Chester exerted over him, especially in financial and legal matters in which Morris did not

develop expertise. Morris relied upon Chester to take care of such matters on both IWS’ and

Morris’ behalf. Chester did so, knowing Morris was relying upon him to act in IWS’ and Morris’

best interests and often blurring the two.

[32] After almost two years of trial, during the last days of his evidence, he was challenged

about how he could have trusted Chester:

Morris, September 18, 2000

Q. You say that you trusted your brother Chester….

A. That’s right. That’s what I said this morning.

Q. That was so in 1984 and 1985, even after your brother had cheated you on the share

sale and you knew it. Is that right?

A. That’s right. It’s terrible that I was trying so hard, sir, to get my brother back. That’s

why I—I don’t know where I was most of the time. The truth of the matter is I trusted him

some days, I hated him some days… [he is] still my kid brother and I don’t want anything

bad to happen to him.

[33] Chester had little positive to say about Morris, minimising his contributions and making

it clear he feels that IWS owes its success to himself and his sons.⁶He seemed unable to

resist belittling Morris’ son Michael at every opportunity. For example, he said, “Michael

personifies baleful or malignant passion.” I shall give further examples later.

[34] Chester’s attitude towards Morris and Michael was parroted by his sons.⁷

What are the events that transformed Morris and Chester from loving brothers and partners

into bitter foes?

Part II - Facts and Findings: A Chronology

The Founding of IWS

[35] Morris and Chester are the first Canadian-born children in a Polish immigrant family of

nine children. Five older siblings were born in turn of the century Poland to their father and

mother, Isaac and Annie: Sam, Sylvia, Lily, Davy, and Eva.

⁶Chester, October 14, 1999

⁷Warren said on May 5, 2000:

…The crux of this whole case is born out of cowardice which has moved into jealousy and hostility. Nothing more, nothing less than that.

[36] Isaac emigrated alone to Hamilton, Ontario, in 1911. After he lost a shoe-making job

for refusing to work on a Saturday, he started to earn his living by gathering and selling rags,

bottles and scrap.

[37] In 1922, Isaac was finally able to bring his family to Canada. On March 13, 1925,

Morris was born, followed closely by Chester on November 20, 1926. The family was later

completed with the births of Helen and Molly.

[38] Both Chester and Morris described their early years positively. Theirs was a loving

family, and Morris and Chester were particularly close. As young children, they slept in the

same bed. They went to school and played together at and after school. After Morris lost a

year, they were in the same class. Morris, who is physically larger than Chester, gave

evidence about protecting Chester from bullies and stepping in when Chester picked fights

with larger boys.

[39] In early high school, Morris, who was technically and mechanically adept, trained to

become a machinist. Chester hoped to become a lawyer. Isaac was picking up rags, salvage,

junk and furniture, using a horse and wagon.

[40] During World War II, Morris left high school after two years to work as a labourer.

Chester did the same soon after. Both contributed their incomes to the family. After the war,

Chester and Morris joined Isaac and the horse and wagon at IWS, then operating as an

unincorporated proprietorship. Their journey together literally from rags to riches had begun.

[41] Before Chester and Morris married in the early 1950’s, all members of the Waxman

family lived together at 6 Harriet Street, Hamilton, pooling their resources and operating a

scrap yard behind their house.

[42] IWS purchased its first truck in 1944 or 1945. As time passed, its business involved

more and more metal. By focusing on new industry in the Hamilton-Burlington-Cambridge-

London area, it was successful in obtaining a number of major metal accounts, including

Butler Manufacturing and Firestone Steel. It owned four trucks by the late 1940’s.

[43] Both brothers agreed that Chester excelled at getting and keeping accounts and

buying and selling scrap. Morris said Chester looked after the books and financial affairs of

IWS. By the late 1940’s, Chester was dealing with purchasing agents in front offices, rather

than people at the back doors of the steel mills, as in the past. IWS was purchasing scrap

metal from other dealers.

[44] Some of the scrap metal required densifying before it could be resold to the steel mills.

IWS purchased the heavy equipment necessary to cut, bale and process scrap according to

their specifications. Morris was responsible for the purchase, repair and maintenance of the

complex IWS equipment. He supervised the growing number of welders, mechanics and

other employees who worked in the yard, on the weigh scale and in the IWS processing plant.

He was also responsible for the purchase, maintenance and repair of IWS’ truck fleet and for

the drivers.

[45] Morris said that after they identified a need for machinery, he would determine the best

type to purchase; Chester would make the financial arrangements. Chester deferred to his

mechanical expertise and never questioned his decisions about machinery and equipment.

He deferred to Chester’s expertise and never questioned his financial decisions, signing

whatever documents Chester asked him to sign, often without reading them. Chester said he

did not think Morris needed to check what he was doing.⁸

[46] Chester maintained that he and Morris made important business decisions only after

fully reviewing and discussing their options together:

Chester, October 8, 1999

A. I told you that J took a major role in the finances of that company, in the legal matters

of that company and the customer relations and the buying and selling. Those were

areas that I had—my forte was there, but that didn’t exclude Morris from being

involved….

Q. …Now, is it not simply the case that on a… day-to-day basis, Morris was in charge of

the yard and you were in charge of the financial operations? Is it not—

⁸Fiduciary Duties Owed One to the Other Chester, October 5, 1999

Q. Now, you’ve acknowledged through your counsel and in your pleading that you and your brother owed fiduciary duty to one another? A.

Yes, parallel duty.

Q. And you owed fiduciary duties to one another both as partners and as brothers?

A. Yes.

Chester, October 12, 1999

Q. And there was an enormous amount of trust between the two of you isn’t that so?

A. There was.

Q. And insofar as you were doing your job, Morris had no reason because of the trust you had between you, he had no reason to go and

check what you were doing, did he?

A. Morris would have to answer that. I don’t think he needed to.

A. I’ll accept that.

[47] Michael, Morris’ son, gave evidence that Chester and Morris made a good team and

complemented each other as each was adept at the things the other was not.

[48] Taylor, IWS’ accountant from the 1940s, said Chester was in charge of the financial

end of the company. He thought Chester and Morris had absolute trust in one another. He

never saw them argue publicly.⁹

The 1950’s and 1960’s

[49] In 1951, when Chester married Bailey, Morris was Chester’s best man. At Chester’s

wedding, Morris met Shirley, a friend of Bailey’s. When Morris married Shirley in 1954,

Chester was his best man.

[50] The increase in noise and activity in the scrap operation caused dissension among the

neighbours at Harriet Street as IWS grew. In January of 1950, a 1¾ acre parcel of land in an

industrial area of Hamilton on Windermere Road, not far from Stelco and Dofasco, was

purchased. Morris gave evidence that he was told it was put into his and Chester’s names so

that they would own it in the event that IWS failed. In 1956, an adjacent 4½ acre parcel was

purchased. Title was again taken in Chester’s and Morris’ names.

[51] From the 1950s until the 1980s, the IWS business was conducted on those properties

at Windermere (“Windermere”) and on an adjacent 10 acre parcel of land owned by Stelco

(the 10 acres).

[52] Morris gave evidence that in 1956, on Isaac’s suggestion, he bought a rural wooded

property at 925 Lower Lions Club Road in Ancaster (the “Ancaster property.”) He thought he

covered the $4,000 purchase price by paying $2000 in cash and assuming a $2000

mortgage. He paid the taxes out of his personal drawings. Chester said that it belonged to

both of them equally, because IWS, not Morris, paid the purchase price. [The transfer of this

property by Morris to Chester’s son Warren in 1986 is the subject of a claim in the Main

Action]

⁹Taylor, January 27, 2000

[53] During the 1950’s, IWS also became involved in the waste business, pursuing primarily

industrial and commercial accounts. Morris was in charge, overseeing the trucking, the

maintenance of equipment and the salesmen.

[54] Morris said he always took “a fancy” to the refuse and garbage business:

Morris, December 17, 1998

A. I used to take garbage home to my basement and do experiments. My wife didn’t like

it. I ruined a Mixmaster for her… I turned some garbage that was strictly garbage into a

product that could be used for building materials with one type of mix I put together. With

another, I produced a piece of pipe that could be used for underground guidance of

telephone wire and hydro lines…. I went up to the landfill site, brought back a piece of

every type of wood I could find. I put it all through the shredder and made some chips.

Sent those chips over to Belgium. The piece of plywood and the information I got back

[were] it was better than producing the same thing out of virgin wood… I was hoping to

recycle materials that weren’t being recycled, and I was hoping we would make a

business out of it.

[55] IWS was incorporated in December 1956. Morris and Chester each held 245 shares;

Isaac, 10. Isaac was president; Morris, vice-president; Chester, secretary-treasurer. All three

were directors.

[56] Several other siblings and/or their spouses, including Lily’s husband Harry Lebovitch

(“Lebovitch,”) Eva’s husband, Sam Rosen (“Rosen,”) and Molly’s husband, Kumer, were

employed and/or supported by IWS for many years.

[57] On December 6, 1960, Isaac executed his last will (JB 398), in which he directed that

all the rest, residue and remainder of his estate was to go to “his… sons, Morris… and

Chester… share and share alike.”

[58] A newspaper article dated December 8, 1960 (JB 398), contains the following:

[IWS] signed a contract yesterday for the installation of the most powerful scrap metal

baler ever built in Canada. The Waxman organisation has grown in 15 years from a

one-man horse and wagon… to a mechanised operation handling several million dollars

of scrap annually. It now employs 50 persons.

[59] Another newspaper article from the same period, “Family Builds Big Business by Novel

Method of Scrap, Refuse Collection” (JB 137) refers to equipment, including hydraulic baling

presses, load luggers, giant shears and crushers, providing IWS with a way to “surge ahead.”

[60] IWS obtained a brokerage at Stelco in 1965, resulting in a major increase in the

volume of steel handled. Ennis gave evidence that there were only two brokers in the

Hamilton area. By 1965, IWS had a fleet of approximately 25 trucks. The majority of its 55

employees worked in the yard or plant and were supervised by Morris.

[61] An International Harvester trade publication dated February 1968 (JB 457) profiling

IWS, describes Morris as being “in charge of processing, fleet operations and plant

maintenance;” Chester as being concerned with “financial matters and the purchase and sale

of all kinds of scrap;” and the IWS trucking fleet as including 17 heavy duty International

Harvester trucks.

The Handling of Personal Finances

[62] As early as November 2, 1958, Taylor was writing to Chester seeking information, inter

alia, about “any further investment that Morris may have made.” [JB 383, emphasis added]

(a) The Incorporation of Morriston and Chesterton

[63] In 1963, on the advice of Taylor or IWS’ then lawyer, Mr. Harold Minden (“Minden”),

holding companies were set up for Morris (Morriston) and Chester (Chesterton), with identical

corporate structures (JB 414 and JB 394). After 1971, Morriston and Chesterton formed a

partnership known as Windermere Investments (“Windermere Investments”).

[64] By deed dated September 26, 1963, the Windermere property was transferred from

Morris and Chester to Morriston and Chesterton (JB 397.)

[65] The Windermere Investments bank account was maintained originally by Mrs. Fraser,

the IWS bookkeeper and after August 1979 by the comptroller Wayne Linton (“Linton.”)

Chester reviewed it annually. When asked whether there was a balancing of Morris’ and

Chester’s interests, Chester said:

Chester, November 15, 1999

A. Didn’t keep a regular check on it myself. Mr. Linton was supposed to serve both

parties, whoever needed it most sometimes it went out of balance his way and perhaps

it went out of balance my way sometimes… There was no agreement to keep it in

balance. When he needed money he could have it… and if I needed it, then Wayne

would adjust it accordingly.

[66] Revenues received by Morriston and charges made against it were monitored and

allocated by Chester and Linton and not by Morris personally.

Morris’ Remuneration

[67] Morris said he and Chester took what they needed from IWS, he assumed in roughly

equal proportions. Each had a small salary and drew additional funds if and when required. In

the mid-1960s, Morris had a new home built for his family and he hired the same contractor

Chester had used two or three years earlier. The funds to pay for both their homes came from

their drawings accounts. IWS provided the brothers with identical cars: one white, one black.¹⁰

[68] Taylor said there was no control over “drawings.” As Chester and Morris needed

money, they took it out. At the end of the year, he would look to see how much had been

drawn out of the company, and would come up with a system to pass muster with Revenue

Canada, often involving bonuses and/or dividends.¹¹

(c) Morris’ Investments

[69] In Morris’ mind, IWS was his security¹². He was not particularly concerned about

providing for his retirement outside of IWS. He believed Chester and Fraser, and later

Chester and Linton, would look after his investments in his best interests.¹³

(d) Morris’ Bank Accounts

[70] Morris said he did not handle his personal bank account “in the regular way.” His bank

account at the Parkdale and Melvin Branch of the CIBC was opened for him. Members of the

¹⁰Morris, December 17, 1998

¹¹Taylor, January 27, 2000

A. …their balances ran up quite high some years and we had to provide new ways and means of avoiding any taxation… could be declared

a dividend to cover it or it could have set up a bonus… we always dealt with that but it was always on a fifty-fifty basis.

Q. …in fact, for the great majority of their personal financial needs,… money came out of the company at the end of the year through a

drawings account, correct?

A. Yes.

¹²Item 23, in the Notes From The Grave, Morris’ evidence, January 26, 1999

¹³Morris, December 17, 1998

IWS office staff monitored its status, depositing funds when needed.¹⁴At JB 953 is a ledger

recording deposits made and cheques written out of that account from October of 1975. The

entries after September 1979 are in Linton’s handwriting. Morris did not regularly monitor the

balance because “it was running along fine… money and me, I spent it, but it was being

looked after from the office and it was good enough for me.”¹⁵

The Transfer of Isaac’s Shares to Morris and Chester

[71] On April 14, 1964, Isaac transferred five IWS shares to Morris and five to Chester.

Morris said he transferred one share back to Isaac the same day, since Isaac needed to hold

at least one share to be the President of IWS. He believed at the time that Chester had done

the same.

[72] That “one share” was the subject of much disagreement in this litigation. Chester

adopted the following answer as true:

Chester, October 5, 1999

A. He had a minority interest and I can tell you a minority interest is not worth as much

per share as a majority interest, especially if you’re buying. No way.¹⁶

[73] JB 380 contains an IWS minute dated April 14, 1964, which reads in part as follows:

Mr. Morris Waxman stated that he would like to have one common share in the capital

stock of the company owned by him transferred to Isaac Waxman so as to qualify him as

a shareholder and director of the company…

[74] Ennis said he understood from Chester and Morris that Isaac was holding the one

share as a qualifying share as reflected in the April 1964 minute.¹⁷

[75] Chester gave evidence that after the shareholding changed in 1964, he held 250

shares, Morris 249, and Isaac 1. He implied that Isaac wanted him to have control of IWS,

that he deliberately arranged for Chester to have one more share than Morris so that IWS

¹⁴Morris, February 9, 1999

¹⁵Morris December 17, 1998

¹⁶At trial on October 5, 1999, Chester adopted as true the following answer given on discovery:

Question: I’m saying as of that date looking forward Morris would have been entitled to 50% of the future growth less one share or if there

was a loss he would have suffered 50% of the percent of the loss less than one share?

Answer: No. He had a minority interest and I can tell you a minority interest is not worth as much per share as a majority interest especially if

you’re buying. No way.

¹⁷Ennis, December 16, 1999

would be able to “flourish in the future.”¹⁸Chester emphasised Isaac’s dictate that the

stronger members of the family provide for its less fortunate members. In the mid-to-late

1960’s, Isaac was particularly concerned about David and Sylvia. During a number of serious

conversations, he asked Chester to ensure that they would never become wards of the state.

Chester promised to look after them and other members of the extended family. He said Isaac

asked him never to give up the half share he was leaving him.

[76] Early in the trial, Morris said that in 1968, Chester gave instructions for the preparation

of identical wills for himself and Morris. I was sceptical about this evidence. Chester’s counsel

had successfully resisted an earlier motion for the production of his 1968 will, but it was

produced for the first time later in the trial. Just as Morris had said, his 1968 will (JB 459) and

Chester’s [Exhibit 140] are identical. Both contain the following clause 4G:

…so long as Waxman Co. is… in business, my side of the family shall own and shall

continue to own the other half of the issued common shares in Waxman Co. and this

shall obtain for a period of 20 years after my decease.

[77] In 1969, when Isaac was no longer capable of being President of IWS, Morris became

its President, Chester its Vice-President. Isaac continued to hold one IWS share until he died

on April 11, 1972.

[78] IWS financial statements indicate that in 1970, it had annual sales of $9.7 million and

shareholders’ equity of $2.5 million.

[79] The Manner In Which Company Documents Were Signed After 1969

[80] Morris gave evidence that after he became the President of IWS in 1969, he would

sign corporate minutes at the lawyer’s office or at IWS. Sometimes documents would be left

with the IWS comptroller for Morris to sign. He usually did not read them. He described the

procedure:

Morris, January 25, 1999

A. There was always more than one and there would be pieces of paper stuck in the pile

of documents that had to be signed and they would pull out the piece of paper, ‘sign

here, sign here, sign here’, pull the next piece of paper, ‘sign here, sign here, sign here’

¹⁸Chester, October 5, 1999

A. …I always thought they were a legal formality that the lawyer made up and had to be

kept, and I didn’t—I didn’t pay too much attention to them.

Q. Why would you—did you not read minutes before you signed them?

A. It wasn’t my practice to read them. I felt that the people that were making them up

were professional people. It was either my brother who we were partners, or it was

people we paid that we trusted and therefore I didn’t think anything I ever signed would

be to my detriment.

Morris, March 2, 1999

Q. Up until December 1983 you didn’t sign any agreements you didn’t understand when

Mr. Ennis had been your lawyer. Is that correct?

A. There were documents I signed where nobody said anything or explained them in

that office.

Q. What documents were those?

A. Minutes

[81] Morris said that if a stranger had presented documents for his signature, he would not

have signed them without further review.¹⁹

[82] Ennis said he did not normally attend when IWS minutes were signed. It was not his

practice to provide copies, because the client would just throw them out.²⁰

[83] Linton gave evidence about the manner in which IWS documents were executed:

Linton, June 1, 2000

Q. …After you got to IWS, [in 1979] do you accept it as the case that in your experience,

the minutes for IWS often got a couple of years behind, and everything came in from

Mr. Ennis’s office in one big chunk and were signed together and that that happened

quite a bit. Do you agree with that proposition or not?

A. Yes, they did fall behind and there might have been two or three instances where I

got minute books that were behind a year or two years with sticky tabs on them for

signature.

¹⁹Morris, February 12, 1999

²⁰Ennis, December 15, 1999

Q. So you’re agreeing with the proposition I put to you, are you?

A. I’m agreeing that they were late in signing. I can’t talk for Paul if they were late in

being prepared… I would recommend or tell that Paul has marked out where they had to

sign to bring the minute books current.

Q. And you will tell them he’s got tabs where you should sign?

A. I didn’t tell them that. It was fairly obvious where they would have them sign.

Q. So you would leave them there?

A. I would leave the tabs in the book.

Q. And you would leave them to be signed by Chester or Morris. Fair?

A. Sometimes I would, sometimes I would be in their office as they signed.

[84] In 1972, Chester and Morris personally purchased property at 80 Glow Avenue

(“Glow”)²¹to expand the IWS maintenance department to alleviate the need to park and repair

trucks, heavy machinery and equipment at Windermere, and to furnish a base for the

operations of the refuse division.

[85] After receiving accounting advice from Taylor Leibow (apparently to minimise the effect

of the new capital gains tax), Morris and Chester each transferred 56¼ of their IWS shares to

their wives by documents dated December 1971. The original share certificates are in JB 720

and JB 721. IWS share certificate #15 reflects the issuance of 56 common shares to Shirley

and is dated December 21, 1971. IWS share certificate #16 reflects the issuance on

December 21, 1971 of a one-quarter interest in one share to Shirley and a three-quarter

interest in the same share to Morris. The nature of this 1971 transfer is at issue in the Action

against Taylor Leibow.

Findings as of Isaac’s Death in 1972

[86] Chester’s and Morris’ natural inclinations, abilities and interests created the division of

labour within IWS. Chester had control over financial aspects of the business. Morris

controlled operations, including building the complex infrastructure that made it possible for

IWS to handle the volume of business which Chester brought in. They did not check up on the

²¹JB 786 is the deed by which Chester & Morris purchased 80 Glow Ave. on November 27, 1972 for $151,000

other with respect to matters within the other’s realm of responsibility. They respected the

importance of each other’s contribution.

[87] From the beginning, Morris’ and Chester’s arrangements with regard to remuneration

and signing of IWS documents were informal. Morris trusted Chester to ensure his interests

were being protected and he signed whatever documents Chester asked him to sign without

question and often without reading them.

[88] At the time of Isaac’s death, Morris was 47 years old and Chester was 46. They had

both been at IWS for 27 years. They had been working in a co-operative and complementary

fashion building IWS together. They were justifiably proud of their considerable achievements.

Chester and Bailey’s three sons were 19, 17 and 16 respectively: Warren, born May 23, 1953:

Robert, born March 6 1955; and Gary, born August 19, 1956. Morris and Shirley’s two sons

were 16 and 9: Michael, born December 22, 1956; and Douglas, born May 1, 1963.

1973-1978

[89] Between 1975 and 1979, Michael was enrolled in a Bachelor of Commerce program at

the University of Toronto.

[90] When asked about Michael’s involvement in IWS Chester said, “I believe he was there

the odd summer at the disposal division with his beautiful little silver Mazda. I think he may

have tried to get some garbage accounts one summer. His level of interest in the business

was very low.”

Chester’s Sons Join IWS

[91] Robert, Chester’s second-oldest son, said in chief that in 1973, when he was 18, he

quit university and came to work full time at IWS.²²However, in cross-examination, he was

shown high-school yearbooks indicating he was a Grade 12 student at Westdale Secondary

School in 1973 (JB 180), a Grade 13 student a Hamilton Collegiate Institute in 1974 (JB 183),

and a first-year student at Mc Master University in 1975. When asked how he could have

gotten it wrong, he said it was “Not that significant to me and I may be off by a year or two.”²³

²²Robert, April 6, 2000

²³Robert, April 11, 2000

[92] Whenever it was that Robert joined IWS, he worked as a salesman at Waxman

Disposal for a year to a year and a half before moving to the ferrous division.

[93] Warren, Chester’s oldest son, said he joined IWS on a full time basis in May 1974 after

he had finished his second year at McMaster University. He worked for a time as a salesman

at Waxman Disposal then moved to the ferrous division.

[94] Chester’s youngest son Gary joined IWS in 1977 when he was 21.

[95] Chester was full of lavish praise for himself and his sons. He made much of his sons’

contributions to the profits, growth and value of IWS between the time they joined and 1981,

the time of the Laidlaw and Lasco sales. He said they aggressively acquired accounts from

competitors, and greatly expanded the geographic area in which IWS did business. The

volume of scrap IWS purchased from other dealers decreased, while the volume purchased

from industrial accounts increased. He said the growth of IWS joined was the result of “our

ability to increase the volume of business that we were able to do and the advantages that we

could make available to consumers… The new team was on side, Warren, Robert and Gary,

who worked with alacrity and loyalty.”²⁴

[96] Chester attributed an increase in IWS sales from $14 million in 1977 to $34 million in

1979 to the efforts of Gary, Warren and Robert.

[97] Chester agreed with the following comments contained in JB 1478, an IWS valuation

report dated April 15, 1980:

Item 18(d): The steel industry is cyclical in nature and is effected by international

economic conditions as well as the domestic environment.

Item 18(e): In 1979 the steel companies had orders for six months ahead and most of

their customers were on allocation. Further, the industry had been aided by an increase

in exports to the United States. The difference in the base price of steel plus the

currency advantage gave the Canadian producers up to $100 a ton spread over U.S.

producers….

Item 18(f): In February 1979, scrap steel prices were increased by 20% to keep pace

with U.S. prices….

²⁴Chester, September 16, 1999

Item 18(i): Scrap metal prices hit reported highs in 1973 and 1974. In 1975, the prices

dropped significantly and have been generally increasing since. However, the prices at

December 31, 1979 had still not reached the 1973/1974 highs.

[98] When referred to a statement at page 16, Item 18(a) of the same report, that the

“strong financial position of the Company at both valuation dates allowed it to withstand the

swings in the marketplace and gave it the stability it requires in volatile markets,” Chester

disagreed, saying the main reason for IWS’ strong financial position was its management and

the “alacrity, energy and talent of Warren, Robert and Gary.”²⁵

The Regional Tender and the Incorporation of SWRI

[99] In 1975, Morris and Chester decided to tender a bid to handle all the garbage of the

Hamilton-Wentworth Region. Taylor estimated that, if successful, the project would have

generated revenues of $68 million.

[100] Chester said he had no involvement in the negotiations that led to CIBC granting IWS

a $13.5 million credit facility in connection with the tender. Morris said Chester did play a

financial role in the preparation of the tender bid. He accompanied Morris to Omaha,

Nebraska, to attend a meeting involving engineers, consultants for the Region, a CIBC

Vice-President and representatives of the company that was going to build the baler in the

proposed processing plant. While Morris answered questions about the operation of the plant,

Chester and the CIBC Vice-President answered questions about financial matters.²⁶

[101] The preparation of the tender bid required a great deal of Morris’ time and attention

and came at a time when Chester’s sons had recently joined IWS. While Morris worked on

the tender bid, others assumed more responsibility for operations.

[102] SWRI was incorporated on February 9, 1977, to make the tender bid and, if successful,

to handle the regional contract. IWS originally was to be the owner of 2000 preference

shares. The lawyers responsible for the incorporation, Mr. Evans (“Evans”) and Mr. Hayman

(“Hayman”), were to hold the common shares of SWRI in trust, 50% for Morris’ three children

and 50% for Chester’s four children.

²⁵Chester, October 14, 1999

²⁶Morris, January 25, 1999

[103] In 1977, the bid was unsuccessful. SWRI was inactive for several years until 1982

when it was restructured and Michael and Douglas became its owners. The transfer of SWRI

and allegations of profit diversions from IWS to SWRI are the subject of two Counterclaims,

one in the Main Action and the other in the Inducing Breach Action. As they are inter-related, I

have dealt with both Counterclaims together in a separate section of these Reasons.

[104] Other Developments

[105] Chester gave evidence that the IWS truck drivers were the most violent members of

the United Steelworkers of America, who went on strike at IWS in the summer of 1977. After

that strike, as he and Morris wanted to avoid the use of unionised truckers, Greycliffe, owned

by Chester’s sons, was incorporated in 1978 to do IWS’ trucking. The Plaintiffs’ allegations

about diversions of IWS profits to Greycliffe are covered later in these Reasons.

[106] Around this time, a decision was made to expand IWS’ non-ferrous operations. Morris

gave evidence that non-ferrous material had been part of IWS’ business from the time of

Isaac’s horse and wagon. In the 1960s, when United Steel and Metal (USARCO) installed a

copper chopping line, Morris suggested to Chester that IWS do the same, but Chester was

not interested. However, when Robert saw the non-ferrous business as somewhere he could

“strike out a little bit” on his own, Chester supported his son’s initiative. JB 1227, an excerpt

from the Hamilton Spectator dated February 4, 1978, mentions the construction of a new

30,000 sq. ft. building (“the Blue Building”) to house Waxman’s new non-ferrous metal

reclaiming division. A copper chopping line installed in the Blue Building in 1979 was first

operated in September 1980.

[107] Morris said he was upset and surprised when he was asked to sign a million-dollar

purchase order for the copper chopping equipment without having been consulted about it

first. Hitherto, he had researched and recommended all IWS equipment purchases.

[108] In 1979, Chester was honoured as Hamilton’s Jewish Man of the Year. JB 1366, the

text of a speech he gave on that occasion, includes the following:

…In this context - rather than having stood alone - J have been supported since

boyhood by the talent, energy and counsel of my brother Morris - a man who is a

splendid contributor of his own volition - a man sound both of moral principle and

business judgment - a man who most assuredly stands with me tonight…

[109] In August 1979, Linton, an accountant, began to work at IWS. The contemporaneous

documents include a few early Linton memos to Morris but hardly any in later years. He

reported to Chester and by 1982 to Robert as well. Linton discussed certain matters such as

equipment with Morris but they never discussed, for example, tax matters:

Linton, May 30, 2000

Q. You didn’t ever talk to Morris about tax issues relating to I. Waxman & Sons, did you?

A. Seldom.

Q. I suggest to you you didn’t ever?

Q. [transcript] October 9th, 1998. Question 3267 page 615. Answer: Tax issues I really

didn’t ever talk to Morris about. Question: Why was that? Answer: Chester was just the

guy.

Q. Did you make those answers to those questions?

A. Yes.

Q. And they are true?

A. Essentially they are true.

[110] Chester said that in 1979, Kumer received $172,946 for his contribution to IWS. In

1980, Kumer’s remuneration reverted to $43,038. Morris gave evidence that Chester decided

IWS would help Kumer pay off a debt and he was only advised after the fact.²⁷

Findings - 1972 to 1979

[111] To put Chester’s evidence about the “amazing, amazing increase” in revenues from

$14 million in 1977 to $34 million in 1979 into perspective, I shall set out the financial results

in the periods immediately before and after Robert, Warren and Gary joined IWS’ ferrous

division.

[112] In 1974, before any of Chester’s sons were involved in ferrous purchases or sales,

IWS had gross revenues from steel and metals of $28,233,762. In 1975, gross revenues were

$15,412,776; in 1976, $14,935,189; in 1977, $15,634,116; in 1978, $25,244,439; and, in

1979, $34,909,025.

²⁷JB 1431 and JB 1427

[113] The Defendants did not produce the IWS financial statements for 1973 and 1974,

years in which the authors of JB 1478, quoted above, remarked that scrap metal prices had

hit “reported highs.” However, Chester adopted as correct the figures contained in that report.

[114] The steel industry is cyclical in nature. By 1979, demand for steel had increased and

prices had increased and were continuing to increase. When he attributed an increase in

revenues from $14 million in 1977 to $34 million in 1979, Chester did not mention IWS’ 1974

revenues of more than $28 million. I find that Chester was giving too much credit to the efforts

of his sons and placing too little emphasis on the cyclical nature of the industry and other

factors contributing to IWS’ increasing revenues towards the end of the decade.

[115] Although neither Morris nor Chester said so directly, it seems obvious that the tender

bid, which required a great deal of Morris’ time and attention and came at a time when

Chester’s sons had recently joined IWS, was one of the causes of Morris’ later difficulties.

[116] Morris was more involved in that bid than Chester, but I accept Morris’ evidence that

Chester had involvement in its financial aspects.

[117] Chester’s payment to Kumer of $172,946 in 1979 without first seeking Morris’ approval

is an example of the blurring of personal, family and corporate matters.

[118] By 1979, Chester’s sons were encroaching upon many of Morris’ former

responsibilities. IWS trucking is a case in point. By 1979, Morris had continuing responsibility

in the IWS refuse division for some containers and garbage trucks, most of which would be

sold in 1981. I accept Morris’ evidence that Chester’s sons were otherwise managing IWS’

trucking.²⁸

The Estate Freeze - 1970s

[119] In 1976 or 1977, Ennis recommended that Morris and Chester retain Mr. Arthur Scace

(“Scace”), a tax expert, to structure an estate freeze so that increases in the value of IWS

would be taxed in the hands of the next generation. Taylor was also involved.

²⁸Morris February 8, 1999

Q. By April of 1980, you still had responsibility for the refuse division?

A. I had certain responsibilities, not fully. I had the responsibility of the containers. I had the responsibility of the trucks. And that’s where my

responsibility ended around 1980 at that time.

[120] Scace recommended that a formal valuation be conducted to determine the V-day

value of IWS, as well as its value on the date of the freeze, and that an advance tax ruling be

obtained from Revenue Canada. The firm of Ian Campbell & Associates (“Campbell”) was

retained to perform the valuation. Morris helped value the IWS hard assets by listing and

costing the vehicles, equipment and other physical assets.

[121] Morris described what he understood an estate freeze to mean: “the assets that are

owned by individuals that own a company would be frozen as of that day, and that day you

would turn those assets over to other people”. He said he understood the freeze would create

a tax saving for all concerned, but he did not understand how the tax saving would operate.

When asked if he knew why the shares of the company were being valued as of December

31, 1971, he answered: “I believe I heard talk that that was D-Day of some type for taxes. I

can’t explain it to you.” [emphasis added]²⁹

[122] JB 1363 is the first Campbell report dated May 15, 1979, valuing IWS as of December

31, 1978, at $7 to $8.5 million.

[123] Chester, on the one hand, said he and Morris agreed from the outset that each of the

five sons would hold 20% of the common shares (i.e., Chester’s three sons would receive

60% of the common shares; Morris’ two sons, 40% (“60/40”).) He believed all five sons should

share and share alike.³⁰

[124] Morris, on the other hand, said he never agreed that all five sons should share equally.

As he was a 50% owner, he thought his two sons should receive 50% of the common shares,

and Chester’s three sons should receive 50% (“50/50”). He said:

Morris, March 1, 1999

A. I knew the difference between 4 and 6. Six is bigger than four, and where there are

two partners there are supposed to be 5 and 5, 50/50.

[125] Morris said the first time he heard about Chester’s intention to split the common shares

of IWS 60/40 was during a meeting in Scace’s office. JB 1403, an Ennis note dated

November 5, 1979, about a meeting at Scace’s office attended by Scace, Chester, Morris,

²⁹Morris, January 25, 1999

³⁰Chester, September 16, 1999 and October 5, 1999

Taylor and Ennis, reflects a discussion about each of the five sons receiving 20% of the

common shares.

Morris January 25, 1999

A. Chester said that he wanted the shares split equally among the five boys, which

meant that his three sons would get 20% each, which is 60%. My two sons would get

20%, which was 40%.

Q. Did you say something in the meeting when your brother said that?

A. No I did not… Chester and I never had a confrontation in front of anybody… Sam

Taylor sidled up to me and said to me, “Morris do you know what your brother is doing,

did you hear what he said?” And I said, “Sam, don’t worry about it. Chester and I will

straighten it out.”… Ennis at the same time did the same thing. When we were going to

the car, he took a few steps back and said to me, “Morris did you hear what your brother

said, do you know what he’s doing?” And I said, Paul, don’t worry about it. I will

straighten it out with Chester.”

Q. Did you speak to your brother about it?

A. I certainly did.

Q. …How soon after this meeting at Mr. Scace’s office did you speak to your brother?

A. It was probably that same day when we got back to the office. I told Chester he

owned 50% of the company and what he wanted to do with his 50%, that was his

business. If he wanted to give it to one son, give it to two sons or the husband of his

daughter, but he can’t give my shares to his kids. You take 50%, I’ll take 50%. I was in

agreement with the estate freeze based on a 50/50 split. In other words, my 50% of the

company went to my children, his 50% went to his.

[126] Morris said after that private discussion with Chester, he continued to insist on a 50/50

split, and he understood that in any estate freeze, the common shares of IWS would be split

on a 50/50 basis.

[127] Ennis’ note dated November 30, 1979, JB 1409 reflects that Chester met with Scace

soon after, in Morris’ absence. The note refers to “4 boys: outright voting common—20

shares.—1 share, remainder to CW …80 boys, 20 to CW” [Emphasis added.]

[128] In early December, Scace wrote to Revenue Canada (JB1411), applying for an

advance tax ruling. He outlined the existing IWS share structure and the proposal for the

estate freeze, setting out three proposed classes of shares: Class A, preference shares;

Class B, non-voting common shares; and Class C, voting common shares. Of the 100 Class

C voting shares, 80 were to be held by Michael, Douglas, Robert and Gary but were to be

voted by Morris and Chester during their joint lives. The remaining 20 were to be issued to

Chester, and possibly transferred to Warren at some future time. [In March 1978, Warren had

married a woman who had not been raised in the Jewish faith. As a result, Warren’s future at

IWS was uncertain]

[129] The Defendants rely on a consent to the estate freeze signed by Morris, JB 1451.

Morris said that he signed JB 1451 without seeing JB 1411. He would never have willingly

consented to transferring more than 50% of the future growth of IWS to Chester’s sons.³¹The

wording of the consent is set out in the endnote to this paragraph.³²

[130] JB 1449, a letter from Revenue Canada to Scace dated February 6, 1980, outlines the

basis upon which an advance ruling was being given. 80 Class C voting shares would be

issued to four of the sons and 20 Class C voting shares would be issued to Chester which

might be transferred to the fifth son in the future. The 80 Class C voting shares held by the

sons were to be voted by Chester and Morris during their joint lives.

Findings - Estate Freeze 1979-early 1980

[131] I accept that Morris did not assist Campbell in valuing any of IWS’ financial and

intangible assets. Morns’ role was limited to helping to value equipment and other physical

assets. Morris first learned of Chester’s desire and intention that the estate freeze be on a

60/40 basis at a meeting with Scace, which I find occurred on November 5, 1979. I accept

Morris’ evidence about his discussion with Chester after that meeting.

[132] I find that Chester ignored Morris’ direction that any estate freeze was to be on a 50-50

basis. In Morris’ absence, Chester authorised Scace to apply for an advance ruling from

Revenue Canada on 60-40 basis. Ennis did not forward the consent to Chester for signature

by Morris and Chester until December 20, 1979, two weeks after the request for the advance

³¹Morris, January 25, 1999

tax ruling had been sent to Revenue Canada. The consent that Morris signed contains none

of the details of the proposed estate freeze. Morris was not given a copy of the letter to

Revenue Canada, which did contain those details.

[133] Counsel for the Plaintiffs submit that I should conclude from the contents of the estate

freeze documents³³that one of Chester’s estate freeze objectives was to gain control of IWS

from Morris and his family.

[134] Although JB 1449, the advance tax ruling, does not specify who was to vote the 20

Class C voting common shares, as they were to be issued to Chester, I find that he would

have had the power to vote them. Had the proposed estate freeze been finalised at that time,

Chester would have had effective control of IWS.

[135] I do not accept Chester’s evidence that he did not realise (a) he and Morris would vote

only 80 Class C voting shares under that voting trust agreement or (b) he, Chester, would

have been able to vote the other 20 Class C voting shares.

[136] I have noted his remark that if he bought Morris’ shares, he thought there would be no

need for an estate freeze. I find it curious in light of the stated object of the estate freeze - to

save taxes.³⁴I find that Chester was attempting to use the estate freeze to gain control of IWS

and was ignoring Morris’ concerns about a 60/40 split of the common shares.

[137] I note that in 1968 when Chester gave instructions for the preparation of identical wills

for Morris and himself, he provided that each side of the family was to own 50% of the

common shares of IWS for 20 years after their deaths. When SWRI was incorporated in 1977,

50% of its common shares were to be held in trust for Morris’ three children, 50% for

Chester’s four. I find that Morris’ insistence on a 50/50 split of the common shares of IWS

among an uneven number of children was based in part on having seen it done that way

before.

[138] I find that Morris’ failure to express his concerns to Taylor and Ennis about the 60/40

split did not signify his agreement. Rather, he was reluctant to discuss his differences with

Chester with anyone other than Chester.

³²JB 1451, Consent: The undersigned hereby authorize Messrs. McCarthy & McCarthy to request an advance tax ruling regarding the

reorganisation of the above-noted corporation. To the best of our knowledge, none of the issues involved in the ruling request are being

considered by a District Office in connection with the tax return already filed and none of the issues are under objection.

³³Estate Freeze documents include JB 1449, JB 1635, JB 1403, JB 1495, JB 1637, JB 1434, and JB 2195,

[139] Morris and Chester’s failure to agree on the terms of the estate freeze was obviously a

cause of dissension. During the estate freeze discussions, disagreements about the

devolution of IWS to the next generation began to fester.

[140] The One Share Transfer

[141] JB 1401 is a two-page Ennis document dated November 5, 1979, listing shareholdings

in certain IWS-related companies. On page one, Morris’ and Chester’s respective

shareholdings are shown as being equal. On page two, there is reference to Isaac holding

one share “in T for Morris.” I assume this note records that Isaac’s one share was being held

in trust for Morris.

[142] Michael said he read the first Campbell valuation report JB 1363 dated May 15, 1979,

at his father’s house and noticed that it mentioned Chester having one more share than

Morris. When Michael told Morris, he seemed surprised.

[143] Morris said after speaking to Michael, he spoke to Chester, who agreed to transfer the

share back to him for the reason set out in the IWS minute dated January 31, 1979. There

were no conditions attached. The transfer had nothing to do with ongoing estate freeze

discussions.³⁵

[144] Chester said that after Morris learned about the one-share difference, he came to him

“hat in hand” and said he would agree to a 60/40 split if Chester would convey the one share

back to him. The January 31, 1979, minute does not “necessarily reflect the corporate truth.”

It was prepared only after Morris agreed to a 60/40 split. Morris had agreed at the beginning

³⁴Chester, October 21, 1999

³⁵Morris, January 25, 1999

Q. Page 2 of this report [JB 1363]… shows that you have one share [less] than your brother.

Did you notice that when you reviewed the report?

A. No.

Q. Did anyone notice it?

A. …Michael brought it to my attention and I immediately had a conversation with my brother…. How did it come about he had one more

share than I did? He said it was in my father’s estate. My understanding was legally in order for my father to be President of the company, he

had to own shares. There was a discussion about that. I believed that whatever was taken from me was taken from Chester also, so that my

father would have shares in the company. However, under no circumstances would my father ever have thought less of me than he ever did

of Chester. I want to make that clear.

Q. Did you reach some sort of resolution with your brother in 1979 about what to do with this one share that was sitting in your father’s

estate?

A. Yes. My brother put it back to me.

Q. You say your brother Chester agreed that the share would be given to you. Were there any conditions attached to the decision made to

turn over the one share out of your father’s estate over to you?

A. No.

Q. And specifically your brother contends in this lawsuit he agreed to give you back… that one share to make the shareholdings 50/50 in

exchange for your commitment to proceed with the estate freeze on a 60/40 basis. What do you say to that?

A. I say that is not true and the mathematics don’t add up.

Q. Did you have any discussion with your brother that related to turning over the one share in exchange for a 60/40 estate freeze?

of their estate freeze discussions that IWS shares representing its future growth would be

divided equally among the five boys (i.e. a 60/40 split). He had advised Chester for the first

time in 1979 that he wanted his two sons to receive 50% (i.e. a 50/50 split). Chester did not

think it was fair that his sons would receive less than equal participation in IWS’ future growth.

He challenged Morris to tell his sons, who had “dedicated their life to this business already,”

were going to have 16½% each, while Michael and Douglas who hadn’t “lifted a finger yet in

this business” were going to have 25% each.³⁶

[145] JB 380 contains an IWS minute dated January 31, 1979 [but obviously prepared after

May 15, 1979 and November 5, 1979,] which reads as follows:

The Chairman advised the meeting that on the 14^thday of April, 1964, Mr. Morris J.

Waxman transferred one common share in the capital stock of the Corporation to

Mr. Isaac Waxman so as to qualify him as a shareholder and director of the Corporation.

Mr. Isaac Waxman died in April 1972 and in order to reflect the true picture of the

shareholdings, it was desired that the one common share in the capital stock of the

Corporation in the name of Isaac Waxman be transferred back to Mr. Morris Waxman.

After discussion of the matter… on motion duly made, seconded and carried

unanimously, it was RESOLVED that the one common share in the capital stock of the

Corporation be transferred back to Mr. Morris J. Waxman.

[146] Taylor said he understood the only reason for the transfer of the one share to Isaac in

the first place in 1964 was to qualify him as a director.³⁷

[147] Ennis said the 1979 minute transferring the one share back to Morris reflects

instructions from Morris and Chester.³⁸

Findings re Reason for Transfer of One Share from Isaac’s Estate to Morris

[148] I do not accept Chester’s evidence that Isaac wanted him to have control of IWS.

Isaac’s last will, written in 1960 at a time when Morris and Chester each held equal shares in

IWS, illustrates he intended Morris and Chester to share equally in his ten shares of IWS.

When he transferred his shares in 1964, five went to Morris and five to Chester. The one

A. No.

³⁶Chester, September 16, 1999

³⁷Taylor, February 4, 2000

³⁸Ennis, December 16, 1999

share that Morris transferred back to Isaac on the same day was held by Isaac in trust for

Morris.

[149] I do not accept Chester’s evidence that Morris was untroubled when Michael told him

Chester had one more share. Rather, I accept Morris’ evidence that he immediately asked for

the return of the one share for the reason recorded in the January 31, 1979 minute “to reflect

the true picture of the shareholdings.” Since 1964, Isaac had held the one share in trust for

Morris, as JB 1401 reflects.

[150] The transfer of Isaac’s one share back to Morris had nothing to do with the estate

freeze. Morris did not agree to a 60/40 split in exchange for the conveyance of the one share.

1979 Bonuses

[151] Chester’s actions regarding the 1979 bonus foreshadowed later developments.

[152] JB 1431B, a Taylor Leibow-IWS working paper for the year ended December 31, 1979

(Re Accounts Payable and Accrued Liabilities), reflects that bonuses and profit-sharing plans

were determined by Chester.

[153] Chester said in chief the 1979 bonuses were all allocated to his sons before December

17, 1979, or at the latest, by the end of the 1979 audit in early 1980. After a discussion with

Morris about his sons’ contributions to IWS, they very happily turned $250,000 over to them:

Chester, September 16, 1999

A. …it was quite apparent the business was growing at a great clip, that they had

operated many, many hours a day each. They liked the company, they liked the work.

We could give a bonus… about $250,000. At first we thought we will give them part of it

and eventually we decided to give them all of it, the $250,000.

Chester, October 15, 1999

A. [Robert, Warren and Gary] created an energy and talent in the business, … increased

the revenues from $14 million in 1977 to $34 million in 1979: [an] amazing, amazing

increase and we were happy to do it. [Emphasis added]

[154] Linton said he first discussed a 1979 bonus with Chester in January 1980. As bonuses

are often used to reduce the taxable income of a company, they are usually calculated and

set after the year-end. At first he recommended a $100,000 bonus. Chester told him to put the

$100,000 bonus on the IWS books for his three sons. Linton then made journal voucher (“JV”)

entry 179, reflecting a $100,000 liability, which is mentioned on JB 1430, his Summary of

Accrued Charges at 12/31/79.³⁹As the year end results became clearer, he told Chester he

had underestimated the taxable income of IWS, and recommended they accrue a further

$150,000 of bonus expense. Chester said to go ahead and make the entry, to put it down for

Morris and himself initially. He would talk to Morris about the final allocation. Linton then

prepared JV 184, reflecting bonuses of $150,000. [see also JB 1431D]. JV 184 is missing.

[155] Linton said he did not know whether JV 184 reflected that Chester and Morris were

each to receive $75,000.⁴⁰JV 184 would have been kept by Linda Rioux (“Rioux”), the IWS

office manager, in her office:

Linton, June 1, 2000

Q. Have you actually spoken to her to say do you know where the journal vouchers are?

A. No.

Q. You don’t know if they made their way to the basement or not, do you?

A. Not conclusively.

[156] Once the accrual of the additional $150,000 was approved, Linton said he followed his

usual practice and immediately entered it into his working papers, JB 1430/Exhibit 238 tab 4,

as follows: “Accrued Bonuses Owners [JV] 184 [$]150,000”. [Emphasis added]

[157] Linton said Chester advised him later that he and Morris had agreed the $250,000 was

all to be allocated to Robert, Gary and Warren, He instructed Ennis to prepare a minute

showing the bonuses to Chester’s sons of $250,000 in the aggregate and a minute dated

December 17, 1979, was prepared.⁴¹His working papers do not reflect his discussion with

³⁹Linton, May 30, 2000

Q. …you initially told Chester that it looked like you could set up a bonus expense of $100,000. Yes?

A. Yes.

Q. And you say Chester came back to you and said set it up in favour of the boys, his sons?

A. Yes, he had had a discussion with Morris and he told me to put it on the books.

Q. And you insist, do you, he said to you he had spoken to Morris?

A. Yes… After 20 years I’m not 100% certain. I believe he told me.

⁴⁰Linton, June 1, 2000

⁴¹Linton, May 30, 2000

Q. And then you say that Chester came back and said he had spoken to Morris and Chester and Morris had decided that Chester and Morris

wouldn’t have any of this bonus, the $150,000 would go to Chester’s sons as well, is that your evidence?… Is it your memory, your belief or

you think that Chester told you he had been speaking to Morris?

A. No, I believe that he spoke to Morris, that’s what he told me.

Chester about all of the $250,000 going to his sons because he “probably got too busy or just

didn’t think about it.”⁴²Later, he said he did not change JB 1430 because he was going to

have a minute prepared. Later still, he said, “I don’t think I thought about it;”⁴³

[158] During cross-examination, Linton was shown Exhibit 238 tab 6 (JB 1412A), a note

handwritten by Mrs. Cook, an Ennis staff member, bearing the date December 17, 1979,

headed “Bonuses $250,000.” In the same handwriting are the following words:

“$75,000 - Chester; $75,000 - Morris; $100,000 - Bob Waxman, Warren Waxman and Gary

Waxman.” Linton denied giving Ennis instructions to prepare a 1979 bonus minute reflecting,

inter alia, that Chester and Morris were each to receive $75,000.⁴⁴[Emphasis added]

[159] On the original of Exhibit 238 tab 8, a typed draft resolution prepared in Ennis’ office, a

typed amount of $100,000 is crossed out and “$250,000” is written in. The following

handwritten words also appear on the document: “add Morris & Chester,” “add Bailey &

Shirley directors,” and “Sam Ferguson, V.P. Marketing”. Although Linton denied giving Ennis

these instructions,⁴⁵IWS’ minute book still contains a minute dated December 17, 1979,

appointing Bailey and Shirley as directors and Sam Ferguson as Vice-President of Marketing.

[160] April 1981 Developments re 1979 Bonuses

[161] In early 1981, $192,000 of the $250,000 bonus declared in 1979 was paid to Chester’s

sons. In total, of the $250,000, Robert received $117,000; Warren, $110,000; and Gary,

$23,000.

[162] Linton said Chester instructed him to pay the $192,000 to his sons in 1981.⁴⁶He said

in chief that after the payout he wrote a letter dated April 20, 1981 to instruct Ennis to prepare

a new minute to specifically reflect the amounts allocated to each son. His letter had nothing

to do with removing reference to allocations of $75,000 to each of Morris and Chester from

…Q. …the next thing you did was to instruct Ennis? … to do a minute in favour of Chester’s three sons in the amount of $250,000. Have I

got it right?

A. I believe that’s correct in the aggregate.

⁴²Linton, May 18, 2000

⁴³Linton, June 1, 2000

⁴⁴Linton, June 1, 2000

⁴⁵Linton, June 1, 2000

A. I didn’t give Paul instructions that are written in the right-hand column. I didn’t know that Bailey and Shirley were being added as directors,

or Sam Ferguson was being appointed Vice-President of Marketing. I had no involvement in those instructions to Paul.

⁴⁶Linton, May 18, 2000

existing IWS minutes.⁴⁷Exhibit 238 tab 9, Linton’s April 20 letter to Ennis, contains the

following:

As discussed I enclose necessary adjustments to minutes of December 17, 1979

changing allocation of bonuses. I will obtain Taylor Leibow’s copy of minutes and

destroy. Could you forward to me revised copy so that I may deliver same to Taylor

Leibow for their audit files. [Emphasis added]

[163] The enclosure to Linton’s letter is missing. He was cross-examined about his letter and

its enclosure:

Linton, May 18, 2000

Q. Nobody has produced the attachment to this letter, it says “as discussed I enclose

necessary adjustments to minutes.” What do you recollect enclosing or do you recall?

A. I don’t specifically recall, but I may have attached the original signed December 17th

minute with revisions on it showing a specific allocation….

Q. And then it says I will obtain Taylor Leibow’s copy of minutes and destroy. What did

that mean?

A. That was only saying that I was going to get the minutes revised, signed, and sent up

to Taylor Leibow, the revised minute book and to get back the original one that we had

been looking at.

Q. When you say the original the one we have been looking at, what did you mean?

A. The December 17th minute aggregating 250.

Q. What did you mean by the word destroy, why did you say “and destroy”?

A. Well, I didn’t want two sets of the same minute floating around. I wanted to get all

those original minutes back and get rid of them.

[164] Linton said he intended that the old minute [globally allocating $250,000 to Chester’s

sons] would be removed from Taylor Leibow’s 1979 working papers and replaced with the

new one [specifically showing the allocation to each of Chester’s sons.] If that had been done,

no one reading the minute would have known that another original minute had ever existed.⁴⁸

⁴⁷Linton, May 30, 2000 and June 1, 2000 Exhibit 238, tab 1, Hand-written Note of Linton to Ennis, April 20, 1981

⁴⁸Linton, June 1, 2000

[165] The unsigned minute forwarded by Ennis to Taylor Leibow in 1981 contains the

handwritten words “approved April 30, 1980.”

[166] Linton’s evidence contains the following:

Linton, June 1, 2000

Q. It’s a bit strange, isn’t it, to have a draft minute… with a date as to when it was

approved… I’m going to suggest to you, sir that the only rational explanation for that

being put there is that it reflects the fact that there was indeed an earlier minute that was

signed… that had this April 30th approval date on it. And that’s what had been picked up

on the minute allocating all of these bonuses to Chester Waxman’s sons. What do you

say to that?

A. I don’t think it happened. I never saw a minute to that effect.

Q. I put it to you, sir, you know, and it is the case that there was an earlier minute

allocating bonuses to Chester and Morris Waxman that indeed was destroyed and

replaced with this minute. What do you say?

A. No. It didn’t happen. I didn’t destroy a minute.

[167] During cross-examination, Ennis was asked the following questions and gave the

following answers:

Ennis, December 16, 1999

Q. Did it strike you as passing strange that Mr. Linton would want to destroy a minute?

A. I don’t know.

Q. …Did you, the next day on April 21, 1981… reply by letter to Mr. Linton saying:

With reference to your letter of the 20th of April, enclosed please find two

photocopies of minutes of meeting of directors held the 17th day of December,

1979, being one copy for I. Waxman & Sons Limited and one copy for Mr. Sam

Taylor?

A. It looks like I followed instructions doesn’t it?

Q. …And, sir, JB 1412-B is an unsigned copy of a minute dated December 17, 1979,

that I can tell you is in Taylor Leibow’s working papers?

…And, sir, you, by your letter enclosed two copies, two photocopies of minutes of a

meeting of directors held the 17^thday of December. And, sir, the one that is in Taylor

Leibow’s file has no signatures on it, but it says minutes approved at meeting held

30^thApril, 1980. Do you recognize that handwriting, by any chance?

A. No. It could be Mrs. Cook’s.

Q. And I’m showing you the original of the minute that’s in the minute book dated…

December 17^th, 1979, and although it’s in the minute book backwards, do you agree with

me, please look at it, that the original shows as ultimately signed, that it was approved at

a meeting on April 30^th, 1980?

A. Yes.

Q. And by definition, that couldn’t have happened in 1981?

A. Whatever you say, Mr. Harrison.

Q. And the only reason that minute has got that approval date of April 1980 in it is that

was backdated I suggest to you to reflect the original minute?

A. Well, you could be right. [Emphasis added.]

[168] It was suggested to Steve Wiseman (“Wiseman”), an accountant at Taylor Leibow, that

when Linton wrote Exhibit 238, tab 9, his April 1981 note to Ennis, he thought there was an

earlier minute that should be “destroyed.” Wiseman said:

Wiseman, February 28, 2000

A. A. That would follow. There’s no other explanation. Either he thought there was and

there wasn’t. I can’t explain Wayne Linton in this particular case, I just can’t.

[169] Taylor’s evidence contains the following:

Taylor, January 27, 2000

Q. I’m going to suggest to you that it’s an unusual practice, two years later, to go into the

audit file and destroy an existing minute and replace it with another one?

A. I really don’t understand it myself… under normal circumstances changes wouldn’t be

effected two years later.

Q. And you certainly have never gone back two years after the fact and destroyed the

documents in one of your audit files?

A. I’ve never heard of anything being destroyed.

[170] Morris said he did not know until after the litigation began that 1979 bonuses had been

declared. He and Chester never discussed such bonuses at an IWS directors’ meeting or

otherwise. He did not approve of them. As all the sons were to inherit IWS eventually, he

thought they should be building it up rather than removing equity from it. He did not know

when, where, or in what circumstances he signed the December 17, 1979 bonus minute. He

did not review it before he signed.⁴⁹He knew nothing about a 1981 reallocation of 1979

bonuses.

Findings - 1979 Bonuses

[171] I find in part because a minute was prepared to implement the hand-written instructions

in Ex. 238 tab 8 with respect to the appointments of Bailey, Shirley and Sam Ferguson, that a

minute was prepared dated December 17, 1979 to reflect the original 1979 bonus allocations

of $75,000 to each of Morris and Chester and $100,000 in the aggregate to Chester’s sons.

[172] I find that in April 1981, Linton wrote to Ennis and directed him to remove the original

minute from the IWS minute book, to destroy it and to replace it with JB 1412B, a “substitute”

minute allocating the entire $250,000 to Chester’s sons.

[173] I do not accept Linton’s evidence that on April 21, 1981, Ennis did not send him a

replacement minute as requested, but rather sent him copies of the existing December 17,

1979 minute (Ex. 238 tab 1.)⁵⁰Linton’s explanation is implausible and is infected by the fact

that both JV 184 and Linton’s enclosure to his April 20, 1981 letter to Ennis are missing.

[174] I find that Ennis did what Linton directed him to do.

[175] It appears from the contemporaneous documentation, including working papers, JB

1430, 1430A, 1431-C, 1431-Band 1719-B, produced by Taylor Leibow after the examinations

for discovery of Chester and Linton had been held, and I find in part based on Linton’s

evidence, that instructions to pay out all of the 1979 bonuses to his sons came from Chester

in 1981.

⁴⁹Morris, January 25, 1999

⁵⁰Linton, May 30, 2000

[176] I find that Ennis did not prepare the replacement minute that now appears in the IWS

minute book until April 1981 [although it is shown to have been approved on April 30, 1980]

[177] Morris signed the replacement minute, JB 1412B, in 1981 or later. I accept his

evidence that he was unaware that any bonuses had been declared for 1979. Chester never

discussed 1979 bonuses or a 1981 reallocation of 1979 bonuses with him.

Estate Freeze Developments - 1980

[178] Although Morris and Chester disagreed as to why the estate freeze was stalled in 1980

and 1981, they did agree they were busy with other matters, including the sales of the IWS

refuse assets to Laidlaw/Superior and the IWS ferrous assets to Lasco/IWS Ferrous.

[179] They did obtain an updated Campbell valuation, JB 1478, in which the IWS was valued

as at December 31, 1979 at $8.5 to $10 million. If the estate freeze had been completed at

that time, using those values, Morris and Chester would each have received preference

shares worth $4.25 to $5 million. Depending on whether the common shares were divided

60/40 or 50/50, Morris’ sons would also have received 40% or 50% of IWS’ growth into the

future.⁵¹

Purchase of 500 Centennial Parkway

[180] The Front 13 Acres

[181] There is an issue in this litigation about whether Morris knew at the time of the Share

Sale that IWS owned a 13 acre parcel of land at 500 Centennial Parkway in Hamilton (the

“Front 13 Acres.”) This property was purchased in the fall of 1980 for $1.2 million.

[182] It is uncontroverted that when the Front 13 acres were purchased, title was taken in the

name of IWS.

[183] Morris said he understood that title was to be subsequently transferred either to him

and Chester, or to Morriston and Chesterton, because of Taylor’s oft-repeated advice that

IWS should not own the property on which it operated. Wiseman told him he had called Ennis

to effect such a transfer.⁵²

⁵¹Chester, October 5 and 14, 1999

⁵²Morris, January 25, 1999

[184] JB 1610 is an Ennis note of a meeting held on September 30, 1980, before the closing

at which alternative methods of holding title were discussed, including final ownership in the

name of (1) Morris and Chester; (2) Windermere Investments; or, (3) the children.

[185] Wiseman said he understood Centennial was to be owned by Morriston and

Chesterton through Windermere Investments.⁵³

The Back 7.7 Acres at Centennial Parkway

[186] In early 1981, Morris and Chester purchased 7.7 acres of land adjacent to the Front 13

acres (the “Back 7.7 Acres”) from the City of Hamilton and from the CNR for $61,159.28 and

$117,000.00 respectively (deeds JB 1756 and JB 1866). They each signed declarations (JB

2040) that those properties are being held in trust for Morriston and Chesterton.

[187] JB 2035 is a letter dated August 10, 1981, from Linton to Wiseman containing the

following: “Since both parcels are landlocked, Paul Ennis will be preparing easement

agreements…” No easement agreements have been produced in this litigation.

[188] The Defendants now take the position that the Back 7.7 Acres are worth less than the

Front 13 acres because they are landlocked.

The 1981 Sales To Laidlaw And Lasco

[189] In 1980/1981, Morris and Chester negotiated to sell the refuse division and the ferrous

metal division of IWS. They disagreed about the reasons for the sales, about their

involvement in and the timing of the negotiations. While much of the detail respecting those

sales is irrelevant, I shall mention here the facts that I consider to be relevant to the issues

before me.

The Laidlaw Sale

⁵³Wiseman, February 7 and 8, 2000

[190] Upon closing on June 1, 1981, IWS received $1.6 million: $1,250,000 from Laidlaw for

most of IWS’ refuse assets and $350,000 for goodwill and customer lists from Superior

Sanitation Limited (“Superior”) (together, the “Laidlaw Sale.”)

The Reasons for the Laidlaw Sale

[191] I mentioned earlier Morris’ evidence that he had always had a keen interest in the

refuse business. He had been able to retain some continuing authority in Waxman Disposal,

the refuse division of IWS, throughout the 1970s. Morris thought that division was profitable,

but Chester told him it should be sold because IWS needed the money. As he did not look

after finances, he did not question Chester’s statement. Contrary to Chester’s evidence,

Morris said Chester never suggested the refuse division be kept and that he and Michael

operate it. Morris denied refusing to keep and expand it.⁵⁴

[192] Chester said in chief that he and Morris decided to sell the refuse division after they

had decided to sell the ferrous assets to Lasco, so they could make the Glow Avenue

property available to IWS Ferrous.

[193] In cross-examination, it was suggested to Chester that Ennis’ notes, JB 2128 and JB

1542, reflect that attempts to sell the refuse division commenced well before the negotiations

with Lasco. Chester first approached Laidlaw on or before August 1980. Later, there were

negotiations with Tricil and, later still, more negotiations with Laidlaw. After it became clear

that the first negotiations to sell the refuse division pre-dated the Lasco negotiations, Chester

gave another reason for the sale. He said that by May of 1981, it was apparent IWS would be

selling its ferrous assets to Lasco for a great deal of money. At that point, it made sense for

IWS to keep the refuse division.⁵⁵He suggested to Morris that the refuse division be moved to

Centennial, and that Morris and Michael expand it. Chester said if Morris had wanted to keep

the refuse division, IWS “absolutely” would have kept it. Chester’s preference was to keep it.

He thought that “down deep” Morris’s preference was the same. However, Morris refused to

keep it, saying Michael did not want “that kind of disposal division.” Chester made a comment

to the effect that Michael was too lazy to run the garbage business:

Chester, September 17, 1999

⁵⁴Morris, January 25, 1999

⁵⁵Chester, October 14, 1999

A. …You can’t run it getting to work at ten o’clock in the morning. You can’t run it you

know, just from an office. You have to be on the job. You need sales men working for

you and it isn’t going to work with that work ethic. That’s what I gathered. Michael didn’t

want it.

[194] Chester said that after the refuse division was sold, he suffered “post sale remorse.”⁵⁶

[195] Chester’s sons gave evidence that Morris wanted to sell the refuse division. Robert

said Morris told him the garbage business was too much trouble, caused too many

headaches, that he could make more money moving a drum or two of other waste than

worrying about all of these front-end loaders and luggers running around the city. Morris

wanted to keep only the “special waste” business.⁵⁷

[196] Warren said Morris mentioned to him that he wanted to sell the refuse division because

“we boys were concentrating a lot more on the metals,” and “Michael had no interest in

coming into the business and sort of filling his shoes and taking over the waste end of the

business.” He also said, “He really saw no other alternative than to move that at a profitable

level.”⁵⁸Morris ensured that only solid waste accounts were going to be sold, that the

specialty waste accounts, “Morris’ baby,” would be maintained. Morris told Warren he was

going to have wording inserted in the agreements “so we were clear to handle those

materials.”

[197] Gary said Morris and his father told him they had made a decision to sell IWS’ non-

hazardous solid waste disposal service, excluding the hazardous waste and the special

waste. He remembered Morris saying “he felt that the regular disposal, the solid waste end

was somewhat of a sunsetting end and he thought the special waste and the hazardous

waste, he wanted to retain that as being a special end.”⁵⁹

[198] Morris, on the one hand, gave evidence that Chester and his sons were not at all

interested in pursuing the waste business per se after the Laidlaw Sale. Their interest was

limited to protecting IWS’ scrap metal accounts by servicing the waste needs of their scrap

metal customers. If Chester had not wanted to protect IWS’ scrap accounts, there would have

been no exclusions in the agreements with Laidlaw and Superior.

⁵⁶Chester, September 17, 1999

⁵⁷Robert, April 7, 2000

⁵⁸Warren, May 4, 2000

⁵⁹Gary, May 8, 2000

[199] Chester, on the other hand, said he and Morris discussed expanding the waste

business. He understood that after the closing, IWS would be able to handle liquid waste,

sludge and chemicals, and Laidlaw would permit IWS to handle hazardous toxic waste. In

addition, if Laidlaw could not properly service any of IWS’ scrap customers, IWS could

provide them with disposal services.

[200] Ennis said he thought Chester wanted to sell the refuse business throughout the period

spanning the initial negotiation with Laidlaw, the intervening negotiations with Tricil and the

subsequent sale to Laidlaw.⁶⁰

[201] JB 1900 is a Hamilton Spectator article dated May 16, 1981, reporting that Waxman

Disposal had been sold to Laidlaw and Chester Waxman had said the sale was consistent

with the continuing expansion of the metal group division of the company. [Emphasis added]

Findings - Sale of Refuse Division

[202] I accept Morris’s evidence that he would have preferred to keep the refuse business.

However, he did not resist the sale to Laidlaw because Chester, the money man, had told him

IWS needed money.

[203] I do not accept Chester’s evidence about the reasons for the sale of the refuse division

or about his “post-sale remorse.” Chester initiated the sale of the refuse division. As he

indicated when interviewed after the closing, his priority was the “expansion of the metal

group division.”

[204] Given the timing of the first negotiations (August 1980), the timing of the breakdown of

the Tricil negotiations (May 9, 1981), the date on which the deal with Laidlaw was made (May

13, 1981), his palpable loathing of Michael, his dislike of the garbage business and emphasis

on expanding the metals division, I reject Chester’s evidence about a discussion with Morris

about retaining the refuse division for Morris and Michael to expand. I accept Morris’ evidence

that Chester never offered it as a place for Michael within IWS. From August 1980 through

May 1981 Chester demonstrated an uninterrupted intention and desire to sell the refuse

division.

⁶⁰Ennis, December 13, 1999

[205] Chester’s statement that in the negotiations to sell the refuse division, IWS was mainly

selling the accounts, “Anybody can buy trucks, anybody can buy containers” is reflective of

his view by that time that Morris’ role within IWS was relatively unimportant, while his own role

and that of his sons were major indeed. It is also reflective of Chester’s lack of sensitivity and

concern about Morris’ personal preferences and priorities.

[206] For reasons more fully developed in the sections of these Reasons relating to the

Counterclaims and the Inducing Breach of Contract Action, I have accepted Morris’ evidence

that the exclusions were in the Laidlaw/Superior agreements to safeguard IWS’ ability to

service its metal customers and to protect those accounts. I have rejected the evidence of

Chester and his sons about discussions with Morris prior to the Laidlaw closing.

The Lasco Sale

Reasons For The Lasco Sale

[207] In late 1980, Chester commenced negotiations with Lasco to sell IWS’ ferrous assets.

Lasco owned a steel mill smelting 225,000-250,000 tons of scrap steel per year. It planned to

expand its production to approximately 900,000 tons per annum.⁶¹Chester said that in the

face of stiff competition from him and his sons, Lasco approached him to explore the

possibility of buying all IWS’ ferrous scrap. It wanted to stop the competition from IWS,

enhance its ability to supply its mill with captive scrap steel and pursue the possibility of

having young, capable, specialised management in the future. Chester said that those

considerations upwardly affected the price Lasco was prepared to pay. By the spring of 1981,

IWS and Lasco had entered into an agreement to form a new joint venture company, I.W.&S.

Ferrous Ltd. (“IWS Ferrous”), to be co-owned by IWS and Lasco.

[208] Morris said he first heard of a possible sale of IWS’ ferrous division to Lasco in late

1980 or in early 1981 when Chester told him he had been talking to the principals of Lasco.

He understood that what was being proposed was an arrangement under which IWS and

Lasco would each own 50% of a new company, Lasco would buy all of IWS’ ferrous assets,

would rent the properties that IWS Ferrous would occupy, and would pay IWS $4 per ton for

every ton of scrap that passed through the IWS yard and plant. IWS would still be in the scrap

⁶¹Chester, September 17, 1999

business, because the greater the tonnage of ferrous scrap handled, the greater would be the

tonnage fees that IWS would receive.⁶²

[209] JB 1680 is a Basic Outline of Proposal, dated December 1, 1980, setting out the

fundamentals of the proposed deal.

[210] JB 1804 is an Ennis note of a meeting on March 19, 1981, attended by Ennis, Chester

and Mr. Semple of Lasco, containing inter alia the following:

(a) under Item 4: management fee to be paid, management agreement to be drawn up,

possibly the five boys.

[211] JB 1811, a draft Letter of Intent drafted by Ennis the next day, March 20, 1981,

contains the following at paragraph 9:

It is understood that consideration will be given to the entering into of employment

contracts by Newco with Chester Waxman, Warren Waxman, Robert Waxman, Gary

Waxman and Shelly Kumer, the terms of which employment contracts shall be mutually

agreed upon between the respective parties thereto.

The Lasco Closing—September 21, 1981

[212] On closing on September 21, 1981, IWS received $6,410,000 (JB 2058) for the assets

sold to Lasco/IWS Ferrous and $2,321,984.15 for a guillotine shear (JB 2060) sold to Lasco.

[213] IWS Ferrous entered into employment contracts with Chester, his sons and Kumer, but

not with Morris or his sons. Lasco and IWS also entered into a shareholder’s agreement (JB

2070) dated September 21, 1981. Article 5 provides that Lasco and IWS will not transfer any

shares in IWS Ferrous except in accordance with the [shareholder’s] agreement or with the

prior written consent of the other. Article 6.01 provides for the sale by IWS or Lasco of its

interest in IWS Ferrous to the other shareholder. Article 6.03 provides, “No sale offer made

pursuant to s.6.01 shall be of any force or effect unless… the purchase price specified… is

not less than $4,500,000.”

[214] IWS Ferrous as tenant and Chesterton and Morriston as landlords entered into a 20-

year lease (JB 2054) of Glow and Windermere excluding the Blue Building and the

surrounding land needed for IWS’ non-ferrous operations. From September 21, 1981, to

⁶²Morris, January 25, 1999

September 21, 1986, the rent was $19,000 per month escalating thereafter every five years

using the consumer price index.⁶³

[215] Chester suggested in effect that IWS was subsidising Morriston and Chesterton

through the IWS Ferrous lease. He said, “the rent that Morris and I were able to get was

approximately double the rent of what that place was worth, at least 1½ times more than the

market rent at that time.” However, Ennis made notes (p. 4 of JB 1828) at the time that the

lease was negotiated:

what is the formula - it is 12% of 1.8 million

• Going rate

• 12% of appraised value

• cost of living

C.P. Index⁶⁴

[216] JB 1734 and JB 1741 are appraisals obtained on behalf of Lasco and IWS at the time

the rental rate was negotiated, averaging $1.8 million.

Findings - Lasco Sale/IWS Ferrous Lease

[217] The contemporaneous notes, JB 1804 and JB 1811, demonstrate that Chester initially

negotiated with Lasco about the sale of IWS’ ferrous assets. He attended a meeting with

representatives of Lasco at which management agreements with the five sons were

discussed. The next day Ennis wrote a letter to Lasco mentioning agreements only with

Chester, Chester’s sons and Kumer. There was surprisingly little evidence about the decision

to exclude Morris from IWS Ferrous, given that Morris was thereafter to be excluded from his

primary operational role of almost 40 years and given IWS Ferrous comptroller William

Branch’s evidence about Morris’ expertise in operational matters. There was no independent

⁶³Morris, January 25, 1999

⁶⁴Ennis, January 11, 2000

Q. …what I’m suggesting to you, sir, is that at this meeting, with reference to Lasco, and with reference to what rent was to be paid on the

lands to be leased by I.W.&S. Ferrous, there was discussion of what rent was to be paid. That’s reflected in your notes, isn’t it?

A. Yes.

Q. And it was discussed at that meeting that the going rate was 12% of the appraised value. Isn’t that so?

A. That’s what my note says…

Q. …did you know at the time that two appraisals of the subject premises that were to be leased were done as reflected at JBs 1734 and

1741?

A. No. I didn’t know anything about these…. dated January 7, 1981 and January 8, 1981. One by Chambers and Company and the other by

Albert A Takefman and… Takefman’s one, which is tab 1741 is directed to Chester and Morris Waxman and the Chambers one [JB 1734]

dated January 8th, 1981 is directed to a Mr. Edward J Hinchie…

evidence about the exclusion of Morris and his sons from IWS Ferrous management. The

Defendants called no representative from Lasco to give evidence as to why Morris and his

sons were excluded.

[218] There was no independent evidence to corroborate Chester’s allegations that Lasco

wanted to stop competition from Chester and his sons, that it was a major impetus for the

deal, and that it upwardly affected the price Lasco was prepared to pay.

[219] While I accept that the rentals payable to Morriston and Chesterton in the IWS Ferrous

lease were on the high side, I find that they were at about the “going rate” calculated

according to a formula, i.e., 12% of appraised value. If they were high, that was because the

appraisals obtained on behalf of both Lasco and IWS were high.

[220] As Morris’ business acumen at the time he signed the Share Sale documents is an

issue in this litigation, counsel for the Defendants spent a great deal of time attempting to

demonstrate Morris’ active participation in the Laidlaw & Lasco negotiations and at the

meetings leading up to and including the closings. Ennis’ notes with respect to the Lasco sale

contain repeated references to meetings with Morris and Chester to discuss and review

successive drafts, and the productions include numerous drafts containing Morris’

handwriting.

[221] Having reviewed all of the evidence relating to Morris’ participation in the Laidlaw and

Lasco negotiations and meetings, I find that Morris was involved with respect to equipment

and operational matters. He produced lists of the physical assets of IWS, including equipment

of all types, such as cranes and trucks. He helped to value those assets. I accept his

evidence that he played no role in valuing any other aspect of IWS.⁶⁵Morris said:

Morris, March 1, 1999

A. I understood very well my end of it. I didn’t understand the money end of it. I

understand [now]… we were a multimillion dollar company, and I lived like a guy that

was making next to nothing, and that’s how much I understood about the money end of

Waxman’s… I understood what I had to understand, I understood the end result… I had

considerable input… [in] the biggest part of it, which was the assets. Which is what I did

Q. did anybody tell you after the appraisals were received… that if you take these two appraisals… and averaged the two of them [$1.8

million] and multiply by twelve percent and divide that number by twelve, that you got… approximately $19,000?

⁶⁵Morris, January 25, 1999

for 40 years… I knew that the shear that I spent close to a year on, looking for and

buying, which was a $2 million piece of equipment that they were taking over. That I

looked after. That I knew.

[222] I am not persuaded that Morris was knowledgeable in legal, tax and financial matters

or was himself capable of valuing the IWS shares. Morris’ notes are indicative of note-taking

at meetings with advisors and not of his capability to make independent assessments in legal

and financial matters. Ennis’ productions relating to the Lasco and Laidlaw negotiations

[which contain Morris’ notes on his copies of drafts of agreements] stand in stark contrast to

his productions with respect to the Share Sale, which include no drafts reviewed by Morris

and no notes written by him.

September 1981 - IWS Business After The Sales To Lasco & Laidlaw

[223] At the time that the sale of IWS’ ferrous assets to Lasco/IWS Ferrous was negotiated,

tonnage fees of $4 for every ton of ferrous materials processed by IWS Ferrous were

expected to provide IWS with a steady profit. Branch, the IWS Ferrous comptroller, gave

evidence that the volume in 1982, 1983 going forward “should have been around 500,000

tons at least.” (On that estimate I note that IWS would have been expected to receive ongoing

tonnage fees from IWS Ferrous of $2 million per year, with little or no corresponding

expense.)⁶⁶

[224] In addition, IWS was continuing to operate a non ferrous division. It had built the Blue

Building and the copper chopping line at Windermere and had excluded it from the IWS

Ferrous lease. IWS was buying and selling non-ferrous metals, particularly copper. The

copper chopping line was generating tolling income (income earned by processing copper

owned by others.) An article dated April 16, 1981, in the Hamilton Spectator, JB 1836A, JB

1847 contains the following: “[the granulator] has meant as much to our operations as the

space shuttle to the United States, said Chester Waxman, the firm’s president.”

[225] IWS was also operating a limited waste business: the remnants of the business that

had been sold to Laidlaw/Superior on June 1, 1981. It was “minuscule” compared to IWS’

metals business. JB 2185-E, a working paper for the 1981 year-end entitled IWS Sales

Summary, shows that it constituted $158,590 of total 1981 sales of $43,284,398.

⁶⁶Branch, June 29, 2000

Morris’ Role After the Lasco Sale

[226] After September 1981, Morris retained the title of President of IWS. However, there

was much disagreement about the substance of his continuing role.

[227] Generally speaking, the officers of IWS operating the non-ferrous business were

located at Centennial, the officers of IWS Ferrous at Windermere.

[228] Robert said that just prior to the Lasco closing, it was decided that he, Morris and the

IWS billing and administrative staff, including Linton and Rioux would move to Centennial.

Robert said he was very surprised Morris stayed at Windermere, as he had no continuing role

at IWS Ferrous. He thought it was consistent with Morris not wanting to participate any further

in the activities of IWS.⁶⁷

[229] Morris gave evidence that when the move was first discussed, he expressed a

preference for a certain office at Centennial. He decided to stay at Windermere after Robert

took that office for himself. Chester and Robert both denied that this happened.

[230] Morris said that while he was still out in the plant every day, he would have liked to

have played a greater role. While he had a title and cheque-signing authority, he did not sign

many IWS cheques relating to the non-ferrous business after September 1981. Morris had no

role in the trucking for that division. As noted earlier, he had no formal operational role in IWS

Ferrous. IWS trucks that had previously serviced the ferrous division had been transferred to

IWS Ferrous as of September 1981,⁶⁸as had other ferrous division machinery and

equipment. The ferrous employees were working for IWS Ferrous, not under Morris’

supervision. Robert was hiring the people to operate the copper chopping equipment.

[231] Chester said in chief that after the Lasco closing, he contemplated that Morris would be

the “head man” at IWS and that he would work with Robert. Morris knew everything going on

⁶⁷Robert, April 11, 2000

Q. And you said that you were puzzled that [Morris] didn’t move?

A. Yes.

Q. His evidence is that one of the things that happened is that you took his office. Do you deny that?

A. I didn’t take his office. There was a plan several weeks before the move to 500 Centennial Parkway that Morris would take one office and I

would use the other office. And then at some point just prior to September 21 he decided not to move over.

Q. Nothing to do, you say, with your taking his office?

A. I can’t take his office.

Q. You can’t.

A. No.

Q. Because?

A. If my uncle had said you’re not having that office, that would have been that. I can’t take his office.

⁶⁸Morris, January 25, 1999

in the non-ferrous forum and continued to be heavily involved in IWS transportation and

equipment matters.⁶⁹Robert and Morris were “great pals.” Morris had not been cut off from

any real responsibility. In fact, he had more financial responsibility than he had previously

had. IWS cheques were signed by Morris, Chester or Robert. In cross-examination, Chester

acknowledged that after the Lasco sale, Robert was essentially running the IWS non-ferrous

operations.⁷⁰

[232] Linton said after he moved to Centennial, he had no day-to-day contact with Morris.⁷¹

In cross-examination, he said on a daily basis he was reporting to Robert who was running

the non-ferrous operation.⁷²

[233] JB 1561A, an IWS organisation chart prepared by Taylor Leibow as at September

1980, shows Morris and Chester as the two head-men, with Chester’s sons to the left under

the heading “Steel Sales.” Exhibit 218 tab 16, an IWS organisation chart prepared for 1982,

shows changes in the reporting structure at IWS. It reflects that in 1982, Robert, titled

Assistant to the President, did not report to Morris, the President, but to Chester. It shows

Morris off to the side, no longer one of the two head men.⁷³It also shows that Morris had

nothing to do with Greycliffe’s truck drivers [who are shown reporting to Laszlo Jambor, who

is shown reporting to Robert]

Robert & Michael Incident - September 1981 - First Share Buyout Discussion

[234] In September 1981, there was an incident on a Friday involving Robert and Michael.

[235] Michael was still a student at the time. He gave evidence that he was moving some of

his own furniture into Centennial for storage. Visitors could pick up a telephone in the lobby

and speak to a secretary upstairs. He picked up that telephone and overheard Robert

speaking to an IWS customer. When Robert came downstairs, Michael said, “you know, I

picked up this phone, I overheard this conversation, you better get it fixed.” Robert

⁶⁹Chester, September 21, 1999

⁷⁰Chester, October 8 and 12, 1999

⁷¹Linton, May 23, 2000

⁷²Linton, May 30, 2000

Q. Come on, the truth is on a day-to-day basis Robert Waxman was managing the non-ferrous operation at Centennial. Isn’t that so?

A. I’ll agree with that.

Q. And you were taking instructions from him. Isn’t that so?

A. I was reporting to him and Chester. If he gave me instructions I would act on them.

…Q. And the same was true in 1982. Right?

A. Sure, most of my dealings were with Bob. We were over at Centennial.

Q. So in 1982 and 1983 you were reporting to Bob Waxman and Chester Waxman. Right?

A. Yes.

“lambasted” him in the presence of Morris, one of Michael’s friends and two IWS employees.

Robert said, “you think you can do any better? Why don’t you?” and then stormed out of the

IWS offices.

[236] Robert said that after Michael said something about the phone system not being right,

he told Michael that if he was that interested in the phones, he should go to Bell Telephone

himself.

[237] Morris gave evidence that he was present when Michael told Robert that anyone could

listen in on the telephone conversations of the people upstairs. He heard Robert tell Michael,

in an angry tone, that if he could do better, then he should look after the phones. He saw

Robert walk out and Michael follow him. He did not see what happened after that. Robert’s

behaviour infuriated him. He went to see Chester and made a spur of the moment, hot-

tempered comment, “Look after your boys. If you can’t, buy me out or I’ll buy you out.” Later

that night, he phoned Chester and said, “Please ignore what happened… Forget it… I’ll see

you Monday morning.”⁷⁴Morris’ ambition was that his sons would take over his interest in

IWS.

[238] Chester said he spoke to both Robert and Morris about the incident. Robert told him

that Michael had chased him in order to attack him. Morris came over to his office in a big

stew, banged on his desk and said, “these boys will never get along. You buy me out or I will

buy you out.” In cross-examination, he said that it was “possible” that Robert had an active

dislike of Michael at the time. He knew that it was Robert’s view that Michael did nothing for

IWS.⁷⁵

[239] Involvement of Morris’ Sons after September 1981

[240] In late 1981, Michael was finishing an MBA and expecting to pursue a career at IWS.

[241] Before Michael finished school, Morris had discussions with Chester:

Morris, January 26, 1999

A. I kept telling him we could use Michael somewhere. Certainly there was somewhere

for Michael, even if he followed me around and I taught him my end of the business. He

⁷³Linton, May 23, 2000

⁷⁴Morris, January 26, 1999

⁷⁵Chester, October 21, 1999

kept saying “We’ll see. Right now we can’t take him on.” There was nothing… ever

positive that I got from him. I asked him many times and it just didn’t happen.

[242] In late 1981, Taylor called Michael about Intercelco 1981 Limited (“Intercelco”), a

company in which Taylor, Morris and Chester had invested. Michael said Taylor told him

Intercelco was not doing well and asked him to operate it as long as he could and then close

it down, acting as a quasi-receiver and collecting receivables. Michael had no discussions

with Chester before starting to work at Intercelco. Since he worked out of a warehouse on the

Back 7.7 Acres at Centennial, he did not have much contact with IWS employees who were in

offices on the Front 13 Acres. He assumed he would start to work at IWS after the Intercelco

job ended. Chester said he did not know Taylor had called Michael:

Chester, September 17, 1999

A. I was on a holiday. When I came back somebody told me that Michael was now

working at Intercelco and that’s fine, I didn’t know how or why. Went over there one

morning to Intercelco to say hi, it was about 10, 10:30 and I said: Where’s Michael? And

he wasn’t there. And I just went back to my office. He came running over about noon,

red-faced and wondered what I wanted and I said: I just wanted to say hello. And that

was that for that day. I knew he was there, but I didn’t know who hired him or why.

[243] Michael said that sometime in 1982, Chester took him to look at a Vic Tanny exercise

gym, saying he thought it would be a good place for him to manage. Morris was visibly upset

when Michael told him about it. Ennis and Linton sent him JB 2139, financial statements for

an industrial blue printing company and suggested he might be interested in running it.

Michael reacted with some confusion.⁷⁶

[244] Morris was increasingly frustrated about his inability to integrate Michael at IWS:

Morris, January 26, 1999

A. Chester didn’t want him around. It was obvious, because he wouldn’t let him in. He

brought his three sons in…. I remember when Warren came in, he at least had the

courtesy to walk in my office and say: “Uncle Mo, I’m working here.” I was stunned. I

went to Chester’s office. I went in and asked: Why aren’t you sending him back to

school? He said: He can’t hack it. I said: That’s fine. Bobby came in, plunked himself

⁷⁶Michael, May 10, 1999

down. He never said to this day he was working there. Gary came in. The same thing

happened. There was lots of room for Chester’s children. When it came to Michael, he

couldn’t find a spot for him….

[245] Linton said that in about 1982, when Morris requested that Michael be given a raise

from $15,000 to $25,000, Chester said a raise was not warranted. He may have said IWS

could not afford it.⁷⁷

[246] Morris said Linton advised him there was not enough money for Michael to get a

raise.⁷⁸

[247] Robert said in his opinion Michael’s $15,000 salary was too much.

[248] Chester said all Morris had to do was order a raise for Michael, but added he did not

see that Michael was doing anything for IWS.⁷⁹He said he advised Michael during the early

part of 1982 about the best way to join IWS:

Chester, September 17, 1999

A. Michael, if you really want to come into the business,… I can tell you how I think you

should do it. Work with Sheldon Kumer, he oversees the operations. Pick up some scrap

for awhile with the yard superintendent and the foreman. Find out what is required by

the various steel mills and foundries.

Then go into the non-ferrous division, learn the various grades of non-ferrous metals,

how they segregate and sort them for delivery to the non-ferrous melting companies.

Go from there to the maintenance department. Learn about the truck fleet. Learn about

costs. Spend some time with Linton on the administration of the company. Go out with

Wayne and Gary and see what they do.

Then you can decide which niche you want. When you get into a managerial position

your decisions and recommendations will be respected. If you don’t there will be a

problem.

…Michael was the problem. Not me, not my sons. Michael. If he wanted to come in, he

would have been welcomed in but if he expected to be pampered like he probably was

⁷⁷Linton, June 2, 2000

⁷⁸Morris, February 18, 1999

⁷⁹Chester, October 12, 1999

at home, he wasn’t going to get it from me or my three sons. It’s a place to work and

make money. The people in our family that are strong, should work and make sure that

the weak are taken care of.

[249] When he was asked how Michael acted, Chester replied:

Chester, September 17, 1999

A. Arrogant. The boy was something different about him. You can take and meet the 22

grand children of my father, Michael is an anomaly I don’t know where he got it from but

he personifies baleful or malignant passion. I don’t know why but that’s what he’s made

of. I don’t believe my brother made a pact with him. I think Michael dominates him.

Michael is not a team player. He doesn’t work with people. He will dominate you his way

or the highway and that’s why he would never be able to work with my sons or I don’t

think anybody else.

[250] Later yet, he said:

Chester, October 19, 1999

A. Michael’s future was bright. It’s not my fault that he didn’t want to get involved. I’ve

explained that to the court. The door was open, but those boys both in coming in and

finding a niche or in completing the estate freeze and those were Morris’ calls. And

those were those boys’ calls.

[251] Chester denied that he was concerned that Michael might scrutinise IWS’ financial

operations much more closely than Morris had ever done.

Finding re Morris’/Michael’s Place in IWS after September 1981

[252] I reject Chester’s evidence with respect to Morris’ role within IWS after September

1981 and accept Morris’ evidence, which was generally consistent with the content of the

1982 organisation chart prepared by Taylor Leibow (Exhibit 218 tab 16.)

[253] I accept Morris’ evidence about Chester’s exclusion of Michael from IWS. Even while

Chester was giving evidence that Michael was welcome at IWS, his loathing of Michael was

palpable.⁸⁰

⁸⁰Chester, September 17, 1999 and October 21, 1999; Exhibit 47

[254] Chester’s evidence about opportunities at IWS offered to Michael was contradictory to

say the least. I do not accept his evidence that he was prepared to make a place for Michael

within IWS. I find Chester did not want Michael around and that he repeatedly blocked his

integration into IWS.

Second Share Buyout Discussion - Late 1981

[255] Morris recalled that after a meeting with Mr. Schmelzle of Lasco in Whitby in late 1981,

Chester said. “Why don’t you sell me your half of the shares?” Morris replied, “Chester don’t

ever ask me that again. It’s not going to happen.” The conversation ended abruptly.⁸¹

1981-82 Bonuses

[256] Given the negative impact of the evidence about the 1981-1982 bonuses upon my

view of the credibility of Chester, his sons and Kumer, I shall cover this evidence in some

detail.

[257] Timing and Reasons for 1981-82 Bonuses

[258] Morris said he did not remember any specific conversations with Chester about the

disposition of the proceeds from the Laidlaw and Lasco sales. They did not discuss

transferring any of them to Chester’s sons. In his reply evidence, he expressly denied having

any conversations with Chester or his sons about paying them bonuses or otherwise

compensating them for signing non-competition agreements.⁸²

[259] Chester was cross-examined about Morris’ entitlement to 50% of those proceeds:

Chester, October 19, 1999

Q. You told me just a minute ago that if you had sold the business for eight million

dollars instead of ten, you and your brother would have split it 50/50. Right?

A. Yes.

Q. And you in fact sold two divisions and you got eight million. Right?

A. Yes.

Q. And so how come your brother didn’t get 50% Let’s cut to it.

⁸¹Morris, January 26, 1999

⁸²Morris, January 25, 1999 and September 18, 2000

A. Because you would never have sold them without Chester, Warren, Bobby and Gary.

Not a prayer.

[260] Chester said he “wouldn’t take away from [Morris] the work he had done prior to 1977:”

Chester, October 19, 1999

Q. So you agree with me you felt… in the 1970’s and 1980’s you had made a larger

contribution than your brother?

A. I thought that hour-wise, account-wise, business-wise, that my time that went into that

company was more hours. I thought that I developed the business we needed to be able

to use all the equipment we have, so yes, I’m under oath and I think I have.

Q. And that, I’m suggesting to you, sir, is the simple basic explanation for why you did

this, why you arranged to have these bonuses allocated the way they were?

A. That’s nonsense.

[261] Chester said before the Laidlaw deal was completed, he and Morris asked his sons to

sign non-competition agreements, which would circumscribe their ability to operate in the

garbage business. When they were again asked to sign non-competition agreements before

the Lasco closing, which would restrict their right to compete in the ferrous business, they

were very reluctant to sign without first receiving assurances that they would receive

substantial bonuses.⁸³They wanted to be compensated for “past performance, current

performance and requirements for future expectations.” He and Morris looked into the tax

implications of the sales. Linton told them that they could face a $3.5 million tax problem.

They agreed that it would be better to reward those who put IWS in the position to be able to

sell to Laidlaw and to Lasco than to pay such taxes.

Chester, September 17, 1999

A. We agreed to a million four each for Morris and myself. I believe a million two for Bob;

a million one for Warren; a million dollars for Gary; $400,000 for Kumer; and lesser

amounts for Harry Leibowitz and Sam Rosen.

[262] He and Morris advised his sons before the closings that, if they signed the non-

competes, they would receive substantial bonuses. If they had not signed, there would have

⁸³Chester, September 17, 1999

been no deals.⁸⁴The bonuses were payment for “the ability to sell the company.”⁸⁵Chester

denied that bonuses were first considered when Linton came to him after the Lasco closing in

September in late 1981/early 1982 to advise him that on a gross basis, they could reduce

taxes by doing some tax planning.

[263] Warren said he settled his bonus of $1.1 million with Chester and Morris before the

Lasco deal closed.⁸⁶They first raised the issue of bonuses with him at the time of the Laidlaw

sale, telling him that he and his brothers would be looked after bonus-wise when the Lasco

transactions were finished. Sometime in early September 1981, Warren requested a bonus of

$750,000 to $1,500,000.

Warren, May 4, 2000

A. No, I brought in probably in the range of 200 accounts…

...Q. And what… happened to the accounts… you were responsible for…?

A. They were all eventually sold to Laidlaw in 1981… What eventually happened

obviously through history Lasco and their divisions were very unsuccessful in trying to

attain any of our industrial accounts and they felt since we had built such a large

industrial base they felt it was wiser to purchase the IWS ferrous division, which came to

fruition in September 1981.

Q. …in terms of tonnages, do you recall what you were responsible for on behalf of I.

Waxman & Sons in the time period prior to the sale to Lasco?

A. Yes. I was conservatively responsible for approximately 50 percent of the ferrous

tonnage that was brought into IWS, discounting any non-ferrous, which at that time was

in the neighbourhood of 300,000 tons per year. That’s the total amount being handled by

IWS at that time.

Q. Was 300,000 tons?

A. Yes, I would be responsible for at least half of that…. I was discussing with my father,

he was mentioning he was very close to the signing of the Lasco deal and that we were

going to be asked to sign five year non-competes…. At that time I mentioned to my

father that I was conservatively responsible for approximately half the tonnage that IWS

⁸⁴Chester, September 14, 1999

⁸⁵Chester, October 19, 1999

⁸⁶Warren, May 5, 2000

was doing…. That tonnage would have been 150,000 tons per year. The management

fee which my father mentioned we would be getting was going to be four dollars per ton,

would have equated to over the five year period approximately $750,000 on a five year

basis. Based on a dollar a ton…. Let me go back. My percentage was about 150,000

tons per year, the $4 ton on top of that was $600,000…. six hundred thousand dollars

times at least five years I would have to sign for is 3 million dollars on just the tonnage I

was responsible for. I felt that a minimum of 25 percent of that would be fair which I said

was 750 up to 1.5, based on that tonnage. [Emphasis added.]

[264] In cross-examination, it was suggested to Warren that he was trying to take too much

credit:

Warren, May 4, 2000

Q. And all the accounts they [Les & Sam] had, you inherited some of those?

A. It’s possible….

Q. …you in fact inherited quite a number of accounts from your father?

A. I inherited some….

Q. We have Mr. Ferguson, Mr. Robertson, your brother Bob, your father, another

salesman by the name of Stan Katz?…

A. …The most important facet of our business is how you buy and how you buy well

That’s where you make your money that was my forte, and that’s where I was key.

That’s what the business was like then and it’s the same today…. My experience in this

business is the purchasing factor is where the money is made and I think any of my

colleagues would attest to this.

Q. So the sales side is obviously very important as well?

A. It’s important, not as important.

Warren, May 5, 2000

Q. …Did you know that the top end in the amount you were asking for was a quarter of

the proceeds of the Lasco deal?

A. My calculation wasn’t involved with that. My calculation was very simple. Was

involved with the amount of revenue that was going to come in over the next five years.

Very simple math I brought it to 25% of that revenue for a one time payment which I

thought was very reasonable considering my past expertise and what I was going to be

doing down the road. I was having to sign my life away, not now working for Morris and

Chester, but strangers…. I didn’t know what was going to happen and I wanted to have

this nest egg at that time for what I had done and would accomplish. That was my main

concern.

Q. You were looking for a nest egg at age 28?

A. Is there anything wrong with that?

Q. Your evidence is in fact you thought a million and a half dollars was a very

reasonable request?

A. I thought up to that range would have been reasonable.

[265] Robert said he and Warren shared the accounts that Sam Ferguson and Les

Robertson had established. Warren took over most of Les’ accounts.

[266] Even though he had been out of the waste business for a few years, Robert said he

was unhappy about signing a non-competition agreement at the time of the Laidlaw/Superior

closing. Morris and Chester told him he would be receiving a bonus later, but they did not

want to discuss specifics until the Lasco deal was complete. Robert was not content to sign

non-competes unless he received some compensation. The transactions would not have

been consummated unless he, Gary and Warren signed non-competition agreements,

because “we were the moving force behind those businesses from the mid-70’s on and I think

we would have been giant threats to those companies had we remained without non-

competes.” [Emphasis added.]⁸⁷

[267] In chief he said that he was pleased with a bonus of $600,000 per year for two years.

In cross-examination, he said he thought he should have received a million dollars net:

Robert, April 14, 2000

Q. And is it the case, sir, that when it was suggested by your father that a bonus for you

in the neighbourhood of $250,000 [the amount of Robert’s bonus reflected in Exhibit 194

the significance of which is discussed later] when you had been expecting $2 million

⁸⁷Robert, April 7, 2000

gross, is it the case that you told your father that’s just not acceptable. Is that what

happened?

A. That discussion never took place.

Q. And even with regard to the bonus that’s reflected in these minutes for December ’81

and February of ’82, you said in chief you were pleased. Remember that?

A. Right.

Q. But the truth’s a little short of that, isn’t it? You in fact thought that $1.2 million over

two years was fair but low.

A. Something like that.

Q. And in fact you thought your bonus should have been higher, right?

A. Right… In my mind… the funds that came in from Laidlaw were somewhere around

$6.5 million, another $2-some-odd million for the shear. There was inventory that would

be sold… that would have a profit in it. There were management fees that initially were

hoped to be around a million dollars a year area. Plus there were leases that were tied

to that agreement over a number of years, and those payments were going to my father

and uncle. Those would have been the numbers that would have been in my head.

[268] Robert later agreed that IWS made no profit from the sale of the shear and IWS owned

the inventory. He denied he thought he should be paid as if he were an owner.⁸⁸When asked

if he were being a bit greedy expecting a million dollars net at age 26, he replied, “Could

be.”⁸⁹

[269] Before Gary signed the Laidlaw and Lasco non-competition agreements, he had no

discussions about bonuses with his father or uncle. He did not ask for a bonus. At the end of

September 1981, Chester and Morris told him he would be receiving a bonus, but they did not

commit to a specific amount. When Chester later told him he would be getting a $1 million

bonus over two years, he was “very pleased… very happy.”⁹⁰

⁸⁸Robert, April 14, 2000

Q. And this inventory that you’re talking about being sold over time, you didn’t own that, the company did?

A. Who got it there? Those were from accounts that Warren and I—they were part of the business, Mr. Harrison.

…Q. You thought you should be paid as if you were an owner. Isn’t that what you’re saying?

A. No.

⁸⁹Robert, April 13, 2000

⁹⁰Gary, May 12, 2000

[270] Kumer said that at about the time of Lasco closing, Morris and Chester told him he

would be receiving a $400,000 bonus over two years. He was very satisfied.

[271] Linton said that after the sale of the two divisions, he concluded that IWS would have

to pay significant taxes on the sale proceeds. Preliminarily it looked like IWS had $6.6 million

of income to address. He recommended tax planning to reduce the taxes on the substantial

gains. Bonuses that ultimately totalled $6.6 million were designed to off-set the gains and to

delay the payment of tax. He first met alone with Chester in late October or early November

1981 to consider putting bonuses on the books. They did not discuss allocation. Chester said

he liked the idea of deferring tax. He told Linton he would talk to Morris and they would meet

before the 1981 year-end to resolve the issue.⁹¹

[272] In November 1981, Chester and Linton met with Wiseman. JB 2143, a memo from

Wiseman to Linton dated November 16, 1981, and copied to Chester, contains the following:

Further to our meeting of November 10, 1981 and further to our discussions with

Chester Waxman we would like to summarize the main conclusions reached… the

[Campbell share valuations] should be revised in order to take into consideration

the disposition of the refuse division as well as the reorganisation entered into

between [IWS] and Lasco. [Emphasis added.]

[273] In JB 2146, a letter to Wiseman dated November 19, 1981, Linton mentioned sitting

down with Chester and Morris to discuss an “investment strategy for excess funds.” The

following exchange occurred during Linton’s cross examination:

Linton, June 1, 2000

Q. Sir, Chester Waxman has sworn in this courtroom that the bonuses reflected in the

minutes for 1981 and 1982, as they relate to his sons, had already been agreed to at the

time of the sale to Lasco, before the closing to Lasco. Now, he didn’t say that to you, did

he?

A. No, he didn’t.

Q. And when you made your initial presentation to him, this brief meeting that you talked

about before the one at Centennial, he didn’t say to you: Wayne, you’re wasting your

time; I’ve already settled these. Did he?

A. No, he didn’t.

Q. And when you had this meeting that you say Morris and Robert were at, and probably

Gary, no one blurted out: Wayne, what are you doing? We have already settled these

bonuses and know who’s getting what; did they?

A. No. Not when I was present.

Q. And in addition, sir, at this meeting at Centennial, no one said to you that bonuses

had already been settled with Chester’s sons because of the non-competes they had

signed. Did they?

A. No, they didn’t.

Q. In fact, insofar as the question of non-competes being related in some way to the

bonuses, that didn’t come up until after your presentation, did it?

A. That’s correct.

Late 1981 - Evidence re Meeting to Discuss Bonuses

The Centennial Meeting

[274] Morris gave evidence that in October or November 1981, Chester asked him to come

to a meeting at the Centennial offices, a very unusual occurrence. When he arrived, Linton,

Robert and Gary were in the room. Chester proceeded to instruct Linton, saying that bonuses

would be declared in favour of his sons, Morris, Chester, Harry and Sam and mentioning

numbers totalling around $500,000.⁹²

[275] Morris said he strongly disagreed with the bonuses that Chester was proposing, he

said nothing in the meeting:

Morris, January 25, 1999

A. …I said nothing because as I’ve told you before many times, Chester and I have

never had bad words in front of anybody or an argument. I waited until Wayne and

Chester’s children left and I sat down and I cautioned Chester that A, if you want to take

any money out of this company and you want to give it to your sons that’s okay with me,

but you take the same amount for me. We’re 50/50 partners and I don’t know what

⁹¹Linton, May 23, 2000

⁹²Morris, January 25, 1999

they’re getting bonuses for in the first place. I don’t know what they needed them for….

my recollection is that when I left that room I didn’t think any bonuses were going to be

paid to anybody and if they were, they were going to be paid… to Chester and myself,

and what we did with the money was up to us.

[276] Chester denied that Morris said words to the effect that whatever Chester’s side of the

family received, Morris’ side should receive the same.

[277] Linton said that bonus allocations were not mentioned at the Centennial meeting:

Linton, June 1, 2000

A. …we were looking at $6.6 million of bonuses and at that point, I had made no

recommendation of splitting them between the years I thought they would be all put on

the books for 1981.

Q. So it’s your evidence that’s the presentation you made, $6.6 million in bonuses for

1981 alone?

A. Yes.

Q. You’re sure of that?

A. I’m pretty sure…

Q. Well, the $6.6 million comes from you, as the tax planner. Right?

A. Yes.

[278] Robert said at a meeting at Centennial, he saw two amounts of $600,000 beside his

name.

Changing Bonus Amounts: Exhibit 194, JB 2200-A and Exhibit 195

Exhibit 194

[279] Exhibit 194 was produced by Ennis for the first time part-way through his evidence at

trial, and was unavailable to the other Defendants prior thereto. The first page of Exhibit 194

is a draft of an election for the payment of a capital dividend that helps to pinpoint the date

when page two was prepared. Linton said he must have given Ennis instructions to prepare a

directors’ resolution regarding the dividend some time after November 19 (the date of his

letter to Wiseman, JB 2146) but before the end of 1981.

[280] The second page contains Ennis’s note of a discussion with Linton, which includes the

following:⁹³

Resolution re bonuses - Directors - Res [Director’s Resolution]

Shelly Kumer

Harry Leibowitz

Chester

$200,000

$ 50,000

$500,000

$250,000

Morris

Gary

Bob

Warren

[Emphasis added.]

JB 2200-A and Exhibit 195

[281] JB 2200-A, a note in Ennis’ handwriting, records instructions received by him dated

January 12, 1982, with respect to IWS bonuses in the following amounts:

Chester Waxman

Morris Waxman

Warren Waxman

Robert Waxman

Gary Waxman

$700,000

$550,000

$600,000

$500,000

$200,000

$ 50,000

Sheldon Kumar

Harry Liebovitz

[Emphasis added.]

[282] Ennis prepared an IWS resolution reflecting those amounts, dated December 23, 1981.

Exhibit 195, another hand-written note, contains the handwritten words: “this is a substitute,

make new resolution” [emphasis added]. Ennis was asked about that note and about

JB 2200A:

⁹³Ennis, January 11, 2000

Ennis January 11, 2000

Q. And so on January 12^th, you got a communication from somebody referable to

bonuses. Right?

A. Yes.

Q. And I’m suggesting to you, it’s obvious, I’m suggesting, that on the same day you

made a note of that communication and wrote down the number?

A. Looks like I made two notes.

Q. Let’s look at Exhibit 195, your other handwritten note. Whose handwriting… appears

in pencil at the top of Exhibit 195?

A. I can’t make that out. Says this is a substitute

Q. What else does it say?… It says make new resolution, doesn’t it?

A. …I’ll accept your view of it. [emphasis added]

[283] Linton said that when he recommended the declaration of bonuses, he was thinking of

saving or delaying payment of taxes.⁹⁴He said in chief Chester had told him the bonuses to

his sons related to non-competes.⁹⁵However, in cross-examination, he said he warned

Chester prior to writing his February 24, 1982, memo that “Campbell would probably come

along and try to drive those bonuses [to Chester’s sons] lower” and that a justification was

needed. The first time the issue of the non-competes came up in Linton’s presence was in

1982 when Chester suggested to him that if Revenue Canada were to attack the size of these

bonuses, they might be justified by the signing of the non-competes. He said, “All I was aware

of was Chester telling me that it [the non-compete] was a justification for bonuses declared to

the boys if it was attacked by Revenue Canada. They were large allocations and it was in

compensation for them giving up a future stream of income, potentially.”⁹⁶

Reasonableness of Bonuses

[284] The Defendants assert that the 1981 and 1982 bonuses declared in favour of

Chester’s sons were justifiable given their contributions to IWS.

⁹⁴Linton, June 1, 2000

Q. And in a nutshell, in terms of your presentation, what this plan was all about was saving taxes and delaying the payment of taxes?

A. Yes. That was my focus… That’s how it started from my perspective…

⁹⁵Linton, May 23, 2000

⁹⁶Linton, June 1, 2000

[285] Chester said the bonuses were “the greatest investment we ever made” to make sure

Warren, Robert and Gary stayed on the team. Morris benefited from the investment in

Chester’s children because “he got a big bonus that year [1981] himself.”⁹⁷Gary did not just

join the business in 1977. He had been around IWS ever since his bar mitzvah or earlier and

was as active as a young boy could be. He made similar comments about Warren and

Robert. When it was suggested to Chester that there was never any real possibility that his

children, all of whom were in their twenties, would not sign non-competes if they were not

given bonuses, Chester replied, “I said they are intelligent, married young men with families

and some with families coming at the time who wanted to protect their future and had every

right to do so. The discussions were intelligent. I wouldn’t put them in the form of threats, but

they talked sense.”

[286] In late 1981, Warren was 28 and had worked at IWS on a full-time basis for no more

than seven years; Robert was 26 and had been there for no more than six years; and, Gary

was 25 and had been there for 3 years. None had a university degree or had ever held

another full-time job.⁹⁸

[287] Morris was 56 years old and Chester was 55; they had both worked at IWS since about

1945 and together had built up the business and assets sold to Laidlaw and Lasco.

[288] Morris commented on Mr. Lenczner’s suggestion that the contribution of Chester’s

three sons warranted the $3.3 million in bonuses allocated to them as follows:

Morris, March 3, 1999

A. I say… that Chester and I worked and produced the $12 million that was there. In

1979, or 1980 there was no great shakes going on except that the copper line was

bought and it had to progress along…. Before that, we had many, many people working

for us, many cranes out in the yard that I bought. Many trucks that I bought that I looked

after…. their contribution instead of bonuses should have been the fact that they and my

sons were going to wind up with the business…. They didn’t do anything for $3 million…

I don’t know of anybody in the scrap business in our area, anywhere, that ever got a

bonus of that nature.

⁹⁷Chester, October 18, 1999

⁹⁸Gary, May 12, 2000

[289] Linton said he could see nothing to justify the amounts of the bonuses declared in

favour of Chester’s sons.⁹⁹In his February 24, 1982, memo to Chester (JB 2244, which is

dealt with in more detail below), Linton commented: “we may be hard-pressed to justify… that

bonuses on the books for 1981 and 1982 are justifiable in relation to services rendered,

industry standards or as compensation for non-competition clauses included in the sale to

IWS Ferrous.”¹⁰⁰

[290] In the section of these Reasons dealing with the claim against Taylor Leibow, I have

referred to discussions between Taylor and Chester in early 1982 about IWS’ need to be able

to justify to Revenue Canada the bonuses to Chester’s sons.

Bonuses: Distribution of Equity or Reasonable IWS Expenses?

[291] Linton said in his opinion, the 1981 and 1982 bonuses were a distribution of Lasco and

Laidlaw proceeds:

Linton, June 1, 2000

Q. And ultimately if one looks at the bonuses in gross… the effect of these bonuses and

in terms of your tax planning, ultimately was to distribute the proceeds net after tax, of

the sales to Laidlaw and Lasco. That’s in effect what happened?

A. No question about that

[292] When asked whether the allocation of the bonuses mentioned in the minutes of

December 1981 and February 1982 reflected an allocation of the proceeds from the sales to

Laidlaw and to Lasco, Chester disagreed. He said:

⁹⁹Linton, June 1, 2000

Q. Let’s move forward in terms of these non-competes and this issue, in your own mind, with regard to these three boys, three sons of

Chester, you were not aware of anything extraordinary that the boys had done that would justify bonuses of a huge magnitude, were you,

you personally?

A. Not in the couple of years that I had been with the company, I wasn’t aware of extraordinary activity on the part of anybody, really.

¹⁰⁰Linton, June 1, 2000

Q. …You know full well that not in a month of Sundays would any valuator take all of those bonuses and leave them as normal income.

Right? Whether they were justifiable by Revenue Canada or not?

A. That was exactly the point I was trying to make here, that Campbell would probably come along and try to drive those bonuses lower and

we needed a justification based on the non-competes to tell him that those were legitimate amounts.

…Q. …the concerns you were expressing here that I’ve just read, justifiable in relation to services rendered, industry standards or

compensation for non-competition clauses, all related to the bonuses to Chester’s children. Right?

A. Yes.

Q. The issue wouldn’t have arisen if you were just talking about bonuses to Chester and Morris because Revenue Canada wouldn’t have a

problem with the owners getting bonuses like that. Right?

A. Revenue Canada might not have, but if they had bonuses of $700,000 each, it might have been a consideration for Campbell to look at if

they were exaggerated in comparison to industry standards if he was going to do another valuation.

…Q. What really was concerning you I suggest to you about these bonuses, Chester’s three children, was that Mr. Campbell might well look

at it and say, the value in this company has been distorted. The value to the owners of this company has been distorted by the payments you

have got on the books. What do you say to that?

A. Yes, he could have initially said that they were distorted.

Chester, October 18, 1999

A. The main assets [of IWS] were Chester, Warren, Robert and Gary. That’s where your

main assets are and still continue to be. As long as you had those guys with you,

Warren, Robert, Gary and myself, the metal business was going to go up in medium

times as well as good times and when the market got better we would do better. But you

can’t do it without the horses and we had them and we have them.

Execution of the December 23, 1981 IWS Minute approving 1981 Bonuses

[293] Although Morris signed a minute approving the 1981 bonuses, he said he did not know

that bonuses were declared in favour of the individuals listed on the December 23, 1981 IWS

minute. He did not read it. He would not have approved of the bonuses listed on the minute if

he had known about them.¹⁰¹He did not know when, where, or in what circumstances he

signed it.

[294] Linton had no specific recollection about the execution of the December 23, 1981

minute.¹⁰²

No One Spoke to Morris About Bonuses

[295] There is no reference in any of Ennis’ notes to any mention of bonuses at any meeting

at which Morris attended.

[296] Linton acknowledged in chief that he did not receive instructions from Morris about the

bonuses:¹⁰³

Linton, June 1, 2000

Q. And not once in your life did you ever witness or receive instructions from Morris

about bonuses, did you?

A. Not that I recall

…Q. Sir, I’m going to suggest to you, based on your transcript, it’s this simple. Chester

Waxman spoke to you, he told you the allocations. He didn’t tell you he had been

¹⁰¹Morris, January 25, 1999

Q. Did you know that bonuses were declared in favour of those individuals listed in the amounts listed in 1981?

A. No, I did not.

Q. …Would you have approved of the payments of bonuses in those amounts to those individuals?

A. No.

¹⁰²Linton, May 16, 2000 and May 23, 2000

speaking to Morris. At the highest, you assumed he had. You did what you were told

and you got the minute drafted. Isn’t that so?

A. I guess you’re almost correct, but the minute was signed noting the allocations. It was

signed by Morris and I saw it…. My only involvement was with Mr. Chester, and he told

me he had a conversation with Mr. Morris and they had agreed on those allocations.

[297] Linton said in chief that he reviewed the 1981 financial statements with Morris.

Although he had no specific recollection of reviewing note 11, it would have been his practice

to do so.¹⁰⁴

[298] The only IWS financial statement with Morris’ name on it that was produced at trial was

one for the year ended December 31, 1981, JB 2178, dated February 9, 1982. Note 11 reads:

Remuneration of directors and senior officers as defined by the Business Corporations

Act amounted to $530,295 in 1981. [Emphasis added]

[299] On its face, JB 2178 does not appear to be a draft. However, the equivalent note in the

final IWS financial statements for 1981 contained in Vol. 80 of the Joint Brief, prepared in

March 1982, refers to remuneration of directors and senior officers of $3,580,295.

[300] Linton said he would have reviewed either a draft or final statement with Morris.¹⁰⁵

Linton could not recall taking bonus cheques to Morris for signature. All of his instructions

about bonus payments came from Chester.¹⁰⁶

[301] When counsel for the Plaintiffs suggested to Chester during cross-examination that he

planned the bonuses with Linton and excluded Morris, Chester said, “That is false and getting

quite boring.”¹⁰⁷

[302] Execution of the 1982 Bonus Minute

[303] Morris said he did not know when, where, or in what circumstances he signed the

minute dated February 22, 1982. He knew he had not read it “because I would have rebelled

right there and then. I would not have signed this minute.”¹⁰⁸

¹⁰³Linton, May 23, 2000

¹⁰⁴Linton, May 15, 2000

¹⁰⁵Linton, May 16, 2000

¹⁰⁶Linton, June 2, 2000

¹⁰⁷Chester, October 19, 1999

¹⁰⁸Morris, January 25, 1999

Payment Of 1981 Bonuses

[304] Chester said that despite a severe recession in 1982, he felt committed to pay the

1981 bonuses because to do otherwise would have been “a terrible act of bad faith.”¹⁰⁹

[305] Exhibit 150, prepared by Linton, tracks the payout of the 1981 bonuses. Tab 4 reflects

that Warren and Gary first received bonus monies in January 1982 and that all of the 1981

bonuses had been paid to Chester’s sons by December of 1982.¹¹⁰Warren received

$590,000, $40,000 more than the $550,000 that had been allocated to him.

[306] Exhibit 150 reflects that Morris received $650,000 in October 1982 and $50,000 in

December 1982. However, Note 4 to JB 1733/JB 3391, also in Linton’s handwriting, reads as

follows: “In October 1982 net bonus of $351,000 applied against Morris’ drawings account to

reduce to NIL.” [Emphasis added]

Evidence re Reallocation of Morris’ 1982 Bonus in February of 1982

[307] Chester gave evidence that Morris agreed in February 1982 to forfeit approximately

$400,000 of his 1982 bonus. As I have rejected that evidence and have found that Chester

decided in late 1983 to reallocate the $412,000 to himself to fund his purchase of Morris’

shares, I shall deal with all of this evidence later, with the rest of the late 1983 developments.

Chester and Robert’s Evidence re Entitlement of Morris’ Sons to 1981-1982 Bonuses

[308] Chester said in cross-examination that Morris’ sons were not entitled to 1981 and 1982

bonuses. When asked whether Morris suggested that his family should receive bonuses, he

replied “What did they contribute? I have told you they’re non-contributors and [they] were not

entitled to any more than Eva’s children, Sam’s children, Lily’s children. Lots of beautiful

nephews and nieces. How come they were entitled to any part?” When it was suggested to

Chester that Eva, Sam and Lily were not 50% owners, Chester said, “The rest of them are

Q. Did you know at any time prior to the end of 1983 that bonuses in this amount had been declared in favour of these individuals in the 1982

year?

A. Prior to 1983?

Q. Yes.

A. No.

Q. Prior to 1983, did you know that bonuses as reflected in the December 1981 minute had been declared in favour of those individuals?

A. No.

Q. In relation to this 1982 bonus declaration you say you didn’t know at the time. If you had been made aware, would you have approved of

these bonuses?

A. No.

¹⁰⁹Chester, September 17 and 21, 1999, October 7 and 18, 1999

¹¹⁰Linton, May 23, 2000; Exhibit 150, tab 4

entitled to be looked after and they have been to the extent they needed it. Tell me what

Michael and Douglas or Karen ever did for I. Waxman & Sons Ltd?”¹¹¹

Findings - Bonuses 1981-82

[309] The evidence relating to the 1981-82 bonuses is a prime example of evidence that

caused me to eventually conclude that Chester, his sons and Kumer concocted evidence in

this case and charted their litigation positions before they had fully reviewed the

contemporaneous documentation.

[310] The Taylor Leibow working papers containing Linton’s working papers dealing with the

bonuses were not produced until 1998. Some of Ennis’ notes were not produced until his

cross-examination at trial. These documents, particularly Exhibit 194, cast considerable doubt

on the evidence earlier given by Chester, Kumer and Chester’s sons.

[311] I accept Morris’ evidence that he and Chester did not discuss the disposition of the

sale proceeds before or at the time of the Laidlaw and Lasco closings.

[312] I accept Linton’s evidence that he initiated the 1981 and 1982 bonus discussions to

reduce IWS’ net earnings for tax reasons well after the Lasco closing and without suggesting

how the bonuses should be allocated.

[313] I reject the evidence of Chester, Robert, Gary, Warren and Kumer that bonuses were

discussed and that amounts were settled prior to the Lasco closing in September 1981.

[314] I reject Robert’s evidence that at the Centennial meeting he saw a paper that disclosed

that he would be receiving $600,000 for each of 1981 and 1982. By mid-November 1981, the

bonuses had not been discussed with Wiseman, even though bonuses of $6.6 million would

have had a significant negative impact on IWS’ retained earnings. In December of 1981,

Linton instructed Ennis to prepare a bonus minute reflecting a $250,000 bonus to Robert, to

Gary and to Warren [the bonuses shown on Exhibit 194.] It was not until January 12, 1982

that Ennis was instructed to prepare “substitute” 1981 bonus minutes showing much larger

bonuses to Chester’s sons and not until February 22, 1982 that he was instructed to prepare

minutes reflecting bonuses in the same amounts for 1982.

¹¹¹Chester, October 18, 1999

[315] The IWS divisions sold in 1981 had been built over 40 years mainly through the efforts

of Isaac, Chester and Morris. Chester and Morris had been hands-on, 50% owners of IWS for

almost 40 years. Morris had taken charge of the plant, equipment, trucking and infrastructure,

as well as the supervision of the workers who carried out the scrap processing operations and

the truckers who transported IWS product. Chester had taken charge of sales and finance.

Both had been crucial to the building of IWS and its ongoing success. Had Morris not fulfilled

his mandate during all of those years, it would have manifested itself in the operations side of

the business. Inferior equipment, a badly run yard, and an infrastructure incapable of

supporting the fluctuations in business that occurred on a cyclical basis over the years would

have produced dire consequences for IWS. Had Morris failed in his duties within his area of

expertise, a vigorous salesforce would have produced more scrap than the infrastructure

could have handled.

[316] I do not accept Chester’s evidence that his sons were in large measure responsible for

the substantial prices paid by Lasco and by Laidlaw, and I find there was no valid business

reason for allocating millions of dollars to Chester’s sons. The distributions made to Chester’s

sons for 1981 and 1982 were distributions of equity to non-shareholders. They cannot be

justified, to use Linton’s words in his memo JB 2244, “in relation to services rendered,

industry standards or as compensation for non-competition clauses.”

[317] I find that Chester had recognised Morris’ contribution in the earlier years. But by 1982,

he seemed to be saying that Morris’ contributions of significance ended about when his sons

entered the business, and that Morris’ years of work had contributed little to the value of IWS

as of 1981. He was minimising the importance of Morris’ contributions, at the same time

directing or acquiescing in the curtailment of his responsibilities and thus his ability to

contribute. Chester was also characterising Morris’ sons as “total non-contributors,” seeing to

it that they were excluded from involvement in IWS, and therefore from being in a position to

contribute to IWS.

[318] After Morris spoke against a much smaller bonus in November 1981, he assumed no

bonuses were being paid. I find that by mid-1982, Chester had decided Morris should not

benefit equally with him in the profits of IWS, including the proceeds of the sales to Laidlaw

and Lasco, as in his mind he and his sons were the driving force behind IWS. Chester

decided to pay unjustifiable bonuses to his sons without discussing them with Morris,

apparently rationalising them in his own mind by maximising their contributions, by minimising

Morris’ and by ignoring Morris’ 50% ownership interest in IWS.

[319] The 1981 bonuses were paid to Chester’s sons in 1982, despite the recession. Linton

paid Morris’ 1981 bonus by clearing his drawings at precisely the point in time when Morris’

drawings plus the tax required to be paid on those drawings equalled $700,000, the total

amount of the bonus. Note 4 to JB 1733/3391 reflects that Morris never received any 1981

bonus cheque, which might have prompted him to ask questions and to have learned about

the 1981 bonuses.

[320] It is troubling that the only financial statement in evidence at this trial with Morris’ name

on it, JB 2203, is not marked ‘draft.’ It differs dramatically from the actual 1981 IWS financial

statement (JB 2180) in that it shows 1981 statutory remuneration of $530,295, not the real

figure of $3,580,295 [which includes the 1981 bonuses actually declared.] If a 1981 financial

statement was reviewed with Morris, I find that it was the draft statement JB 2203.

The Estate Freeze 1981-1982

[321] The Plaintiffs submit that the unusual timing of the minute dated February 22, 1982 in

respect of 1982 bonuses was motivated by estate freeze considerations.

[322] JB 2130 contains an Ennis account with respect to the estate freeze in which there are

no entries between July 9, 1981, and February 1982. JB 2232 is Ennis’ note of two four-hour

estate freeze meetings with Chester alone, the first on February 8, 1982, and the second on

February 18, 1982.

[323] Ennis’ entry for February 22 refers to a telephone conversation with Chester about a

meeting scheduled with Scace the same day to discuss the estate freeze. JB 2241, an Ennis

note of February 22, reads “bonus 1982 same amt as 81, $3.3 million, allocated same way.”

[324] On the same day that he spoke with Chester and met with Scace, Ennis prepared an

IWS minute reflecting the declaration of bonuses of $3.3 million for the year ending December

31, 1982, allocated as follows:

Chester Waxman

Morris Waxman

$700,000

Warren Waxman

Robert Waxman

Gary Waxman

Sheldon Kumar

Harry Liebovitz

$550,000

$600,000

$500,000

$200,000

$ 50,000

[325] JB 2232A/JB 2242 an Ennis note of his meeting with Scace on February 22, 1982,

records that they discussed the estate freeze, the sales to Lasco and Laidlaw, a trust

agreement and 3-2. Ennis denied instructing Scace about a voting trust agreement. He said

that if a voting trust agreement had been prepared, Morris and Chester would have had equal

control [not “3-2.”] If the effect of a trust agreement was to give control to Chester, that is

contrary to his understanding.¹¹²

[326] The documents produced in this litigation include a draft voting trust agreement dated

1982 (JB 2195) which, on its face assumes a 60/40 (3-2 split) and would have given Chester

the power to vote all of Gary’s, Warren’s and Robert’s common C voting shares representing

60% of the IWS voting shares. Chester said he could not recall giving instructions to anyone

in Scace’s office to draft JB 2195.

[327] Mr. Lenczner objected to any reference to JB 2195. However, there was no contest

that JB 2195 is dated 1982, is authentic and comes from Scace’s file.

Linton’s February 24, 1982 Memo - JB 2244

[328] On February 24, two days after Ennis met with Scace and minuted the 1982 bonuses,

Linton delivered JB 2244, a memo addressed to Chester alone that, inter alia, sets out a

¹¹²Ennis, December 16, 1999:

Q. If the effect of that document is to put control over all of Warren’s common shares, Robert’s common shares and Gary’s common

shares… such that Chester would continue to have control after the estate freeze, if that’s the case, again I gather you’re going to tell us that

would be contrary to your understanding?

A. I can’t read it that well. It was changed then, is that what you’re saying?

Q. Right. Because it would appear Chester Waxman decided to let Warren have his shares. But in any event I’m saying to you, sir, that first

of all—

A. Let me ask you this. Is there a typed one of these hand written ones?

Q. No. But this is the document at JB 2242, tab 43 in the estate freeze brief, if I’m not mistaken is the only note of a meeting with Arthur

Scace that you had in 1982 that we’ve seen, indeed maybe that anybody had in 1982 and here we have a draft voting trust agreement at JB

2195 that on its face is contemplating a 1982 date. And putting those two together, I’m suggesting to you, sir, that you Paul Ennis did meet

with Arthur Scace, you did talk about the concept in this voting trust agreement

A. Which voting trust agreement?

Q. Joint brief 2195.

A. What, I talked about a handwritten—are you suggesting I talked about a handwritten—that he’s handed me a handwritten trust

agreement?

Q. No, I’m suggesting you discussed the concept in the voting trust agreement and that you knew that it involve control?

number of factors negative to the value of IWS. The memo contains Linton’s

recommendations about the rent that IWS should pay to Morriston and Chesterton for lands

not covered by the IWS Ferrous lease, the Blue Building and surrounding land at Windermere

and the Back 7.7 Acres at Centennial. It also includes Linton’s warning to Chester mentioned

earlier about being hard pressed to justify the amounts of the bonuses to Revenue Canada

and Campbell, in relation to services rendered, industry standards or as compensation for

non-competition clauses.

[329] Linton said he did not provide a copy of JB 2244 to Morris. Chester, on the other hand,

said Morris definitely received the original or a copy. Morris said he never received it.¹¹³

[330] Part A of the memo headed “Lease Agreements” includes the following:

(i) Windermere: [the Blue Building and environs]

Estimated FMV of buildings 8, 11, 12 and 1.43 acres

$528,500

$ 19,200

$547,500

Estimated FMV of 1.25 acres parking

Total FMV

...

(ii) Centennial Parkway: [the Back 7.7 Acres]

Since the City and CNR lands became part of the whole Centennial acreage, the City

has given the land an FMV of $52,650 per acre, or a total of approximately $396,000.

…

Total market value of properties to be leased by IWS

$943,700

…Based on the fact that IWS Ferrous is paying $19,000 per month [$228,000 per year

for properties that Linton had valued at $789,300], it would not seem feasible that our

rent would be less than that based on market values…

Based on these comparisons, the Centennial rent [i.e., for the Back 7.7 Acres] should be

approximately $40,000 per year and the Windermere rent [i.e., the Blue Building] should

be approximately $75,000 per year. This would give Windermere Investments a return

on their cost investment of 21% for Centennial and 12.1% for Windermere. The higher

A. No. On the contrary.

¹¹³Morris, January 25, 1999

return for Centennial reflects the fact that since the lands were [emphasis added]

“landlocked,” we paid a price much below market value. In arriving at a “fair” market

value, other factors must be considered, namely:

• the Centennial land is landlocked; [emphasis added]

• the Centennial land is not totally being used;

• the Windermere land is effectively landlocked due to the restrictive access

agreement with IWS Ferrous;

• the Windermere land has insufficient truck parking facilities;

• by itself, the Windermere facilities have no office space for a third party;

• certain economies of scale are lost by operating between the two locations;

Due to the above factors I would recommend that a fair rental for the properties would

be as follows:

Centennial - a range between $1500 and $2000 per month

Windermere - a range between $3000 and $3500 per month. [emphasis added]

[331] Linton did not mention any concerns about environmental problems. On cross-

examination, he said he thought environmental problems would arise only if IWS were asked

by the Ministry to do a study or if it were trying to sell the property. In the early 1980’s, there

was no intention to sell.

[332] Part B of the memo headed “Valuation of Business” contains the following:

A brief review of the previous Ian Campbell share valuation report shows that their

method of valuation was based on two principles, namely:

(i) A fair market valuation of the pool of business assets, after adjusting for

redundant or obsolete assets.

(ii) A valuation based on historical earnings and cash flows which can be

considered normalised over many years.

Under these approaches, we may be able to argue the following:

• A third party’s demand for a fair rate of return in today’s volatile financial markets

would be higher than assumed in the previous valuation, thus lowering the price a

party would be willing to pay.

• The lease with Stelco will not be renewed.

• Capital investments to redevelop the Centennial property may be somewhat

higher than historical capital investments have been.

• Under the proposed common share restructuring, “family” control may be

lost and a sizeable minority share group established. Therefore Campbell’s

previous valuation based on an “en bloc” fair market value for the shares may not

be appropriate (this minority block would have to be discounted.)

• The legal proceedings in the Firestone matter may cast a negative “image”

problem on the firm if an unfavorable decision is rendered.

• The outlook for the scrap industry is such that historical rates of return may not be

applicable.

• Cash flow may be affected by paying out the remaining capital dividend account

balance by way of tax-free dividends. The remaining balance is estimated at

approximately $325,000.00. [Emphasis added.]

[333] After setting out a number of factors negative to the value of IWS, Linton wrote:

Under the historical earnings and cash flow approach adopted by Campbell, earnings

were adjusted for “certain excessive and non-recurring expenses or revenues. In the

previous report, remuneration paid to shareholders/officers was adjusted upwards to

reflect economic or more realistic salary levels. We may be hard pressed to justify to

Campbell and Revenue Canada that bonuses on the books for 1981 and 1982 are

justifiable in relation to services rendered, industry standards or as compensation for

non-competition clauses included in the sale to IWS Ferrous Ltd.… [Emphasis added.]

[334] He then wrote:

Other areas which will cause valuation problems are as follows: Valuing our 50% share

interest in IWS Ferrous and the buy/sell arrangement now in place…

[335] Around the time Linton expressed the concern about being hard-pressed to justify the

bonuses, Taylor also met with Chester and discussed the need to be able to justify the

bonuses to Chester’s sons to Revenue Canada. Wiseman said that the potential problem

could have been avoided altogether if the bonuses had all been paid to Chester and Morris.¹¹⁴

1982 IWS Draft Lease

[336] Ennis’ blue book dated February 25, 1982, JB 2250-A, records that IWS was to be

charged a rental of $5,000 a month for the Blue Building and surrounding lands and the 7.7

Acres.

Findings - Relationship Between Estate Freeze/Bonuses/JB 2244

[337] I accept Morris’ evidence that he neither received JB 2244, Linton’s memo of February

24, 1982, nor was consulted about the rent to be payable to Morriston and Chesterton for the

lands and buildings continuing to be used by IWS after the Laidlaw/Lasco sales.

[338] I reject Chester’s evidence that Morris received JB 2244, and Linton’s evidence that

the minute of February 22, 1982 was unrelated to the estate freeze.

[339] Rather, I find Ennis received instructions to document the declaration of $3.3 million in

1982 bonuses and the February 22 minute was prepared to drive down the value of IWS as of

that date for estate freeze purposes. I find Linton understood that for estate freeze purposes,

Chester wished the value of IWS to be as low as possible.

[340] The content of this memo is, in my view, indicative of Linton’s and Chester’s propensity

to see the facts from IWS’ perspective, and to treat Morriston and IWS as if they were one

and the same, to blur the distinction between Morris’ business and personal interests.

[341] By declaring bonuses to his sons to decrease IWS’ equity, Chester was also

minimising the value of IWS and thus the value of his and Morris’ 50% interests at the date of

the proposed freeze. In so doing, the growth or increase in the value of the common shares,

60% of which he was attempting to transfer to his own sons, would be maximised.

¹¹⁴Wiseman, March 2, 2000

Q. This problem—the potential problem with bonuses to the boys of course, could have been eliminated immediately if for example bonuses

had been simply declared to Chester and he had given the money to the boys?

A. Could have done that, yes.

[342] If the value of the shares at the date of the freeze were minimised, the tax savings to

Morris and Chester on an estate freeze would be maximised.¹¹⁵

[343] All of the accounting evidence was to the effect that a 1982 bonus need not and

usually would not have been declared until the 1982 year end. Chester agreed that in a

normal year, it would be unusual to declare bonuses early in the year.¹¹⁶

[344] Chester’s position with respect to the bonus entitlement of Morris’ family (i.e., none)

because they were non-contributors was inconsistent with the position he said he took until

July 1982 with respect to the estate freeze,¹¹⁷i.e., that Michael and Douglas should receive

40% of IWS’ profits after the date of the estate freeze even if they were not actively involved

in IWS.

[345] The tax benefits from bonuses of $6.6 million would have been available to IWS if each

of Chester and Morris received bonuses of $3.3 million. If that had been done, there would

have been no concerns about the acceptability of the bonuses to Revenue Canada.

[346] From his words and actions I find that by early 1982, Chester believed Morris’ 50%

ownership interest could and should be ignored when the Lasco and Laidlaw sale proceeds

were being distributed. He felt entitled to wield the power of the IWS purse-strings based on

his perception of contribution and need, without regard to Morris’ ownership interest. He felt

entitled to find a place at IWS for all three of his sons and to actively prevent Morris from

doing the same for Michael.

Greycliffe

[347] The Plaintiffs have claimed that Greycliffe, a company owned solely by Chester’s sons

Robert and Gary, was used to divert funds from IWS and to earn sizeable profits that should

have remained in IWS and as a result IWS’ value at the time of the Share Sale was adversely

affected. I digress at this point to discuss the evidence with respect to Greycliffe, so that the

allegations of equity stripping and profit diversions prior to the Share Sale may be considered

together.

¹¹⁵Linton, June 2, 2000

Q. And I’m suggesting to you that you knew full well that one of the objects of the estate freeze was to keep the present value of the

company as low as possible and minimize tax and have the growth go to the benefit of the common shares. Isn’t that so?

A. Well, as a general rule an estate freeze tries to freeze low, I would go with that.

¹¹⁶Chester, October 18, 1999

¹¹⁷Chester, October 18, 1999

The Devolution of Trucking From IWS & the Incorporation of Greycliffe

[348] I have already mentioned that until the “earlier part” of the 1970s, Morris was

responsible for IWS’ in-house fleet of trucks. That began to change after Chester’s sons came

into the business.¹¹⁸By September of 1981, most of IWS’s trucks had been sold to Laidlaw

and Lasco.

[349] Chester gave evidence that after the strike in 1977, he and Morris decided that IWS

should have as few unionised truckers as possible, and that it should use more brokers to

transport its scrap. The brokers did not work out well, and IWS was held responsible on

guarantees signed on their behalf. In about 1978, Robert approached Chester and Morris with

a proposal to incorporate a company to handle IWS’ trucking, promising to provide IWS good

service at competitive rates, to use newer and better-looking equipment, and to be there for

IWS on a long-term basis. They accepted his proposal.

[350] Morris denied that he was present at the 1978 meeting. He said he was unaware of the

incorporation of Greycliffe.¹¹⁹

[351] Robert said that he saw Greycliffe as an opportunity to earn additional income.¹²⁰

Morris and Chester concurred in its incorporation and Morris suggested that the words “Lomi

Fooren” (Yiddish for “Let’s Get Going”) be written on the door of the cab of G-2, Greycliffe’s

second truck.¹²¹

[352] Gary said that he was with Robert and Morris when G-2 arrived when Morris made the

Lomi Fooren suggestion.

Greycliffe’s Initial Haulage - The National Slag Materials

[353] Until September of 1981, Greycliffe’s major focus was the transport of blast furnace

iron from National Slag to markets in the United States.

¹¹⁸Morris, January 25, 1999

¹¹⁹Morris, September 18, 2000

¹²⁰Robert, April 14, 2000

Q. …I’m going to suggest to you … that the basic reason why, from Robert Waxman’s perspective … Greycliffe was created was because

you saw the opportunity to make some additional money, and it was your idea, and you deemed it to be in the best interests of the company

and yourself, and you were managing I. Waxman & Sons and you made a profit from those Greycliffe operations and that’s what you

deemed most appropriate. Agreed?

A. With their [Morris’ and Chester’s] concurrence, that’s correct.

Q. So your only caveat in all of this, with their concurrence.

A. It was all done with their concurrence, correct.

¹²¹Robert, April 14, 2000

[354] Situated next to IWS on Windermere Rd., National Slag processed “iron run-outs” or

“blast furnace iron” from Stelco and Dofasco blast furnaces. IWS had contracted to purchase

4000 tons per month of National Slag’s blast furnace iron and to resell it to Atlas Steel. When

Atlas Steel cancelled its contract with IWS, Robert found new markets for the blast furnace

iron, principally in Michigan. Greycliffe purchased some double-pup dump trailers and leased

some others.

Changes in Greycliffe Business After September 1981

[355] Robert said that after the waste and ferrous businesses were sold, Greycliffe began to

concentrate on long hauls for the IWS non-ferrous division. It sold the dump trailers previously

used to haul iron run-outs. From then on, Greycliffe hauled closed van trailers owned by IWS

or by its customers. Robert wanted to buy his own vans but Morris asked him not to do so.¹²²

Morris’ Knowledge of Greycliffe & Related Companies

[356] Morris gave evidence that five or six months after the Lasco closing he became aware

that Greycliffe was doing some trucking. He denied any knowledge of or involvement in the

setting of Greycliffe rates or in their approval. Prior to the commencement of the litigation, he

never approved Greycliffe invoices, signed IWS cheques payable to Greycliffe, or had any

idea of the extent of the profits that Greycliffe was earning from doing business with IWS.

Missing Greycliffe Documents

[357] Many of the original books and records of Greycliffe are missing, as are a number of

the underlying transactional documents, particularly expense documents.¹²³No Greycliffe

cheques, cheque stubs, cheque registers, general ledgers, general journals, accounts

receivable journals, accounts payable journals, or accounting books of original entry for the

relevant period are in evidence. They would have been very relevant to the issues involving

profit diversions, especially with regard to income and expenses. Exhibit 96 contains copies of

the Greycliffe invoices that were produced. The originals are at Exhibit 260.

Greycliffe Rates

¹²²Robert, April 14, 2000

¹²³Haney, June 10, 1999

[358] From the outset, Robert said that he proposed that Greycliffe would charge IWS

common carrier rates. He said in chief that in 1978, he had a discussion with Morris and

Chester during which Morris agreed to his proposal.¹²⁴In cross-examination, he was unsure

about whether he made reference to “common carrier rates” during a conversation with

Chester or with Morris and Chester. He conceded that it might have been with Chester.¹²⁵

[359] In his evidence, Chester said nothing about a discussion with Robert involving

common carrier rates.

[360] Robert said that after September of 1981, Larry Verbaas (“Verbaas”) was primarily

responsible for obtaining rates for Greycliffe, although Robert occasionally obtained a rate as

well. Morris signed many IWS’ cheques payable to Greycliffe up to 1983.¹²⁶

[361] He said Greycliffe rate schedules were determined with reference to common carrier

rates. He agreed that if its rates were not competitive with common carrier rates, Greycliffe

was in breach of his specific agreement with his father and his uncle.¹²⁷When asked on

cross-examination whether such rates are frequently higher than private carriers or gypsy

carrier rates, he replied, “My agreement was for common carriers. We checked common

carrier rates.”

[362] After September 1981, Greycliffe used mainly vans, not dump trailers. JB 2256, which

includes Greycliffe’s rate sheets, contains only one that post-dates the Lasco sale. It reflects

Laidlaw rates as of March 8, 1982 that had been “confirmed by Joe Dergan,” Manager of Bulk

Sales. The rates quoted in the March 8, 1982 sheet were for haulage in dump style

vehicles.¹²⁸Robert was asked the following questions about rates and gave the following

answers:

Robert, April 14, 2000

Q. And so to the extent you were using these rate sheets to set rates for the haulage in

vans in ‘81, ‘82, ‘83, you were using dump rates, and the rates assumed that the haulers

had to haul their own trailers? Right?

A. That’s not correct.

¹²⁴Robert, April 7, 2000 and April 14, 2000

¹²⁵Robert, April 14, 2000

¹²⁶Robert, April 7, 2000

¹²⁷Robert, April 7, 2000 and April 14, 2000

Q. So these rate sheets were not used at all?

A. You’re making an assumption that these are all of the rate sheets and/or all of the

information.

…There was a large extensive file of rate sheets that were utilized, as well as company

information that was given to Mr. Eccles at the time of the Revenue Canada audit…. I’m

not sure if they were returned.

Q. And you haven’t asked Revenue Canada for them?

A. I don’t think so.

Increases in Greycliffe Rates

[363] During Robert’s cross-examination, it was evident that between 1980 and 1983,

Greycliffe substantially raised its haulage rates. While in 1980 it charged $1,050 for a one-

way trip from Hamilton to Cicero, Illinois, by 1983 it was charging IWS $1,550 for the same

trip.

[364] The witness Snow, called to give evidence by counsel for the Defendants, said that the

rates charged by his company stayed the same between 1980 and 1983.

Robert’s Conflict of Interest

[365] Robert would not agree that in setting the rates that Greycliffe charged IWS, he was

acting on both sides of the transaction. He was taken to his discovery evidence where he said

that he was negotiating rates or schedules with Greycliffe on behalf of IWS. He then said, “I

just don’t know that the word “negotiating” is correct.” While he recognised “potential conflict,”

he said that it had been authorised by Morris and Chester.¹²⁹

What Should Competitive Rates Have Been?

[366] Douglas Haney (“Haney”), who was qualified as an expert witness on trucking issues

by counsel for the Plaintiffs, described the three basic segments of the trucking industry in the

early 1980s:

¹²⁸Haney, June 10, 1999

¹²⁹Robert, April 14, 2000

1. Regular route common carriers carried as many as 50 or 60 different shipments on

one truck from terminal to terminal dispersing them into small delivery vehicles. They

often stopped at the U.S. border and transferred their loads to a U.S. carrier. Rates were

usually based on loads of less than a truckload.

2. Well managed private carriers could deliver loads to the United States and come back

empty for less than regular route common carriers would charge.

3. Lessors, also known as “gypsy lessors” would issue separate invoices for the use of

the truck and for the drivers services in order to circumvent the provision in the Public

Commercial Vehicles Act (“PCV”) prohibiting haulage of goods for compensation without

an operating certificate.

[367] Haney said that the trucking industry was very competitive in the early 1980s.

“Lessors” were becoming a force.¹³⁰Because most common carriers structured their rates

based on loads of less than a truckload, their rates were considerably higher than those

charged by the lessors.¹³¹

[368] Haney compared Greycliffe’s charges to the market cost to IWS of buying trucking

services of the type provided by Greycliffe, using a model under which IWS leased trucks,

trailers, and driver services from arm’s length independent contractors. He said that during

the relevant period, a generous estimate of the average cost of buying the service was $1.47

per mile [leasing a tractor and van style trailer at $1.15 per mile, a driver at 25 cents per mile,

and including a fuel surcharge of 7 cents per mile.] He thought that the service could probably

have been obtained for around $1.30 a mile. His estimate was for two-way miles (i.e., the total

distance to and from the destination.) If a Greycliffe truck travelled from Hamilton to a drop-off

destination 50 miles away and returned empty, Haney estimated that IWS could have

purchased haulage services for the trip for $1.47 x 100 miles = $147. His estimate of $1.47

per mile included the cost of operating a van-style trailer, which he estimated at 8¢ per

mile.¹³²As Greycliffe hauled trailers owned by IWS or its customers, it did not actually bear

those costs.

[369] Haney attempted to calculate the average rate per mile that Greycliffe actually charged

to IWS, and arrived at a figure of $1.90 per mile. However, he was hampered in his review by

¹³⁰Haney, June 4, 1999

¹³¹Haney, June 10, 1999

¹³²Haney, June 10, 1999

a lack of documentation. He was asked about availability of Greycliffe documents for his

review:

Haney June 10, 1999

A. Anything that left Waxman’s yard, all I saw was a little cash register sheet with no

name, no nothing just the little pads you could buy at Grand & Toy that generally said

Hamilton to Cleveland. That was it. And a truck number.

Q. And in terms of the back-up information you were able to look at, were you able to

look at any cheques or cheque stubs from Greycliffe?

A. No, not at all.

Q. In terms of the back-up information were you able to look at any of the original books

and records of Greycliffe?

A. No.

[370] Gawley, an expert witness on trucking issues, called by counsel for the Defendants,

gave evidence on common carrier rates at the relevant times. He served as the Executive

Vice-President of the Niagara Frontier Tariff Bureau (“NFTB”) for some 45 years and is

knowledgeable about NFTB rates.¹³³

[371] Gawley compared the Greycliffe rates to NFTB rates as of April 1982. He opined that

they fell within the range of the rates being assessed by the General Freight Carriers at the

time, and that the operating ratio earned by Greycliffe was within the range of operating ratios

for small carriers engaged largely in international traffic.

[372] On exhibit 1 to Part 1 of Exhibit 17, a chart prepared by Gawley, rates are quoted

based on one way miles. In order to compare Gawley’s rates with Haney’s estimate of $1.47

per mile, Gawley’s rates must be divided by two.

[373] Evidence of Other Truckers

[374] Two men with trucking experience in the early 1980s were called by counsel for the

Defendants to give evidence about rates: Lorne Snow (“Snow”) and Daniel Einwechter

(“Einwechter”). They were not tendered or qualified as expert witnesses.

¹³³Gawley, August 28, 2000

[375] Snow gave evidence in chief about specific destination rate charges in the early 1980s,

and also about his own remuneration from his company, Traffix. However, on cross-

examination, he said that during the relevant period, Traffix was not a trucking company but a

broker. The per mile trip rates that he had provided in chief were based on rates per head

haul mile only, one-way, not twoway miles. [Thus, the rate that he quoted for Goshen, Indiana

to Port Hope, Ontario at $2.50 per head haul mile was $1.25 per running mile which was less

than the $1.47 per mile estimated by Haney.] The NFTB rates were “incredibly high.”¹³⁴

[376] In the early 1980’s, Einwechter operated DS Truck Leasing, a gypsy leasing company.

In cross-examination it was clear that the rates that he quoted in chief were for one-way

miles. In order to compare them to the two-way mileage rates mentioned by Haney, it was

necessary to include all of the running miles. On that basis, Einwechter’s rate was about $1

per running mile.

Does the 1985 Revenue Canada Audit Prove that Greycliffe’s Rates were Reasonable?

[377] Robert and Chester gave evidence that in 1985, Revenue Canada conducted an audit

of IWS and associated companies including transactions between IWS and Greycliffe. No

reassessment based on unreasonableness of Greycliffe’s rates resulted from that audit.

Therefore, the rates that Greycliffe charged IWS must have been reasonable.¹³⁵

[378] Robert said that Mr. Eccles of Revenue Canada told him in 1985 that he was

performing a general audit of IWS and also a specific audit of the rates charged to IWS by

related party companies. Eccles asked him to produce Greycliffe and Icarus invoices, rate

sheets and correspondence respecting rates. When his father heard about the audit, he

looked straight at him and at Morris and said: “There better not be any problem over there.”

Morris said: “I don’t believe there is any problem here with any of the rates charged.”¹³⁶

[379] Chester said that during the Revenue Canada audit of IWS in 1985, he called in both

Robert and Morris to enquire whether IWS had a problem and they said that it did not.

[380] The Defendants produced no documents in respect of the 1985 audit except a letter (in

JB 2256) to Robert dated May 28, 1985 from Mike DeGroote, Jr. of Laidlaw in response to

¹³⁴Snow, June 20, 2000

¹³⁵Robert, April 10, 2000

¹³⁶Robert, May 2, 2000

Robert’s request for rates on the movement of scrap in dump trailers which contains the

following:

Dear Bob,

All rates listed on page 1 are taken from the attached tariff page effective dates on

those tariff pages are May 1982 and August 1982 and are based on mileage. All of

the rates (except Noranda, Que.) are in U.S. funds. If you wish to translate in Canadian,

a factor of 14% is to be used. (based on 1983 tariff currency surcharge.)… [Emphasis

added]

[381] I have already noted that Greycliffe after 1981, and Icarus from its inception, hauled

primarily in van style trailers. In cross-examination on April 14, 2000, Robert said that he

requested the letter for the express purpose of giving it to Eccles during the audit, in respect

of Icarus only. Three days later, on April 17, 2000, he said that he did not know for sure why

the letter was obtained, or whether he gave it to Eccles.¹³⁷

Greycliffe’s Profitability

[382] In his oral evidence and in his report (Exhibit 95), Haney analyzed the operations,

financial performance and profitability of Greycliffe for the fiscal years 1981 through 1984,

with reference to Greycliffe’s financial statements, particularly the statement of income,

statement 3. He normalised income, removing management salaries to the extent that they

exceeded market salaries. He concluded that Greycliffe’s net operating profits exceeded 40%,

and in some cases, 50%. His findings are set out at Schedules 1 through 4 of Exhibit 95.¹³⁸

[383] The Greycliffe financial statements for the year ended May 31, 1982 reflect

transportation fees of $693,129 and management salaries of $270,000. Using normalised

salaries of $50,000 and excluding expenses associated with racehorses and breeding stock

maintenance, Haney calculated a net operating profit of $322,643 or 46.5% of gross revenue.

[384] For the year ended May 31, 1983, Greycliffe charged gross transportation fees of

$1,954,895. Haney subtracted from this amount $961,774 in respect of direct costs and a

further $116,690 relating to general and administrative costs, including normalised

¹³⁷Robert, April 14, 2000 and April 17, 2000

¹³⁸Haney, June 10, 1999; Exhibit 95

management salaries of $50,000, and arrived at an expense total of $1,078,464, an operating

profit of $876,431, and a profit margin of 44.8%

Haney, June 10, 1999

Q. How does a net operating profit of just under 45% for the fiscal year-ended May 31,

1983 compare to industry averages?

A. It continues to be so high to be unbelievable.

[385] In the year ended May 31, 1984, Greycliffe generated transportation fees totalling

$1,388,870 [for 9 months - charges to IWS largely ended in February of 1984.] Attributing

100% of the expenses to the transportation operations [despite its other operations], including

normalised management salaries of $50,000, and deducting expenses of $632,344, Haney

determined that Greycliffe had a net operating profit of $756,526, or 54.5% of revenue. If

direct transportation costs had been applied to transportation fees, the profit would have been

66% of the transportation revenue.

[386] Based on his own experience and enquiries, he concluded that that level of profits

could only have been achieved through repeated gross overcharging of IWS and/or through

expense shortfalls (i.e., expenses being borne by an entity other than Greycliffe.)¹³⁹He said

that the average trucking company in the nature of Greycliffe in the early 1980s did well to

break even.

[387] Mr. Victor Martin (“Martin”), a chartered accountant with a practice focusing on the

trucking industry for forty years, was called to give expert evidence by counsel for the

Plaintiffs. He analysed Greycliffe’s operating ratios for the years 1980-1984, comparing them

to average operating ratios [percentage of expenses compared to revenues: the lower the

operating ratio, the higher the profitability; the higher the operating ratio, the lower the

profitability] in the Canadian trucking industry during the same period, based on information

obtained from Statistics Canada. Exhibits 212 and 212A are his report and supplementary

report.¹⁴⁰

[388] For the 1980 fiscal year, he concluded that Greycliffe’s operating ratio was 52%, while

the Canadian average was 96.9%. In 1981 and 1982, its operating ratio was 49% compared

¹³⁹Haney, June 10, 1999

¹⁴⁰Martin, Jan. 31, 2000; Exhibits 212, 212A

to Canadian averages of 96.7% and 97.5% respectively. In 1983, its operating ratio was 52%

compared to a Canadian average of 96.1%.

[389] Based on information obtained from the Interstate Commerce Commission, he said

that average operating ratios for U.S. trucking companies between 1980 and 1983 were

almost identical to those of Canadian companies, ranging between 96.3% and 97.9%. They

were consistent with Martin’s own experience as an accountant in the industry at that time.

Generally, large trucking companies had better (i.e., lower) operating ratios than smaller

ones, because of their ability to take advantage of economies of scale.

[390] He opined that Greycliffe’s operating ratios were “unbelievable,” its profits twelve times

the industry average [i.e., other companies had a profit of less than 4%, Greycliffe’s was more

than 50%.] In his 40 years of experience, he had never seen a client with an operating ratio

below 85% [i.e., a profit of more than 15%]

[391] Stockwell, called to give evidence by counsel for the Defendants, operated a trucking

company, J.K. Stockwell Limited (“Stockwell Ltd.), during the early 1980s and purported to

outline its financial performance during the relevant time.

[392] However, a subsequent witness, Mr. Bruce Hutson (“Hutson”), was subpoenaed by

counsel for the Plaintiffs to bring Stockwell Ltd.’s financial statements to this Court.¹⁴¹

Stockwell had testified that Stockwell Ltd.’s operating revenues were “in the neighborhood of

$6 million” in 1980. The financial statements show 1980 revenues of $2.63 million. Stockwell

said that in 1980 he took out approximately $200,000 by way of salary, bonuses and

dividends, and that his father took out more than him. The 1980 financial statements show

total executive salaries of $9,710, and total dividends paid to all shareholders of $60,000.

Stockwell said that Stockwell Ltd.’s operating ratio in 1980 “could have been 75.” The 1980

financial statements disclose an operating ratio of 94.6%. While he testified that its revenues

in 1982 approximated $18 million, the 1982 statements reflect revenues of $6.13 million.

Stockwell said his operating ratio was consistently climbing from 1980, and in 1983 it was

about 88, yet the 1983 financial statements show that the operating ratio was 100.4%.¹⁴²

[393] Greycliffe’s Expenses

¹⁴¹Financial Statements of J.K. Stockwell Limited are at Exhibit 338

¹⁴²Stockwell, June 20, 2000; Exhibit 338

[394] Robert gave evidence to the effect that Greycliffe was as profitable as it was because

its overhead was very low due to prudent management. The evidence relating to Greycliffe’s

unusually low overhead needs to be examined in detail.

Fuel Expense

[395] Haney attempted to estimate the number of miles travelled by Greycliffe trucks using

the invoices that the Defendants did produce. He was limited in his review by the

unavailability of certain Greycliffe expense documents and by the manner in which Taylor

Leibow had reflected fuel expenses on its audited financial statements. On the information

available, he concluded that Greycliffe did not pay enough for fuel.¹⁴³

[396] I note that JB 1493B, a Greycliffe working paper for the year ended May 31, 1980,

shows no fuel costs from October 1979 to May of 1980 and that the fuel expense line

disappeared from the Greycliffe financial statement in the 1981 year.

[397] Robert gave evidence that until September 21, 1981, Greycliffe trucks fuelled from time

to time at the Windermere yard. IWS charged the fuel back to Greycliffe. Drivers who paid for

fuel outside of Hamilton used Greycliffe credit cards or cash advances from IWS, which were

charged back to Greycliffe. Robert acknowledged that fuel set-offs appear on Greycliffe

invoices to IWS prior to the end of September of 1981 but not thereafter. He did not think that

Greycliffe drivers fuelled at Windermere after the IWS Ferrous sale.¹⁴⁴

[398] Mesley, a Greycliffe truck driver who was called to give evidence by counsel for the

Plaintiffs, said he continued to fuel his Greycliffe truck at Windermere and Glow even after the

Lasco sale, obtaining 30-40% of his fuel at the two locations. He saw other Greycliffe drivers

doing the same thing.¹⁴⁵

[399] I was not referred to any documents showing reimbursement by Greycliffe to IWS

Ferrous or to IWS for fuel after September 1981. None of the fuel expense documents

produced by Greycliffe reflect fuel purchases from commercial outlets in the Hamilton area.

Truck Repairs & Tire Expense

¹⁴³Haney, June 10, 1999

¹⁴⁴Robert, April 17, 2000

¹⁴⁵Mesley, June 1, 1999

[400] Robert gave evidence that on several occasions, Greycliffe charged IWS for the cost of

tires on its trucks because tires were damaged while passing through the yard at

Windermere. He understood that IWS in turn billed IWS Ferrous.¹⁴⁶

[401] Wiseman gave evidence about a discussion with Robert involving concerns about high

IWS tire expenses during which Robert provided the same explanation.

[402] Wiseman made a note for the fiscal 1983 wrap-up meeting in relation to the audit of

IWS (tab 85 of Exhibit 232C) at item 7 “Truck repairs—s/b Greycliffe expenses - $25,000-

$30,000”.

Insurance Expense

[403] Robert said that IWS paid for Greycliffe insurance just as it had earlier paid for the

insurance of the other brokers. Chester said Greycliffe was covered under the IWS umbrella

policy because it was carrying IWS goods.

[404] JB 2047 contains a list of brokers and insurance information and indicates that a

number of brokers paid for their own insurance.

Employee Cost Expense

[405] Robert said in chief that Greycliffe’s only employees were Robert, his wife Deborah

and the truck drivers. Invoicing was done at home or at the office, generally in Robert’s own

hand. He would deliver invoices to Rioux, who would process them through the IWS payable

system.

[406] Mesley said that Agarthe Venucopal interviewed him before he was hired as a

Greycliffe truck driver. Linton said that Rioux did administrative work for Greycliffe. Kumer

(before September 1981) and Verbaas (after September 1981) did dispatching for Greycliffe.

All were on the IWS payroll.¹⁴⁷

[407] On cross-examination, Robert said that from time to time, Greycliffe benefited from the

services of Rioux and other IWS employees, but added that Greycliffe paid for those

¹⁴⁶Robert, April 11, 2000

¹⁴⁷Chester, October 15, 1999

services.¹⁴⁸However, no documentation was introduced into evidence to support Robert’s

evidence that expenses paid by IWS were charged back to Greycliffe.

IWS Advances of Petty Cash

[408] Mesley gave evidence that while employed by Greycliffe, his claims for on-road

expenses were initially given to Venucopal.¹⁴⁹

[409] I note that the auditors expressed concern about the “prudency” of IWS petty cash

advances to Greycliffe drivers (see, for example, JB 2185B, item A). No documents were

produced to prove that Greycliffe reimbursed IWS for such petty cash advances.

[410] Quantification of IWS Profits Diverted to Greycliffe

[411] Vettese, an expert witness called by counsel for the Plaintiffs, used the Greycliffe

financial statements to quantify the profit diversions from IWS to Greycliffe at $1,930,806. My

reasons for accepting that figure are set out in the Quantification and Valuation section of

these Reasons.

Robert’s Other Companies/Trucking

[412] In addition to Greycliffe, Robert, alone and with Gary, set up several other companies

that did trucking business directly or indirectly with IWS (sometimes referred to collectively as

“Robert’s Companies.”)

Icarus Leasing Inc. (“Icarus”)

[413] Icarus, incorporated in December of 1982, provided trucking services to IWS. It was

ultimately amalgamated into either Greycliffe or the Defendant Robix Financial Corporation

Limited (“Robix,”) Robert’s personal holding company.¹⁵⁰Robert said that when Icarus was

incorporated because of a threat of unionisation by Greycliffe drivers, Morris did not object.

[414] Morris could not say whether or not he had heard of Icarus prior to the end of 1983.

Had he known that Icarus was owned in whole or in part by Robert and that it was earning

profits from transactions with IWS, he would not have approved.¹⁵¹

¹⁴⁸Robert, April 14, 2000

¹⁴⁹Mesley, June 1, 1999

¹⁵⁰Robert, April 14, 2000

¹⁵¹Morris, January 25, 1999

[415] Haney examined the financial performance of Icarus. After removing management fees

and salaries, consulting fees and research and development expenses, he determined its net

operating profits and operating ratios. In 1983, given its revenues of $655,747 and its

expenses of $382,895, he concluded that Icarus earned a profit margin on its transportation

revenues of 41.6%, again “very considerably higher” than industry averages.¹⁵²

[416] Vettese, using Icarus financial statements, quantified the profit diversions from IWS to

Icarus at $272,842.

Big Rig Trucking Services Ltd. (“Big Rig”)

[417] Big Rig provided transportation services both to IWS directly and to Greycliffe; it was

amalgamated with Greycliffe in May 1982.

[418] Robert said that Big Rig was incorporated to employ drivers to operate IWS trucks,

after Kumer and Morris asked Robert if he would add “a driver or two” to the Greycliffe payroll.

As he was going to be paying those drivers less than the Greycliffe drivers, he decided to set

up a separate payroll.

[419] Morris gave evidence that he was not aware of a company called Big Rig Trucking in

the period prior to the end of 1983. Had he been aware that it existed, was owned in whole or

in part by Robert, and was earning profits on business with IWS, he would not have

approved.¹⁵³

[420] Vettese estimated the profit diversions from IWS to Big Rig at $30,281.

Servetross

[421] Servetross, incorporated in November 1982, provided driver and yard services to IWS,

and perhaps to Greycliffe, and was amalgamated with the Robix. Robert said that Servetross

was incorporated with Morris’ approval as an employee service company. It continued to

operate past 1988.¹⁵⁴

¹⁵²Haney, June 10, 1999

¹⁵³Morris, January 25, 1999

¹⁵⁴Robert, April 10, 2000

[422] Morris could not say when he first heard the name Servetross. Had he known that it

was owned in whole or in part by Robert, was doing business with IWS and was making

profits from that business, he would not have approved.¹⁵⁵

[423] Vettese estimated the profit diversions from IWS to Servetross at $61,951.

Other Related Companies/Metal Processing

Circuital Canada Inc.

[424] Circuital was owned by Robert’s Children’s Trust. In 1982, Northern Telecom

requested that a non-unionized company be incorporated to assist it to process scrap during

an anticipated strike at its Brampton plant. When the strike did not occur as expected, Robert

said he advised Morris and Chester that he wished to use Circuital to process copper-bearing

scrap belonging to IWS, to extract its precious metal content, to sell the precious metal to

third parties and to return the segregated metal back to IWS for re-sale. IWS would make

profits on the non-precious constituents. Circuital would pay a processing charge to IWS and

Circuital would pay IWS for the precious metal.¹⁵⁶

[425] Vettese estimated the profit diversions from IWS to Circuital at $46,905.

Caroline Steel and Pipe Ltd.

[426] By an amalgamation agreement dated May 30, 1984 (JB 3149), Caroline Steel and

Pipe Ltd., owned by Bailey and Shirley and operated by Rosen, was amalgamated with

Circuital, which then received the benefit of losses that had been carried forward in Caroline

Steel.¹⁵⁷

[427] Could IWS Have Conducted these Businesses?

[428] Robert agreed that the owners of IWS could have set up a subsidiary trucking

company or a company owned directly or indirectly by their families to avoid union

problems.¹⁵⁸He said in cross-examination that IWS could have operated the business of

Greycliffe “if I had been asked and if I had agreed to put extra time and money into that

¹⁵⁵Morris, January 25, 1999

¹⁵⁶Robert, April 10, 2000

¹⁵⁷Robert, April 14, 2000

¹⁵⁸Robert, April 7, 2000

area.”¹⁵⁹All of Robert’s Companies listed above could have been operated by and for the sole

benefit of IWS.

[429] When it was suggested to Chester that IWS could have run the trucking operation that

Robert ran through Greycliffe, Chester replied, “we may have ordered him to do it and he may

have left.”¹⁶⁰

[430] Findings - Profit Diversions to Robert’s Companies including Greycliffe

[431] Chester said that when the use of brokers did not work out, Robert promised in 1978 to

provide IWS with good service at competitive rates. However, Greycliffe did not really begin to

generally provide IWS with trucking services until after September 1981. From 1978-1981,

Greycliffe was primarily hauling iron run-outs.

[432] I do not accept Chester’s evidence that Robert approached both of Morris and Chester

about incorporating Greycliffe. I find that Robert only approached Chester.

[433] I do not accept the evidence of Robert, Chester and Kumer that Morris was heavily

involved in IWS trucking and that he signed IWS cheques payable to Greycliffe. I note that

Morris’ handwriting and/or signature do not appear on any of the invoices in Exhibit 96 or on

any IWS cheque payable to Greycliffe that has been produced. Although Robert said that

Rioux delivered invoices to Morris to review, she was not called to give evidence.¹⁶¹

[434] There was no discussion at all with Morris about Greycliffe’s incorporation or the terms

under which it would provide haulage services for IWS. Morris never agreed that Greycliffe

would provide haulage services to IWS at common carrier rates or otherwise. He never

signed or approved Greycliffe invoices. He had no discussion with Robert and Gary about the

words “Lomi Fooren” on G-2.

[435] The Defendants submit that Morris’ evidence makes no sense given his presence at

Windermere on a daily basis and the obvious trucking activity there. However, I note that

incorrect information was painted on the door of each truck. “I. Waxman and Sons” was

¹⁵⁹Robert, April 14, 2000

Q. Yes, and I suggest to you that every one of those companies were earning income as reflected that could have been earned by I.

Waxman & Sons.

A. All of those companies were earning income with the full knowledge and authority of Morris and Chester Waxman.

Q. Can you answer my question?

A. And if they had directed or requested that—those companies operate within I. Waxman & Sons, that could potentially have happened.

¹⁶⁰Chester, October 15, 1999

¹⁶¹Robert, April 7, 2000, April 11, 2000 and April 18, 2000

written in large letters, and “Leased from Greycliffe Holdings” appeared in smaller letters. If he

read those words, Morris would have assumed that IWS was doing its own trucking using

trucks leased from Greycliffe, not that it was paying for trucking services on a trip-by-trip basis

at common carrier rates.

[436] When it was suggested to Robert that the signs on the Greycliffe trucks indicated on

their face that these were IWS trucks, Robert replied:

Robert, April 14, 2000

A. Absolutely, to third parties, no question about the fact.

[437] Warren, who was also present at Windermere on a daily basis, said he had no

familiarity with the operations of Greycliffe between 1979 and 1984. He did not know how

many trucks it was running, who owned the trailers, whether the trucks were owned or leased,

what entity employed the drivers, in whose name the trucks were insured, how the rates were

set, the extent of the profits. Robert never volunteered that information to him. While Warren

had heard of Circuital and believed that Robert owned it, he did not know [even

approximately] how much business Circuital was doing with IWS in a given year.¹⁶²

[438] Chester said Robert did not advise him that by May 1983, Greycliffe was carrying an

inventory of racehorses in the order of $424,000 or that by May 1984, it had a racehorse

inventory of $1,206,000.

[439] Morris received only snippets of information about Robert’s Companies over the years.

Like Warren, he remained ignorant about the extent of the services being provided to IWS,

the cost of those services, the rates being charged to IWS, and the revenues and profits. Had

he been aware of them, he would not have approved.

[440] As detailed in the portion of these Reasons relating to Taylor Leibow, the auditors were

sufficiently concerned about the Greycliffe rates during the 1981 IWS audit that Taylor spoke

to Chester about them. But no-one spoke to Morris. During the 1982 audit, Robert told Linton

that he would prefer if Taylor Leibow would not disclose the Greycliffe business with IWS in

the related party notes to the 1981 IWS financial statements. They were not disclosed. A

decision to make disclosure about Greycliffe on the IWS statements was not made until

shortly after Morris had signed the Share Sale Agreement in December of 1983.

[441] Particularly after September 1981, Greycliffe charged IWS rates well above market

rates. I find that by that time, Greycliffe was charging common carrier dump rates for van-style

haulage. The over-charging was two-fold. I accept the evidence of the expert witness Martin,

who said in re-examination that rates for bulk (dump) style haulage are approximately 40%

higher than for van-style haulage.¹⁶³I accept the evidence of Haney that common carrier

rates are considerably higher than rates charged by lessors or private carriers. Robert’s

“market rate” schedules are for dump-style haulage by common carriers, not for the van-style

service of the type Greycliffe provided to IWS.

[442] I do not accept Robert’s assertion that JB 2256 contained only sample sheets, and that

at one time Greycliffe had more rate sheets. If so, Robert would have requested their return

from Revenue Canada so that they could be produced in this litigation.

[443] I have accepted the evidence of Haney with respect to the Greycliffe rates and have

rejected the evidence of Gawley. I did not find Gawley’s evidence to be of much assistance,

for reasons that include the following:

1. Greycliffe was not a common carrier. The services provided to IWS were more akin to

services provided by lessors or private carriers than those provided by common carriers.

As I have rejected Robert’s evidence that Morris and Chester agreed that IWS would

pay common carrier rates to Greycliffe, it is inappropriate to compare Greycliffe’s rates

to the common carrier rates charged by the NFTB.

2. NFTB rates applied only to NFTB members. Greycliffe was not an NFTB member.

3. The NFTB rates quoted were for 100 weight tariffs.

4. All Canadian members of the NFTB needed to have Public Commercial Vehicle

(PCV) licences. Greycliffe was not a licenced PCV carrier, nor were any of the gypsy

lessors. A shipper with its own private fleet of trucks needed neither a PCV licence nor

any particular regulatory approval.

5. Many of the rates used by Gawley as comparators were for finished metal products

and finished nickel ingots.

¹⁶²Warren, May 5, 2000

¹⁶³Martin, January 31, 2000

6. None of the three largest scrap companies in the early 1980s in Canada (Intermetco,

Usarco, and IWS) used NFTB carriers to carry scrap. The NFTB did not haul scrap out

of Hamilton. No NFTB rates for haulage of scrap from Hamilton exist.

7. The NFTB rates were set bearing in mind NFTB costs. Most NFTB cross-border traffic

was moved on an inter-line basis, which meant that as many as four or five drivers

would be involved in moving a commodity from its point of origin in Canada to its point of

destination in the United States, or vice versa. Greycliffe had no similar costs.

8. In comparing Greycliffe and the NFTB rates, Gawley did not factor in the open

mileage charges or excess mileage charges which Greycliffe charged IWS.

9. Gawley was not aware of rates charged by contract carriers or gypsy lessors. He

could not comment on how they compared with NFTB rates.

10. In his analysis, he took no account of any of Greycliffe’s 1983 invoices.

11. In his comparison of NFTB rates with Greycliffe rates, he made a number of

questionable adjustments to actual NFTB rates between 1980 and 1983.

12. He said that a trucker who came back empty on the back-haul regularly [which

Greycliffe did regularly] would have “drastically lower” profit ratios.¹⁶⁴

[444] The evidence of Snow and Einwechter about one-way rates when converted to two-

way rates supports Haney’s conclusions that comparable services could have been

purchased for $1.47 per two-way mile or less. Snow said $1.25 per running mile, Einwechter

about $1.00.

[445] Robert clearly had a conflict of interest in setting the rates that IWS would pay to

Greycliffe. I accept Robert’s evidence that little “negotiating” was taking place. Robert was

setting the rates on behalf of Greycliffe and was also agreeing to those rates on behalf of

IWS.

[446] In short, Greycliffe’s rates were grossly inflated.

[447] Given:

(a) the evidence of Mesley, which I accept that Greycliffe trucks fuelled at Windermere

and Glow both before and after September 1981,

¹⁶⁴Gawley, August 28, 2000; Exhibit 317

(b) the absence of any adequate explanation in respect of those fuel charges,

(c) the absence of any Greycliffe documents reflecting that it paid for fuel obtained at

Windermere and Glow after September 1981,

(d) the evidence of Haney, which I accept, that the fuel expense of Greycliffe was lower

than it should have been,

(e) the disappearance of the line for fuel expenses from the Greycliffe statements,

[448] I find that IWS and/or IWS Ferrous were absorbing fuel expenses that should have

been borne by Greycliffe.

[449] The evidence includes only a few Greycliffe records of tire purchases. I do not accept

Robert’s attempt to explain the level of IWS’ tire expense. I am not persuaded that Greycliffe

trucks going to and from the Blue Building at Windermere would be subject to major tire

damage, given the evidence about the route typically taken by Greycliffe trucks when

accessing the Blue Building.

[450] I reject Wiseman’s explanation for the entry in his working papers “truck repairs s/b

Greycliffe expenses.” The note clearly reflects that he and members of his audit team had

concluded that $25,000-$30,000 worth of truck repairs expensed in IWS should have been

expensed in Greycliffe.

[451] In sum, I find that expenses that should have been borne by Greycliffe were in fact

borne by IWS. IWS paid for some or all of Greycliffe’s tires, fuel, insurance, petty cash

expenses, driver expenses, personnel costs. It also absorbed losses on the sale of trucks

after Greycliffe ceased its trucking operations.

[452] I have accepted the evidence of Haney and Martin about the level of Greycliffe’s

profitability. Given the disparity between Stockwell’s evidence and the contents of Stockwell

Ltd.’s financial statements, I reject Stockwell’s evidence in its entirety.

[453] I find that IWS could have provided its own trucking services. Greycliffe was

incorporated only because Robert wanted to make additional income for himself. All Greycliffe

profits could have been earned within IWS. Each of Robert’s Companies performed services

that could have been performed by IWS or its subsidiaries, and the profits therefrom could

have been retained in IWS. Those profits came right off IWS’ bottom line, and deprived its

shareholders of equity, which should have remained in IWS.

[454] They were all businesses that IWS would otherwise have conducted, not businesses

resulting from new and innovative ideas or initiatives.

[455] In the year ended 1983, for example, IWS paid $2.7 million to Greycliffe, Icarus,

Servetross and Circuital. Millions of dollars of profits were being diverted from IWS to Robert’s

Companies, which I have quantified later in these Reasons. These diversions were seriously

and adversely affecting IWS’ profitability.

Criticisms of the Evidence of Haney

[456] The Defendants submit that Haney was a biased witness. They cross-examined him

about statements allegedly made to a Mr. Keene, whom they did not call to give evidence. I

do not agree that Haney was biased. I accept Haney’s evidence that prior to being retained in

the summer of 1998, he held no views about the propriety of the conduct of Robert or Chester

vis-à-vis Greycliffe and that he had no negative attitude about either. By February 1999, when

he allegedly had a conversation with Mr. Keene, his report had been completed for some

months.

[457] Counsel for the Defendants also submit that Haney’s evidence should be disregarded

because he proffered no documentation to substantiate his opinion. Although I would have

preferred to see back-up documentation, I nevertheless found him to be a knowledgeable and

credible witness. His evidence was generally corroborated by the Statistics Canada and

Interstate Commerce Commission information to which Martin referred and by the evidence,

for example, of Hutson, Martin and Mesley and by Exhibit 338, the financial statements of J.K.

Stockwell Ltd.

Other Developments in 1982

The End Of The Estate Freeze Proposal

[458] Chester said even though he was of the view that Michael and Douglas had not

contributed any value to IWS, he was prepared to complete the estate freeze on a 60/40

basis right up until the summer of 1982 when “Morris blew the estate freeze out of the

water.”¹⁶⁵

[459] However, both Ennis and Linton gave evidence that in 1981 and 1982, Chester was

balking at completing the estate freeze even on a 60/40 basis. JB 1917, Linton’s note to

Wiseman, May 25, 1981, reads in part as follows:

Analysis [of dividend tax credits] doesn’t consider effect on ‘estate freeze’ since I’m not

sure where that stands at present.

[460] In his memo of February 24, 1982, JB 2244, mentioned earlier, Linton had warned

Chester they may be hard pressed to justify the amounts of the bonuses to Campbell

[461] When Chester discussed the estate freeze with Campbell in March 1982, it is curious

that he did not mention that $6.6 million of bonuses had already been declared [i.e., the level

of “cash” mentioned assumes no bonuses.] JB 2265A, Campbell’s note to file dated March

11, 1982 records that IWS had between $10 and $12 million in cash along with its non-ferrous

business.

[462] Ennis said Chester decided to meet with Campbell to discuss alternatives to an estate

freeze. JB 2266 is Ennis’ note of a three-hour meeting on March 12, 1982, attended by

Campbell, Chester and Linton. JB 2266 contains the following: “Set up sister company - Put

all cash, etc., in that company.” Ennis said that he assumed the ‘cash’ was the cash received

on the sale of the refuse and ferrous businesses.¹⁶⁶

¹⁶⁵Chester, October 21, 1999

¹⁶⁶0n January 11, 2000, Ennis accepted as true certain answers given in cross-examination on December 16, 1999:

Q. Page 1352, were you asked these questions. Line 26: And by the way, who was going to own this sister company do you figure? Answer:

I have no idea. Question: How about Chester and Morris, would that be fair? Answer: I have no notes. I can’t tell you. Question: It would be a

bit surprising if the cash was to be moved into a company owned by Chester? Answer: It could be moved to a company owned by the boys

too. Question: That would be a bit surprising too wouldn’t it? Answer: I don’t know maybe you would be surprised… Question: What boys

would these be, all five boys? Answer: All five boys. Question. So. It would have made sense to you from an estate freeze point of view, if all

of this cash had been distributed to all five boys? Answer: I don’t know. I can’t give you the answer. Question: It would be a bit surprising if it

was transferred to Chester Waxman’s boys and not Morris’s boys? Answer: I don’t think that would have happened. Question: Because that

would have been unfair? Right? Answer: Absolutely. Question: Yeah. It would have scandalized you if that had been suggested in your

presence without Morris there. Right? Answer: I don’t think it would have happened. Question: No. Because—why wouldn’t it have

happened? Answer: Because that’s not the way the two boys treated each other.

However, when he asked at trial whether he would have expected the allocation of these proceeds to result in Chester’s boys receiving a

great deal of money and Morris’s boys none, he answered:

A. No, that’s not so. Morris’s boys were not working in the business. Chester’s boys were working in the business. I can’t care about that.

You’re trying to involve me in the declaration of $3.3 million in bonuses as though I had something to do with it. I don’t care about that. I can

tell you this: You asked my opinion. Michael and Douglas did nothing for that business. Chester’s boys did. If they received bonuses, that

was a decision made between Chester and Morris. Not myself. I had nothing to do with that.

[463] Chester said although JB 2266 does not state that Morris was at this meeting, that

doesn’t mean that he wasn’t there. He and Morris thought they should proceed with an estate

freeze as quickly as possible.

[464] JB 2294, an Ennis note, reflects that on April 11, 1982, Chester and Robert met with

Ennis to discuss the estate freeze and related matters. Ennis said that at that time he

understood Robert was concerned about running IWS, carrying the load, and having to split

the profits with Michael and Douglas. Robert said he did not believe he was at the meeting

and denied telling Ennis he was concerned about running IWS and carrying the load.¹⁶⁷

Chester said he could not recollect, confirm or deny what was discussed. It may or may not

have been the first time Robert was involved.

[465] In early June 1982, Chester said he and Morris were preparing to meet again to obtain

an updated evaluation of IWS for estate freeze purposes.

[466] Linton wrote a letter dated June 28, 1982 to Wayne Albo a valuator working in the

Campbell office. JB 2401 includes the following:¹⁶⁸

…As also discussed, Chester and Morris have still not come to grips with the share

restructuring and you were going to touch base with Chester to get some direction on

where the freeze review should go.

[467] Only Campbell produced JB 2401 in this litigation; IWS did not also produce it.

[468] JB 2405 is a letter from Mr. Whyte of the Campbell firm to Linton dated August 11,

1982, requesting information needed for the valuation. Linton said he did not comply with this

request because Chester instructed him to simply file the letter.

¹⁶⁷Robert, April 11, 2000:

Q. …And you started attending some meetings on the estate freeze, didn’t you?

A. No, I remember a meeting or two with Mr. Albo earlier on and then I remember a meeting with my father and Morris and Wayne Linton I

believe at Paul Ennis’s office.

Q. JB 2294 please. That, sir is a note by Mr. Ennis of a meeting on April 14?… Do you not acknowledge you were at a meeting in April 1982

where the estate freeze was discussed?

A. No…

…Q. And Paul Ennis has testified at that very meeting, you said with regard to the estate freeze, that you were very concerned about you

and your two brothers, carrying the load, running the show with Michael and Douglas not contributing anything. Now did you say that to Paul

Ennis?

A. No, I did not.

Q. He’s not telling the truth when he says that?

A. He is mistaken.

Q. You were happy to run the business and carry the load?

A. That’s correct. It wasn’t my call what the shareholdings were with respect to the estate freeze.

…Q. And I suppose you can’t help us as to referring to the note what these discussions were with regard to Class A and Class B shares?

A. No.

¹⁶⁸Linton, May 23, 2000

[469] Linton said that in early November 1982, Chester told him that he and Morris could not

agree on the split of the shares. They could not see Robert and Michael working together in

IWS. Chester told him he did not think that Robert, especially, could operate the family

business on an on-going basis knowing that Michael had an interest in it.¹⁶⁹Shortly after,

Chester told him he was contemplating buying Morris out.

[470] Chester said although “he doubted it,” he may have told Linton as early as late 1981 or

spring of 1982 that Robert and Michael could not work together. However, he denied telling

Linton that he did not think Robert could operate the family business knowing Michael had an

interest in it or that the estate freeze was not going to proceed because “the boys working

together was out of the question.”

[471] Morris said he was not told the estate freeze proposal had been dropped or delayed.¹⁷⁰

Recession 1982

[472] Chester said that times were tough in 1982. The steel industry was in recession. It was

as if a curtain had come down on the business community in Hamilton and especially on the

scrap metal business.¹⁷¹The outlook for the next few years was “bleak.”¹⁷²There was a

possibility that Lasco would not survive. At the time of the Lasco closing, IWS had been

shipping about 250,000 tons of ferrous scrap per year, and Lasco was expected to utilise it

all. After the recession hit “like a sledgehammer” in early 1982, Lasco was only using about

8,000 tons of IWS scrap per month.

[473] JB 2350 is an Ennis note of a meeting on June 1, 1982, attended by Linton, Robert,

Chester and Morris.

¹⁶⁹Linton, June 12, 2000

Q. And in other words, he was telling you that Bob Waxman did not want to have Michael having any involvement at IWS. Right? Even as a

silent owner.

A. Well, I don’t know if that was Chester’s intent, but it’s pretty hard to operate a family business with that kind of ownership, one person

being non-active.

Q. When did Chester first tell you that he didn’t think Robert Waxman could operate a business that Michael Waxman had any interest in.

When did you first tell you that

A. Around this time. Early November, I believe of 1982.

Linton, May 23, 2000

A. My recollection is that he told me that Morris and him couldn’t agree on passing the shares to the next generation. I believe in the same

conversation he told me that he was somewhat annoyed or disgusted at the failed operations of Intercelco and the way that had ended up.

Q. What did he say in that regard?

A. He might have made reference to Michael Waxman and that that hadn’t moved forward and been a successful venture. And he also told

me that, you know, that the boys Michael and Bob Waxman were having some problems and didn’t think they could work together on an

on-going, going-forward basis.

¹⁷⁰Morris, January 25, 1999

¹⁷¹Chester. September 17, 1999 and October 7, 1999

¹⁷²Chester, October 12, 1999

[474] Ennis said at that meeting, they talked about the possibility that Lasco might not be

able to fulfil its obligations to IWS. If it could not do so, and if IWS could not exercise the buy-

sell provision under the sales agreement, “everything would be gone.” IWS would have no

ferrous assets, accounts or rolling stock, as they had been transferred to IWS Ferrous. All that

would be left would be the real estate. IWS would no longer be able to benefit from the IWS

Ferrous management contract. Its only income would be from the non-ferrous business,

which at that time was tenuous, barely breaking even.

[475] JB 2491, a note prepared by Linton dated June 1, 1982, lists matters said to negatively

impact the value of IWS at that time.

The Trocadero Meeting - Summer 1982

[476] Chester gave evidence that in mid-to-late summer 1982 at a dinner at the Trocadero

Restaurant, Morris said he had been thinking over his future after working 41 years. He

thought he should be taking it easy. He was thinking about the boys not being able to get

along. He did not think a share freeze was in the cards and he was going to refuse to proceed

with it. That statement made Chester angry. Promises had been made. Morris had “grabbed

Chester’s half a share” that his father had left him. He thought that that was “pretty rotten.”

Morris said he had more to say. He would like to sell his shares to Chester. Chester said,

“Buy mine.” Morris said that would not make a lot of sense because of the contract with

Lasco. Chester and his three sons would probably do well in the future. Chester said “it looks

to me like you are jumping ship. All of a sudden things are down the tubes and you want out.

Don’t you know what we went through in February to try to retain the bonus money that we

promised? Don’t you know that we need to save capital? Now you want me to come up with

substantial amounts of money to buy your shares.”¹⁷³

[477] Of the Trocadero meeting, Morris said:

Morris, January 25, 1999

A. That did not happen. I worked for forty some odd years, hard and long, and many

hours, not to turn the business over to anybody but my family and if I don’t make that

clear at any time I want to make that clear now, sir.¹⁷⁴

¹⁷³Chester, September 21, 1999

¹⁷⁴At one point during his cross-examination, Morris appeared to indicate that he may have suggested to Chester in the summer of 1982 that

Chester buy him out: Morris, February 9, 1999

[478] Apart from the two discussions already mentioned, one in September 1981 following

the incident between Robert and Michael, and the other at the end of 1981 on a trip back from

Whitby, Morris denied having discussions with Chester or Ennis about selling his IWS shares

at any time prior to November/December 1983. He denied having concerns about the

recession that prompted him to ever offer to sell his shares to Chester. He said he knew the

ndustry was cyclical and given IWS’ strong cash position, the slump could have been used to

IWS’ advantage:

Morris February 12, 1999

A. …the industry may have been in a slump, but IWS was flush with cash… They had

$10 or $12 million cash in the bank. The chopper line was working… They were never

better off in the history of the family. Never… we were prepared to put up $1 million with

Lasco to put $2 million worth of scrap on Centennial property because when Stelco

came back in, you were going to make… a lot more money than buying stock or putting

it in the bank.

[479] The Restructuring of SWRI

[480] In mid to late 1982, all of the shares of SWRI were transferred to Michael and Douglas.

Ennis backdated the documents so that it is impossible to know exactly when the transfer

took place. The Defendants submit this transfer was done fraudulently and have made it the

subject of a counterclaim.

[481] Chester tied the timing of the SWRI restructuring to the timing of Morris’ request to sell

his shares to Chester at the Trocadero Restaurant, alleging that Morris wanted him to assume

Q. It’s the same time that the… last estate freeze discussion took place… That was in about June of 1982?

A. That’s right.

Q. And it’s the same time, I suggest to you, when you said to Chester, “Buy my shares. Buy me out.”

A. I don’t remember exactly when that was. I really don’t. But that incident did happen.

Q. …In the summer of 1982, a number of things took place…

Q. I see. Three, you raised with Chester his buying you out.

A. I don’t remember whether it was 1982, but it did happen.

Although the cross-examiner was attempting to have Morris agree that a Trocadero meeting took place, in re-examination Morris said he had

been referring to the fall 1981 incident between Michael and Robert after which he said to Chester, “You buy me out or I’ll buy you out:”

Morris, March 3, 1999

Q. When you were being cross-examined by Mr. Lenczner, he suggested to you that a number of events took place in or about the summer

of 1982 and he made reference, or suggested that one of the events that took place in or about the summer of 1982 was that he suggested

you told your brother you wanted to sell your shares to your brother. When did you say to your brother: “Buy me out or I’ll buy you out?”

A. That was in 1981, shortly after Bobby and Gary had moved into the offices at Centennial. And that was the heat of the moment thing. I

think I went through it before because of how Bobby treated me and treated Michael that day. I went over to see Chester that day and said:

“Buy me out or I’ll buy you out. And if you remember, I drove to a family affair in Toronto and I phoned him and said: Forget about it and I

apologized and I said that I would see him Monday morning and I did. But I said: Forget about it.

Q. Did you tell your brother in 1982 that you wanted to sell your shares in I. Waxman & Sons to him?

A. No.

Q. Did you tell him you wanted to sell your interest or any part of your company to him?

all of the risks of the recession, all of the burden of supporting the extended family, and all of

the potential environmental risks associated with IWS’ properties and operations, while at the

same time he wanted to advance his own “secret agenda in SWRI.”¹⁷⁵

Chester, October 7, 1999

Q. Well, your counsel, Mr. Lenczner, urged this proposition vigorously that—in

cross-examining Morris Waxman that indeed Morris Waxman did two things in the

middle of 1982. He reneged on the estate freeze and decided to have you buy him out;

and at the same time he was busy bastardizing the minute book, as you would have it.

Is that your allegation?

A. Generally speaking, that’s my on take it.

[482] The Plaintiffs submit it was done at Chester’s direction, with his and IWS’ knowledge,

approval and consent. The circumstances surrounding the restructuring of SWRI are covered

in more detail in the Counterclaims section of the Reasons.

[483] Alleged Share Sale Negotiations - Late 1982

[484] I note that on September 22, 1982, Ennis wrote JB 2438, a note that records a meeting

with Chester in Morris’ absence at which share purchase options were discussed.

[485] Chester gave evidence that after the Trocadero meeting, he told his sons what Morris

was intending to do. Robert thought it over and said perhaps he should consider negotiating a

deal He received a similar response from Gary. Warren’s evidence contains the following:

Warren, May 4, 2000

A. I spoke to him in the office it was the morning after he had had a dinner meeting with

uncle Morris. My father seemed disturbed. He said he wanted to fill me in on a dinner

meeting that I had with your Uncle Mo last night. The discussion was supposed to

pertain to finalizing the estate freeze situation, but I was ambushed by Morris and he

told me last night that what he would rather be is to be bought out, have his shares

bought out of the company. My father told me this and he said to me, what do you think

about that. So I said if you feel it’s the right thing to do, I’m behind you 100% percent,

but remember, things are not great now, just make sure if you do it you don’t over-pay.

A. No.

[486] Chester thought it would be another way of resolving whatever problems existed. An

estate freeze would not be necessary.¹⁷⁶Chester said he then told Morris he had spoken to

his sons and he would be prepared to negotiate with him. Morris said, fine, we should sit

down. Between the time of the Trocadero meeting in July and the preparation of JB 2473,

Linton’s memorandum on November 15, 1982, to which I shall refer below, they had two or

three discussions. He said, “We both had an identical interest in the Share Sale.”¹⁷⁷

[Emphasis added.]

Chester, October 7, 1999

Q. And you say you eventually got him down to $2.65 [million]?

A. I didn’t get him down. He made certain calculations because of the results he wanted

to attain for himself, that would include the lease money and the interest from the share

sale and that would create something at… $350,000 a year, which is what he wanted, to

something higher than that.

Q. Did Morris talk himself into 2.65 having started off at three and a half to four?

A. No, he didn’t talk himself into it. I was only interested in paying 2.5 and he said he

wanted to accomplish a certain income for himself based on the balance he would

receive from the share sale, invested properly plus the rentals that we would be

receiving from the Chesterton and Morriston operations, and two million six fifty plus the

rentals would have given him that, in his opinion

[487] Chester said they agreed they must resolve who would be responsible for the less

fortunate family members as well as for the environmental condition of the properties used by

IWS. After doing detailed calculations, Morris estimated an environmental exposure of $2 to

$5 million and said he wanted his family indemnified in the event of any future environmental

clean up.

[488] Chester also said Morris wanted the negotiations kept secret. Only Ennis was to

handle the proposed Share Sale. It was not to be discussed with Taylor or Wiseman. If Morris

had not wanted secrecy, Wiseman and Scace “could have been there.” When asked whether

he wanted to involve Taylor and Wiseman, Chester said he did not, but it was not true that he

¹⁷⁵Chester, September 24, 1999

¹⁷⁶Chester, October 21, 1999

¹⁷⁷Chester, October 22, 1999

did not want them there. In the fall of 1982, he and Morris thought that it would be a good idea

to ask Linton to provide an evaluation of IWS using the Campbell methodology. Chester

spoke to Linton.¹⁷⁸Morris told Chester he was also going to “undertake an evaluation

himself.”¹⁷⁹When asked on cross-examination why Campbell was not retained to prepare a

valuation for use in the Share Sale negotiations, Chester said that was Morris’ call. However,

he said even if Morris had not wanted secrecy, Campbell would not necessarily have been

retained, as Morris and Chester were capable of valuing IWS on their own.¹⁸⁰

[489] Linton said he first heard about a potential Share Sale a week or two after Chester told

him the estate freeze proposal had been dropped. Chester said he was contemplating buying

Morris out and he wanted Linton to prepare a valuation for the company. He had reservations

about complying with that request, as he had no formal training in business valuation. Chester

said he would like him to attempt it anyway. Linton did not know why Chester did not involve

Campbell.¹⁸¹

The Linton Memo of November 15, 1982

[490] Linton prepared JB 2473 (original Exhibit 271-A) shortly after Chester advised him that

the estate freeze proposal was no longer being pursued and he was contemplating buying

Morris’ shares.¹⁸²JB 2473 is addressed only to Chester.

[491] Linton said in chief that in JB 2473, he valued IWS on a break-up or liquidation basis

because he felt the economic situation in October or November 1982 precluded him from

preparing his valuation on a going-concern basis.¹⁸³In cross-examination, he agreed there

¹⁷⁸Chester, October 22, 1999

¹⁷⁹Chester, September 21, 1999

¹⁸⁰Chester, October 21, 1999

Q. Are you suggesting you wouldn’t have benefited from (Campbell’s) valuation to have a sense of what the company was really worth?

A. That was Morris’s call. He said he wanted this thing kept secret and he only wanted Mr. Ennis involved and we would go from there.

Q. So we’re clear about that. The reason you say that Campbell was not retained to value the company was because Morris wanted it to be

kept a secret. Is that it?

A. That’s correct.

Q. Otherwise you would have retained him?

A. Not necessarily. Morris and I were quite capable of valuating that company. We both knew the best. We had valuated it before and we

were quite capable of doing it again.

Q. Let’s be clear about this. You say—I thought you just said the reason Campbell wasn’t retained to do a valuation referable to the share

sale was because Morris wanted to keep it a secret?

A. That’s correct.

Q. So if Morris had not wanted to keep it a secret, presumably had it has to follow that Campbell would have been retained.

A. Not necessarily. He wasn’t retained to sell the disposal division. He wasn’t retained to sell the ferrous division of I. Waxman & Sons

Limited. He wasn’t retained to tell us how to go about putting in a three million dollar operation for Stelco with the shear. He wasn’t retained,

or anybody else, on the sale to Philip.

¹⁸¹Linton, May 25, 2000

¹⁸²Linton, May 25, 2000

¹⁸³Linton, May 25, 2000

was not even a remote possibility that IWS was going to be liquidated. It was a viable, vibrant,

ongoing company in decent financial shape, notwithstanding the recession.

[492] Prior to writing JB 2473, he did not speak to Morris. Chester had brought him up-to-

date on the market value of IWS’ ferrous inventories.

[493] Linton wrote:

Due to world steel markets in general being depressed and no significant turn-around in

sight, the financial strength of Lasco is in some doubt as it affects its ability to honour its

financial commitments to I. Waxman & Sons. Due to these factors and other covenants

in the agreements, no value has been placed on I. Waxman & Sons’ 50% equity

investment in IWS Ferrous Limited nor to its future earnings potential from this

investment. [tonnage fees]

Fixed assets have been valued at cost or liquidation value, whichever is lowest,

including real estate assets, since market conditions at present or in the foreseeable

future do not justify a higher valuation. Inventories, especially ferrous bundles, have

been written down to market, which in some cases is NIL, since there are no buyers at

present in the market. [Emphasis added.]

[494] Linton said in chief that he had a “very brief” conversation with Robert to try to

understand where the non-ferrous operation was going. It was all doom and gloom.¹⁸⁴When

cross-examined on this evidence [Robert in his evidence having been rather optimistic about

the non-ferrous business at that time], he said he did not recall saying in chief that Robert had

told him that he was gloomy on the future of the non-ferrous business. He valued IWS on a

liquidation basis because he thought that that was the right approach.¹⁸⁵From where he sat, it

seemed to Linton that any future in the non-ferrous business was going to be triggered

through the efforts of Robert and to a lesser degree of Gary. Linton wrote:

Since Morris has not significantly contributed to the growth or the future earnings

potential of the non-ferrous operations, a buy-out of his shares should not reflect the

future earnings potential of this division. [Emphasis added.]

¹⁸⁴Linton, May 25, 2000; Robert, April 7, 2000

¹⁸⁵Linton, June 12, 2000

[495] In cross-examination, he was asked the following questions and gave the following

answers:

Linton, June 13, 2000

Q. And as an owner, why does he, Morris Waxman, have to contribute anything? He’s

an owner, he owns half of it?

A. Everybody knew that.

Q. So what’s the theory of saying Morris doesn’t get any benefit for the non-ferrous

operation because he hasn’t contributed to it. What’s the logic in that?

A. At that point in time in November 1982, there was no value that I saw in the

non-ferrous operations.

Q. …Can you not recognize that that just makes no sense?

A. It made sense to me when I wrote the memo and it was, you know, all of these points

I put in for consideration by Morris and Chester.

Q. If it made sense to you, I’m going to suggest to you it only made sense because you

only had one client. You were only talking to one guy. You were only following one

person’s instructions. Chester’s…

A. I didn’t follow his instructions in the items in the memo, but he gave me instructions to

go ahead and try a valuation, I agree.

[496] In his valuation, Linton included nothing for IWS’ waste operations apart from the value

he had placed on its equipment.

[497] In arriving at a figure for the value of IWS, Linton started with total shareholders’ equity

of $11,411,828, which he took from JB 2651-A, an October 31, 1982, IWS interim financial

statement. He then made a number of mostly negative adjustments to that figure, including:

• a $203,000 bad debt expense relating to funds that IWS had advanced to Intercelco

through 1981 and 1982, which was still shown as a receivable on IWS’ books,

• a 1982 potential rent settlement with Stelco,

• $3.3 million in 1982 bonuses,

• 1982 taxable dividends of $2.288 million [which, as events actually transpired, were

never declared and never actually paid] less recovery of refundable dividend tax of

$572,000 [being approximately the amount IWS would receive if dividends of four times

that amount were declared] If those dividends had been paid to the shareholders in

1982 or shortly thereafter, Chester and Morris would each have received $1.144 million

gross, taxable in their hands as dividends,

• $200,000 in improvements to the Centennial Parkway building [which he conceded in

cross-examination could have been shown on the financial statement as a fixed asset if

they had been characterized as capital improvements.¹⁸⁶]

[498] Linton then made a further series of adjustments, again mostly negative. He assumed

a cost of $50,000 to clean up Caroline Street. Scrap purchases made, but not reflected in

financial statements at October 31, 1982, prompted a further negative adjustment of

$925,000. He wrote down inventories by $300,000. The copper line at Centennial was on the

books for about $1.7 million: he wrote it down by $850,000. He wrote down the copper line at

Windermere.

[499] He subtracted his downward adjustments totalling $7,079,000 from the $11,411,828

and arrived at an adjusted shareholder equity of $4,332,828.

[500] He then listed a number of other mostly negative considerations, including potential

losses on defaults by Waxman Recycling in the amount of $200,000; Larry Sturk Trucking in

the amount of $160,000; and Chesterton and Morriston in the amount of $730,000.

[501] At page 5, under Item C, Cash Payments to Morris, Linton wrote: “Due to the

anticipated dividend payment in Dec, Mr. Morris will have cash after taxes of $858,000 [cash

before taxes of $1.144 million]. In addition, he may receive, probably in Dec. of 1983, that

portion of the 1982 bonus allocated to him [$700,000].”

[502] At page 5 under the heading “F. Share Purchase Options” Linton suggested that IWS

could redeem and cancel Morris’ shares, or that Robert, Gary and Warren could buy them. He

wrote:

¹⁸⁶Linton, June 13, 2000

Q. At the very least, it should be a pass through, shouldn’t it?

A. If we had capitalized my $200,000 here, it would have been a pass through, yes.

Since this area is complex and the rules have changed during the last few federal

budgets, we should meet with legal and tax counsels before the buyout is finalized. It

should also be structured to accommodate Chester’s estate planning ideas.

[503] At page 6, under the heading, “Closing Comments” Linton wrote:

This memo has not considered the business assets held jointly by Chester and Morris

through the Windermere Investments partnership. However since these assets form a

vital part of the on-going operations of IWS, it is important that these assets be

committed to Waxman’s on a secure, long-term basis, while at the same time providing

a reasonable rate of return to Chester and Morris, especially in light of the sizeable bank

loans taken on by Chesterton and Morriston. ($365.000 each at October 31, 1982.)

[emphasis added]

[504] He said:

At present, IWS Ferrous [is] paying Windermere $19,000 per month, or $228,000 per

year. IWS is presently paying $5,000 per month or $60,000 per year. Total rental income

is $288,000. This amount will be adequate for the foreseeable future [to service the bank

debt], since the bank loans will be decreasing monthly and the IWS Ferrous rental will

be adjusted every 5^thyear based on the Consumer Price Index. [Emphasis added.]

In summary, a long term lease agreement should be signed between the parties in

conjunction with the proposed purchase of Mr. Morris’ shares.

[505] [The bank loans referred to above are primarily loans on the Blue Building. When

Linton joined IWS in 1979, the Blue Building had already been built and the construction costs

were on IWS’ books. In 1982, Linton arranged for loans in the names of Morriston and

Chesterton. Linton said in his evidence that he didn’t recall any discussion with Morris about

this. JB 2209/2213, an agreement signed by Morris dated January 27, 1982, allowed Chester

to sign on behalf of Morriston. The Morriston financial statements for the year ended

December 31, 1981 (at JB 1716) show Morriston’s bank indebtedness at $81,056. A year

later, the 1982 Morriston financial statements show that its bank indebtedness had risen to

$381,822. The increase in Morriston’s bank indebtedness was obviously arranged at some

point during the 1982 fiscal year. Morriston paid bank charges and interest of $58,543 in

1982. Statement 2 of the 1983 Morriston financial statements reflects that Morriston received

$108,427 in partnership income from Windermere Investments and paid $40,311 for bank

charges. Although the charges were lower than the previous year (as the loan was being paid

down,) it would still be some time before an annual rental of $12,000 [i.e., the rental Morriston

was eventually to receive under the December 1983 lease for the Blue Building land and the

Back 7.7 Acres] would cover bank charges with respect to the Blue Building.]

[506] Linton said he reviewed JB 2473 with Chester line by line; he distinctly recalled

Chester saying he would review it with Morris and would get back to him. Chester did not

speak to Linton about buying Morris out for many months thereafter.¹⁸⁷

[507] Morris said that prior to the commencement of the litigation, he could not remember

receiving or seeing a copy of JB 2473. “Nobody in his right mind in 1982” would have

provided him with a memo that suggested he had not contributed significantly to the future

earnings of the non-ferrous division of IWS. He did not know Linton had been asked by

Chester to value IWS, nor did he know they were discussing a possible buy-out of Morris’

shares.¹⁸⁸

[508] Chester said neither he nor Morris agreed with Linton’s valuation in JB 2473.¹⁸⁹After

they reviewed it, he and Morris went back to the Campbell report and decided that an

appropriate range of value was $2-½ million and up.

[509] Wiseman, the IWS auditor, said:

Wiseman, February 21, 2000

A. At the end of 1982 the company’s position was still strong. It had great working

capital of over five million dollars. Seven million dollars in retained earnings, which was

over its tangible net worth threshold. I didn’t see any imminent danger at that point in

time with respect to the company’s financial affairs… [Emphasis added.]

Findings - Developments in 1982

[510] By 1982, Robert was running IWS’ non-ferrous operation.¹⁹⁰As discussed in more

detail in the section of these Reasons with respect to the claims against Taylor Leibow and

Linton, Robert was signing all or most IWS cheques, approving credit notes pricing all

customer orders, and writing up sales orders. He was also operating Greycliffe, which I have

¹⁸⁷Linton, May 25, 2000

¹⁸⁸Morris, January 26, 1999; February 12, 1999

¹⁸⁹Chester, October 22, 1999

earlier found was overcharging IWS for haulage. Profits that should have remained in IWS

were being diverted to Greycliffe and Robert’s other Companies.

[511] In 1982, Morriston’s bank loans were increased by $300,000 for costs of the Blue

Building built in 1978 after Morris signed an authorisation dated January 27, 1982 allowing

Chester to sign on Morriston’s behalf (JB 2211/JB 2213.) Linton did not discuss the increase

with Morris. This will be covered in more detail in the section of the Reasons relating to

Linton.

[512] In January and February of 1982, bonuses of $6.6 million were declared and largely

allocated to Chester and his sons.

[513] In early 1982 Chester was concerned that the 1981-1982 bonuses could not be

justified to Campbell or Revenue Canada in part because of Linton’s warning in his February

24, 1982 memo and his discussions with Taylor. That is why Chester did not mention to

Campbell the $6.6 million in bonuses that had already been declared. On March 12, in Morris’

absence, alternatives to an estate freeze even on a 60/40 basis were discussed.

[514] Chester knew that if he proceeded with an independent valuation for an estate freeze,

Campbell would question the bonuses.

[515] I accept Ennis’ evidence that Robert was concerned about having to split IWS profits

with Michael and Douglas. Without telling Morris, Chester was stripping IWS of much of its

equity and diverting it to his side of the family. Even though Morris owned 50% of IWS,

Chester was benefiting himself and his family disproportionately by declaring bonuses,

allowing profit diversions to Robert’s Companies, and leaving little profit in IWS to be split with

Morris on a 50/50 basis. In early 1982 Chester was balking at an estate freeze even on a

60/40 basis. By the summer of 1982, the estate freeze was on hold.

[516] Morris was not advised and did not know about any of this. From Morris’ perspective,

from out in the yard, none of this was obvious.

[517] I find that Chester, with the active encouragement of Robert, decided he would not

proceed with the estate freeze.

¹⁹⁰Robert, April 13, 2000

[518] The Defendants rely heavily upon certain documents, including JB 2448, a letter dated

October 6, 1982, from Stelco to IWS indicating that Stelco would not be buying scrap for 15

months; and JB 2460, a letter dated October 25, 1982, from Chester to the comptroller of IWS

Ferrous, Branch.

[519] I find that Chester overstated his 1982 recession concerns. As Wiseman said,

Wiseman, February 21, 2000

At the end of 1982, the company’s position was still strong. It had great working capital

of over five million dollars. Seven million dollars in retained earnings, which was over its

tangible net worth threshold. I didn’t see any imminent danger at that point in time with

respect to the company’s financial affairs…

[520] IWS was in good financial shape. When the recession first hit in 1982, Chester could

have halted the bonus payments but he did not do so. I reject Ennis’ evidence about the

doom and gloom at the June 1, 1982 meeting. It was at odds with Robert’s more optimistic

evidence about the state of the non-ferrous business at the time and ignored IWS’ very strong

cash position.

[521] I find Ennis’ account of the discussion at June 1, 1982 meeting at which Morris

attended to be quite curious.

[522] I accept Morris’ evidence that he and Chester did not discuss a sale of Morris’ shares

to Chester at the Trocadero Restaurant or at all in the summer of 1982. Morris did not “blow

the estate freeze out of the water.” I find that Chester met with Ennis about the Share Sale in

the fall of 1982.

[523] When Chester said he thought that a Share Sale would make an estate freeze

unnecessary, I find that he was indicating that the estate freeze was at least in part about

gaining control of IWS. If his objective had been simply to save taxes while passing the

business to the next generation, an estate freeze would have been desirable whether he

purchased Morris’ shares or not.

[524] Counsel for the Defendants submitted that Morris is trying to ignore that in 1982 he

received a 1981 bonus cheque for $700,000. However, JB 1733, note 4 reflects that in

October 1982, Morris owed $351,000 to IWS on his drawing account net of tax. Linton applied

Morris’ net 1981 bonus of $351,000 to reduce that debt to nil. I find that Morris never received

any cheque in respect of the 1981 bonus, which might have alerted him to the fact that 1981

bonuses had been declared.

[525] In my view, Linton’s memo of November 15, 1982 valuing IWS (JB 2473) is one of the

most telling contemporaneous documents in evidence. I find that Linton prepared JB 2473

only for Chester.

[526] Linton said that “Morris had not contributed anything to the growth or earnings potential

of IWS non-ferrous operations. A buy-out of his shares should not reflect the future earnings

potential of this division.” Yet in the same memo Linton acknowledged he had arranged for

loans to Morriston to finance IWS’ construction of the Blue Building [to house the non-ferrous

operation.] IWS had paid millions of dollars for non-ferrous processing equipment. Linton was

obviously planning to direct that Morriston’s share of the IWS Ferrous rent be used inter alia

to pay down Morriston’s debt, then standing at $365,000. Morriston was receiving rental of

$2500 per month from IWS for the Blue Building and surrounding lands and the Back 7.7

Acres, an amount insufficient to even pay the interest on the Blue Building Loan.

[527] Of Linton’s statement that Morris had not contributed to the growth of the non-ferrous

operation, Chester said, “I don’t think it was totally inaccurate.”¹⁹¹

[528] Linton put no value on IWS’ 50% interest in IWS Ferrous. I note that so long as IWS

Ferrous continued to operate, the value of future tonnage fees payable to IWS would be at

least $500,000 per year. I have already mentioned that JB 2070, the Lasco/IWS shareholders’

agreement dated September 21, 1981, provides that if either partner wanted to buy the

other’s 50% interest in IWS Ferrous, the purchase price would be not less than $4.5 million.

[529] Linton valued fixed assets at net book value or lower. In the earlier Campbell valuation,

equipment values were estimated to be higher than book values. Just over a year earlier, the

price that IWS received for the assets sold to Laidlaw was $987,000 over book value. In

addition, IWS received $350,000 from Superior for goodwill. On the sale of assets to Lasco in

1981, IWS received $5,649,357 more than book value. Linton’s negative value assumptions

with respect to the value of IWS equipment were patently unwarranted in my view.

¹⁹¹Chester, November 15, 1999

[530] Linton concluded in JB 2473 that as at October 31, 1982, IWS had a value of between

$3,000,000 and $3,500,000. On the assumptions he made, Morris’ shares were worth

between $1,500,000 and $1,750,000. In valuing Morris’ shares, Linton assumed Morris would

also immediately be receiving $1.144 million (50% of a 1982 dividend of $2,288,000.) I note

that if one takes the low-end of the Linton valuation ($1.5 million), and adds the $1.144

million, the total is $2.644 million, almost precisely the $2.65 million value that Chester used

thereafter. [I shall explain later how the $2.65 million figure came to be adjusted to $3 million.]

[531] Ennis gave evidence that Chester provided him with a copy of JB 2473 at the time he

was initially drafting Share Sale documents during the summer of 1983. This belies Chester’s

suggestion that he rejected the conclusions in the document and suggests that he was relying

on them.

[532] I reject Chester’s evidence about the genesis of the $2.65 million sale price. When

Chester said that early in the negotiations, Morris said he wanted the IWS Ferrous lease

rentals plus the interest on the Share Sale proceeds together to yield an income of $350,000

per year or more, he was suggesting Morriston was actually receiving all of the IWS Ferrous

rentals. The Windermere/Morriston financial statements and JB 2473 make it clear that

suggestion was untrue.

[533] I find that whether or not Chester provided specific instructions to Linton to value IWS

as he did, he accepted Linton’s faulty assumptions and value and he willingly used JB 2473

thereafter as a justification for the share price in the Share Sale.

Early 1983

Discussions About Michael’s Future At IWS

[534] Michael said that while they were vacationing in Puerto Rico in December

1982/January 1983, Morris suggested that he learn the scrap business at Waxman Recycling

Industries in Toronto or that he open up a mortgage brokerage business. Michael was

confused by these suggestions: he was wondering why he was not yet working within IWS.¹⁹²

[535] After the holiday, Michael arranged to meet alone with Chester. He made a note,

Exhibit 47, to be used as an agenda. At that time, he considered Chester to be very

¹⁹²Michael, May 10, 1999

intimidating. He felt that he was no match for him. He did not want to be derailed from his

agenda, nor did he want to forget any of the matters he wished to raise. He started by saying

it was going to be a very serious discussion, difficult for him and possibly difficult for Chester.

There were things that had to be said. He spoke of his conversation with Morris about

alternative options for employment. Then he gave examples of situations in which Chester

had failed to afford Morris the respect he deserved. He mentioned the time that Robert took

Morris’ office at Centennial, saying that that was as if Michael had taken Chester’s. As Morris

owned 50% of IWS, he said that he, Michael, had the same right as Chester’s sons to work at

IWS. The peace offerings being made [referring to the Vic Tanny and industrial blueprinting

proposals] were insults. Chester told Michael that if he wanted to be accommodated, he could

go home and he would send him a pay cheque. Michael said that comment was insulting. He

meant he wanted to have the same opportunity to work at IWS as Chester’s sons had had.

Morris wanted him there.¹⁹³Michael said they discussed SWRI. He asked Chester why Morris

should have to “reinvent the wheel,” given his ownership interest in IWS. At the conclusion of

the meeting, Chester told Michael he wished he could give “all you boys $1 million dollars”. By

the time of the trial, Michael had learned that when Chester made that comment in 1983, he

had already declared million dollar bonuses in favour of each of his own sons. He found

Chester’s remark about the $1 million to be ironic in retrospect.¹⁹⁴

[536] Michael also spoke to Robert, who laughed when Michael told him that Chester had

asked whether he wanted to be accommodated. Michael postulated that Robert found it hard

to believe that Chester had been so direct. Robert said, “Michael, you’re looking for me to be

your teacher. I’m not a very good teacher… I wouldn’t want my kids coming into the business

because of all the larceny involved.”¹⁹⁵

[537] Michael recognised that Chester and Robert were powerful personalities and that he

was not being welcomed into IWS with open arms.

[538] Chester did not deny he met with Michael in 1983, but he did deny that SWRI was

discussed. He said Exhibit 47 is a “false document.” He continued to insist that Michael was

welcome at IWS.

¹⁹³Exhibit 47

¹⁹⁴Michael, May 10, 1999

Alleged Share Sale Negotiations - Early 1983

[539] On February 7, 1983, at a meeting with Chester and Robert, shortly after Michael’s

meetings with them, Ennis recorded the following in JB 2557:

RE: 3:30 p.m. meeting with Chester Waxman

Office of E & A. Also R. Waxman General Discussions - Sale of Shares

Also Canadian (Trotting) Association [emphasis added]

[540] Ennis denied in chief that the note refers to discussions about a possible sale of Morris’

shares saying it relates to the ownership of shares in a horse. During cross-examination, he

initially said the wrong date was on it: it should have been dated in May. When he was

reminded he had said in chief that it did not relate to the Share Sale, he then agreed. He then

said perhaps it had been typed incorrectly. He was taken to his hand-written notes [JB 2569A]

of the entry in question. Apart from a misspelling of the word “Trotting,” the note had been

accurately transcribed.¹⁹⁶

[541] Robert denied meeting with Ennis to discuss the Share Sale. He was referred to Ennis’

note of February 7, 1983:

Robert, April 7, 2000

Q. …Did you ever go to a meeting with Paul Ennis where there was a discussion about

the sale of shares by Morris to Chester of IWS?

A. Never.

Q. Did you ever go to a meeting with Paul Ennis where there was a discussion

respecting horses?

A. Could have been.

Spring 1983

[542] In alleging that Morris knew about the 1981 and 1982 bonuses and about profit

diversions from IWS to Greycliffe, the Defendants rely upon Linton’s evidence that he

reviewed the 1982 IWS financial statements with Morris.

¹⁹⁵Michael, May 10, 1999

¹⁹⁶Ennis, November 29, 1999 and January 19, 2000; JB 2557; JB 2659A

[543] Linton said he remembered reviewing the term deposits on the balance sheet, fixed

assets, bank indebtedness, and retained earnings. He had no specific recollection of

reviewing line items on the statement of retained earnings with Morris. He did have a specific

recollection of reviewing the refuse sales on the income statement with him. He might have

reviewed the wage expense on Schedule One.¹⁹⁷He had no specific recollection of reviewing

the notes relating to Statutory Remuneration.

The State of the Non-Ferrous Business in 1983

[544] In early 1983 a decision was made to install a new IWS copper line. [I note that this

was within months of Linton’s November 15, 1982 memo that assumed for valuation purposes

a write-down of the existing copper line to well below book value.] A deposit on the new line

was made in late April 1983. Linton’s working paper H-4 (JB 2998A) shows that in fiscal 1983,

IWS paid $427,180.15 for additions to the Centennial copper line.¹⁹⁸

[545] In the summer of 1983, Robert was optimistic about the future of IWS’ non-ferrous

business. IWS was acquiring material. Greycliffe was adding trucks to its fleet to service IWS’

non-ferrous division.

Ennis’ Evidence re His Early Involvement with respect to Share Sale

[546] I have already found that Chester was talking to Ennis about a possible purchase of

Morris’ shares as early as the fall of 1982.

[547] Ennis said he was first consulted about the Share Sale in May 1983. He gave detailed

evidence in chief about a discussion at the synagogue, saying that Morris pulled him aside

and said, “Paul, I can’t make the estate freeze work. I’m going to sell my interest to Chester.

I’ve got other things I want to do. I’d like you to act for me.”¹⁹⁹Ennis said he advised Morris

that he did not want to act for him or for Chester. However, Morris said he had given him good

advice and had been a trusted friend, and he would like him to act. Ennis explained he was

not in a position to provide business, tax or accounting advice. Morris assured him they would

get that advice elsewhere. They had their own valuation. Ennis advised him to seek

independent legal advice (“ILA.”) Morris said they wanted him to act. Ennis said he would

consider it, but if he did, they must be in 100% agreement. If there were any conflict, he would

¹⁹⁷Linton, May 16, 2000

¹⁹⁸Linton, June 13, 2000; JB 2998A

not act. If he did act, they would have to sign a certificate of ILA. Morris told him that he and

Chester knew exactly what they wanted to do. They would give him a figure in cash, spread

out over a period of time. They would work out the amounts. They only wanted him to draw a

simple contract, review it with them, and ensure it reflected their wishes.

[548] Ennis said Morris indicated they had agreed upon a price, $2.65 million. They had not

yet agreed upon payment terms. Morris asked Ennis to start drafting the documentation.

Ennis’ credibility with respect to this detailed account of his discussion with Morris suffered on

cross-examination when he was asked the questions and gave the answers quoted in the

endnote.²⁰⁰

[549] Chester said in chief that Ennis called him in May 1983, saying Morris had asked him

to call Chester about the Share Sale. He and Morris then gave Ennis instructions at a meeting

at Chester’s office.²⁰¹Chester said he and Morris did not agree on a price of $2.65 million

until just before Ennis prepared the July 1983 draft documents.²⁰²

[550] Morris denied having any discussions with Ennis about a sale of his shares at the

synagogue or at all during that time frame.²⁰³

May 20, 1983: Beau Meyers’ Letter

[551] Exhibit 289 tab 4/JB 2635 is a letter to Chester dated May 20, 1983, from Mr. Beau

Myers (“Myers”), an insurance agent, in which Myers notes that Chester had told him he

would like his sons to eventually gain control of the business. JB 2636 is a letter dated May

¹⁹⁹Ennis, November 29, 1999

²⁰⁰Ennis, January 13, 2000

Q. The truth is you have no mental picture of this conversation at all?

A. I do.

Q. I’m going to ask you to look at your examination for discovery, for July 30, 1997, page 108. Question: Where did that discussion took

place? Answer: I can’t recall exactly where it took place…. April and/or May May 1983 Question: Where? Answer: I can’t tell you I don’t

remember. I don’t have any notes of it Question: Was it at a restaurant, at a dance? Answer: It could have been at a dance or one of the

synagogue affairs. Question: Who was present during this discussion? Answer: Just Morris and myself. Question: Do you remember what

room you might have been in? Answer: I don’t recall being in a specific room. It could have been in the main ball room and just talking by the

bar. Question: You said it could have been. Do you remember that? Answer: I don’t remember. Question: So you’re sure it was a function at

the synagogue where he told you that? Answer: No, I’m not saying. I believe it to be that, but I’m not saying that’s where it was. Question: Do

you have a mental picture of the discussion at all? Answer: No. I don’t have a mental picture of the discussion. You asked me if I can indicate

locations et cetera. I don’t have that mental picture.

²⁰¹Chester, September 21, 1999

²⁰²Chester, October 22, 1999

²⁰³Morris, February 12, 1999

Q. Do you remember sir, that at the synagogue in the spring of 1983, that you approached Mr. Ennis and you said to Mr. Ennis that you

wanted now to proceed with a sale of your shares and you and Chester were going to come to see him to have papers drawn up?

A. No.

Q. And if Mr. Ennis comes forward here and says that such a discussion took place at the synagogue in the spring of 1983, is he lying?

A. Yes.

20, 1983, from Myers to Ennis thanking him for the introduction to Chester and enclosing a

copy of JB 2635.

Mid-1983 Share Sale Discussions

The Evidence of Ennis, Chester & Linton

[552] Ennis made a note in JB 2557, his Services Performed diary, for June 21,

Morris Waxman buyout. Shotgun, Telephone call Chester Waxman re instructions to

draw buy/sell. Telephone call to Wayne Linton re above matter. Draw lease [emphasis

added.]

[553] The Defendants submit that another Ennis note of June 21, 1983 evidences a

discussion with Morris about the Share Sale. Page 82 of JB 2664, Ennis’ Blue Book, reads:

“Morris Waxman—deal to be made. Principal. Spoke to Zed Weing, meeting on-site at quarry.

Flamborough Klaiman quitclaim deed.” In chief, Ennis said he thought the reference to “Morris

Waxman deal to be made” was to Morris making a deal with Chester. In cross examination,

his credibility suffered when he was asked the following questions and gave the following

answers:

Ennis January 14, 2000

Q. …where it says “Deal to be made. Principal,” you went on to say that Morris said to

you how are things progressing and you said to him we’re working it out. Do you

remember that?

A. I think I the opposite, I asked how things were working and he said they were working

it out.

Q. Can we look at your examination for discovery for July 31, 1997, page 229. Question

9985: In the middle of document number 86 you have written down Morris Waxman deal

to be made. In what circumstances did you come to write down Morris Waxman dash

deal to be made close quotes in your notebook? It says underneath it “principal” in

quotes. Answer: Well, here it is. You know, quote spoke to Z. Weing meeting on site at

Quarry, close quotes. So it looks like it’s dealing with the quarry… Question: This had

nothing to do with the share sale? Answer: I don’t think so. Question: Is that why it does

not appear in either of your accounts relating to either the estate freeze or the share

sale? Answer: It’s obvious, isn’t it?

…Q. Do you not remember that in giving evidence to Ms Murchie, you said positively it

relates to the share sale?

A. I’m saying now it’s positively the share sale. [Emphasis added.]

[554] JB 2671 (Ex. 289 tab 10) is an Ennis note dated June 22, 1983 of a meeting with

Chester:

re agreement to purchase $700,000 + $2,650,000, $1 million + $700,000 this year -

remainder over period of time - how do we handle this? MW can spread taxes over five

years… telephone call to Wayne Linton 11:40 a.m., re payments above… have boys

buy shares, Greycliffe.

[555] Linton’s handwritten notes include the figures “$2,650,000” and “$700,000” (Exhibit

289, tab 34.) Linton was contemplating the reallocation of 1982 bonuses payable to recipients

other than Morris as a means of financing the Share Sale. Linton’s memo contains the

following: “transfer accrued bonuses to Chester, $2,500,000,” leaving Morris with $700,000.²⁰⁴

[556] Summer 1983—Ennis’ Draft Share Sale Documents

[557] Morris gave evidence that in mid-1983, he was experiencing shortness of breath.

Although Chester and Ennis said they had no concerns about Morris’ health, Ennis’ note of

June 22, 1983 contains the following: “in case M.W. dies.”

[558] Ennis said that when they discussed the buy-out on June 29, Chester told him if the

shares were redeemed by IWS, there would be a loss of a tax benefit.

²⁰⁴Ennis, January 18, 2000

When Ennis was asked if he accepted that “the reference to $700,000 in your note refers to bonuses that Morris—”, he interrupted the

question to answer:

A. No. You asked me that the other day. I don’t know what that $700,000 is and I didn’t answer it then by indicating it dealt with bonuses.

And I give you the same answer again today

He was referred to his discovery evidence:

Q. Your transcript for your discovery, July 31, 1997, pps 256 and 257, starting 1119, next line says: “700,000 plus 2.65 million.” What does

that refer to? Answer: I don’t know what the 700,000 refers to. Question: And the next line says 1,700,000 this year. Do you know what that

refers to? Answer: Well, a million dollars cash, $700,000 could have been bonuses I have no idea. $700,000 could have been bonuses that

had been declared and paid or not paid. Question: Are you talking about bonuses or dividends? Answer: The 700,000 was a bonus.

Q. Are you still comfortable with the position that at the time you made this note back in June 1983 you knew that the $700,000, wherever

you were getting the number from, referred to bonuses?

A. No, I’m not content with that. Because you’ve been badgering me throughout this. I told you. I don’t know about the $700,000 it could have

been bonuses and it could not have been bonuses.

[559] Ennis’ note in JB 2557 for June 29, 1983 (also at Ex 289, tab 11) reads: “conversation

with CW re buy out, [lose] capital gain base if redeem shares.”

[560] Chester gave evidence that Morris told him IWS should not redeem his shares for tax

reasons.

Draft Share Sale Agreement—July 1983 (JB2689, Exhibit 289, tab 18)

[561] Ennis said the draft Share Sale Agreement for $2,650,000, prepared on Chester’s

instructions in the summer of 1983 [JB 2689] was just a brief outline of the type of agreement

that would eventually have to be drawn if this matter was going to be completed.²⁰⁵Ennis said

he did not believe he reviewed it with Morris. He gave the draft to Chester and asked him to

take it to Morris.²⁰⁶

July 1983 - Draft Lease—JB2709

[562] JB 2709 is a draft lease between IWS and Windermere (Chesterton and Morriston).

The rent specified was $5000 per month. The term was unspecified.

[563] JB 2669, an Ennis note dated June 21, 1983, (Exhibit 168), refers to a lease as

follows: “rental to stay. Land M&C own $5,000 per month - no right of way.” Chester could not

recall giving those instructions. Ennis said he did not review the lease with Morris.²⁰⁷

[564] Chester said in chief that the $5000 rental was incorrect. That figure must have come

from Morris. However, in cross-examination he said Morriston and Chesterton had been

receiving $5,000 a month from IWS since the beginning of 1982, as recommended in Linton’s

memo dated February 24, 1982. Chester agreed that $5,000 a month was a below-market

rent and that that figure might indeed have come from him. Chester said that by July 1983, he

and Morris had agreed Chester would look after the less fortunate members of the family and

would indemnify Morris on an environmental clean- up for up to 50 years.

[565] Chester also said that when he and Morris reviewed the draft lease in Ennis’ office in

July 1983, Morris noticed that the waste clause did not reflect Chester’s environmental

promises.

²⁰⁵Ennis, December 2, 1999

²⁰⁶Ennis, January 18, 2000

²⁰⁷Ennis, January 18, 2000

[566] Morris said he had no idea Ennis was meeting with Chester in June and July 1983 in

respect of a possible buy-out of his IWS shares. He did not see any of the draft documents

prepared in Ennis’ office at that time.²⁰⁸

Covenant Agreement/Agreement to Sell Shares

[567] The Defendants referred to a number of documents in an attempt to prove that Morris

participated in Share Sale discussions in the summer of 1983. One such document is JB

2130, Ennis’ account dated September 1, 1983, in which the entry for July 21, 1983, refers to

“telephone conversations with Chester and Morris reviewing details of ‘Agreement to sell’

shares in IWS” (JB 2717.)

[568] Ennis said Morris wanted to ensure (a) nothing would prevent IWS from carrying on

business, (b) IWS would not be put out of business by any of his or his family’s actions, (c)

nothing would upset the management agreement or the shareholders’ agreement with Lasco.

Therefore, Ennis drafted the “Lasco Covenant Agreement”. In cross-examination, he

conceded that Chester gave him instructions to draft this document.

[569] Paragraph 6 contains the following:

For greater certainty, Morris covenants and agrees with Chester that he will not initiate,

commence, cause or bring about, or permit or allow to be initiated, commenced, caused

or brought about, anything which may constitute an “Event of Default” under a breach of

the Shareholder’s Agreement or a breach of the Management Agreement

[570] Paragraph 7 provides:

This Agreement shall be binding on and shall enure to the benefit of the parties hereto

and their respective heirs [Emphasis added.]

[571] JB 2130, Ennis’ entry for July 22, 1983 reads as follows: “Meeting in the office of Ennis

and Associates between Chester Waxman, Paul Ennis, Kevin Hope. Attending to necessary

revisions of said “Agreement to sell shares in I. Waxman & Sons Limited, by Chester

Waxman.”

[572] Chester said he and Morris were at Ennis’ office at least twice during July to review

and sign the Lasco Covenant Agreement. He signed it on July 26, 1983.

²⁰⁸Morris, January 26, 1999

[573] Ennis said Morris signed the Lasco Covenant Agreement on July 27, 1983:

Ennis, January 14, 2000

Q. …you decided that you would get Morris Waxman to sign this agreement so that if,

God forbid, anything should happen to Morris, Chester would not be stuck with Michael

Waxman doing anything that might upset the apple cart? That’s part of it though, isn’t it.

A. That’s part of it and how about if something happened with Chester Waxman and his

sons? It’s a two-sided coin, sir.

Q. And I’m suggesting to you that it’s self-evident that the death of a principal that you

were concerned about in July 1983 was the death of Morris Waxman?

A. No, not particularly.

[574] Ennis gave evidence that on July 27 they also discussed the sale of Morris’ shares to

Chester. His notes contain no reference to any such discussion.

[575] Morris said Chester told him there was a document that had to do with the Lasco deal

that had to be signed, so he signed it.

Morris, January 26, 1999

Q. Were you told anything more than you just said?

A. No.

Q. And did you have any understanding at the time you signed this document as to

whether or not it might be connected to a sale of your shares?

A. I definitely did not.

Douglas works at IWS

[576] Morris’ younger son Douglas worked at IWS in the summer of 1983:

Douglas May 31, 1999

A. I was a summer student, hard physical labour. One job was working a Jack hammer.

They were preparing a large building at the Centennial property for the installation of a

copper chopping line. Other things I did were painting cranes, I did work on a tow motor.

Q. Who assigned you to do this job as a manual labourer at the company?

A. I understand the arrangements were made through Chester.

[577] Delay of Share Sale [July - December 1983]

[578] Chester said the main reason he and Morris decided not to proceed immediately with

the Share Sale was that in June or July 1983, Alex Murray, a real estate agent who was

looking for a site for a new hospital in Hamilton, approached Morris about a possible purchase

of the Centennial property. That delayed the Share Sale.²⁰⁹²¹⁰There was no rush to complete

it although he and Morris promised each other they would endeavour to close before the end

of the year.

[579] Ennis made a note in JB 2557 (also at Ex 289, tab 41) on August 8, 1983, recording a

call from Chester, instructing him to prepare a letter to Alex Murray²¹¹. JB 2733/Ex 289 tab 37

is a draft of the letter Ennis prepared, confirming that Morris and Chester were willing to

negotiate to sell Centennial for a hospital use. A copy of the letter as signed is at tab 39 of

Exhibit 289.

[580] Morris surmised that he was asked to sign the letter because Chester was on the

Board of the hospital.²¹²Chester’s contention that the sale of Centennial delayed the Share

Sale was put to Morris:

Morris, January 26, 1999

²⁰⁹Chester, September 21, 1999; October 7, 1999; and October 22, 1999

²¹⁰Chester, September 21, 1999

Q. Now, why didn’t share sale—a share sale agreement and ancillary documents, a lease, get concluded in the July 1983 time frame?

A. There’s several reasons. The main one, in my opinion, was the fact that Morris was approached by Alec Murray Real Estate, two agents.

They were out looking for a site for the new east end ambulatory care center that was supposed to be built in the east end of Hamilton and

they were acting on behalf of the St. Joseph’s Hospital and they thought that the Centennial Parkway property would make a great site for it.

Morris had met with them two or three times.

Q. What time frame?

A. I think June, July, 1983. We both thought that the property possibly could be sold for far—substantially more than the book value,

possibly. That was one of the main reasons that we stopped and gave the property a chance to be sold over the next several months and to

see if the hospital would pick it up and at a price substantially higher than the book value.

²¹¹Ennis January 18, 2000

Q. And Chester first told you about this possibility of selling Centennial to the hospital at or about the time he called you in August 1983. Isn’t

that so?

A. It’s possible. It’s possible that Morris mentioned it to me as well.

Q. On your record it was mentioned to you in or about August 8th, 1983. Right?

A. That’s only some three and a half weeks after the July 11th draft.

Q. I know, but that’s when it was mentioned to you?

A. Absolutely. That’s what’s marked down in my services performed.

Q. And on your record that’s the first time this possibility of selling the Centennial property to the hospital was mentioned to you?… The

correspondence referable to Centennial occurred in August of 1983 after the Lasco covenant had been signed… The issue of selling the

Centennial property to the hospital first arose with you in August 1983. Correct?

A. Yes, it appears that way, correct.

²¹²Morris, January 26, 1999

Q. Now your brother contends in this litigation that the possible purchase of this property

for the erection of a hospital in the east end put share sale discussions between you and

him on hold?

A. Never happened. There were no on hold discussion to put on hold (sic).

Findings - Early 1983 to End of Summer 1983

[581] I find that Michael prepared Exhibit 47 before his meeting with Chester in early 1983. I

accept Michael’s evidence about their discussion at that meeting, including his mention of

SWRI and his insistence upon his and Morris’ rights within IWS.

[582] If it were not clear to Chester before then, it was certainly clear in early 1983 that

Michael would push hard to join IWS, would champion the rights of Morris’ side of the family

and would forcefully challenge Chester in a way Morris would not. Michael was, and is, more

realistic, sophisticated and aggressive than Morris. He did not, and does not, hesitate to

confront Chester. He was, and is, concerned about the lack of respect shown by Chester and

his sons to Morris. He has an MBA and was and is capable of knowledgeably questioning

Chester’s conduct of IWS’ financial affairs. While at the time Michael knew nothing about the

alleged abuses described in these Reasons, I find that Chester was feeling increasingly

threatened by Michael and was concerned that if given the opportunity, Michael would learn

about them, tell Morris and seek to set things straight.

[583] I do not accept Ennis’ evidence that the discussion about “sale of shares” in February

1983 was with respect to a horse. Rather, as his notes (JB 2557) indicate, I find that in

February 1983, shortly after Michael confronted Chester, Chester, Robert and Ennis were

generally discussing the sale of Morris’ shares to Chester. I reject his evidence about a

discussion with Morris about the Share Sale at the synagogue in May of 1983. There is no

clear mention in any of the contemporaneous documents that Morris attended any meeting

about the Share Sale in the summer of 1983.

[584] I reject Linton’s evidence about reviewing the 1982 IWS financial statements with

Morris.

[585] I accept Morris’ evidence that he did not discuss the Share Sale on June 21, 1983.

Ennis’ June 21 note in JB 2664 relates to Sheppard’s Quarry and not the Share Sale. I reject

Ennis’ evidence on the point.

[586] I find that by June 1983, the possibility of Morris’ death was animating Chester, as

Ennis’ June 22^ndnote discloses.

[587] When Chester and Ennis met for three hours about the Share Sale on June 21, 1983,

they were discussing an arrangement under which Morris would receive the $700,000

allocated to him in the February 1982 bonus minute plus $2,650,000.²¹³

[588] I accept Ennis’ evidence that Chester directed on June 21, 1983, that the rental

payable by IWS to Morriston and Chesterton for the Blue Building and surrounding lands at

Windermere and the Back 7.7 Acres at Centennial in the draft July 1983 lease would be

$5,000 a month.²¹⁴I reject Chester’s evidence that he and Morris agreed in July 1983 upon a

rent of $5,000 because Chester agreed to assume environmental liabilities and look after the

less fortunate members of the family. This is the same rationale Chester later gave for the

$2000 per month rental in the December 1983 lease.

[589] I accept Ennis’ evidence that he did not review either the draft Share Sale Agreement

or the draft lease with Morris.

[590] I find the $2.65 million share price contained in the July draft Share Sale Agreement

was not a negotiated figure, but Linton’s low-range figure of $1.5 million plus the unpaid $1.14

million dividend mentioned in his November 15, 1982, memo (JB 2473.)

[591] I find that when Chester realised in July he would not be able to acquire Morris’ shares

immediately, he decided that some stop-gap measure was needed. He was concerned about

Morris’ health, and wanted to prevent Michael from doing anything to foil his plans in the

meantime. Chester therefore instructed Ennis to draft JB 2717, the Lasco Covenant

Agreement [to which Ennis referred in his notes and account as the “Agreement to sell

shares.”]

[592] At that time, Ennis considered Chester [not Chester and Morris] to be his client:

Ennis, January 14, 2000

Q. Look at the entry [in Kevin Hope’s SPD, JB 2687] for the hour of two o’clock. Do you

see that? It says client is Chester Waxman… And it’s draft agreement re Morris

²¹³Ennis, January 14, 2000 and January 18, 2000; Exhibit 289, Tab 10 (Share Sale Brief)

²¹⁴Ennis, November 29, 1999

Waxman?… That’s exactly how Mr. Hope understood it. Chester Waxman was the client

and [Hope] was drafting up this covenant… And you [Ennis] say the whole point of this

covenant was to somehow cover a hiatus before the share sale documentation?… And

just looking at this same note, do you accept that Mr. Hope wrote at the bottom here in

the last two lines: Chester Waxman meet with client and P.H.E. re agreement re Morris

Waxman?

A. Chester Waxman is the client.²¹⁵

[593] I have not accepted Ennis’ evidence that Morris understood the Covenant Agreement

and the Share Sale to be part of the same transaction. I have accepted Morris’ evidence on

that point. I have not accepted Ennis’ evidence that he discussed the Share Sale with Morris

on July 21, 1983. I have found that their discussions on July 21 were about Sheppard’s

Quarry and on July 27 about the Agreement to Sell Shares [i.e., the Covenant Agreement.]

Ennis had Morris sign the Covenant Agreement without advising him that he was acting only

for Chester and without suggesting Morris obtain independent legal advice with respect to it.

References to the “Agreement to sell shares” in Ennis’ account do not corroborate Chester’s

and Ennis’ assertions that they discussed the Share Sale with Morris during July 1983.

[594] I find that beginning in the fall of 1982 through July 27, 1983, Ennis met with Chester

alone, discussing various concepts, structures and methods of financing Chester’s purchase

of Morris’ shares. From a review of Ennis’ records and from the totality of Morris’, Chester’s

and Ennis’ evidence, I have concluded that Morris was not involved in or aware of Ennis’ and

Chester’s discussions.

[595] I find that the possibility of selling the Centennial property was first discussed after the

Covenant Agreement/Agreement to sell shares had already been signed. A possible sale of

the Centennial property was yet another of Chester’s ex post facto attempts to explain Share

Sale events - in this case, the delay between July 1983 and December 1983.

Mid to Late 1983

Economic Outlook - Late 1983

[596] I mentioned earlier Chester’s evidence that Morris agreed to a low Share Sale price in

part because IWS was in difficult times. Chester did not differentiate between the economic

situations in 1982 and late 1983, denying that the economy had improved. When he was

referred to JB 2983, a December 28, 1983, memo in which Linton mentions a marked

increase in activity at IWS Ferrous, he suggested that Linton was posturing.

[597] JB 2796 reflects that as of October 24, 1983, IWS Ferrous was predicting a 25%

increase over 1983 in 1984 shipments. JB 2772, a minute of a September 29, 1983, IWS

Ferrous management meeting reflects increasing scrap shipments.

[598] In JB 2998, Linton refers to “an increase in production as general economic conditions

improved over depressed levels through 1982.”

[599] JB 2836A, a 1983 Third Quarter report of the Conference Board of Canada, contains

the following:

The Canadian economy is recovering from its most severe recession since the great

depression… The recovery commenced in the first quarter of 1983… Demand for base

metals will improve in 1983-1985… The industry [primary metals sector] began to turn

around early in 1983… it gained strength during the spring.

[600] IWS’ tonnage fees from IWS Ferrous increased from $603,054 in 1982 to $730,848 in

1983.

[601] At the end of 1983 a new copper chopper was being installed at Centennial. In 1983,

IWS spent $427,180 on copper lines.

[602] Alleged Share Sale Negotiations - Late 1983

[603] Chester said he and Morris kept negotiating between August and December 1983.

Morris decided that after the Share Sale, he wanted to continue on as President of IWS. He

also wanted unfettered control of the IWS waste division, saying he thought he could earn an

additional $500,000 per year from that division and was willing to stake his future earnings on

it. They agreed that Michael and Shirley would remain on the IWS payroll and receive

benefits, and that Shirley and Morris would have company cars.

²¹⁵Ennis, January 14, 2000, January 18, 2000; Exhibit 289, Share Sale Brief, tabs 17 and 30

[604] Ennis said in chief that between August and November 1983, when he saw Morris, he

would ask if he and Chester had worked out the final details of the Share Sale and Morris

would reply that they were working at it.

[605] Morris denied that these or any Share Sale negotiations were taking place.

[606] Linton said he met with Chester regarding the Share Sale four or five times during the

fall of 1983. Morris was never there. He never spoke to Morris about the Share Sale, even

though he met with him once or twice a week.²¹⁶

Morris’ Declining Health in the Fall of 1983 - October - November 22, 1983

[607] Both Chester and Ennis downplayed their awareness of Morris’ health problems in late

1983. For either of them to have expressed concern about Morris’ health would have opened

the door to questions about how they could have allowed him to complete the Share Sale at

such a time.

[608] Chester said that in the late fall of 1983, it was not apparent that Morris was upset or

unable to concentrate. He did everything as before. His health, business life, humour, good

nature and toughness did not change:

Chester, October 25, 2000

A. …Just an angiogram, a diagnostic tool called an angiogram, was going to take place

sometime soon.

Q. Can you accept an angiogram would be done because there was increasing concern

about his heart?

A. Quite possible, but that would be the doctor’s call.

Q. Did you yourself know?

A. Morris didn’t conduct himself as if there was a major problem…

[609] Mr. Tim Worron (“Worron”) of Proctor & Gamble said Morris was “about as white as

that sheet of paper and sweating all the time.”

[610] Dr. William Goldberg (“Goldberg”) was called to give evidence by counsel for the

Plaintiffs. He traced the history of Morris’ heart problems, explaining that he had suffered from

aortic valve insufficiency and high blood pressure since the 1950s. In October 1981, he had

referred Morris to Dr. Paul Tanser (“Tanser.”) Tanser wrote to Goldberg on September 21,

1983 (at JB 1061) reporting that Morris had increased left ventricular hypertrophy and

ischaemia, as well as “very dramatic left ventricular enlargement.” Tanser scheduled Morris

for catheterizaton and angiogram.²¹⁷

[611] During a holiday in Nassau in October 1983, Morris and Shirley both noticed he tired

quickly. The day after their return, October 18, 1982, he fainted and was taken to hospital.²¹⁸

[612] Shirley said Chester called her to say Morris had fainted and was at the hospital in the

emergency department.²¹⁹

[613] Chester said that Morris refused to go to the hospital after he fainted. Chester

telephoned Shirley and asked her to call Morris to insist that he go. A day or so later, Morris

told him new blood pressure pills had caused the episode. He did not appear to be concerned

about his health.

[614] When Goldberg examined him at the hospital on October 18, Morris was in a state of

atrial fibrillation. He advanced Morris’ angiogram.²²⁰

[615] Shirley said that on October 18, 1983, Goldberg said he thought Morris was going to

require open-heart surgery.

[616] Goldberg met with Morris and Shirley again on October 28, 1983, and described the

risks of the angiogram procedure, including death, stroke, heart attack, damage to major

vessels and arrhythmia. He also described the risks of open-heart surgery, including death,

stroke, lung failure and brain damage. Shirley and Morris seemed to be frightened.

Morris’ Condition in the Weeks Leading up to the Angiogram on Dec. 29, 1983

[617] The Defendants rely on the contents of a report prepared by Goldberg dated

November 22, 1983 (at JB 2042), in attempting to prove that at trial, Morris overstated the

²¹⁶Linton, May 25, 2000; June 12, 2000, and June 13, 2000

²¹⁷Dr. Goldberg, June 8, 1999 [no transcript]

²¹⁸Morris January 26, 1999

²¹⁹Shirley, May 31, 1999

²²⁰JB 2042 - Dr. Goldberg’s reports

gravity of his condition and his health concerns in late 1983. The relevant portion of that

report is in the endnote to this paragraph.²²¹

[618] Morris was asked whether his health problems affected his ability to conduct his daily

business in the latter part of 1983:

Morris, January 26, 1999

A. I came into the office every day I could. I did what I could do. Like any worry, if you

keep busy for a minute, you might forget about it.

Q. What were you worried about?

A. I was worried about my health. I was worried about the upcoming angiogram and I

was worried… what might happen after that. I did the best I could under a trying

situation…

[619] Shirley described Morris’s physical and mental state:

Shirley May 31, 1999

A. Withdrawn. Preoccupied. Frightened. Nervous. Just what [one] would expect. I

remember having to address him two or three times to get his attention when I wanted to

ask him a simple question. He used to enjoy reading the Spectator every evening and

the Spectator is not the New York Times it takes about 30 seconds to read our paper.

But he would sit there for an hour looking at the same page and his powers of

concentration were certainly not what they should have been.

[620] Michael said Morris was afraid, distracted and preoccupied.²²²

[621] Goldberg, although not a psychiatrist, has training and experience in behavioural

medicine. He said Morris was very concerned, as anyone would be in that situation. In his

experience, patients facing life-threatening procedures such as open-heart surgery are very

preoccupied. It is not a good time to make major decisions if they can be deferred.

²²¹Excerpt from JB 2042, Goldberg’s report of November 22, 1983: “I saw this patient in the office today. He has headaches and he feels

tired. I really don’t think there is anything going on with his heart. He is not that short of breath. A physical examination was unremarkable.

His heart was regular at 70. His blood pressure was 160/80. He is on prazosin 5 mg. t.i.d., digoxin.25 mg. daily and diazide 2 per day. I think

he may be having a flare-up of cervical disc disease. I suggest he use a collar for the next week. It worked before. I think some of his

headache is just a contraction-type headache. I doubt it is due to the prazosin vaso-dilator effect, but it is a possibility. In any case, I think

from a cardiac point of view, he is doing very well. He is going to have catheterization sometime in January and then we will make a decision

as to where we go from there. He thinks he may be allergic to dye. I have discussed this with Dr. Paul Tanser and he is going to make sure

that that part is clear prior to the catheterization…”.

²²²Michael, May 10, 1999 [no transcript]

[622] Dr. Joel Sadavoy (“Sadavoy”), a psychiatrist, was called to give evidence by counsel

for the Defendants. After reviewing the correspondence prepared by the treating physicians in

the same period, he offered the opinion that there was nothing in it to suggest that Morris’

capacity to make a decision was impaired. Sadavoy did not speak to any of the treating

physicians, but based his opinion upon what he did not find in the letters.

[623] In cross-examination, he said that a patient may understand his medical situation but

nonetheless be anxious and distressed. Some patients with anxiety have trouble

concentrating. Ruminative individuals such as Morris may become obsessive when facing

major surgery. Most patients will feel stress and anxiety, which relates, in part, to the prospect

of dying. It is common for patients to experience distraction, which can vary considerably from

patient to patient. He would accept Goldberg’s evidence that Morris was preoccupied during

the period leading up to his angiogram and open-heart surgery. Where a patient is

experiencing anxiety, distraction and a lack of concentration in advance of major surgery,

he/she may become more reliant on the guidance of trusted family members.²²³

November -December Final Share Sale “Negotiations”

[624] Chester said he “didn’t believe” he knew of Morris’ appointment with Dr. Goldberg on

November 22. He could not recall discussing the possibility of Morris’ death with Ennis the

next day, November 23, 1983.²²⁴

[625] JB 3252, an Ennis account, reflects a meeting on November 23, 1983, at which Ennis

and Chester discussed an option to purchase Morris’ shares for $3 million. Exhibit 289, tab

43/JB 2853, Ennis’ note of that meeting, reads as follows:

Re Estate Matters

(1) Value IWS shares at $3 million - ${illegible} million - tax implications - option

(2) leases - 50 years - rental 20 year option - consent of Lasco

-fixed rent CPI

Lasco leases

insurance

²²³Dr. Sadavoy, August 31, 2000

²²⁴Chester, November 15, 2000

if MW dies

1 million payable as follows

250 M immed

750 M over 2 years 1/3 shares give up

balance 1 million [emphasis added]

[626] Ennis was cross-examined about that note:

Ennis, January 19, 2000

Q. I suggest… you did talk about Morris’ health didn’t you?

A. We talked about Chester’s health too. We didn’t talk about Morris’ health. There was

nothing wrong with Morris. Morris was strong as

an ox and he prided himself about his strength and ability, his physical prowess.

[627] Ennis’ note did not record that Morris was at the November 23 meeting. However,

Ennis said he thought Morris must have been there because he did not think Chester would

be determining in Morris’ absence what Morris’ estate would get in the event of his death.²²⁵

[628] Morris said in November 1983, Chester asked him out to dinner and broached the

subject of buying his shares for the first time since late 1981. Morris said he was not

interested in selling. Later when Chester asked if he had changed his mind, Morris said he

hadn’t. Later still, Morris asked Chester not to ask again.²²⁶He wasn’t feeling well and felt

Chester was trying to wear him down.²²⁷Morris had no idea Chester was meeting with Ennis

or that a Share Sale Agreement, lease and other documents were being prepared.²²⁸

²²⁵Ennis, December 2, 1999

Q. …you went so far as to say, that he probably was there, as I heard your evidence because there’s reference to his will?

A. Yes, I recall that.

Q. you… interpret this note to say that Morris was there?

A. It says if Morris Waxman dies, $1 million payable to spouse 250 M I’ve got 750 M over two years and the balance of one million dollars

and one-third of the shares. To me I would believe that Morris was there and we were talking about it. I don’t think that Chester would be

determining for Morris what Morris’s estate should in fact get. And that’s the reason I believe that Morris was there.

²²⁶Morris, January 26, 1999

²²⁷Morris February 12, 1999:

Q. In respect of the [fifth] meeting, when you asked Chester to come into your office, why did you do that? Having twice told him that you’re

not going to sell your shares, and he shouldn’t raise it with you. Why did you call him into your office?

A. Because I was feeling weaker as time went by and I felt he was trying to wear me down. I talked to him as a brother. I remember that

incident. Instead of sitting behind my desk, and him in front, when he sat down in front of my desk, I sat in the other chair in front of the desk

and talked to him.

Q. But wear you down? He only raised it twice. What do you mean, wearing down?

A. To me, that was wearing down. Looking backwards… no I won’t look backwards. To me that’s what it meant.

Q. And so you specifically raised it yourself on the third occasion and said: Come in here Chester and by the way don’t ask me that again. Is

that right? A. That’s what I did.

²²⁸Morris, January 26, 1999

[629] Chester said that by November of 1983, the sale of Centennial was unlikely. Until the

first or second week of December, he and Morris concurrently tried to sell Centennial and met

repeatedly to discuss the Share Sale. Within three weeks of the date on which the Share Sale

documents were executed, they agreed a $1,000,000 IWS dividend would be declared,

Chester would pay Morris one million dollars up front, Morris would loan $500,000 to IWS and

would receive a promissory note. In December, he met with Ennis and Morris once or twice to

clarify issues regarding the redemption of shares and the three of them attended two

meetings at Ennis’ office, and at least two meetings at Chester’s.²²⁹

[630] Chester said that early in their negotiations, Morris told him that he did not want to be a

minority shareholder. By the end of July 1983, he knew Morris was only interested in selling

all of his shares.²³⁰Yet Ennis’ notes reflect that on November 23, 1983, Chester and Ennis

were discussing an option. On November 28, 1983, when Chester met with Ennis for 4½

hours, they again discussed an option.²³¹[Exhibit 289, tab 44/JB 2557 and JB 2861.] Exhibit

168 contains an Ennis note of that meeting, which reads in part as follows:

$500,000 down, $500,000 prior to Dec. 31/84. Balance - option to purchase 50% of

balance option for 10 years - 50% must be picked up within 5 years of 10 year option.

On death of MW - triggers 1 million worth within 90 days - option to IWS, CW, his heirs

and assigns: [emphasis added]

[631] The same note also reflects that Chester advised Ennis that the IWS rent to be paid to

Morriston and Chesterton for the Blue Building Lands and the Back 7.7 acres was to be

$2,000 per month. The rent would not change even after the IWS Ferrous lease expired or

was cancelled and the properties covered by that lease would also be included.

[632] When Ennis was asked in chief whether he and Chester discussed the reduction in the

rental rate from $5,000 [in the draft July 1983 lease] to $2,000 per month, he said, “I didn’t

discuss it. That’s the figure I was told. I was told it’s $2,000. I didn’t get into a detailed

²²⁹Chester, October 25, 1999

²³⁰Chester, October 25, 1999

Q. In any event, were you still at the end of July intending to buy your brother out?… Were you intending to buy at the end of July, all of his

shares in I. Waxman & Sons?

A. Yes.

Q. And did you know at that time, at the end of July in 1983 on your evidence that that’s all your brother was interested in?

A. Yes.

²³¹Ennis, January 18, 2000; Exhibit 289, tab 44 (Share Sale Brief)

discussion as to why it should in fact be less. I was just told $2,000.”²³²He said something

quite different the next day when he alluded to continuing family obligations.²³³

[633] An Ennis note in JB 2557 reflects that on Monday, December 5, Chester and Ennis

met for three hours to talk about the Share Sale. In JB 2877 Ennis’ associate Hope wrote:

“Chester Waxman draft, proposed outline. Estate freeze, proposed p/f [purchase from] Morris

Waxman.”²³⁴

[634] JB 2887 [Ex. 289 tab 48] is Hope’s December 6, 1983, handwritten and typed outline

of a draft proposal. JB 2887 contains several notes about the lease. There is no mention of

environmental indemnity on December 6. Ennis added the following four items in his own

handwriting:

(1) No jointly owned properties to be sold, mortgaged, hypothecated, pledged or

charged without unanimous consent.

(2) No additional acquisition merger or any dealing in shares of Chesterton and

Morriston without unanimous consent.

(3) Any action or default under lease - unanimous consent.

(4) Lease cannot be assigned without unanimous consent - by Landlord.

[635] Ennis’ evidence contains the following:

Ennis, December 3, 1999

Q. Did Chester tell you whether there had been any discussion on the terms… with

Morris?

²³²Ennis, December 2, 1999

²³³Ennis, December 3, 1999:

A. I’ll repeat it again. I’m sorry, I don’t wish to belabour this particular point. Chester had financial obligations with respect to his family. He

was addressing them. He was prepared to carry on with these financial obligations. Morris was not part of I. Waxman & Sons. They weren’t

his obligations; they were Chester’s obligations. So they would come out of I. Waxman & Sons and however they worked out their tax

situation. And Chester felt there should be compensation for that. And he advised me he and his brother had agreed $2,000 a month. You

must remember it goes a thousand dollars each. It was adequate, as far as Chester was concerned I might advise you, and my friend is

going to jump up right now because I’m offering evidence here, not hearsay evidence. I happen to know there were tremendous expenses

involved with the family and Chester was very gracious with respect to giving employment to members of his family, their hospitalization. And

his brother Davy in particular had very, very serious problems and a lot of money was spent and that all came out of I. Waxman & Sons. It

was on a continuing basis. It wasn’t something that just ceased.

²³⁴Ennis, January 18, 2000

Q. Yes. And look at tab 46, your diary for Monday December 5th, 1983, JB 2557, you again met with Chester Waxman in regard to the share

sale?

A. Yeah, I also met with him with respect to a writ for Ghengis Cohen that was a Standardbred horse.

Q. And so Hope drafted the document and then you Paul Ennis looked at it and made your comments. Fair?

A. Couple times from the looks of it.

Q. And the next 2 pages reflect another draft of an outline of proposal again with handwriting on it including your own. Is that so?… first of all,

we can agree this is an option?… And that as drafted the vendors were to be Morris and his wife Shirley?

A. Yes [to both questions]

A. Yes, did he tell me and… I in my conversations subsequently with Morris had the

same conversation. I didn’t have a draft in front of me when I spoke to him about it….

We spoke openly, we spoke freely, and I did inquire of Morris and Morris said yes, I

understand all that and I don’t want any problems in the future for Chester and his family

and I don’t want any problems for my family in the future. I’m content what you explained

to me in the lease seems fair to me and I’m content with it… Now, if you’re going to ask

me if I have that recorded in a note or at a meeting, I don’t. As I told you, I would stop by

the Waxman offices on a Friday night or Thursday night as the case may be, and we

would have a small discussion. I didn’t take a tape recorder with me. I didn’t take a note

pad with me. I might have even called them from the office. He might have called me

about other matters and I would mention this to him and he would say it’s fine, it’s all

being looked after. I’m content. And I accepted that at face.

[636] Ennis’ note, tab 50A of Exhibit 289 [and at Exhibit 174] contains the following:

Take out $2 mil taxable dividends in IWS. MW will gift CW 1 mil of taxable dividends

which CW gives back to MW - other 1 mil back to co. in form of loan until 1985 -

$500,000 returned to co. pd to MW - other $500,000 will be pd bet 86-88. All shares to

go. 1 mil in 83, 500,000 in 84 1 mil in 85, 500,000 in 86. All 3 have right to buy shares. 1

Gary decl ½ Ancaster. Prime less 2%. Side letter only.²³⁵[Emphasis added.]

[637] Ennis’ cross-examination includes the following:

Ennis, January 18, 2000

Q. And, sir, just up to this time, December 7th, and looking from November 23rd to

December 7th, do you accept that what your notes reflect up to this time are various

contemplated structures and vehicles that Chester was discussing with you?

A. Yes. I have never denied that fact.

Q. But at no time and particularly not at this time did you send anything to Morris to

indicate what was being discussed. Isn’t that so?

A. Not at this particular time. Nothing has been finalized as yet so I didn’t see any

purpose in calling Morris and saying by the way we’re going through a lot of

²³⁵Exhibit 289, Share Sale Brief, tab 50A

permutations and various aspects of the sale of shares to Chester. Nothing was

finalized. You can see by December 7th it’s changed again. [Emphasis added.]

[638] December 8, 1983: Transfer of Shirley’s IWS and Morriston Shares to Morris

[639] JB 2894 and 2895 [and at Ex 289, tab 53] are IWS share certificates dated December

8, 1983, transferring Shirley’s 56¼ shares to Morris.

[640] Chester said Morris asked for Shirley to be removed as a director of IWS.

[641] Ennis said Chester instructed him to prepare documentation for Shirley’s resignation

as a director of IWS (at JB 380) and of Morriston (at JB 415) and for the transfer of her IWS

shares to Morris.²³⁶

[642] Shirley recognised her signature on the share certificates JB 2894 and JB 2895, but

did not remember signing them. She did not understand she was transferring IWS shares to

Morris or resigning as a director of IWS.²³⁷Ennis never provided any advice or suggested she

seek ILA. She never signed an IWS minute recording her resignation as a director of IWS.²³⁸

[643] Morris said that he signed the minute, but he did not know when, where, or in what

circumstances. He did not know why Shirley transferred her shares.²³⁹

[644] I note that in Ennis’ Services Performed, JB 2557 (also at Ex. 289 tab 126), there is a

note of a meeting between Ennis and Linton on May 9, 1984, which reads as follows:

Meeting PHE, Wayne Linton gave him minutes, share certificates, notices to be signed

by Shirley Waxman and returned to our office for filing

December 12, 1983

²³⁶Ennis, January 19, 2000; JB415 (second last page of the Minutes tab)

²³⁷Shirley May 31, 1999

Q. Do you know today why it was necessary for you to resign as a director and transfer your share?

A. No, sir I don’t.

Q. And the same with IWS, do you know why you transferred your share-holdings in IWS to your husband?

A. No, I don’t.

²³⁸Shirley May 31, 1999:

Q. And beneath that, there’s an indication to the directors of I. Waxman & Sons “I hereby tender my resignation as a director of the above

company to become effective upon acceptance of same dated at Hamilton, Ontario this eighth day of December 1983 and someone has put

the initials S W but you did not sign the documents?

A. I did not, apparently.

Q. And we were told by Mr. Ennis he has no signed copy of this?… And do you know whether you have ever formally resigned as a director

of IWS?

A. Apparently not.

²³⁹Morris, January 26, 1999

[645] Ex 289 tab 55 [also at pps 213-214 of JB 2664], an Ennis note dated December 12,

1983, contains the following:

Wayne Linton - co. redeeming shares doesn’t work - $3 million in bonuses accrued -

reallocate to Chester most of bonuses. $1.1 in taxable dividends in Dec at $1 million.

$375 to gift Morris - by Chester. Morris has $375 net after taxes. Company will get back

refundable tax up to $285,000 - $1,140,000 -

Company in July or August gets refundable tax back of $250,000. [Emphasis added.]

[646] Chester said that on December 12, 1983, the contemplated purchase price was $3

million. Ennis’ note reflects that Chester was to gift his $375,000 to Morris, but Chester said

that was not what he contemplated.

[647] Ennis said Exhibit 289, tab 55 reflects what Linton told him. In cross-examination, he

denied knowing about a bonus reallocation, saying it was no concern of his. He did not care

how much Morris would get back net after taxes. He did not care if IWS would receive

refundable tax. He did not care what Chester and Linton were doing with dividends. He was

not giving tax or accounting advice. He was just preparing documents.²⁴⁰

²⁴⁰Ennis January 18, 2000

Q. December 12/83 share sale joint brief tab 55, a copy from jb2664 pages 213 and 214?… Next, the entry says $3 million in bonuses

accrued reallocate to Chester most of bonuses…. And that he had what Wayne Linton told you?

A. That’s what I wrote down.

Q. And you knew what these $3 million in bonuses were because you had taken the note reflecting the minute in the first place?

A. I did have a minute, yeah.

Q. And you knew that you were being told by Wayne Linton that what he was contemplating was that the bonuses that had been … set out in

that minute, were going to be reallocated to Chester?

A. Well, that’s what the note says.

Q. And he told you that in the context of the share sale?

A. It seems to be in reference, we talking about a share sale.

Q. Yes. …I’m suggesting that it was obvious in your conversation and it’s obvious from your note that Linton was telling you in the context of

the share sale, he was looking at reallocating most of the three million dollar in bonuses to Chester?

A. I don’t take that interpretation of it.

Q. What other interpretation is there?

A. It’s of no concern to me. I don’t care how much Morris gets hack net after taxes and I don’t care if the company will get back refundable

tax up to $285.000 and it says company in July or August gets refundable tax back of $250.000. That’s got nothing to do with me. I don’t

particularly care about that information… what I wrote down says Wayne Linton, doesn’t say spoke to Linton. I assume Linton gave me this

information.

…Q. another of Wayne Linton’s notes, tab 33 JB 2801, this note says that a taxable dividend on a net cash basis, would be declared in

favour of Chester and Morris, each in the amount after tax of 375, and in turn Chester would gift his 375,000 to Morris. Is that in fact precisely

what your note reflects on page 214 of your notes at JB 2664 tab 55 of this share sale brief?

A. It says 375 to gift Morris by Chester. But look what you’re referring me to. In fairness because you’re an exceptionally fair person, Mr.

Harrison you have one page of handwritten notes of Wayne Linton which I have never seen and then you refer me—that would be tab

number 32, he’s the accountant now. Then you refer me to tab 33. One page, two pages, three pages, almost four pages and what you’re

saying to me is did Wayne Linton not tell you all of that information? I’ll tell you he just gave me a brief smattering of what went on. I can’t

figure out what’s going on here. I can’t. I didn’t care about it.

Q. You never understood what Chester and Linton were doing with these dividends, did you?

A. I don’t care what they were doing.

Q. You didn’t care then and you don’t care now. You just did what you were told?… this note of Linton at tab 33, this note on the first page

under item one also refers to a refundable dividend tax to be received in August or September of 1984. Linton has indicated an amount of

250,000, am I right that your note indicates that the company would get back a refundable dividend tax of up to 285,000?

A. That’s quite correct

[648] Linton denied giving Ennis the information recorded in Exhibit 289 tab 55.

December 13, 1983

[649] JB 2902 contains two Ennis notes re Chester and Morris dated December 13, 1983.

Ennis and Hope were still drafting option agreements. JB 2902 reads in part as follows: “If

IWS declares dividend of approximately $1,100,000, of these dividends MW will gift 1/2 to

Chester, who in turn will gift 1/2 back to MW. Thus MW will get $1 million.”

[650] This gifting concept had changed from the day before.

[651] Ennis said, “They just switched it around, I guess. In effect it still comes up to $3

million. I didn’t ask why they wanted to switch it around. It’s Linton who’s calling me and telling

me what’s going on.”²⁴¹

[652] Chester said the dividend gift-back arrangement was changed because Morris insisted

he wanted the documents to reflect a $3 million purchase price on their face. He asked Morris

why he would “blow money on taxes,” Morris responded that he wanted the deal to read $3

million, even if it cost him more in taxes.²⁴²

[653] Linton “Musings” About the Financing of the Share Sale

[654] Linton prepared a number of documents (his “musings”) suggesting ways for Chester

to come up with the funds needed to pay for Morris’ shares.

Their Significance

[655] Linton said in his musings, he considered reallocating 1982 bonuses to Chester to pay

for Morris’ shares.²⁴³As mentioned earlier, in Ex. 289, tab 34, probably prepared in the

Q. Did it occur to you after you got this communication to say on behalf of Morris, wait a moment what’s going on here. You’re reallocating

bonuses?

A. I wasn’t giving any tax advice. That was not my concern. I was not advising Morris as to his tax position. That was something he was

going to do himself and I wasn’t giving any business advice either. I was just preparing a document to indicate what the sale price was going

to be and the amount to be paid back over a period of time that was all my concern was. I’m not an accountant. I never gave accounting

advice. Morris could have always checked with Wayne Linton. He could have checked with anybody he wanted. That was not my function.

²⁴¹Ennis January 19, 2000

²⁴²Chester, September 21, 1999

²⁴³Linton, May 25, 2000:

Q. And so… if we could just follow this through, you have got projected 1983 drawings of 150 and about the same for Chester. And then you

talk about rearranging the bonus, but that factors in clearing the drawings account. Is that what these numbers show?

A. Yes. I’m showing here a gross bonus to Mr. Morris of 300,000 which, after tax, would be applied to his drawings account to net it out

Q. Right. Why were you contemplating the balance of the bonuses being reallocated to Chester, how did that factor into your thinking at that

time?

A. Again only to raise necessary funds to assist Chester in paying for the purchase. (Emphasis added)

Linton, June 13, 2000:

summer of 1983, he suggested reallocating a major portion of the 1982 bonuses to Chester

but leaving Morris’ $700,000 1982 bonus intact. By the time he prepared JB 2726/Ex. 289, tab

32, and JB 2801 in the late fall of 1983, Linton was suggesting that Morris forfeit a major

portion of his $700,000 bonus, and that it be reallocated to Chester so he could purchase

Morris’ shares.²⁴⁴²⁴⁵Linton also was suggesting that the capital dividend account could

provide money for Chester’s purchase.

[656] JB 2726 - Exhibit 271C/Exhibit 289 tab 32

[657] Linton said Chester had told him the purchase price was to be $2,650,000. In JB 2726,

Linton increased it to three million dollars to reflect his assumption that about $400,000 of

Morris’s 1982 bonus would be reallocated to Chester. He said a copy of JB 2726 was given to

Chester and a three million purchase price was used thereafter.

[658] JB 2726 includes the following:

Buy out Total

$3,000,000

…

(1) Should forfeit bonus of $700.000 set up 12/31/82…

(2) [therefore] must rewrite accrual re bonus and allocate to someone else [Emphasis

added.]²⁴⁶

JB 2801 - Exhibit 271G - Exhibit 289, tab 33

Q. And the point of this exercise was to find a way, ways to provide financing to Chester to pay—to raise funds to pay for the purchase.

Right? That’s what you were doing?

A. Yes, that was the object of the bonus reallocation.

Q. Right. There isn’t any doubt that the bonus reallocation and the share sale were directly connected in the calculations that you did, is

there?

A. No. They are connected in the fact that they were consideration in paying for the share sale.

Q. And you had expressly made that calculation and connected the two, as reflected on the first page of tab 33. Right?

A. I don’t think there’s any doubt about that.

²⁴⁴Linton, May 25, 2000

²⁴⁵Linton said JB 2726 tab 32 would have been the first note he made on the buy-out in 1983, JB 97 tab 35 was the second. JB 96 tab 34

was next and JB 2801 the next. JB 2726 was marked as exhibit 271-C, JB 97 as Exhibit 271-D, Exhibit X as 271-E, JB 96 as 271-F, JB 2801

as 271-G, JB 98 as 271-H.

²⁴⁶Linton’s evidence contains the following: Linton, June 13, 2000

Q. If I’m not mistaken this memorandum at tab 32 in the Share Sale brief [Ex. 289][JB2726] is the first time that you contemplate Morris

forfeiting his entire bonus. Right?

A. Yes, it appears to me if he was willing to do that, there were certain tax advantages to doing that, rolling it into the agreement.

Q. And of course whether he’s willing to do that all depends on your perspective of what he’s already entitled to and what the value is of

what’s left. You will grant me that?

A. I really didn’t carry it that far in my own mind…

Q. And you wrote down Item two with reference to forfeiting the bonus you said therefore must rewrite accrual re bonus and allocate to

someone else. Right?… And you wrote that because you thought the company would need a new minute to reflect this contemplated bonus

reallocation…

A. The note doesn’t say that.

[659] Linton said he wrote a four-page note in late November or early December of 1983,²⁴⁷

JB 2801/Ex. 271G/Ex. 289 tab 33, which contains the following:

(2) Bonuses on books

Mr. Morris projected 1983 drawings

Mr. Chester projected 1983 drawings

Bonuses rearranged as follows:

Mr. Chester

3,200,000

150,000

140,000 to 150,000

2,900,000

300,000

Mr. Morris

Total

3,200,000

[Emphasis added.]

[660] His evidence about JB 2801 also contains the following:

Linton, May 25, 2000

Q. And so… if we could just follow this through, you have got projected 1983 drawings

of 150 and about the same for Chester. And then you talk about rearranging the bonus,

but that factors in clearing the drawings account. Is that what these numbers show?

A. Yes, I’m showing here a gross bonus to Mr. Morris of $300,000 which, after tax,

would be applied to his drawings account to net it out.

Q. Right, Why were you contemplating the balance of the bonuses being reallocated to

Chester, how did that factor into your thinking at that time?

A. Again only to raise necessary funds to assist Chester in paying for the purchase.

(Emphasis added)

[661] He said he gave a copy of JB 2801 to Chester and then they discussed clearing out

Morris’ drawings account at the end of 1983.²⁴⁸He acted on Chester’s instructions and

reflected the reallocations in his working papers.²⁴⁹

²⁴⁷Linton, May 25, 2000; June 13, 2000

²⁴⁸Linton, June 12, 2000

²⁴⁹Linton, June 13, 2000:

Q. And that $300,000 reflects that the company would pay [Morris’] drawings to date times two to cover his taxes. Right?

A. Yes, after tax, the bonus would be used to retire his drawings account…

Q. And you discussed this with Chester?

A. Yes, I did.

Q. And the point of this exercise was to find a way, ways to provide financing to Chester to raise funds to pay for the purchase. Right?…

[662] Chester denied seeing JB 2801 or discussing it with Linton.²⁵⁰He said they did not

discuss the use of bonus money to buy Morris’ shares “…it would be immoral if I was to

reallocate the bonuses for the purposes of buying Morris’s shares.” As mentioned earlier,

Chester said the reallocation of the bonuses occurred in 1982 in the context of dealing with

the recession. He said Morris agreed in 1982 to give up approximately $400,000 of his

$700,000 1982 bonus. When asked whether Linton reallocated Morris’ $412,000 to him in the

context of the Share Sale, Chester said that was “nonsense.”²⁵¹

Chester, October 19, 1999

A. Yes, that was the object of the bonus reallocation.

…Q. Right. There isn’t any doubt that the bonus reallocation and the share sale were directly connected in the calculations that you did, is

there?

A. No. They are connected in the fact that they were consideration in paying for the share sale.

Q. And you had expressly made that calculation and connected the two, as reflected on the first page of tab 33. Right?

A. I don’t think there’s any doubt about that.

Linton, May 23, 2000:

Q. …your BB section… shows the payments in 1983 of the amounts that I reviewed on this tab one document in Exhibit 150, and then it says

there’s a column that says: Bonus reallocation, reallocations, and there’s a zero with a line through it, and then 649,050 to Chester, 412

away from Morris, 196.650 away from Sheldon Kumar, and 40.400 away from Harry and Sam. Right?

A. That’s right.

Q. How did that bonus reallocation entry come about?

A. I had a discussion with Mr. Chester about reallocating each of those bonus amounts. During that conversation he said he would talk to the

individuals involved about those reallocations, and I acted on his instructions to reflect the reallocations in the working papers. There was no

specific entry on our general ledger for these reallocations because it didn’t affect the bonus accrual account in any way.

Q. When did you have this discussion with Chester that you have just described?

A. Again, because of the continuity schedule I’m looking at, it would have been sometime during December, 1983.

Q. Other than that, do you specifically recall the timing of that discussion or… are you going by your bonus continuity schedule?

A. I’m just—I don’t recall the specific time, but from this I would have updated my schedules, as I said, immediately upon being given

instructions to make those reallocations.

Q. All right. What else did Chester say at the time that he had that discussion with you?

A. I recall him saying that there may be some delay in the payment of other bonuses, but not necessarily, that the amounts on the books

were going to be paid out as the 1981 bonuses were.

²⁵⁰Chester, October 19, 1999, pp. 1635-1638; JB2801 (Exhibit 289, tab 33) JB 2726 (Exhibit 289, tab 32)

Q. This is Mr. Linton looking at a possible share sale. Right?

A. It appears to be.

…Q. And you talk to him candidly?

A. Yes.

…Q. And here he is looking at on the first page, second item, bonuses on the books. Do you see that?

A. Yes.

Q. And he’s projecting your brother’s drawings for the year of 150,000. Do you see that?…

A. Yes.

…Q. …right underneath here, he says: Bonuses rearranged as follows. Do you see that?

A. Yeah, that’s what he says.

Q. Now, how could Mr. Linton have been thinking about reallocating all of these bonuses to you in—in or about August 1983 or whenever it

was, unless he thought he was free to do it?

A. I thought he described this as musings… I didn’t see them before this litigation began, all these pages here. Didn’t see them.

…Q. Look at joint brief 2736 [sic 2276] please. There’s another note of Mr. Linton. You will see at the top, someone has written: Say August

1, 1983. Now, in that note, Mr. Linton is contemplating that your brother should forfeit his bonus of 700,000. Do you see that at the top?

A. And this date is August 1st, 1983

Q. Mm-hmm.

A. Again, I haven’t seen it and Mr. Linton will have to answer for it himself.

²⁵¹Chester, October 19, 1999; JB2983

A. I say that’s nonsense. Never seen this before.

Q. And all that he did was he gave to Mr. Morris Waxman enough to cover his drawings after tax. You just say that’s nonsense?

A. Nonsense.

Q. And to be very clear, you never spoke to Morris about this bonus reallocation in the context of the share sale. Is that so?

A. Not insofar as it related to the funds I was going to need for the share sale, but it was discussed near the end that he still was going to

leave it.

Q. But it had nothing to do with the share sale or what you paid him. Is that so?

A. That’s correct.

Q. …Is it not the case, sir, that Mr. Linton spoke to you specifically about working with a

reallocation of the bonuses that had been declared in 1982 to facilitate the share sale?

A. Absolutely not.

…Q. Did you have discussions with Mr. Ennis about reallocating bonuses in the context

of the share sale?

A. No.

Q. Did you know that Mr. Ennis had had such discussions with Mr. Linton?

A. No. …I did not know that any bonuses were used or even being discussed to be used

as part of the share sale monies.

Q. And so Morris Waxman therefore would have no reason to know that any bonus had

been reallocated as part of the share sale, would he, because you didn’t know?

A. That’s correct.

Q. And so you know that in fact $412,000 of Morris Waxman’s $700,000 bonus referred

to in the minute, in fact, was reallocated. Don’t you?

A. Yes.

Q. So your position must be that that had nothing to do with the share sale, but came

about from way back in February 1982 when Morris initially told you that’s what he

wanted. Is that it?

A. And reconfirmed prior to it being reallocated, Morris was no longer a shareholder and

we were going to reallocate these into shareholders’ accounts for a specific purpose.

Q. And this reallocation I guess of $412,000 just sort of happened at the time of the

share sale?

A. It happened in and around that time, yes.

Q. By coincidence?

A. No, by—it was stated. It was discussed. Morris agreed with it and reconfirmed that it

would go into the shareholders’ account. He was no longer a shareholder when that

reallocation took place and that was done for banking purposes.

Q. When did the reallocation take place?

A. I believe at the end of 1983.

…Q. And in fact what happened, sir, is this $412,000 was reallocated in or about the

end of December 1983. Isn’t that so?

A. Quite possible.

Q. And in fact, it was done—what in fact happened is that Linton looked at the state of

Morris Waxman’s drawings account… as of December 21st, 1983. Right?

A. He should have.

Q. And he looked at how much was drawn on the company for the end of 1983. Right?

A. No, Mr. Linton will have to tell you that, but I assume he would have.

Q. And he doubled it because of the tax cost. Right? And then the rest was reallocated

to you. Isn’t that so?

A. It was reallocated to me because I was now the only shareholder.

Q. Mm-hmm. Let me figure that one out. Morris had been a shareholder until the

reallocation. Yes?

A. Yes.

Q. And the reallocation didn’t happen until December 1983?

A. That’s correct.

Q. So why wasn’t he entitled to the bonus before the reallocation?

A. If he had remained a shareholder it would have been reallocated to him. Maybe

possibly some of the other ones.

Q. So you must be saying that the bonus reallocation was directly tied to the share sale?

A. No, absolutely not.

Q. Tell me why Morris didn’t get the $412,000?

A. Because he was no longer a shareholder and we were going to hold that money for

the future, or at least what was left after the income tax was paid, and the bank looks far

more kindly on loans by shareholders or owners than it does on loans from others.

Q. So tell me again why he didn’t leave it in and loan it to you?

A. That wasn’t our agreement.

Q. He just gave it up?

A. That’s correct.

[663] His later cross-examination included the following:

Chester, October 26, 1999

Q. You see, if in fact your brother was to be compensated for that lost bonus of about

400,000 you would expect the price to be higher than three million, wouldn’t you?

A. Yes, but the price was 2650. His tax was 125. That’s two million seven seventy-five.

There was an additional $225,000 tacked on. The net of his bonus after tax was two

hundred agreed but he took three hundred.

Q. So then your evidence is that this price of three million did have something to do with

bonuses?

A. Not really.

Q. Not really?

A. No.

Q. Which is it? Did the price of three million dollars, was that there because your brother

insisted on it even though you didn’t want to pay him that much, or was the price three

million because he wanted compensation for lost bonus?

A. It was a package agreed to, the final number on the share sale.

Q. So it was both, was it? Now help me with why your brother was giving up a bonus in

the context of this share sale. I gather you talked about that too?

A. We talked about it briefly, but it wasn’t a major factor.

Q. All right. In fact I’m suggesting to you the issue of your brother’s giving up a bonus

was never discussed with you and he at all right through until December 1983. What do

you say to that?

A. I say that’s untrue.

Q. So he’s no longer going to be an owner under this share sale?

A. That’s correct.

Q. Just like your sons were not owners?

A. That’s correct.

Q. But he was about to become a non-owner. You say he agrees he would give up the

bonus already allocated; is that it?

A. He gave up his bonus in early 1982…

[664] None of Chester’s sons’ 1982 bonuses were reallocated to Chester in 1983.

December 14-18, 1983

[665] On December 14, Chester was still considering an option to purchase Morris’ shares

[JB 2912.]

[666] Ennis said in chief he discussed JB 2912 with Morris. He said he was looking it over

and would be speaking to Chester.²⁵²

[667] An entry in JB 2557 (Ex 289, tab 60) dated December 15 reflects that Ennis met with

Chester. He made no note that Morris was present. Page 216 of JB 2664, Ennis’ Blue Book

(also at Ex 289, tab 64), refers to a promissory note, no interest (emphasis added.)²⁵³

[668] On Sunday, December 18, Ennis and Chester met at Grandad’s Restaurant (JB 2557,

also at Ex 289, tab 65.)²⁵⁴

[669] Chester said on December 18, they spoke about the drafts “a bit,” but the main reason

for that meeting was that he had “some anxiety about his will.”²⁵⁵

[670] December 19, 1983

[671] Ennis said he received instructions from Chester for the first time on Monday,

December 19, to draft an agreement for the purchase of all 250 of Morris’ shares. He had

already received instructions regarding the declaration of a dividend of $1 million, the drafting

of a promissory note for $500,000 and the preparation of a side letter whereby Morris would

gift a $500,000 dividend to Chester.²⁵⁶

²⁵²Ennis, December 3, 1999; Exhibit 289, Share Sale Brief, tab 58

²⁵³Ennis January 19, 2000:

Q. tab 64, part of 2664 marked page 216. You have made a note for December 16 referring to a promissory note of $500,000 referable to

Morris Waxman December 31, 1984?… As of that day not only had the side letter referable to the dividend and the gifting back been

discussed with you and Hope, but also you had been told about this note—this idea of a demand promissory note payable on December 31,

1984?

A. Yeah

Q. You have written down: “No interest”?

A. Yes.

²⁵⁴Ennis, January 19, 2000

²⁵⁵Chester, October 26, 1999

²⁵⁶Ennis, January 19, 2000

[672] Ennis said in chief he had numerous conversations with Morris between November 23

and December 20, in which he asked: “Have you and Chester worked out the final details with

respect to the purchase price and the time period over which it is to be paid? Have you

discussed the lease et cetera?” Ennis said Morris answered: “We’re working at it. As soon as

we get it all together, we’ll let you know.”²⁵⁷

[673] Ennis was cross-examined about his failure to communicate with Morris about the

Share Sale to that time. Given the significance I attach to this evidence, I have set it out here:

Ennis, January 14, 2000

Q. You have no separate note on legal paper of meeting with Morris Waxman with

respect to the share sale at all, up to December 19th. Am I correct?

A. I don’t have it on papers no.

Q. And you have nothing in your blue book. Am I correct?

A. Doesn’t appear in my blue book, no.

Q. And you have no draft from Morris Waxman with reference to the share sale with any

of his notes on it?

A. No.

…Q. And remarkably on your evidence on this occasion… right through the period up

until December 19th, you went to having meetings with Morris and Chester talking about

a deal in detail, you went from that to talking to Morris, on your evidence, in the hall?…

you met with Chester in Chester Waxman’s office at Windermere at least twice, in your

notes?… Why wasn’t Morris included in those meetings?

A. Because Chester Waxman had to work out as best he could how he was going to pay

for this.

Q. That’s why Morris wasn’t included?

A. What’s the point of having Morris there unless Chester can figure out how he can pay

for it?

…Why would they both be there, Chester is trying to work out a scheme, a method by

which he can pay Morris. What’s the point of having Morris there until he decides exactly

²⁵⁷Ennis, December 2, 1999

how he’s going to work it out. Then he will go to Morris and say this is what I can pay,

Morris.

…I would have liked to see Morris there. If the two of them wanted to discuss it but

Chester and Morris were working it out themselves. I received instructions to draw drafts

by Chester that’s exactly what I did. Chester took the drafts back to Morris. And he came

back to me, this has to be changed and this has to be changed. That’s the way it

worked.

Q. Chester came back with drafts?

A. He came back with suggested changes… I sent him [Chester] drafts.

Q. On your evidence you gave Chester drafts?

A. Yes.

Q. And then Chester spoke to Morris and came back?

A. That was my understanding.

Q. Did Chester then come back with drafts in his hand and tell you what to change?

A. No, Chester never came back with changes. They are only three pages long.

Q. So he would remember to tell you what to change?

A. Yes.

Q. At some point did you say to Chester: Look, I’ve asked you to bring Morris along.

Where is he?

A. What’s the point? They haven’t worked out an agreement yet. There is no final figure.

There’s no final payment per year. Nothing has been finalized. What’s the point of

having a meeting when you can’t finalize anything. Chester was going to finalize it with

Morris. He and Morris were going to work it out themselves. Chester came, he gave me

information, I prepared a draft. He came back and said this won’t work, we’re going to try

this. I prepared a draft on that. And he came back and said that’s not going to work.

Let’s try this. That’s exactly what happened.

Q. So why didn’t you pick up the phone and call Morris and say Morris come to these

meetings?

A. I am not negotiating this deal. I was only a scribe I was to take instructions and draw

a document when they worked out their agreement. I never interfered I never insisted

how they conduct themselves. They are experienced intelligent people who have made

millions of dollars and know exactly how to handle themselves. They don’t need me

giving advice. They would not accept advice from me… they are the people who gave

advice.

…I wasn’t concerned. You asked if I was concerned I said I would have liked to see him.

When the documentation was complete and ready to be signed, we would have gone

through it made any changes and it would have been executed.

Q. On your evidence, you say you met with Morris a lot of times where you talked about

how the share sale documentation was going?

A. Words to that effect, yes.

Q. So all of those times why didn’t you say to Morris, Morris come to the meetings?

A. What’s the point of coming to a meeting when they haven’t worked it out yet. I’m not a

negotiator I’m not putting the deal together. Chester and Morris are putting the deal

together.

Q. Why are you meeting with Chester?

A. Because Chester is coming up with all the money and Chester has got to pay the

money and Chester has got to make certain he has sufficient funds to take care of it

over a period of time.

Q. Why is Chester meeting with you? You’re not funding it?

A. I’m drawing the documentation that’s why.

Q. Why isn’t Morris there when you’re drawing the documentation?

A. I can’t draw documentation unless I have amounts of what is going to be paid over

what period of time.

Q. So you’re meeting with Chester to come up with documentation to fit his financial

requirements is that what You’re telling me?

A. More or less yes. And if Morris was agreeable to it that will have been the deal. It was

obviously, the three million dollars was acceptable.

Q. I’m going to list now for the court your Services Performed Today diary in 1983

records you meeting or communicating with Morris Waxman. [He then lists 26 entries

between January 25 and December 14, 1983]… On not one of those occasions do you

note in addition “discussed the share sale with Morris Waxman”?

A. You didn’t read out the phone calls.

Q. Do you accept in all of the recorded meetings and phone calls that you made in your

Services Performed diary and your Blue Book with Morris Waxman up to December

20th, not once did you write down also discussed the share sale. Not once?

A. I say I did, but you say I didn’t, we’ll be here forever. Some of those notes are

referable to the share sale although the words don’t appear in black and white.

Ennis, January 19, 2000

Q. I suggest this note reflects the following: you had been given instructions as of

December 19 and the go ahead to do the following: One, draft up a share sale

agreement for 250 shares, all of them. Two, draft up a lease… Three, draft up a

document that would declare a dividend of a million dollars?… Four, draft up a

promissory note for $500,000.

A. It appears to be there.

Q. the evidence we have just reviewed - you had already been given instructions and

this was going to happen to do a side letter whereby Morris would gift back his dividend?

A. Yes. …I don’t know where the instructions for the side letter are.

Q. you got the go ahead to do all of that on Dec 19?

A. It appears that way.

…Q. the earliest Chester Waxman told you that he was prepared to go ahead with the

documentation that you had drafted and to close on that basis, was after you met with

him was the morning of Dec 20?

A. No, not the morning of Dec 20, the morning of Dec 19… The documentation to the

best of my belief was done on December 19. The share sale agreement for the 42

shares and the $500,000 was done, backs were put on them. The lease was done.

Chester came picked them up and discussed them with Morris on December 19.

…Chester picks them up and delivered them to Morris.

Q. If that’s the case, why was he spending two hours with you on the morning of

December 20?

A. We were discussing a lot of things on December 20.

…Q. I suggest that right up until the morning of December 20 and until the time Chester

left, you Paul Ennis had never sent any drafts to Morris, Correct?

A. I personally had not sent them. I gave them to Chester. Chester delivered them to

Morris.

Q. I suggest it was only on Dec 20 that you finally knew according to Chester, that he

was comfortable with the price and the structure, and therefore up to the morning of Dec

20. you Paul Ennis had seen no reason to talk to Morris about this deal?

A. I wasn’t talking to Morris, Chester was talking to Morris. Chester had the completed

documents, He picked them up to the best of my belief on the 19th. He delivered them

to Morris. Morris came into the office.

Q. You weren’t talking to Morris. Chester was?

A. I never said I spoke to Morris about the documentation. I didn’t have it in final form

until December 19. That’s when I received, according to my notes, my last instructions.

And Kevin Hope was responsible for the draughtsmanship of both the lease and the

agreement and that’s what he spent his time doing on December 19.

Q. And we’ve been through this, but you accept, I hope now, that up to the morning of

December 20, you Paul Ennis have no original record showing your ever discussing the

share sale with Morris at all. Do you accept that?

A. Not the terms of it because the terms were not known until December 19th.

Q. Morris Waxman pleaded that he had no prior dealings with you in regard to this share

sale

A. He had no prior dealings with me. He knew he was working out a share purchase

agreement, a sale agreement with his brother. He knew that. [Emphasis added.]

[674] Morris was asked whether he and Chester had any negotiations with respect to the

documents that he ultimately signed in December, 1983:

Morris, January 26, 1999

Q. And we’ve looked at a number of drafts of the Share Agreement. A number of drafts

between tabs 211 and 222 of a Share Purchase Agreement, of a Lease Agreement, and

of this Dividend Gifting Agreement. Your brother says that these drafts reflect on-going

negotiations between himself and you. What do you say about that?

A. Never happened. Just never happened.

Q. Did you and your brother have negotiations in December of 1983 or prior to that time

with respect to the purchase of your shares?

A. No.

Q. Did you or your brother have discussions or negotiations, I should say negotiations,

in December of 1983 or prior to that time with respect to a lease agreement under which

you had committed the lands in which you are a part owner to a 50 year or long term

lease?

A. No.

Q. And did you and your brother have negotiations concerning the declaration of

dividends and gifting of dividends either this December 1983 or prior to that time?

A. Definitely not.

[675] Findings - Alleged Share Sale Negotiations to December 19 1983

[676] I find that Morris’ health problems were becoming more evident in the fall of 1983.

Chester knew Morris was feeling the strain both physically and mentally. Dr. Goldberg

prepared a report (JB 2042) on November 22, 1983 and the very next day Chester met with

Ennis. I reject Ennis’ evidence about that November 23 meeting and I find that he and

Chester both knew that Morris’ condition was life threatening and that is why Ennis’ notes

mention the possibility of Morris’ death.

[677] I did not find Sadavoy’s evidence in chief to be of much assistance. The treating

physicians’ letters focus on Morris’ cardiovascular condition, containing no mention of Morris’

psychological or emotional state. Sadavoy had no particular knowledge of Morris’ condition on

the day on which the Share Sale Agreements were signed.

[678] I do not accept Chester’s evidence he was not concerned that if Morris died or became

disabled he would have to deal with Michael. Whether or not Chester was concerned about

Morris’ health in a loving way, I find he was very concerned about the possibility that Michael

might step into Morris’ shoes and would challenge him in the management of IWS.

[679] On November 28, in Morris’ absence, Chester and Ennis discussed the terms of the

share purchase and lease including a $2000 per month rental for the Blue Building and lands

at Windermere and the Back 7.7 Acres at Centennial [down from $5000 per month in the July

1983 draft lease.] They also discussed payments to Morris’ estate in the event that Morris

died while still a 50% owner of IWS. Chester was proposing that the rent would not increase

even when the September 21, 1981 IWS Ferrous lease [then paying $19,000 per month]

ended and all of Windermere and Glow were also covered by the same lease. Chester would

obviously stand to benefit from such a low rental at Morris/Morriston’s personal expense. On

December 6, Ennis and Chester discussed other lease terms patently unfavourable to Morris

[which were eventually included in the December 1983 lease.]

[680] An option was still under consideration. I do not accept Chester’s evidence that Morris

had made it clear he wished to sell all of his IWS shares to Chester at once.

[681] I find that Chester asked Linton to suggest ways for Chester to raise the money

needed to buy Morris’ shares. I accept Linton’s evidence that in December 1983 he gave a

copy of JB 2801 to Chester and they discussed reallocation of Morris’, Kumer’s, Rosen’s and

Leibowitz’ 1982 bonuses to help Chester finance his purchase of Morris’ shares. Ennis’

December 12 note records a discussion about the ideas in JB 2801. Either Linton spoke to

Ennis, as Ennis recalled, or Chester reviewed JB 2801 with him.²⁵⁸

[682] I find that Linton’s suggestion to reallocate the balance of Morris’ 1982 bonus (“the

$412,000”) was discussed with Ennis on December 12 in the context of looking for ways for

Chester to fund his purchase of Morris’ shares²⁵⁹

[683] Chester, Linton and Ennis all understood that the $412,000 was being reallocated to

Chester to purchase Morris’ shares.

²⁵⁸Linton, May 25, 2000 and June 13, 2000

²⁵⁹Linton, May 25, 2000

[684] I reject Chester’s attempts to rationalise the reallocation of Morris’ 1982 bonus. He said

it was because of “the recession.”²⁶⁰By late 1983, when the reallocation was made, economic

conditions had eased. The reallocation was “because Morris was no longer a shareholder.”

The bonus was originally allocated to Morris while he was a shareholder. There was no need

for recipients of bonuses to be shareholders: viz Chester’s sons. In any event, I have found

that the Share Sale Agreement reflects a staged sale. Even if I had found the Share Sale to

be valid, I would have found that Morris continued to be a shareholder of IWS until the final

Share Sale payment was made.

[685] No IWS minute exists reallocating 1982 bonuses to Chester. Chester said no such

minute is necessary. He relies on Morris’ “word as a gentleman, as a fellow

businessman…”²⁶¹

[686] I have not accepted Chester’s evidence that he was not privy to any of Linton’s

“musings.” I have found Linton’s “musings” relevant, inter alia, in finding that Chester and

Morris did not discuss the reallocation of the $412,000 to Chester in February 1982 but in late

1983. In my view, Linton’s musings are reflective of his unquestioning adherence to Chester’s

agenda, and of his assumption that Chester could unilaterally reallocate bonuses years after

they had been declared and minuted. They also reflect his failure to distinguish between

Morris’ personal assets and those of IWS. Linton assumed Morris’ personal assets could be

manipulated to his detriment, whether or not he had a 50% ownership interest in IWS. Like his

November 15, 1982 memo, I have found Linton’s musings to be significant in considering his

liability in Action #44142/89.

[687] From Ennis’ contemporaneous documents, and from Chester’s evidence, it is clear that

as of December 7, 1983, Chester had not settled on the specifics of the deal. A proposal had

been drafted. An option was being considered. Shirley and Morris were the proposed

vendors. Chester was contemplating various scenarios including the declaration of a $2

million dividend, not the $1 million dividend that was eventually declared.

[688] From the contents of Ennis’ entry for May 9, 1984 in JB 2557, I find that Shirley, who

was unaware of the Share Sale at the time, signed the documents that effected the transfer of

her 56¼ shares to Morris dated December 8 at some point after May 9, 1984. The transfer

²⁶⁰Chester, October 18, 1999

²⁶¹Chester, October 19, 1999

affected Morris and Shirley personally. Ennis took no steps to ensure that she understood

what was happening. The adverse tax implications arising out of this transfer [detailed in the

section of these Reasons relating to the Action against Taylor Leibow and Linton] were never

discussed with Morris or explained to him.

[689] On December 13, 1983, Chester and Ennis were still discussing an option agreement.

I reject Chester’s evidence that the gifting arrangement was changed so that the agreement

would read $3 million rather than $2 million and that he asked Morris why he would “blow

money on taxes.” The deal was clearly unfavourable to Morris from a tax perspective. He

received a dividend on which he paid tax, then gifted the money back to Chester, who used it

to pay him for his shares. Morris then paid tax again on the same funds, this time as Share

Sale proceeds.

[690] I note that Ennis’ notes make no mention about Morris’ insistence on a $3 million

purchase price, reflecting instead that the $3 million purchase price had been used for some

time.²⁶²

[691] I find that Linton suggested to Chester the original price of $2.65 million be increased

to $3 million to reflect the reallocation of the $412,000. The $3 million price had nothing to do

with Morris wishing the agreement read $3 million rather than $2 million.

[692] By December 18, Chester had not yet decided what he wanted to do.

[693] The Defendants’ submit that there was “extensive negotiation and discussion between

Morris and Chester.” There are no notes reflecting any such negotiation or discussion

involving Morris. There are only notes of discussions among Ennis, Chester and Linton.

[694] I accept Ennis’ evidence that Chester did not give him instructions to draft Share Sale

documents for the purchase of all Morris’ shares until December 19.

[695] The record up until December 19, 1983, illustrates, and I find the following:

• Chester made no contact with outside professionals such as Taylor Leibow, Scace or

Campbell about the Share Sale.

²⁶²Chester, October 25, 1999; Exhibit 289, Share Sale Brief, tabs 58 and 59

• The only “valuation” was JB 2473, Linton’s November 15, 1982 memo, which did not

include the value of IWS’ interest in IWS Ferrous or the non-ferrous division or the waste

division [except for the liquidation value of their assets,] and included a number of

negative assumptions, which, if ever applicable, were no longer applicable by late 1983.

• Ennis was dealing only with Chester and Linton. He had no contact or discussion about

the Share Sale with Morris.

• Morris did not want to sell his shares and Chester knew it.

• Morris did not have his own lawyer or any legal or financial advice and Chester and

Ennis knew it.

• Morris was unaware Chester was discussing a Share Sale with anyone and was

having Share Sale documents drafted. Morris had seen none of the drafts and was

unaware they existed.

The Events Of December 20-22, 1983

[696] Morris said there was only one meeting at which Share Sale documents were signed:

Morris, January 26, 1999

A. There was only one time when those documents were ever seen by me, and that was

the day they were signed. You pick any day you want. I don’t know what day it was, but

there was not more than one meeting.

[697] Chester and Ennis gave evidence that there were two very similar meetings at which

Share Sale documents were signed. They attributed comments and suggestions made about

documents that bear the date of December 20 to Morris during an afternoon meeting on that

day. Yet there is much evidence to suggest there was no meeting on the afternoon of

December 20.

[698] An Ennis note in JB 2557, dated Tuesday, December 20, 1983, records that Ennis and

Chester met about the Share Sale for two hours starting at 7:00 a.m.

[699] Exhibit 289 is the Share Sale brief, and contains many drafts of the Share Sale

Agreement, except one marked as “Draft 1.” The following are the important points about

each one. Joint Brief numbers are also supplied here:

• Tab 59/JB 2911 is marked Draft #2. Dated the blank day of December 1983. This draft

still contemplates Options.

• Tab 58/JB 2912 is marked Draft #3. Dated the blank day of December 1983. Total

purchase price $1 million for 83 shares by December 31, 1984.

• Tab 61/JB 2913 is marked Draft #4. Front page missing. 2nd page shows paragraphs

(b) to (e) with four purchases of 44 shares for $500,000 by year end of 1984 to 1987

inclusive.

• Tab 63/JB 2914 is marked Draft #5. Dated the blank day of December 1983. Total

purchase price $3 million. 3(a) shows 84 shares for $1 million by December 31, 1983,

with 3(b) to 3(e) showing four purchases of 44 shares by year end of 1984 to 1987

inclusive.

• Tab 66/JB 2915 is marked Draft #6. Dated the blank day of December 1983. Total

purchase price $3 million. Changes made by hand to Draft #5. Paragraph 3(a) shows a

purchase of 42 shares by December 31, 1983. Paragraph 3(b) shows a purchase of 42

shares by September 30, 1984. 3(c) to 3(i) have handwritten notations that indicate this

is when the idea of purchases of 22 shares per year was considered. The last payment

would have occurred in 1990.

• Tab 69/JB 2916 is marked Draft #7. Dated the blank day of December 1983.

Paragraph 3(a) purchase of 42 shares by December 31, 1983. 3(b) 42 shares by

September 30, 1984. 3(c) 22 shares by December 31, 1984. 3(d) 44 shares by

December 31, 1985. 3(e) 22 shares by December 31, 1986. 3(f) 22 shares by December

31, 1987. 3(g) 22 shares by December 31, 1988. 3(h) 22 shares by December 31, 1989.

3(i) 22 shares by December 31, 1990.

• Tab 70/JB 2917 is marked Draft #8. Dated the blank day of December 1983.

Paragraph 3(a) 42 shares by December 31, 1983 for $500,000. 3(b) 42 shares by

October 31, 1984 for $500,000. 3(c) 21 shares by December 31, 1984 for $250,000.

3(d) 42 shares by December 31, 1985 for $500,000. 3(e) 21 shares by December 31,

1986 for $250,000. Item 3(f) 21 shares by December 31, 1987 for $250,000. 3(g) 21

shares by December 31, 1988. Item 3(h) 20 shares by December 31, 1989 for

$250,000. Item 3(i) 20 shares by December 31, 1990 for $250,000.

• Tab 74/JB 2918 is marked Draft #9. Dated the 20th day of December 1983. The

handwritten changes to Draft 8 have been typed up. There are further notations that

don’t appear to be relevant to price, date or number of shares

• Tab 77/JB 2923 is marked “Revised” on the top of the right hand corner of p. 1. It is

signed by both Morris & Chester and dated December 20, 1983.

• Tab 86/JB 2940 is marked Draft 10 and “effective Jan 4/84” is handwritten at the top of

page 1 beneath “the blank day of December 1983.” Revisions appear to have been

made to a copy of what was Draft 9. Paragraph 3(a) now is for 84 shares by January 4,

1984 for $1,000,000.3(b) the October 1984 payment date is crossed out. 3(c) to 3(i) are

now 3(b) through 3(h).

• Tab 89/JB 2941 dated Dec 22, 1983. All changes to Tab 86 incorporated here. This is

signed on signing page & initialled by everyone on every page.

[700] Ennis said on the morning of December 20, Chester came to his office and picked up

what they thought was the final draft of the Share Sale Agreement, in which Paragraph 3(a)

reflects a payment of $500,000 for 42 shares by December 31, 1983 and Paragraph 3(b)

reflects a payment of $500,000 for 42 shares by October 31, 1984. In chief, Ennis said Morris

told him over the telephone he had received the drafts and was reviewing them.

[701] Chester said that morning he picked up drafts of the Share Sale Agreement and lease

and gave them to Morris, telling him an appointment had been arranged at Ennis’ office for

that afternoon. Chester denied showing the drafts to Linton.²⁶³

[702] JB 2663 (Ex. 289 tab 81) reflects that on December 20, Ennis received a call from

Linton. Ennis said he believed Chester would not have gone ahead without first showing

Linton Share Sale documents.

[703] Linton denied that prior to the execution of the Share Sale Agreement, Chester showed

him a draft with a December 1983 payment date for 42 shares. His credibility suffered when

he was cross-examined on an inconsistent answer given at discovery [i.e., that he was

positive the first Share Sale document he saw contained a December 1983 payment date.²⁶⁴]

Linton said counsel had asked him to reconsider previous answers about seeing a Share Sale

Agreement containing a December 1983 date.

²⁶³Chester, October 25, 1999 and October 26, 1999

[704] I have not recounted here all the details of Ennis’ and Chester’s inconsistent versions

of a meeting with Morris on December 20. I highlight only a few of the many discrepancies in

their evidence and some other matters that caused me to conclude that there was no meeting

with Morris on December 20.

[705] Chester said he clearly remembered the two meetings on December 20 and 22. At

each, Morris was at Ennis’ office before he arrived.²⁶⁵Ennis stood at the end of the table.

Morris and Chester sat on one side, Ms. Butner (“Butner”), an assistant in Ennis’ office, on the

other. Butner read the documents aloud line by line. Morris and Chester followed as she read.

They took all the time they needed.

[706] Exhibit 133, the original Statement of Defence and Counterclaim, which Chester

reviewed and approved before it was issued, refers to only one meeting:

12. On or about December 22, 1983, Morris attended with Chester at the offices of the

company’s lawyer, Ennis, to sign the share sale agreement (the “share sale

agreement”). In accordance with Morris’ instructions, the share sale agreement, the

agreement to lease (the “lease”) and the shareholders’ resolution (the “resolution”), (the

“agreements”), had all been prepared well in advance of the meeting. The meeting,

which lasted several hours commenced in the afternoon of December 22, 1983 and was

attended by Chester, Morris, Ennis and Celia Butner, Ennis’ long-standing secretary,

and one of the original incorporating shareholders of the company…

…

21. With respect to paragraph 7 of the statement of claim, the lease agreement therein

referred to was prepared on December 20, 1983, but its execution was effected on

December 22, 1983 in Ennis’ office at the same time as the execution of the share sale

agreement.

…

23. With respect to paragraph 9 of the statement of claim, the resolution [now called the

“gifting agreement”] referred to therein was prepared on December 20, 1983, but was

not executed until December 22, 1983 during the meeting in Ennis’ office…

²⁶⁴Linton, May 25, 2000 and June 13, 2000

²⁶⁵Chester, October 26, 1999

[707] Counsel for Ennis submitted that a December 20 entry in Ennis’ Services Performed

and two signed copies of a Share Sale Agreement dated December 20 [Ex. 188] evidence

that Morris signed documentation at a meeting on December 20. Ennis’ credibility suffered

when he was referred to the following answer about the Share Sale Agreement dated

December 20, given on discovery (August 14, 1997, p.430, Question 1795) [which he did not

adopt at trial]:

107-A was done in final form to be executed on December 20th, but it wasn’t. Because

at that particular morning, and I can recall, I believe, a telephone call that either myself

made or Kevin Hope, indicating that the one million dollars in dividends would be

declared and a gift by Morris to Chester was to take place and the document was

changed to reflect that. And so that’s why it was changed on December 20th thereafter

for signature on the 22nd, to 84 shares and one million dollars.

[708] Most of Ennis’ entries in his Services Performed include notations about the length of

the meeting, which he could only have inserted after the meeting had taken place. Ennis’

entry for December 20 contains no notation recording the length of the meeting. On the face

of the Share Sale Agreement that Ennis and Chester said was signed on December 20, 1983,

is handwritten in pencil: “working paper change for December 22”. Ennis said no Share Sale

certificates, waiver of ILA or dividend minute had been prepared as of December 20.²⁶⁶

[709] Chester and Ennis gave evidence that they reviewed JB 2926, the December 1983

lease, at the December 20 meeting.

[710] In chief, Ennis said as they sat around the table and Butner read through each word of

the lease, he asked, “Does everybody understand that particular wording?” If they said they

did not, he would explain it. They would then proceed to the next paragraph. Morris pointed

out the changes that needed to be made. In chief, Ennis said they had detailed discussions

about the lease. His description of the discussion is in this endnote.²⁶⁷

²⁶⁶Ennis, January 11, 2000 and January 20, 2000; Exhibit 188

²⁶⁷265(a) They specifically discussed paragraph 1 of the lease. Although the term was 50 years, the fact that a lease for more than 21 years

required the consent of the Committee of Adjustment was explained to Chester and Morris.

(b) The $2000 rental figure in paragraph 2 seemed acceptable. Ennis had no knowledge about fair market rents. He asked, do you

understand that, are you content with $2000 a month? The reply was yes.

(c) Ennis explained that paragraph 3 of the lease was onerous in the sense that the tenant was obligated to comply promptly with the

requirements of every applicable statute, law, and ordinance and with every applicable lawful regulation and order. Ennis said that that

clause, inserted to cover contamination of the land, obliged the tenant to be responsible for the clean-up or for the consequences of any

contamination. If he had put a paragraph in that acknowledged that the land was contaminated, that would have red-flagged it to the various

authorities, and Ennis explained that to Morris and Chester.

[711] Ennis’ evidence was quite different on cross-examination. Rather than mentioning a

detailed review, he said he did not need to go through various paragraphs in the lease unless

concerns were raised, as the lease was not that difficult. Morris told him it did not really matter

to him that the rent would be $2,000 a month. Morriston’s $1,000 per month would probably

be used up in the accounting to take care of collecting the rent.²⁶⁸Morris did not care that the

rent would stay the same after the Lasco lease expired, even though Glow and all of

Windermere and the Back 7.7 Acres would then be included.²⁶⁹

[712] Chester gave evidence that Morris remarked to them on December 20 that the waste

provisions in the December 20, 1983 lease differed from those in an earlier draft. Changes

were made to the lease. [I have earlier accepted Ennis’ evidence that Morris never saw any

earlier drafts.²⁷⁰]

(d) Paragraph 3(vii) which was to indemnify and save harmless the landlord from all liabilities that might arise out of the demised premises to

protect Chesterton and Morriston and to keep IWS alive so it could earn money, be viable, pay Morris, was discussed.

(e) Paragraph 4 was discussed, which provided that this was a carefree lease, took care of the contamination problem. IWS was 100% liable

to do the clean-up. In Ennis’ view there would be no obligation in Morriston or Chesterton. Morris and Chester were pleased with that

paragraph. Morris didn’t want to have any problems with respect to the lands. He wanted IWS to carry on. Should anything happen to either

Chester or Morris, Morris was concerned that the boys might start attacking each other and bring applications with respect to the leases.

(f) Ennis explained that this was a triple net lease, plus, plus, plus, plus. Everything was to be paid for by IWS. They understood and agreed.

(g) Paragraph 8 was read. Morris questioned what would happen if LASCO renewed the lease. Ennis realized that the document needed to

be amended and the following words were added: “subject to any renewals of the I.W.&S. leases aforementioned.” Clause 8 (referable to

renewal of the lease) was changed, and then Butner read it again.

(h) Paragraph 9, which provided that the tenant would not be liable to the landlord with respect to any waste that might be committed, was

discussed. If there was any default by the tenant, with respect to any term or condition, no action could be taken by Chesterton and

Morriston, Morris or Chester, without the unanimous consent of all the parties. [Ennis felt that that clause should be in the lease because

Morris wanted there to be no opportunity for any members of his family or, for that matter, any members of Chester’s family, to attack this

lease.] The idea was to keep IWS intact, to let it operate for 50 years.

²⁶⁸Ennis, January 19, 2000

Q. Talking about this lease, [Ms. Butner] just started out at the beginning and said: This agreement made as of the blank day of December

between Morris Waxman of the Town of Dundas—

A. Yes, she read it that way. She sat down and Celia Butner was there and Morris and Chester was there and we were going to go through

the documentation, and I believe the lease was the first document we went through, and I inquired as to whether they had copies of it and, of

course, they had copies of it mere and I said: Celia will go through it and read it to you. If anything needs explanation, I’m here and Kevin is

here and we’ll explain it to you. She proceeded to read it.

Q. You didn’t even go highlight anything, you just said: If there’s any problems, I’m here to explain them to you?

A. Words to that effect. And we reached a point where they seemed to have some difficulty with, I would have explained it to them.

Q. So you didn’t even—because of that, you didn’t need to go through various paragraphs in the lease unless they raised problems with

them?

A. That’s usually the way. The lease is not that difficult.

Q. On that evidence you have just told me, the only issue raised and discussed was this business about the renewal issue?

A. As I recall, yes.

Q. Otherwise, nothing was discussed about the lease, other than Ms Butner read it. Is that it?

A. No, she—well, I’m certain there were questions asked about it. And I’m certain there were answers, but I can’t—at this particular moment,

I don’t have a note. Didn’t take a videotape as to any problems save and except that with respect to the renewal of the lease by Lasco, which

Morris felt the lease should cover the renewal. We said that’s fine, agreed, and it got changed immediately.

Q. That’s, in fact, all you remember about the lease as you sit here today?

A. No, we discussed other things as well.

Q. If he is so careful to catch such a thing, how did it happen that he didn’t even pause over the fact on the very same issue that after the

Lasco lease expired, the rent didn’t change. How do you suppose that happened?

A. He didn’t care about that. He discussed that with his brother previously. He didn’t want anything to do with that particular piece of property.

He didn’t want the environmental problems he didn’t want the upkeep. He just wanted I. Waxman & Sons to be carried on so they could pay

him the $3 million.

²⁶⁹Ennis, December 7, 1999

²⁷⁰Chester, September 23, 1999

Execution and Subsequent Review of the Share Sale Agreement

[713] Chester said on December 20, while they were waiting for the changes Morris had

requested to be made to the lease, they reviewed the version of the Share Sale Agreement

that is JB 2923. Burner read it to them, paragraph by paragraph, for approximately 15

minutes. They signed approximately six copies, initialling every page. Chester’s evidence

contains the following:

Chester, September 23, 1999

A. …Ennis recollected that there may be something wrong with the first share sale

agreement, in that there was only 42 shares being transferred instead of 84… Wayne

Linton may have told us, or Ennis come upon this that he wanted to check with him, and

said that the first payment should possibly be on January 4th instead of December 31st.

He wanted to check that with Paul Ennis, which he did and that’s what Mr. Ennis told

him… Insofar as the shares, that 84 were going to be covered by a note now instead of

just 500,000 up front, that created a problem and it required some changes to the share

sale agreement.

It was always planned in 1984 would come up and a million dollars would be put up

front, the million dollars in bonuses would go right up front to Morris, and this needed to

be changed. One of the clauses at the back needed to be removed and there would be

a million dollars go into Morris’s account. He would get a million dollars. He would loan

back $500,000 and that would be secured by a note from I. Waxman & Sons Limited.

And that change was required.

…The problem was a million dollars was coming out of the company and that was to

purchase 84 shares, not 42. And that million dollars should be turned over to Morris

immediately. So the opening clause here, A, should read one million dollars and…

eighty-four shares.

[714] In chief, Ennis said Morris initiated the changes to the Share Sale Agreement after it

had been read aloud, reviewed and signed, saying he wanted $1 million up front. Ennis said,

“Morris you have had this agreement, you’ve looked at it we’ve gone through this so many

times,” Morris replied, “I know it can be worked out. I’ve spoken to Wayne about it and there

can be a dividend declared. Declare a dividend. I’ll get the million dollars back.”²⁷¹On

cross-examination, Ennis said that when he said “Morris… We have gone through this so

many times” “That was an error on my part.”²⁷²

[715] Ennis said in chief that Hope called Linton. In cross-examination he said he heard

them discuss three things as part of a package: (1) declaring a million-dollar dividend; (2)

having an effective date of January 1984; and (3) changing the purchase of 42 shares in

December 1983 and 42 shares in October 1984 to 84 shares in January 1984.

[716] Linton said he never spoke to Hope. He would not be speaking to Ennis about anything

as specific as changing the first payment date to January 1984 because, at that point, he had

not seen the agreements. He would not be talking to Ennis about the new possibility of a

dividend of $1 million, because he and Chester had been contemplating a $1 million dividend

for some time. There was no discussion about 84 shares.²⁷³

Alleged Developments on December 20 After the Call to Linton

[717] Ennis said as a result of a telephone call to Linton, he received instructions to draw up

a promissory note and dividend gifting agreement to reflect the declaration of a $1 million IWS

dividend. Morris was to receive a cheque for $1 million dollars [payment for 84 shares] and to

loan IWS $500,000. The loan to IWS was to be payable to Morris on demand on or after

October 31, 1984.²⁷⁴The effective date of the sale was to be changed to January 1984, and

²⁷¹Ennis January 20, 2000

Q. Chester Waxman said that the Dec 20 agreement was signed and put aside and then you. Paul Ennis, and/or Morris, initiated a

discussion afterwards referable to the fact that, from a tax point of view, the first payment should have been in 1984.

Now, that didn’t happen on your evidence, did it?

A. I don’t believe that’s what took place.

…Q. you say [Linton] was contacted because you wanted to find out as to whether or not a taxable dividend of $1 million could be declared

and a promissory note could be paid?

A. Yes.

Q. your exam.-in-chief was in order to pay the $1 million they had to declare a dividend of $1 million?

A. Yes.

Q. you had to contact Linton to find exactly how you would do this with regard to the million dollars

…the reference to a gifting agreement and a dividend is in your notes early as Dec 7, Dec 12. Dec 13, Dec 16 and Dec 19, you were talking

about as of Dec 13 a side letter $1 million dividend and a gift back of 500,000?

A. But it wasn’t done. Mr. Harrison.

Q. And on Dec 19, in your own note, tab 68. JB 2664, you were told that they were going to declare a dividend of $1 million, that that million

dollars was directly connected to the promissory note and your note indicates in detail the nature of the dividend and the amount per share

and when it’s going to be declared.

A. I’ve never denied that, but it wasn’t part of the original documentation that was prepared on Dec 20… I prepared the December 20th

agreement which calls for $500,000. The dividend had not been declared and I had not received instructions.

Q. Does this not say page 217, declare dividend?

A. I didn’t do it. I was told not to do it and I didn’t do it.

Q. So even on December 20th you had no idea how Chester was going to pay?

A. I know he was going to pay $500.000.

²⁷²Ennis, January 19, 2000

²⁷³Linton, May 25, 2000

²⁷⁴Ennis, January 20, 2000

the first payment provisions were to be changed from $500,000 for 42 shares in December

1983 and $500,000 for 42 shares in October 1984, to $1 million for 84 shares in January

1984. The Share Sale Agreement needed to be amended to reflect those changes.²⁷⁵By the

end of the December 20, 1983, meeting, the promissory note JB 2925 and gifting agreement

JB 2924 had been drawn up and signed.

[718] JB 2924, the gifting agreement, provides as follows:

…

1. that we will cause I. Waxman & Sons Limited to declare cash dividends totalling

$1,000,000 on all of its issued and outstanding capital stock prior to December 31, 1983,

being $2,000 for each issued and outstanding Common Share.

2. that cash dividends of $500,000 payable to Morris… will be gifted by Morris… to

Chester… and will be paid by Chester… to Morris… in full satisfaction of the

purchase price as provided for in Paragraph 3(a) of the Share Purchase Agreement

entered into this day between Chester… and Morris…

3. Further, Morris… shall loan to I. Waxman & Sons Limited by way of a promissory note

the sum of $500,000 due and payable on October 31, 1984, which will be paid to

Morris… in full satisfaction of the purchase price as provided in Paragraph 3(b) of the

Share Sale Agreement entered into this day between Chester… and Morris…

[719] Ennis said he did not prepare the dividend gifting agreement JB 2924 until after the

telephone call to Linton at the December 20 meeting.²⁷⁶[However, if this were true, JB 2924

would reflect the changes discussed in that call. $500,000 was no longer a sum that was in

full satisfaction of the purchase price, if the first transfer of shares as discussed with Linton

was going to be of 84 shares for which the purchase price was $1 million.]

Q. it’s self-evident you had been given instructions to declare a dividend and you had been given instructions about a difficult gifting

agreement and they were already in draft form and being looked at before Dec 20?

A. No, It was only after the telephone call to Wayne Linton that it was confirmed that it should in fact be done and that’s when it was done.

Q. Even though your note of Pee 19 says declare a dividend you say your instructions were not to do that?

A. That’s correct, yes.

Q. on Dee 20, a call went through to Union and information came back to you?

A. Yes.

Q. And three things came back to you? 1. you say declare a dividend of a million? 2. have payment in January of 1984. 3 that first exchange

would be 84 shares. Right?… And in addition, do a promissory note for 500,000?

A. Yes [to all of the above]

²⁷⁵Ennis, January 20, 2000

²⁷⁶Ennis, December 3, 1999

[720] Instead, Paragraph 2 in JB 2924 tracks the wording for Paragraph 3(a) of the Share

Sale Agreement that had been in place since Draft #8 (JB 2917) [i.e., $500,000, which was

the purchase price for 42 shares.] Ennis’ cross-examination on that point is contained in the

endnote to this paragraph.²⁷⁷

²⁷⁷Ennis January 20, 2000

Q. The gifting agreement was already drafted before this meeting of Dec 20. What do you say to that?

A. I don’t believe so. It was done during that meeting.

Q. tab 72, which is a draft gifting agreement, JB 2921. I suggest that’s a draft that was prepared sometime before Dec 20?

Q. it reflects the dividend instructions you had. See at the top, “being 2,000 for each outstanding common share?”

A. Yes.

Q. the very instructions you got on Dec 19 from somebody because 2,000 times 500 shares. I hope makes a million?

A. Why couldn’t it have been done on the 20th?

Q. Because you already had those instructions?

A. It didn’t matter. I hadn’t followed those instructions. It was only after Morris wanted it to show $1 million that this documentation was in fact

drafted.

Q. tab 56, 2^ndpage, JB 2902, Mr. Hope’s note specifically refers to this dividend and gift back. Do you see?

A. Yes, but it doesn’t necessarily mean to say he did it.

Q. this draft at JB 2921, matches the note that we’ve just looked at from Mr. Hope?

A. I say that was done on the 20th, after we had that first meeting on the 20th.

January 20, 2000 page 8 re December 20, 1983

Q. You say having had this communication from Wayne Linton which was all part of a package, three things, you then started drafting this

gifting agreement?

A. Yes.

Q. the gifting agreement, as I understand it you say on your evidence you remember being drafted and signed on December 20th, 1983 and

that’s tab 78, JB 2924. Your evidence is that you remember that having had this call from Linton you now put together this gifting agreement?

A. Yes, it was put together, yes.

Q. You say signed on December 20th?

A. Yes, Celia Butner witnessed the signatures, yes.

Q. The gifting agreement, tab 78 of the share sale document JB 2924, who do you say dictated this, Hope?

A. Yes, I believe Hope.

Q. And Hope understood that the deal was going to be changed and the payments would be 84 shares in the first instance., payable in

January 1984?

A. Yes.

Q. how do you think it happened that a gifting agreement was drafted up, referring to something quite different?… the second paragraph of

this gifting agreement refers to the payment of $500,000 pursuant in reference to paragraph 3-A of the share purchase agreement?… And if

we look at the draft of the share purchase agreement at say tab 74, JB 2918, that’s the agreement that had been drafted and was under

consideration, you say on Dec 20, in substance. Yes?

A. This was the intention.

Q. look at JB 2940, tab 86, the original draft that you recently produced and has your handwriting on it… it reflects underneath your

handwriting, the document as you initially thought it was going to be executed, when you had it ready for Dec 20, on your evidence?

A. Yes.

Q. looking at the document underneath here, unrevised, paragraph 3-A contemplates a payment of 500,000?

A. Well, the new one contemplates payment of $1 million.

Q. but this original agreement contemplated a payment in paragraph 3-A of 500,000. Right?

A. That’s incorrect.

Q. I know, but that’s what happened to start with?

A. I appreciate that, yes.

Q. in looking at the gifting agreement, JB 2924 at tab 78. I’m suggesting to you whoever drafted this, at the time it was drafted self-evidently

was referring to a draft that had paragraph 3-A in it as your initial draft did, whereby $500.000 was going to be paid in the first instance?…

Whoever was drafting this gifting agreement also referred to a further $500,000 payment re: paragraph 3-B?

A. That’s correct.

Q. And that was wrong too?

A. I don’t know if that’s wrong.

Q. I suggest to you, sir, that the reason this gifting agreement refers in paragraph 2 to paragraph 3-A of the share purchase agreement, and

in paragraph 3 to paragraph 3-B of the share purchase agreement, is when it was drafted, whoever drafted it thought that the share purchase

agreement would look like the one at tab 86 before it was amended. That’s obvious, isn’t it?

A. No, no. I do not agree with you.

Q. How can it be that you and Mr. Hope had specific instructions from Linton you say with regard to the declaration of the dividend and a gift

back and a change in the share sale agreement to 84 shares in January 1984 and draft up a gifting agreement like this?… I suggest in

accordance with the instructions you already had starting on at least Dec 13 and con-finned at least on Dec 19, this gifting agreement had

been drafted beforehand?

A. No. I suggest to you it wasn’t

[721] Chester said twice in chief that he signed a waiver of ILA (JB 2927) on December

20.²⁷⁸

[722] Although Ennis said in chief that Chester had just signed JB 2927 on December 20,

when discussions ensued about changes to the Share Sale Agreement,²⁷⁹during cross-

examination Ennis said JB 2927 was not prepared until January 1984.²⁸⁰

[723] Chester said one of the reasons the documentation was not fully amended and

executed on December 20 was that Morris insisted Lasco be given notice of the sale. They

agreed to meet again on December 22 after the documents were amended and Lasco had

been notified.

[724] Chester said he believed Morris took a brown envelope away from the December 20

meeting containing copies of the Share Sale Agreement and lease.

[725] Ennis said in chief that on December 20, Morris took away copies of two separate

waivers of ILA that he had signed that day, copies of the Share Sale Agreement dated

December 20 and copies of the lease agreement. In cross-examination, he could not recall

providing copies to Morris.²⁸¹

Events of December 21, 1983

[726] On December 21, Ennis and Chester travelled by car from Hamilton to Whitby to notify

Mr. Schmelzle (“Schmelzle”), the President of Lasco, about the pending Share Sale.

[727] Chester said that during the meeting, Ennis handed Schmelzle a notification letter

dated December 21, 1983 (JB 2934/Ex 289 tab 83), which reads in part as follows:

This agreement provides for a series of sales and purchases with the first sale and

purchase to be completed on or before the 31st day of December, 1983 and with the

last sale and purchase to be completed on or before the 31st day of December, 1990.

[emphasis added]

[728] Schmelzle asked Chester when the Share Sale would take place and whether the

management of IWS Ferrous [i.e., Chester, Warren, Robert, Gary and Kumer] would remain

²⁷⁸Chester, September 23, 1999; October 26, 1999; Exhibit 289, Share Sale Brief, tab 118 (also JB2927)

²⁷⁹Ennis, December 3, 1999

²⁸⁰Ennis, January 11, 2000

²⁸¹Ennis, January 20, 2000

intact. Chester replied it was pretty imminent and the management would stay on.²⁸²

Schmelzle gave his blessing, because management “would remain with the same vigour and

alacrity.” In the car on the way back to Hamilton, Chester said he read JB 2934 for the first

time and told Ennis “he had blown it”. The letter did not properly describe the deal.²⁸³

[729] Ennis said Chester delivered the letter to Schmelzle. JB 2557, his Services Performed,

records a trip to see Schmelzle about “a possible purchase of shares.” When cross-examined

about an answer that he gave at discovery that the Schmelzle letter was delivered before the

Share Sale Agreement was signed, he said: “That’s what I’ve said. I’ve said nothing

inconsistent. That’s exactly what I said.”²⁸⁴

[730] Ennis was taken in chief to his note dated December 21 (Ex 289, tab 85), as follows:

“forthwith 84 shares - January 3, 1984.” When asked whether he received instructions on

December 21 to change the two purchases of 42 shares by December 31, 1983 and October

31, 1984, into one purchase of 84 shares on January 3, 1984, he replied: “No. I don’t believe

so. It’s possible, but I don’t believe so.”²⁸⁵

[731] Linton denied communicating with Ennis on either December 21 or 22 regarding the 84

share issue.²⁸⁶

[732] On December 21, 1983, Rioux prepared an account balance inquiry (Ex. 271M/JB

2938) with respect to Morris’ drawings account and calculated Morris’ 1983 drawings to that

date at $143,072.22.

[733] Linton said in chief he had no involvement in the account balance inquiry and could not

recall how Ex. 271M came to be in his Share Sale file.²⁸⁷In cross-examination, he said he or

Chester instructed Rioux to prepare it and to identify cheques recorded in the cheque register

but not yet recorded in the general ledger account or drawings account. Morris’ drawings

account was cleared of $143,072.22 and funds were held back to pay Morris’ taxes on the

drawings ($144,000 x 2 = $288,000.) Then $412,000, the balance of Morris’ 1982 bonus (i.e.,

$700,000 - $288,000) was reallocated to Chester [as Linton had contemplated in his musing

at Ex. 289 tab 33 of the Share Sale brief/JB 2801/Exhibit 271G.]

²⁸²Chester, September 23, 1999

²⁸³Chester, October 7, 1999; October 26, 1999

²⁸⁴Ennis, January 20, 2000

²⁸⁵Ennis, December 3, 1999; Exhibit 289, Share Sale Brief, tab 85

²⁸⁶Linton, June 13, 2000

²⁸⁷Linton, May 25, 2000; Exhibit 271M

[734] At the end of 1983, Linton reallocated $649,050 of 1982 bonuses to Chester,

comprised of the 1982 bonus amounts allocated in the February 22, 1982, Directors’ Minute

to Rosen, Lebovitch and Kumer, plus Morris’ $412,000. When the $649,050 was added to

Chester’s $700,000 1982 bonus, the total of the 1982 bonuses accrued in Chester’s favour at

the end of 1983 was $1,349,050. [That amount was to be further supplemented in 1985 with

the transfer of almost all of Robert’s, Gary’s and Warren’s 1982 bonuses to Chester.]

[735] Linton said no one told him and he would have been surprised to learn that Morris,

Rosen, Leibowitz and Kumer had agreed to give up all or some of their 1982 bonuses in

February 1982.²⁸⁸He did not record reallocations of any of their 1982 bonuses to Chester

until the end of 1983. Exhibit 232-C, tab 95 [part of Taylor Leibow’s audit file for 1983],

reflects bonus reallocations to Chester in 1983 of $649,050, consisting of $412,000 from

Morris, $196,650 from Kumer and $40,400 from Leibowitz and Rosen.

[736] Wiseman was asked about the amount and timing of the bonus reallocation:

Wiseman, March 2, 2000

Q. …But sometime either at the end of 1983 or January or February 1984, you

understood this decision had been made to reallocate these bonuses?

A. This is correct.

Q. …Exhibit 232-C, tab 95, paid in December 1983?

A. That’s $288,000.

Q. …what had happened is they took the bonus that had been declared in favour of

Morris of 700,000?

…Deducted what had been paid to him at the end of December 1983 and reallocated

the difference. 412,000, Is that what you understood happened?

A. Yes. [Emphasis added.]

December 22, 1983

Early Morning Meeting

²⁸⁸Linton, June 1, 2000

[737] Exhibit 289, tab 87/JB 2557, Ennis’ Services Performed dated December 22, includes

the following: “CW re Estate Freeze 9 a.m. Change of documentation to January 4/84 - 84

shares” [emphasis added.]

[738] Chester said early in the morning of December 22, 1983, he met with Ennis about an

accident in Pittsburgh on December 20 involving a Greycliffe truck that had killed two people.

He was concerned because Greycliffe and IWS were insured on the same policy. He asked

Ennis if the Share Sale documentation would be ready that afternoon. Ennis said it would,

and arrangements were made to meet at 3 o’clock.

[739] Exhibit 289, tab 88, another Ennis note dated December 22, includes the following:

84 shares

Bob Waxman - Driver

Pittsburgh - Waxman [Emphasis added.]

[740] Robert did not remember being at that meeting and said he did not know the status of

the Share Sale negotiations at that time.²⁸⁹²⁹⁰

Afternoon Meeting at Ennis’ Office on December 22

[741] Morris gave evidence that on the one occasion he signed documents, he was called to

Ennis’ office. When he arrived, Chester was already there. No-one read any of the documents

aloud.²⁹¹He did not understand what was happening during the half hour he spent in Ennis’

office that day:

Morris, January 26, 1999

Q. Did you know when you were signing the documents that you were selling your

interest in I. Waxman & Sons to your brother?

²⁸⁹Robert, May 2, 2000

²⁹⁰Robert, April 17, 2000

Q. …You can’t help us how it came to be, looking at 2557, please, Mr. Ennis’ note for December 22nd… and if I have his evidence correctly

on the basis of that note he testified he did indeed meet with you… on December 22nd referable to this accident and your evidence is he’s

wrong?

A. I don’t think I was there, but I may very well have called back.

…Q. So to the extent [Ennis is] relying on that note to establish your presence at a meeting as he’s recorded it, the note is wrong?

A. I think that’s wrong. I may have been there by telephone.

²⁹¹Morris, January 26, 1999

Q. Did Ms. Butner read the contents of any of the documents aloud?

A. She did not.

Q. It’s contended by the defendants that before you signed the agreement, Ms. Butner read aloud the words of the share sale agreement.

Did that happen?

A. It did not happen.

A. No, I did not.

Q. Did you have any general understanding that by signing the documents you might be

assigning or transferring your interest to your brother?

A. I did not.

Q. Did you know that you were selling anything that you owned to your brother?

A. No, I did not. I did not know what was in those documents or papers that I signed.

Q. Did you read any of the documents before you signed them?

A. No. I believe that Chester said to me look them over, and I flipped a couple of them,

Q. I’m sorry your voice went down. Chester said look them over…

A. Look them over and I flipped a couple of them and my head just wasn’t for reading

anything or looking at anything, and we went from there… I was in a room with one of

the people that I trusted most in the world at that time and I was in the room with a

lawyer that was my lawyer, personally and for the company for many years; I didn’t put

my mind to it. I came there because my brother asked me to come and he put papers in

front of me, which was a normal thing that happened for 40 some odd years, and

Chester knew if there was anybody in the room, even if I was feeling good, I wouldn’t

ask him any questions. He knew what I would do. He knew.

Q. Did you think what you had signed was out of the ordinary?

A. No, I did not.

Q. Did you know or think that it was something the importance of which was out of the

ordinary?

A. No, I did not.

Morris, February 12, 1999

A. I don’t know how to bring it through to you how I felt that day, what my mental

condition was, and being in a room with no strangers, who said two things which had no

meaning to me, based on the way I felt. One, this is the sale. That’s the truth. If I was

making up a story, I would have a better one than that. Number two, I believe my brother

said: Look at these papers. I didn’t have the mental capacity, sir, I didn’t have—I don’t

know—I’m looking for words and I can’t find them. I didn’t have the ability to look after

myself at that time. However, my assurance was I was in a room with two people that I

trusted the most. There were never any meetings. There was never any discussion.

Nobody told me this was going to be my life taken away from me. I had no discussions

with Paul Ennis about this. I had no discussions with my brother about this, except

telling him: Please leave me alone and don’t ask me anymore. Why would I ever feel

that there was something wrong, under those circumstances?

Morris, March 2, 1999

A. …Nobody discussed these papers with me. I was sick. If they were going to be

discussed, I don’t know why it couldn’t have waited as my brother said, there was only a

2 percent mortality in having an angiogram, why he can’t have waited another week and

said to me see, everything is fine let’s sit down and talk. He knew I didn’t want to sell.

Ennis knew I didn’t want to sell and these documents were put together without me.

[742] Prior to that day, Morris had never been involved in any transaction in which he was on

one side and Chester on the other, nor had he been involved in any transaction in which

Ennis acted on more than one side.²⁹²

[743] Morris said on December 22, 1983, he did not receive a copy of the letter to Schmelzle

dated December 21, 1983 (JB 2934.). He did not ask for an assurance he was selling all of

his shares.

[744] Morris said neither Ennis nor Chester recommended he speak to an independent

lawyer.²⁹³After he signed the lease and Share Sale documents, he signed a document about

which Chester commented to Ennis with a smile, “Oh, this is to save your ass.” He left without

any originals or copies of any documents.

²⁹²Morris, January 26, 1999

²⁹³Morris, January 26, 1999

Q. Did Mr. Ennis suggest to you or say to you before you signed any of these papers, that you should speak to a different lawyer?

A. He did not.

Q. Did he say that to you at any time before you signed these papers?

A. He did not.

Q. What did Mr. Ennis say to you before you finished signing the papers, from the time you arrived to the time you finished signing the

papers?

A. I don’t remember him saying anything. Except hello maybe when I came in, and shuffling some papers back and forth. Going out to get

the sheet of paper I talked to you about, and I can’t recall whether he poured the drink or I poured the drink—pardon me, or Chester poured

the drink. And I left…

Q. Did your brother ever suggest to you or tell you before you signed the papers that you should go and speak to a different lawyer?

A. He did not.

[745] Morris said as he was driving back to the office, he stopped his car and vomited.²⁹⁴

That night, he received a telephone call from Ennis, who seemed to be drunk or crying. Ennis

said not to blame Chester, it was Robert’s fault. Morris did not ask Ennis to explain.²⁹⁵

[746] Chester said when he arrived at Ennis’ office around 3 p.m. on December 22, Morris’

car was already in the parking lot. Morris and Ennis were in the boardroom. Chester sat

beside Morris. Butner came in. The documents were put before them. Butner read the

amended Share Sale Agreement out loud, line by line, pointing out the changes that had been

made. After they signed and initialled the Share Sale Agreement on every page, she re-read

the lease [that had already been signed on December 20.] Morris mentioned JB 2934 (Ex

289, tab 84) Ennis’ letter to Schmelzle of December 21, 1983 and asked for assurances that

he was selling all his shares.

[747] After all of the documents were signed, they had schnapps together. Everybody

seemed relaxed. Morris was affable, humorous, lucid, bright, serious, good humoured,

intelligent. There was nothing wrong with him. He seemed to be relieved, happy he was going

to continue to look after the IWS waste business unfettered. If his research and efforts came

to fruition, IWS and Morris would make a lot of money. Both Morris and Chester took copies

of all the documents away in brown envelopes. The meeting lasted a couple of hours.

[748] Ennis said on December 22, they reviewed the Share Sale Agreement paragraph by

paragraph. Butner indicated the changes that had been made. She re-read the lease. She

read the minutes, including JB 2944/Ex 289, tab 91, an IWS minute dated December 22,

1983, which refers inter alia to the $1 million dividend, the sale of Morris’ shares, and Morris’

$500,000 loan to IWS. The meeting lasted about an hour.

[749] Findings - The Events of December 20-22, 1983

[750] I find that there was no meeting with Morris on December 20. As Ennis’ notes indicate,

Ennis and Chester decided to notify Lasco of the pending share purchase, and they arranged

a meeting with Lasco on December 21, 1983. I do not accept Chester’s evidence that Morris

²⁹⁴Morris, January 26, 1999

A. Probably because I wasn’t feeling good. I could have been anxious, I could have been nervous about what was happening to me. The

possibility of subconsciously maybe knowing what happened to me, I don’t know. I don’t know. I can’t answer it. I just don’t know. And I don’t

remember today.

Q. You said the possibility of subconsciously knowing what happened to you. What do you mean by that?

A. I don’t know what I mean by that. I’m giving you every possibility of why I might have brought up.

²⁹⁵Morris, January 26, 1999

suggested on December 20, 1983 they obtain Lasco’s blessing. I have found that Morris was

not there and knew nothing about the Agreement. Rather, it was Chester who wanted to be

certain he had complied with the notification provisions in the Lasco shareholders’ agreement

dated September 21, 1981, to ensure that his deal with Morris would be enforceable and, as

President of IWS Ferrous, that his relationship with Lasco would continue to be harmonious.

The meeting with Morris originally planned for December 20 did not take place until

December 22, 1983.

[751] I find that on December 20, 1983, Chester gave Linton copies of a draft agreement that

referred to the purchase of 42 shares in December 1983 and 42 shares in October 1984.

[752] The discussions that Ennis and Chester say took place in Morris’ presence on

December 20 took place, if at all, in his absence.

[753] I do not accept the detailed evidence of Chester and Ennis about the meetings and

discussions on December 20 and December 22. I shall give a few of many reasons. Their

evidence with respect to the call to Linton and the timing of the preparation of JB 2924, the

gifting agreement, was implausible. Ennis’ evidence that JB 2924 was not prepared until after

it had been decided that Chester would purchase 84 shares for $1 million in January 1984,

was inconsistent with its wording. If JB 2924 had been prepared after it had already been

decided that 84 shares would be purchased in January of 1984, the gifting agreement would

have been worded differently.

[754] The letter to Schmelzle dated December 21, 1983 mentions December 31, 1983 as the

date of the first purchase of shares. Ennis’ and Chester’s evidence that on December 20 a

decision was made to amend the Share Sale Agreement to provide for a purchase of 84

shares in January 1984 is at odds with the wording in that letter. If that decision had already

been made, Ennis would not have prepared a letter dated December 21 using the

superceded terms.²⁹⁶

[755] I note that Ennis produced Morris’ copy (Exhibit 154B) of the Schmelzle letter for the

first time during his cross-examination. He found it in his garage during Christmas vacation of

1999. He said he gave it to Morris on December 22, but Morris had a habit of leaving

²⁹⁶Exhibit 289, Share Sale Brief, tab 83

things.²⁹⁷I find that Morris never received a copy of the Schmelzle letter. He did not review it

with Chester and Ennis on December 22. He did not seek assurances after reading it that he

was selling all of his shares (i.e. that it was not a staged sale.)

[756] On the afternoon of December 20, a number of important documents had not yet been

prepared, including the Share Sale certificates, the minute regarding the dividend, the waiver

of ILA.

[757] After Linton received a draft of the Share Sale Agreement that provided for a purchase

of 42 shares on or before December 31, 1983, and 42 shares on or before October 31, 1984,

I find that either Chester or Linton advised Ennis on December 21 that it should be changed

to reflect a purchase of 84 shares on January 3, 1984 (as Ennis’ note reflects).

[758] On December 21, Chester and Ennis spent several hours together while driving to and

from Whitby to give notice of the pending deal to Lasco. I note that the Share Sale Agreement

provides that the vendor [i.e. Morris] was to provide “evidence reasonably satisfactory to the

purchaser that Lasco has approved of the Sale.” Chester’s visit to Lasco is consistent with his

knowledge that the vendor, Morris, knew nothing of the impending Share Sale.

[759] On December 21, either Linton or Chester directed Rioux to clear Morris’ 1983

drawings account using Morris’ 1982 bonus of $700,000 and to reallocate whatever was left

over to Chester. As a result, Morris never received a cheque with respect to the 1982 bonus. I

find, that Linton knew about the imminent Share Sale. Chester showed Linton the December

20 draft and Linton suggested additional changes.

[760] It was not until December 22, 1983 that Ennis was directed to change the purchase

date under the first Share Sale to January 4, 1984.

[761] It was not until after May 9, 1984 that Shirley signed the documents that effected the

transfer of her 56¼ IWS shares to Morris. This means that at the time the Share Sale

documents were signed, Shirley was still the owner of those shares.

[762] On one occasion only, on December 22, 1983, Morris was called into Ennis’ office to

sign Share Sale documents. I accept Morris’ evidence that the meeting was brief. None of the

documents were read aloud, reviewed, discussed or explained.

²⁹⁷Ennis, December 3, 1999 and January 20, 2000

[763] Morris did not understand at the time that the documents he was being asked to sign

were out of the ordinary. He thought he was signing IWS documents as its President in the

usual course. He signed the documents because Chester asked him to do so and because he

trusted Chester and Ennis. He did not want or intend to sell his shares. He had no idea that

he was selling his shares or signing a lease. [I note that viewed objectively, from Morris’

perspective the deal kept getting worse and worse.] I do not accept that Morris was involved

in any negotiations that produced this deal.

[764] The productions contain two executed Share Sale documents dated December 20,

1983 (JB 2918 and JB 2925A.) I find these documents were signed at the December 22

meeting. In Ennis’ office, the dating of documents often bore little relationship to the date on

which documents were actually signed, [The date on the minute returning Isaac’s one share

to Morris, on the SWRI share transfers to Michael and Douglas and on the 1979 bonus

minute are but three of many examples.] I find that in the rush on December 22, 1983, prior

drafts of the Share Sale document dated December 20 were mistakenly included. No one

read the documents as they were being signed.

[765] If the documents had been reviewed line by line, as Chester and Ennis alleged, the

obvious errors that they contain [for example, the errors in the gifting agreement] would have

been caught and corrected. I find that the documents were drafted and signed in a rush,

because Chester wanted them signed before Morris’ angiogram scheduled for December 29,

1983.

[766] JB 2943, the waiver of ILA dated December 22, 1983 was prepared and signed on

December 22, 1983. JB 2927, the waiver of ILA dated December 20, 1983, was not prepared

by Ennis or signed by Chester until January 1984.

[767] Morris received no copies of the Share Sale documents on December 22. Chester,

who understood their significance, either took originals away with him or received them from

Ennis shortly thereafter.

[768] I accept Morris’ evidence that on the evening of December 22, Ennis telephoned him,

crying or drunk, telling him not to blame Chester. Morris did not know what Ennis was talking

about.

The Fairness Of The Share Sale Deal

[769] Chester said that when he thought about the deal on the evening of December 22, he

believed it was fair. Morris had decided to sell his shares when their value was depressed

because of the recession. Morris had asked him to bear the brunt of the recession, to take the

risk that IWS would fail, to come up with the purchase price, to indemnify him against

potential environmental liabilities and to assume the future costs of caring for the

less-fortunate members of the extended family. Chester’s evidence is quoted in the

endnote.²⁹⁸

[770] In order to determine whether the deal was unfair, unconscionable and/or manifestly

disadvantageous, I have considered evidence about the value of IWS at the time of the Share

Sale.

[771] Cole, an expert witness called by counsel for the Plaintiffs, reviewed the various

matters he would have taken into account had he been asked to represent Morris as his

financial advisor on a sale of shares in 1983. He said it would have been ridiculous for any

financial advisor to contemplate a discount against cash or redundant assets.

Cole, June 22, 1999

A. …The purchaser was effectively paying less than dollar-for-dollar for the very cash

that was in the business. The purchaser, on those terms, was acquiring the business for

²⁹⁸Chester, September 24, 1999

A. I gave it some thought that night. I sat there. I didn’t really know at the time how myself and the boys would make out over the next several

years in business. I had trepidation about the five or six million dollars that would have to be earned to keep us in the same relative position

we were in at the time that we sold… Morris seemed relieved of his problem, perhaps with Michael and what he might have had there. He

seemed to be happy that he was going to continue to look after our waste business unfettered, full control. The future of the family, I felt that I

would continue to make that one of the my top priorities if not the top priority.

Q. What do you mean by that?

A. Well, we had big problems in the family. Sylvia was aging. David was aging. Harry Leibowitz and Lily Leibowitz were going to be aging.

Those less fortunate members of the family were going to deteriorate and perhaps worse than most people because of the hardship they’ve

gone through since their birth. Eva Rosen and her husband. He was not a big money maker. He made a living off of us and we were pleased

to do that. They were a future concern. The oldest brother Sam, he was going to be aging… And Allan Waxman from time to time was going

to require our assistance, I felt, as he did in 1982. We had to get them $200,000 loan from the bank or they would have gone bankrupt in ’82.

And to keep an eye out for the extended family. I thought that that was an onerous undertaking but one that I wanted to be able to help with. I

felt that that could be done. But nobody really knew, at the end of ’83, whether the business would come back in one year, three years, or

seven years. And in fact, we had a devil of a time in ’84 and ’85 and at least part of ’86, trying to keep afloat… We’ll go into that later but that

night I thought that Morris had what he wanted. He had received in 1981 $250,000 tax-free dividend, ’81 and 82 bonuses gave him

approximately one million dollars in dividends. This was being followed up over the next five years by three million dollars more. He had an

opportunity to make much more money on an annual basis by enhancing the waste division which, I felt, he could. He said he would… By

and large I thought, based on all of those things, based on the fact that I hate open-ended obligations and for my brother, I took them on. I

took on the obligations of that family, open-ended, and they were going to be comfortable, and they were going to get the best medical

attention that I can give them. That was one open-ended obligation. The other open-ended obligation was if the shoe fell and an

environmental clean-up was required, I under took that obligation. Morris’s family didn’t need to worry. His heir’s didn’t need to worry. He

didn’t need to worry. That was going to be done. And the lease is still in effect and comes down that it needs to be done, I will do it. All in all,

Morris was now free to do what he pleased. He had money, he had money coming, and as the head man of the waste division, he could

make a lot more money. I thought it was fair. I had no trepidation as to the fairness of the deal. My trepidation was, are we going to do okay.

Am I going to be able to pay him or have earnings of five to six million dollars and draw it to make the payments on what I owed him. The

company was not in bad shape. I never indicated that. But I was going to make sure that it was not going to get into bad shape and that’s

why I tried to hang on to all the money I could as long as I could. If you note over the next few years, the only thing that kept us in decent

shape was the interest on the investments that were made and the management fee. You asked a question. I’ve maybe gone a little further

but I can tell you I felt at the time it was fair to me and it was fair to Morris.

free, deferring payment, and had full use of all the cash during the deferred time. The

purchaser would have also enjoyed the benefit of the bonuses and all the cash that was

available in addition to the surplus cash, so clearly the purchaser would have acquired a

great deal more than they paid for. The purchaser would have enjoyed a windfall at least

equal to the goodwill acquired, certainly increased by a portion of the tangible asset

backing and, in fact, by a share of the redundant cash.

Q. Cole said that he arrived at that conclusion independent of the issue of allocation of

the 6.6 million dollars in bonuses and independent of the issue of profit diversions to

Greycliffe. [Emphasis added.]

[772] For reasons given in the Valuation and Quantification section, I have accepted the

evidence of Vettese and concluded that the shares of IWS in December 1983 were

conservatively worth $8.735 to $8.963 million, apart from the $1 million dividend declared in

1983 to fund the Share Sale and apart from the $6.6 million in 1981-1982 bonuses. I have

also found that in real 1983 dollars Morris only received the cash equivalent of $1,594,721.

[773] On that basis, I accept Cole’s evidence that essentially Morris received nothing for the

business, and Chester received the net tangible assets and the goodwill for nothing.²⁹⁹[Cole

said the profits from the 1981 sales to Laidlaw and Lasco, reconciled to the Campbell

valuation, together with the redundant assets in 1983 and the residual value of the

non-ferrous operations, suggest on a “quick and dirty” basis that IWS had a value in 1983 of

$15 or $16 million. Since that figure includes the 1981-1982 bonuses, that estimate is in line

with Vettese’s evidence on value.]

[774] Cole considered the amount of surplus cash in IWS to be relevant to the

reasonableness of timing of the deal and the nature of the payments that Morris received. No

interest was payable under the $500,000 promissory note, JB 2925. An arrangement whereby

Morris lent IWS $500,000 at no interest, when interest rates were at least 12%, was patently

unfavourable to Morris. Cole said that in 1983, 12% inflation was eroding everyone’s capital.

Significant interest payments were the only logical compensation if buyers were seeking to

defer payment.³⁰⁰

[775] Cole said:

²⁹⁹Cole, June 22, 1999; Exhibit 119

³⁰⁰Cole, June 22, 1999 and June 23, 1999

Cole, June 22, 1999

A. …I don’t believe that a prudent financial advisor would have recommended this share

sale with the terms and price as described. I think that it didn’t make sense to sell at that

price. I think it was patently unfair vis-à-vis value to sell at that price. I would have

advised my client that I do not recommend this transaction. I think that the terms, or the

absence of proper terms would have raised a number of commercial flags. I think that I

would have said to… the vendor that these terms don’t pass the smell test, as it’s

sometimes called. The aggregate of missing terms, the very, very low price; the

existence of cash in the business; all of those ingredients would have inclined me to

say… to the vendor… I do not recommend the sale on these terms.

Q. And perhaps the answer you’ve just given, but in any event, from a financial point of

view, can you express a view as to the fairness of the overall terms, conditions and price

of this share sale transaction?

A. I think I have said just that. I don’t think it was fair. I think it was not in the ballpark of

reasonableness or fairness, and I would have told the vendor that. (Emphasis added)

[776] I conclude that the Share Sale Agreement (JB 2941) was manifestly and patently

unfair.

Dividend Gifting Agreement—JB2924

[777] A $1 million dividend was declared in December 1983: $500,000 to Morris and

$500,000 to Chester. Morris gifted his dividend to Chester, who was then to pay Morris $1

million.

[778] Again, such an arrangement was obviously unfair to Morris because he would have

been entitled as a 50% shareholder of IWS to receive $500,000 of any $1 million IWS

dividend whether or not a Share Sale had taken place. Under the Share Sale deal,

$1,162,000³⁰¹of the $3,000,000 to be paid to Morris was Morris’ own money. The

arrangement also caused significant adverse tax consequences to Morris.

The December 1983 Lease—JB2926

³⁰¹The $1,162,000 comprises Morris’ 1982 bonus of $412,000, plus the $500,000 that was gifted to Chester, plus half of the dividend tax

refund of $125,000 plus $125,000 representing half of the non-taxable dividend. This total is conservative, given that the non-taxable

dividend represents after-tax dollars.

[779] Cole commented that the terms of the lease were not generally commercially

acceptable:

• fifty years was a very long lease period;

• the terms were very vague;

• the lease could be assigned without Morris’/Morriston’s approval or consent;

• the lease contained no inflation protection or rent adjustment clause;

• the absence of an effective default remedy provision was very prejudicial and

uncommon and would be generally unacceptable to most financial advisors;

• its provision prohibiting Morris from dealing with the assets or shares of Morriston was

clearly offensive, again, inhibiting value.

[780] The effect of these terms was that the property was rendered quite illiquid and

unmarketable. Given the length of the lease and all of its provisions, it was almost as if the

realty value was being expropriated and transferred to the tenant.³⁰²

[781] In the Quantification and Valuation section of these Reasons, I have accepted the

evidence of Robertson that a rent of $2000 under the December 1983 lease should be

compared to market rents for the properties covered by the lease as follows:

• for the front of Windermere, $63,401 per year or $5283 per month

• for the Back 7.7 Acres of Centennial, $75,020 per year or $6252 per month

• for the rear of Windermere (after September 2001), $62,412 per year or $5201 per

month

• for Glow (after September 2001), $41,352 per year or $3446 per month

[782] I have preferred the evidence of Robertson to that of Losier.

[783] In other words, I have found that the fair market monthly rent for the Back 7.7 Acres

and the Blue Building Lands was $11,535 per month as of December 1983, plus escalators

every five years using the consumer price index, compared to $2000 per month without

escalators. After the IWS Ferrous lease expired, the fair market rent of all of the properties as

³⁰²Cole, June 22, 1999

of December 1983 was $20,182 per month plus escalators, compared to $2000 per month

without escalators.

[784] In my view, in prospectively considering the fairness of the lease as of December

1983, it was appropriate for Vettese to calculate losses suffered by Morris and Morriston over

the lease term based on the difference between the actual rent payable under the December

1983 lease and the market rents determined by Robertson. I have found that the difference,

i.e. the lease deficiency, is $2,529,607.

[785] Of the December 1983 lease, Morris said:

Morris, February 19, 1999

A. Who in his right mind would lease that for a thousand dollars a month for 50 years or

a 100 years whatever is down there, and then not be able to turn the property over to my

children; not to sue them if they don’t pay the rent. I can’t do anything with it. If I need

money, I can’t mortgage my part of the property. I can’t do anything with it, and you’re

going to tell me, sir, I was in my right mind and this was negotiated with me and I agreed

to it?

Q. Now that $1,000 a month with respect to [the rear of] Windermere and Glow would

only kick in in the year 2001. Correct?

A. I don’t care when it kicks in. It’s still—I can’t think of the word.

…Q. The $1,000 a month with respect to Windermere leased to I.W.&S. Ferrous; and

Glow which was leased to I.W.&S. Ferrous, doesn’t come in until the year 2001?

A. So the thousand dollars they’re paying for is a 35,000 square foot building [the Blue

Building] with a high ceiling built expressly for that purpose. I was there when the

concrete was poured. I think it’s got 10 or 20,000 pounds per square foot, which

normally is three, because of the type of equipment we had to put in there, and eight

acres. And you’re telling me that after they go out of there, not only do I lose that for a

thousand dollars a month, but all of the rest of the property kicks in in 2001 and I’ve got

a thousand dollars a month for 50 years. Is that right?

[786] The $2000 rental rate in the December 1983 lease was $3,000 less per month than the

$5000 rate which Chester had instructed Ennis to include in the draft July 1983 lease.

Chester agreed in cross-examination that even a rent of $5,000 per month for the 7.7 Acres

and the Blue Building lands would have been below market value. I have already alluded to

Linton’s February 24, 1982 memo, JB2244, in which he considered an appropriate rental rate

for the Back 7.7 Acres and the Blue Building Lands before discounts would be $115,000 per

year.

[787] Chester said Morris was prepared to accept Morriston’s share of $2000 per month for

three reasons: (1) the rent from Lasco/TWS Ferrous was double or one and a half times

market rent; (2) Chester/IWS agreed to be responsible for environmental problems, and (3)

Chester/IWS agreed to relieve Morris of any ongoing obligation to provide financial assistance

to the extended family.³⁰³

[788] I have already found that Morris and Chester had no discussions and I have given my

reasons for rejecting Chester’s first contention.

[789] I reject Chester’s evidence that during their “negotiations,” Morris said he wanted to be

relieved of liability for potential environmental liabilities. Morris did not tell him he had done

detailed calculations and environmental clean-up costs could reach $2 to $5 million

dollars.³⁰⁴³⁰⁵I accept Morris’ evidence that in 1983 no clean-up costs were foreseen, so long

as the properties were being used as a scrap yard. Morris did not wish to sell, so he had no

environmental concerns.³⁰⁶I also accept Morris’ evidence that he was in no position to

estimate and did not estimate the clean up costs. I find Morris and Chester did not discuss

environmental issues in 1983.³⁰⁷

³⁰³Chester, September 17, 1999; October 28, 1999; November 9, 1999

³⁰⁴Chester, September 21, 1999

³⁰⁵Chester, October 7, 1999

³⁰⁶Morris, March 2, 1999

Q. …You were also aware that clean up costs could be very high weren’t you?

A. No clean up costs are necessary as long as the property is being used for what’s used for.

Q. So scrap yards don’t cause clean up problems?

A. Only when they vacate.

…Q. And I suggest you were concerned about the costs of cleaning up those lands?

A. I wasn’t concerned about anything.

…Q. In the late 70’s and early 80’s, Mr. Waxman, that’s when the environmental legislation was really starting to be enforced. Is that correct?

A. That’s right but what it did that have to do with Windermere Road property?

Q. I’m suggesting you were concerned because you were alert?

A. I wasn’t concerned. You don’t understand. I’m trying to make you understand that as long as that plant was operating the way it was, it

had no environmental problem. None whatsoever.

Q. Until you sold property?

A. Who wants to sell it?… I was always concerned about environmental issues but it had nothing to do with 75 Windermere Road or Glow

Avenue or the Centennial property.

Q. But you will admit that all three of them were polluted?

A. I don’t know to what extent.

³⁰⁷Morris, September 18, 2000

[790] Given my findings about the complete lack of negotiation of the December 1983 lease,

and my rejection of Chester’s evidence with respect to environmental liabilities, I shall refer

only briefly to the evidence of Khan.

[791] I say only that if it had been necessary to determine the extent of environmental

contamination on the properties covered by the December 1983 lease, I would have found his

evidence to be of little assistance. The date of his analysis was September 1998. Khan

expressed no opinion about the level of contamination, if any, in December 1983. He did not

specifically identify contamination on the various segments of the properties. The majority of

the contamination he did identify was on the rear of Windermere, which was being used by

IWS Ferrous and was not to be covered by the December 1983 lease until September 2001.

Two of his bore holes were not on property owned by Morriston and Chesterton. His

assumptions about the cost of soil haulage and the disposal rates he used were questionable,

approximately double comparable rates used by SWRI.

[792] There is no mention of ongoing obligations to family members in the December 1983

lease. Morris denied having any discussions with Chester about forgoing higher rentals if IWS

would assume family obligations. I accept Morris’ evidence and I find that there were no such

discussions. Chester simply set the rent to be included in the February 1982, the July 1983

draft lease and the December 1983 lease without consulting Morris.

[793] I note that JB 3326 reflects that on June 6, 1985, Morris, not Chester or IWS, was sent

a bill for an air conditioner for Sylvia at Shalom Village.

[794] In addition to the severe unfairness of the rental rate, there were a number of other

lease terms that on their face were patently unfavourable to Morris/Morriston.

[795] Paragraph five of the December 1983 lease provides that none of the properties jointly

owned by Morris and Chester/Morriston and Chesterton were to be sold, mortgaged,

hypothecated, pledged or charged in any manner during the term of the lease without the

unanimous consent of all parties. That clause would prevent Morris and his heirs from dealing

with properties owned by Morriston for 50 years. I have already noted that Morriston would

nevertheless remain liable for the substantial Blue Building Loan not charged to Morriston

until 1982. Morriston’s share of the rent, $1000 per month under the December 1983 lease,

would not begin to cover the interest payments on that loan. Morriston was being saddled with

a lease on property that would not generate revenue sufficient to cover its costs, e.g.,

payments on loans made in respect of that property. The lease also removed Morriston’s right

to sell or mortgage the property to cover those payments or discharge the loans. At the end of

1983, Morriston’s bank loan stood at $309,000.

[796] I am of the view that despite subsequent events, the lease deficiency of $2,529,607 is

relevant in considering the fairness of the lease at the time that it was signed in December

1983.

[797] It is important to note that Vettese’s calculations assume that Morriston was paid the

rent owed between February 1984 and mid-1989. I have found that Chester’s/Linton’s/IWS’

actions in contra’ing the rent were improper and cannot stand and have quantified the

damages in that regard at $21,169.

[798] I conclude that a rental rate of $2000 per month without escalators for fifty years for the

properties in question was patently unfair to Morris. It is obvious that if the lease had been

reviewed and properly explained to Morris on December 22, 1983, he would never have

signed it. The other terms of the lease compounded its unfairness, tying up the property for

fifty years without the prospect of sale or mortgage. The lands subject to the lease were,

practically speaking, being expropriated for next to nothing, yet Morriston’s liability incurred in

connection with those lands remained.

Overall Fairness of the Deal

[799] The fairness of the deal must be considered having regard to its overall effect. I agree

with Cole when he said:

Cole, June 22, 1999

A. Well, it’s important to say, as I said in my report, that any one item in isolation is

difficult to deal with. In aggregate, all of these points indicate something very peculiar, if

not very unfair or not commercially acceptable, so that in aggregate these points, were I

aware of them at the time. I would have said they are unacceptable. Absolutely

unacceptable. (Emphasis added)

[800] Given all of the circumstances, considering the terms of all of the documents together,

including the Share Sale and lease, the gifting by Morris of a $500,000 dividend to which he

would have been entitled in any event, the reallocation from Morris to Chester of $412,000 of

his 1982 bonus, and the terms of the promissory note, the deal was patently unfair,

unconscionable, and manifestly disadvantageous to Morris.

1983 Events After December 22

[801] Morris said he did not learn he had signed documents selling his shares to Chester

until January 5, 1984.

[802] JB 2664 at page 222 contains Ennis’ December 23, 1983 note of a telephone call with

Morris.³⁰⁸Morris said he tried unsuccessfully to arrange an appointment with Ennis on

December 23 to discuss his will. Hope, not Ennis, agreed to prepare his will.³⁰⁹

[803] Morris said he met with Wiseman and Hope on December 26, 1983 to give will

instructions. In that context, Hope told him he/Morriston did not own the Centennial property.

Hope’s statement upset him, but he was so preoccupied with the upcoming angiogram and

the possibility of dying, that he did not really attempt at the time to understand what Hope had

said.³¹⁰,³¹¹When he signed his will in Hope’s and Wiseman’s presence on December 27, they

did not discuss the Share Sale. He did not give a copy of the will or any other documents to

Wiseman.³¹²He was hospitalised for the angiogram between December 28 and December

30, [JB2983A] and did not see Wiseman, Linton or Taylor after December 27 until early 1984.

³⁰⁸Ennis, December 6, 1999; December 9, 1999

³⁰⁹Morris, January 26, 1999:

Q. …did you speak to Mr. Ennis again about your will before you called Kevin Hope?

A. I just said. I did get him on the phone at one point… he didn’t give me a time when he could see me and time was of the essence for me,

so I tried to get a hold of Kevin.

Q. Did you get hold of Mr. Hope?

A. Yes I did.

Q. And what did you say to him?

A. I told him I was going into the hospital and I wanted a will done and I asked him if he could come over to my house the next day, and he

said to me: Mr. Waxman, it’s Christmas. I can’t come over tomorrow. And that tells you how my mind was working, asking a Christian to

come over on Christmas day, and he said because of that, he would come over on Boxing Day…

³¹⁰Morris, January 26, 1999

A. I’m sorry. I asked him to—I started to talk about the lands that I would want every thing to go to my children and at that point Kevin Hope

said: You don’t own Centennial. I believed however bad I felt before it started, I was finished.

Q. What do you mean by that?

A. Well, I was taken aback. Very aback. I didn’t know how the Centennial property couldn’t belong to me. And right after that was said. Kevin

Hope said that this was the dirtiest deal he worked on and he didn’t elaborate. Steve Wiseman looked like he was going to cry. He probably

saw the look on my face and on his and at that point he suggested that everything be turned over to my wife, because I was confused. And

that my two sons should be the executors of the will, and he said that that would be the simplest thing to do and wouldn’t cause a tax

problem. And I told Kevin to draw up the will that way.

Q. When Kevin said to you: You don’t own Centennial. Did you know why or understand why you didn’t own Centennial?

A. No, I did not.

Q. Did you ask him why you didn’t own Centennial?

A. No, I did not.

Q. Why did you not ask Kevin Hope why you no longer own Centennial?

A. Again, all I can tell you is that I was really preoccupied with myself. I had to go upstairs when I was finished with these two, tell my wife

and my two sons, my daughter was in Toronto, that I was drawing up a will and they knew why, because I was going in for this operation,

and that they would be looked after.

³¹¹Morris, January 26, 1999 and February 22, 1999

He did not sign any cheques and did not discuss the Share Sale with anyone during that

period.

[804] Shirley gave evidence that between December 28 and the end of 1983, Morris saw no-

one. She was with him all day on December 28. She drove him from their house to

St. Joseph’s Hospital.³¹³Morris could not have met with Wiseman at Wiseman’s office during

the early afternoon of December 28. The angiogram on December 29, 1983, confirmed

Goldberg’s opinion that a valve in Morris’ heart required prompt replacement. She spent all of

Friday, December 30, 1983, with Morris. After he was discharged from the hospital, she drove

him home, where he spent the remainder of the day. Morris did not go to Wiseman’s office or

to IWS on that day. She and Morris spent all December 31 together at home. They did not go

out for New Year’s Eve.³¹⁴

[805] Linton said on December 23 Chester handed him his Share Sale Agreements, one

dated December 20, 1983, and one dated December 22, 1983. Chester told him he had

completed the deal. Morris wanted it kept secret. A few people, including his sons and Ennis,

knew about it. Others would be told, including Stenatis and Wiseman. Morris would be

remaining on as President of IWS. Chester would be assuming all financial responsibility for

family members, as well as environmental liabilities.

[806] Chester said he gave his copies of the Share Sale documents to Linton on December

23, 1983, telling him that (a) he had bought Morris’ shares; (b) Morris was to remain as

President of IWS and to have unfettered control of its environmental and waste business, to

receive his salary, a car and payment of all of his business expenses; (c) Shirley was to

receive a car and a salary; (d) Michael was to remain on the IWS payroll and to continue to

receive benefits. Morris had said he would advise Taylor Leibow about the Share Sale.

Chester was to advise the bank. Within a few days, Chester told his sons he had purchased

Morris’ shares and they were not to interfere in the disposal division.

How Did Wiseman Obtain Copies of the Share Sale Documents?

[807] Wiseman said he met with Morris on December 28 and Morris gave him copies of

Share Sale documents.

³¹²Morris, January 26, 1999 and September 18, 2000

³¹³JB 2983A, hospital admission record

³¹⁴Shirley, September 15, 2000 [no transcript]

[808] Morris denied giving Share Sale documents to Wiseman on December 28, saying that

he did not meet with Wiseman on December 28 and did not have Share Sale documents to

give. Morris did not know how Taylor and Wiseman learned about the Share Sale.³¹⁵He said

Wiseman told him in January 1984 he had a copy of the documents, he had whited out the

names and he had sought a legal opinion.³¹⁶

[809] Wiseman gave detailed evidence of discussions with Morris commencing on

December 26 and continuing on December 27, 28, 30 and 31. At a meeting about Morris’ will

on December 26, Morris said he had sold his shares of IWS. He was upset when he learned

Centennial belonged to IWS. Morris said he would never have sold his shares to Chester if

had he known that IWS owned Centennial. On December 27, Morris agreed to meet with

Wiseman and Taylor on December 28.³¹⁷

³¹⁵Morris, February 12, 1999

Q. So you’re saying that the share purchase agreement, the lease, the other documents you signed that day, were not given to you. I want

that very clear, on your oath?

A. On my oath I walked out of there with no documents.

Q. Well, we know that Steve Wiseman was given documents by you at the end of December 1983. Do you dispute that?

A. I dispute it vehemently, sir…

Q. Did you ever give Steve Wiseman a copy of those documents?

A. No sir.

Q. You’re clear about that?

A. I’m very, very clear. I had no documents to give him…

Q. Let me understand what you’ve said. The first thing you said was on October 24, 1988, when Steve Wiseman returned the documents to

you… He returned not only documents you gave him, but he also returned documents that you did not give him?

A. That’s right…

Q. …When Steve Wiseman says… I make oath and say that in January 1984 I received from Morris Waxman a true copy of the papers

annexed hereto, he is swearing a false affidavit?

A. Sir, I gave Steve Wiseman no papers. I had no papers to give him. I don’t know how much clearer I can be than that. I had no documents.

For myself, I had to get them from Chester in June or July to even look at them.

³¹⁶Morris, January 28, 1999

A. No. Only discussion I remembered with Mr. Wiseman was that he told me that he had a copy of the documents, that he whited them out—

and this was after the fact, not before the fact—that he whited them out, took them to a lawyer in Toronto—

Q. What do you mean, “whited them out”?

A. Pardon me. He whited out the names so that there was no connection between the pieces of paper he was showing to the lawyer and

who the people were in the document. He said that he had taken these to a lawyer in Toronto to find out if there was some way that this deal

could be undone. And I said to Steve: Steve, if you’re whiting out the documents, you could have taken it to any good lawyer in Hamilton.

And besides, it’s my life, why didn’t you ask me to go with you? He thought he was doing the right thing and that’s what he did.

Q. What became of that?

A. Nothing. I guess he said based on the little bit of information the lawyers had, he either couldn’t given them an answer or said couldn’t be

done.

³¹⁷Wiseman, February 8, 2000

A. I discussed with him the fact that he should meet with Sam Taylor. I told him it wasn’t healthy for him to keep these secrets

A. [At] Paul’s office, he met with Kevin Hope to execute the will and I witnessed the will. We left the office… In the car, Morris gave me a

copy of his will that he had in that sealed envelope and he told me that he didn’t want to take it home with him. He wanted me to keep it and I

accommodated him.

A. Once again on the return home, I continued to talk to him about the fact that he should have at least called us and it wasn’t a good idea for

him not to discuss it with his family and he said look that’s the way I want it. By the time we got to the house, he was agreeable to me setting

up a meeting with Sam Taylor. I went home, called Sam Taylor and set up a meeting for the next day… I then called Morris, told him about

the time of the meeting, we were to meet in the afternoon on the 28th, and à propos of Sam’s request, I requested Morris to bring the share

document with him so Sam could review it.

[810] Wiseman said on December 28, 1983, Morris provided him with copies of Share Sale

documents.³¹⁸Morris met alone with Taylor. After Taylor left, Wiseman and Morris continued

their discussion:

Wiseman, March 9, 2000

…Morris said that this deal was an abortion, that was the term he used, that it was

something that he shouldn’t have entered into. On December 28, Morris did not

understand any of the business aspects of the deal: the tax, the interest, the gift, why

had loaned $500,000 to IWS. He wanted out.³¹⁹As a result of their discussions, Morris

knew that the sale price was $3 million, that Centennial was included, that there was tax

to pay, that he had gifted a dividend to Chester, that he had loaned $500,000 to IWS

and would be receiving no interest. He was upset.

[811] When Morris left on December 28, he left his copies of the Agreements and lease with

Wiseman.³²⁰Wiseman said they continued to discuss the Share Sale on December 30 and

31:

Wiseman, March 10, 2000

A. …on the 26th he was happy to sign the document save and except for the

Centennial property.

…On the 28th all right, it was geez nobody explained anything about income taxes

how come I’m not getting any interest I don’t know why I gifted half a million

dollars to Chester. That’s what I was told to do. The note, that’s what I was told the way

³¹⁸Wiseman recounted their discussion at that meeting:

Wiseman, February 8, 2000

A. [Morris] then asked me a few questions about the agreement, would he have to pay any tax. I said of course there will be tax. There will

be a capital gain… He said nobody explained anything about tax to me. He asked me if he could avoid the tax. I said well, it’s a sale, you

know, it could have been done through holding companies and I gave him a quick explanation of the use of holding companies. He said he

received no advice with respect to income tax whatsoever on this agreement. He asked me if he was entitled to any interest because he said

he never got the full amount. I said based on my reading of the agreement, there’s no interest. He said nobody explained that to him.

³¹⁹Wiseman, March 9, 2000:

A. And I think this is an important point for you to understand, this court to understand, with respect to other matters that were raised during

my review with him, as brief as it was, on December 28th with respect to the fact that there was income taxes to pay, that he didn’t

understand that there were. That came out later. That came out on the 28th. They talked about the fact that there was a staged sale or that

he was receiving payments over time and the fact that there was no interest in there. That came out after he showed me the share

agreements. When he talked about the promissory note, he talked about the gifting arrangements, $500,000. That came out on that day. And

I talked to him about gift tax or not gift tax, but tax on the gift. I talked to him about the fact that it wasn’t a tax-efficient structure, that although

there was nothing wrong with people selling shares everyday I told him, but it could have been done on a tax-efficient basis using holding

companies. That came out on the first time I saw the agreements that Morris gave me. So therefore it became even more so with Morris that

he didn’t understand any aspect, any of the business aspects of the share deal. Didn’t understand the tax. Didn’t understand the interest.

Didn’t understand the gift. Didn’t know why he loaned the $500.000 to the company either. That was when he showed me the documents.

Q. So when did it become apparent that Morris didn’t understand all of that, just so we’re clear?

A. The whole thing to me, all right, became apparent in my view, when I reflect on it, I think at that time would have been the 28th when he

left. Because he said: This is an abortion, all right, this deal is an abortion. He gave me the documents. He didn’t want to take them home

with him, and he said he wanted out of the deal.

it should be. No advice. Got no advice on tax structuring on deferring tax on anything

like that.

At the end of the year, forget about taxes: he didn’t even know why he was there.

[812] Wiseman’s credibility suffered when he was taken to his discovery, in which he did not

mention a detailed discussion with Morris on December 30 or December 31 and in which he

did not recall “any discussions of the Share Sale per se on the 27^th, 30^thor 31^st.”

[813] Wiseman was also taken to answers given on discovery [which he did not initially

adopt at trial,] that “really throughout, OK, he said he didn’t understand what he had signed.

That was clear from day one”³²¹and that from the first discussion about the Share Sale,

whenever they talked, it was in the context of how Morris could undo it.³²²At trial Wiseman

eventually said: “Morris was upset with that share deal throughout the piece.”³²³Morris told

him in January that he either would be or was talking to Chester and they were going to

straighten it out.³²⁴

[814] Wiseman’s evidence at trial about obtaining Share Sale documents from Morris on

December 28 was inconsistent with his evidence on discovery [that he received them on

December 26] and with JB 4240, his affidavit sworn October 20, 1988, in which he deposed

he received them in January 1984.³²⁵I have noted that partway through JB 4240, there is a

note that reads:

Papers that had been given to Stephen Wiseman on January 24, 1984.

[815] Linton was taken in cross-examination to answers given on discovery before he

corrected his transcript that he recalled a conversation with Wiseman before the end of 1983,

during which Linton said he understood Wiseman had a copy of the Share Sale Agreement.

He called Wiseman because he wanted to review the wording. He was confused about it

being a staged sale or a completed sale. Wiseman said he was confused too. Linton changed

the timing of that conversation in Mr. Silver’s letter of March 2000 (Exhibit 288), but he

³²⁰Wiseman, February 8, 2000

³²¹Wiseman, March 10, 2000

³²²Wiseman, March 9, 2000

³²³Wiseman, March 2, 2000

³²⁴Wiseman, February 7, 2000, February 14, 2000, February 22, 2000

³²⁵Wiseman, March 9, 2000

acknowledged that he did recollect such a conversation with Wiseman. He said his

understanding that Wiseman had a copy of the Share Sale Agreement came from Chester.³²⁶

[816] Wiseman said he photocopied the Share Sale Agreement on December 30 or 31,

whited out the names and sent it to counsel for advice. Wiseman denied talking to Linton in

December 1983.³²⁷

[817] Chester said that he was “pretty sure” he did not tell Linton in December 1983 that

Wiseman knew about the deal or that Wiseman had copies of the Share Sale documents.³²⁸

However, he was aware Linton was speaking with Wiseman or Taylor about the

documents.³²⁹

January 1984

Share Sale Payments

[818] Linton said IWS dividend cheques for $500,000 payable to each of Morris and Chester

were drawn up on December 29 or 30, 1983. There was also a $1 million cheque from

Chester to Morris dated January 4 and a $500,000 cheque from Morris to IWS dated January

4, 1984. He had Chester sign them on December 30. Later the same day he met with Morris

to have him sign them. Linton said that on December 30, before Morris endorsed JB2924

[Exhibit 289 tab 10] the $500,000 IWS cheque payable to Morris, he explained to him that this

cheque represented his gift to Chester and would be deposited into Chester’s account. Morris

signed another personal cheque representing his loan to IWS dated January 4, 1984. Linton

could not specifically recall whether they reviewed the deposit of $1 million to be made into

Morris’ account on January 4, 1984.

[819] On cross-examination Linton said twice that he did not discuss the Share Sale with

Morris until January 1984.³³⁰

³²⁶Linton, June 15, 2000; Exhibit 288

³²⁷Wiseman, March 10, 2000

³²⁸Chester, October 25, 1999

³²⁹Chester, October 28, 1999

Q. Did you know that some of your professional advisers, specifically Mr. Wiseman and Mr. Taylor when they saw the share sale agreement

and the gifting agreement in particular, had trouble understanding it. Did you know that?

A. No.

Q. Did they tell you that after the fact in December 1983 or thereafter?

A. They may have discussions with Mr. Linton, but not with me.

Q. So I want to be clear on this. You never knew that Mr. Wiseman or Mr. Taylor had difficulty understanding the share sale agreement or

the gifting agreement what, until the litigation?

A. I don’t believe they had any serious difficulty with it or Mr. Linton would have told me.

³³⁰Linton, June 12, 2000 and June 13, 2000

[820] It is uncontested that Linton deposited $1 million into Chester’s account in late

December 1983. JB 2866/Exhibit 289, tab 100, is a photocopy of Chester’s December 1983

Queen and York bank statement, reflecting a number of entries on December 30, including a

deposit of $1,000,000. The word “dividend” in Linton’s handwriting is beside that entry. JB

2866 reflects that out of the $1 million, Linton paid $100,000 to Chesterton to clear an

outstanding shareholders’ loan on the balance sheet at year-end, $128,000 to clear Chester’s

IWS drawings account and $772,000 to purchase a term deposit for Chester. Linton said that

by January 4, the funds had been returned to Chester’s account so that he could write a $1

million cheque payable to Morris.

[821] Morris said that on January 4, 1984, he was still unaware he had signed Share Sale

documents:

Morris, January 26, 1999

A. I was given a cheque by Wayne Linton who said it was a dividend cheque. Not

knowing what to do with that amount of money, because I never had it personally

before, I called Sam Taylor…

Q. Why did you go to the Continental Bank? You had banked at the CIBC all your life?

A. That was his decision. And he made arrangements to have the money put in there in

some sort of instrument, and it would bear interest he said.

[822] He did not know that on January 4, 1984, $1,000,000 was supposed to have been

deposited into his bank account. That never happened.³³¹

[823] Taylor said he suggested to Morris on January 4, 1984 that the $500,000 cheque from

IWS be deposited at the Continental Bank for the best return.³³²

[824] Linton said that JB 3029, a deposit slip dated January 4, 1984, evidences the deposit

of a $1 million cheque from Chester into Morris’ Queen & York St. account.³³³If Morris’

January bank statement for the Queen & York account had been available, he would have

expected that it would have reflected a deposit of $1 million. In chief, he said in the ordinary

³³¹Morris, January 26, 1999

³³²Taylor, January 26, 2000; January 27, 2000; February 4, 2000

³³³Linton, June 19, 2000; JB3134

course he kept an original and a copy of Morris’ bank statements in a safe at Centennial. A

copy should also have been kept in Morris’ Windermere office.³³⁴

Findings—December 23, 1983—January 4, 1984

[825] I accept Morris’ evidence that he tried unsuccessfully to arrange an appointment about

his will with Ennis on December 23.

[826] Morris met with Hope and Wiseman on December 26. I accept Morris’ evidence that he

did not know there had been a Share Sale and he did not tell Wiseman about it on December

26. Although Morris was upset when told he did not own Centennial, he was preoccupied

about the fact he was making a will because he might die, and did not ask further questions.

Morris signed his will on December 27. I find the Share Sale was not discussed and Morris

did not see Wiseman again until January 1984.

[827] I do not accept Wiseman’s extremely detailed evidence about conversations with

Morris during the period between December 26 and December 31. It differed significantly

from his evidence on discovery. I reject his evidence about Morris’ mention of the Share Sale

on December 26 and 27. Morris was hospitalised December 28 to December 30. I find that

Wiseman did not meet with him during that time.

[828] I do not accept Wiseman’s evidence at trial that between December 26 and the end of

1983, Morris’ story changed in a manner that caused him to question what he was being told.

[829] Linton’s evidence was that on December 23, Chester told him his sons knew about the

deal, and others would also know, including Stenatis & Wiseman. Linton did not say Chester

told him Morris would tell Taylor Leibow. Linton said his understanding that Wiseman had a

copy of the Share Sale Agreements came from Chester.

[830] Chester said he was aware that Linton was speaking to Wiseman or Taylor about the

deal.

[831] Wiseman clearly had the Share Sale Agreement before the end of 1983. I find he

discussed the Share Sale with Linton in December 1983 and obtained the Share Sale

Agreement from Chester, Linton, Hope or Ennis: i.e., from someone other than Morris. I reject

³³⁴Linton, May 18, 2000

Wiseman’s evidence that he received copies of the Share Sale documents from Morris on

December 28.

[832] When he reviewed the documents, Wiseman was concerned that Morris had not been

independently represented. He, like Taylor, was upset Taylor Leibow had not been consulted.

It was obvious just from reading the documents that Chester had been able to take advantage

of Morris. In an attempt to help Morris, he took it upon himself to obtain a legal opinion.

[833] I do not accept Linton’s evidence in chief that he met with Morris in late December

1983. I find that whatever documents Morris signed were signed on December 22, 1983.

Linton deposited $1 million into Chester’s account on December 30, 1983.

[834] The following banking documents are missing:

• IWS’ December monthly bank statement;

• IWS’ January monthly bank statement;

• Chester’s $1 million cheque dated January 4, 1984, which Linton said was paid to

Morris;

• the banking instrument used to deposit $500,000 into IWS’ account on January 4,

1984;

• all copies of Morris’ January 1984 bank statements.

[835] I have found that the carbon copy of a bank deposit slip showing a deposit of $1 million

into Morris’ account on January 4, 1984 (JB 3029) is not evidence upon which I can

confidently conclude that the deposit was actually made. On September 16, 1983, three

months before JB 3029 was prepared, Taylor Leibow wrote JB 2766B an “Internal Control”

letter to IWS recommending at page three as follows: Re Duplicate Deposit Slips: “We

recommend that two copies go to the bank with one copy stamped by the bank, and returned

to the office manager…”. There is no bank receipt stamp on JB 3029 despite the note on the

audit weakness investigation worksheet with respect to deposit slips being receipted by the

Bank. I am troubled by the lack of a receipt stamp on the deposit slip so soon after the

internal control letter recommendation was received. [I note that a similar carbon copy of a

bank deposit slip (JB 3895) dated December 1986 exists in respect of a $440,000 deposit. I

have concluded that the $440,000 deposit was effected by way of a bank transfer, as

evidenced by the debit advice from Chester’s account into Morris’, not made as shown on the

deposit slip]

[836] In their written submissions, the Defendants address the issue of the missing January

1984 banking documents and assert that Morris destroyed them. I would not have expected

Morris to have possession of IWS’ banking documents. Morris’ missing January 1984 bank

statement was in Linton’s possession and control until after the litigation began. The January

1984 bank statements are missing from three different storage locations, including Linton’s

safe.

[837] Although the Defendants did turn over Morris’ bank statements and cheques to Morris’

counsel after the litigation began, they first photocopied several of them and produced them

(JB 3640 and JB 3663) in their affidavit of documents. When Morris’ monthly bank statements

were turned over to him, the January 1984 statement was missing. I accept that Morris

attempted thereafter to obtain the documents from the CIBC, and that someone on his behalf

also wrote to the Superintendent of Financial Institutions.

[838] I accept Taylor’s evidence that the $500,000 cheque dated January 4, 1984, which

was deposited at the Continental Bank, came not from Chester but from IWS.

[839] If the transaction had occurred as Chester and Linton described, Morris would not have

had a $500,000 cheque from IWS in his hands on January 4, 1984: Morris would have had a

$1,000,000 cheque from Chester. If he had loaned $500,000 to IWS by way of a cheque, as

alleged, he would have had $500,000 left in his bank account. To deposit that money at the

Continental Bank, Morris or Taylor would have made arrangements with Morris’ bank to

transfer the $500,000. That is not what happened.

[840] I find that there was never a $1 million cheque from Chester to Morris on January 4,

1984. Chester and Linton did not go through the motions of depositing $1,000,000 from

Chester’s account into Morris’ account, followed by a loan of $500,000 from Morris to IWS.

Morris did not write a $500,000 cheque to IWS. Chester received a million dollars (his

$500,000 dividend plus Morris’ $500,000 dividend), and Morris received a $500,000 cheque

from IWS.

Morris First Learns About the Share Sale

[841] Morris said the meeting with Taylor and Wiseman at which he first learned about the

Share Sale and began to understand what had happened was after he and Taylor had

deposited the $500,000 cheque from IWS at the Continental Bank.

[842] Taylor said the meeting with Morris and Wiseman occurred in January 1984. He had

trouble understanding the documents Wiseman had given to him, and said he would like

Chester to explain them. He understood Morris was upset.³³⁵

[843] Morris said:

Morris, January 26, 1999

A. …very shortly after that when I got to the office the next day, I had a conversation

with my brother. I asked him what he did to me and why, and he had said, Calm down,

just take it easy. We’ll talk later…

Q. …You said: What did you do to me, but did you discuss in your words what he had

done to you at that time?

A. I don’t know how it came out, but he knew what he did to me. I didn’t have to explain

it to him. I asked him what he did to me and why he did it.

Q. What did he say?

A. I just said to you, sir, he told me to calm down and we will talk later… I did speak to

Chester in January several times about what happened.

Q. You told us you spoke to Chester several times about what happened, and what you

said was Chester said: Calm down, we’ll discuss it later. That’s the only answer he ever

gave you?

A. That’s right, in January.

Morris, January 28, 1999

A. …I had many discussions with Chester when he tried to calm me down, always said

to me, things will remain the same.

Q. What did you understand that would mean?

³³⁵Taylor, January 26, 2000; January 27, 2000; February 4, 2000

A. Exactly what it says. That my salary, my drawings, everything would remain the

same. That’s what he said to me.

[844] He met with Wiseman at least four times in January 1984 to talk about how he could

undo the Share Sale.³³⁶

[845] Morris said Taylor arranged a meeting for him with Chester and Wiseman on the

pretext of discussing tax savings regarding Sylvia and Davey’s care, but really to discuss the

Share Sale. Before it started, Chester told Morris not to say anything: he would do the talking.

At that meeting no-one voiced concerns about the Share Sale. Morris was disappointed that

Wiseman and Taylor did not “go as far as they said they were going to go.”³³⁷

[846] Chester said he had no idea at that time that Morris was upset about the Share Sale.

Nobody told him: not Morris, Taylor, Ennis or Linton.³³⁸He observed no change in his

relationship with Morris.

Recommended Changes to Share Sale Agreement January 1984

[847] Morris denied a suggestion contained in JB 3056/Ex 289, tab 108, a Linton letter to

Ennis, that in January 1984 he approved certain changes to the Share Sale Agreement:³³⁹

[848] Linton said he thought it was unclear in the December 1983 documents whether the

Share Sale Agreement reflected a completed or a staged sale. He suggested to Chester that

it be revised to eliminate mention of a series of purchases. He told Morris he had had

discussions with Chester about changing the payment dates and did not advise Morris about

³³⁶Wiseman, February 14, 2000; February 22, 2000

³³⁷Morris, January 26, 1999:

Q. Did you have any other discussions with [Chester] during the month of January?

A. Yes, I did. As a matter of fact, there was a discussion with him, Sam Taylor and Steve Wiseman at Taylor Leibow’s office… I was told by

Sam Taylor that he would like to get the two of us together. He was going to discuss, as a pretense for getting us there, the tax way to save

some money on looking after.. my sister Sylvia, my brother Davy. That took place—I didn’t understand a lot of it, and the other didn’t come

up…. Before we went into Sam Taylor’s office. Chester and I, he said to me: Don’t say anything about anything. I’ll do the talking.

Morris, January 26, 1999

Q. How was your reaction after the meeting .. when the issue of share sale was not discussed?

A. I didn’t like it. I was disappointed that they didn’t go as far as they said they were going to go and I was going to talk to my brother again.

Q. ..Did you have any further discussions with your brother in the month of January?

A. Yes, I did…. Those discussions took place in his office and there were several of them through the month of January, and it was always

the same. Calm down, we’ll talk later.

Morris, February 12, 1999

Q. You never discussed the share sale agreement with Steve Wiseman?…

A. January 1984. I had three meetings with Steve Wiseman and Sam Taylor through January. I had meetings with my brother through

January before I went into the hospital.

³³⁸Chester, October 29, 1999

³³⁹Morris, February 16, 1999

Q. This is a letter Wayne Linton has written to Paul Ennis. Dear Paul—dated January 16^th, which is a Monday. As we discussed last week, I

had a chance to discuss proposed changes to the share buyout agreement with Morris on Friday—that would be the 13^th—and he was

agreeable to the recommended amendments. [JB3056, Ex. 289, Tab 108]

A. I’m suggesting to you sir, that this meeting did not take place.

his other concern. He then sent Ennis a revised agreement (JB 2996), in which he had

deleted the words “closing dates” wherever they had been used and inserted the words

“transfer dates.”

[849] Chester said the amendments were for Morris’ benefit, to allow him to defer tax

payments on capital gains.

[850] Ennis made several notes in January 1984 about discussions with Chester. On

January 20, he made a note about having Morris sign amended documents.³⁴⁰On January 30

Chester signed the amended documents. Ennis said Chester told him he would speak to

Morris about getting them signed.³⁴¹

[851] Chester said in chief that Ennis did not tell him Morris had not signed the January 1984

amended documents for a year or more. On cross-examination, he said Ennis never told him

Morris was refusing to sign.³⁴²

Findings - January 4, 1984 to January 29, 1984

[852] I accept Taylor’s and Morris’ evidence that they met and first discussed the Share Sale

in January 1984. I reject Wiseman’s evidence that they met on December 28, 1983.

[853] I find Morris did not learn he had sold his shares to Chester until January 5, 1984,

when Taylor and Wiseman reviewed the Share Sale Agreement with him and started to

explain it to him. I accept Wiseman’s evidence that on the day they first discussed the Share

Sale, Morris had no understanding of the transaction. As soon as he began to understand, he

said the deal was an abortion and he wanted it undone.

[854] I accept his evidence that when he protested to Chester about what he had learned

from Taylor and Wiseman, Chester said to calm down. They would talk later. In the meantime

everything would stay the same. Morris understood that meant his compensation (salary and

drawings) would remain as before. He would continue to be the President of IWS. He and

Shirley would keep their company cars. Michael would remain on the payroll of IWS. All of

that in fact happened. [What Morris did not know and what he was not told was that all of his

³⁴⁰Ennis, December 6, 1999; Exhibit 289, Share Sale Brief, tab 113

³⁴¹Ennis, January 20, 2000; Exhibit 289, Share Sale Brief, tab 122

³⁴²Chester, September 24, 1999 and October 29, 1999

drawings after that date were deducted from his “loan account,” which is discussed later in

these Reasons]

[855] I reject Chester’s evidence that he and Morris decided in the course of the

“negotiations” that Morris would stay on as President of IWS with “unfettered” control of the

waste division and would stake his future earnings on its success and that Shirley’s and

Michael’s salary and benefits would continue. Chester’s decision to allow Morris to remain as

President and to maintain the outward appearances of an owner of IWS, came in January

1984, when Morris was so distraught about what he had learned from Wiseman and Taylor. I

accept Morris’ evidence about the timing of that discussion. Chester’s decision to allow Morris

to preserve appearances was the first of many and perhaps the most significant example of

leading Morris to believe his problem could be solved privately with Chester.

[856] Morris took Chester’s gesture as an indication that Chester intended to “straighten out.”

He thought no-one would ever need to know what Chester had done to him in December

1983. He was ashamed for Chester and himself and he wanted to spare Chester and himself

the extreme embarrassment of public disclosure.

[857] In January 1984, Linton sent a suggested revised Share Sale Agreement to Ennis.

Ennis prepared amended agreements. As the dividend and lease were to take effect in 1983,

but the Share Sale was not to take effect until January 1984, changes to the Waiver of ILA

dated December 22, 1983 were needed. I find that JB 2927 dated December 20, 1982 is one

of the Waivers of ILA prepared in January of 1984. Like the other Share Sale documents

prepared in January 1984, it was never signed by Morris. It was not signed by Chester at a

meeting with Morris on December 20, 1983.

[858] I do not accept Chester’s evidence that only Morris stood to benefit from the January

amendments. Chester did not mention that if the sale were a staged sale, Morris as a

continuing owner of IWS would be entitled to continuing benefits of ownership, including

dividends. I find that Chester wanted the Share Sale Agreement amended so he would clearly

be entitled to 100% of the profits of IWS after January 1984.

[859] I find that Chester was pushing Ennis to complete the amended documentation before

Morris’ open heart surgery scheduled for February 1, 1984. Ennis prepared amended

agreements on January 19 and 20, 1984 and backdated them to January 4. Chester signed

them the day before Morris’ surgery was originally scheduled, but Morris never signed them. I

find Chester knew Morris had spoken to Wiseman and Taylor and was very unhappy. He

knew the January meeting with Taylor and Wiseman had been to raise the concerns about

the Share Sale, and he decided to leave well enough alone.

Notes from the Grave - January 29, 1984

[860] Wiseman said that just before Morris was hospitalised for his open heart surgery,

Morris left some notes (JB 3070 and JB 3071) with him for safekeeping in the event of his

death.

JB 3070

[861] JB 3070, addressed to Taylor and Wiseman, marked personal and confidential, reads

as follows:

This letter is to ask you more as … personal friends than business associates, please

act as advisors to my sons Michael and Douglas who are executors of my will. I

appreciate very much your discussions with me, which was very difficult for me to relate

and for you both to hear. Your guidance should be along the lines we discussed which is

that as soon as everything but what Shirley needs to be turned over to my two sons and

as discussed with them. At some later date, they will see that Karen receives from them

what I’ve instructed them to do. Thanks very much for your friendship and being there.

Morris Waxman

[862] Morris said that when he wrote in JB 3070 about matters that were difficult to relate

and to hear, he was referring to the discussions he had had with Taylor and Wiseman earlier

in January 1984, which I have just described.

JB 3071 (the “Notes from the Grave”)

[863] Wiseman said Morris told him JB 3071 was to be given to Michael if he died. Morris

had mistakenly written “to Chester, personal and confidential” on JB 3071. Morris described

his condition while he was writing JB 3071:

Morris, January 26, 1999

A. Let me start off by saying before we go any further, this is not the history of Morris

Waxman. This is a troubled man, a very troubled man, who may not come out of the

hospital alive with open-heart surgery, who has found out everything he worked for all

his life has been taken away from him, and when I look at this today, I don’t understand

some of the stuff there myself. I tried during discovery to put some answers to them. I

looked at them again. Some of them may make some sense to me, some of them may

not. All I can tell you is this is what Morris Waxman was like when I wrote those notes.

Q. Why did you write these notes though? What was your objective in writing?

…A. I wanted to write them down probably because if anything happened to me, I

wanted somebody to know what happened to me and I don’t know whether that comes

out clear here.

Evidentiary Issues

[864] Both Chester and Morris seek to rely on parts of JB 3071. Counsel for the Defendants

initially sought to limit its use vis-à-vis his clients, but he did not submit it was inadmissible. He

said he would be making submissions later in the trial. He conducted a lengthy cross-

examination of Morris, testing the truth of its contents. In his written argument, rather than

seeking to limit its use, he made it a centrepiece of his submissions, including:

(a) The fact is that the only contemporaneous record that Morris has are the notes made

in January 1984. Remarkably, rather than confirming his trial position, they contradict the

same. The notes themselves demonstrate that Morris’ testimony is unworthy of

acceptance

(b) The notes clearly indicate that he knew what he was signing and that Morris’ only

problem was that Centennial had been included, rather than excluded:

If I had nown (sic) that the Centennial property was not included, I would not have

signed, even under my condition.

(c) The notes demonstrate Morris’ substantive knowledge respecting the Share Sale.

(d) Run as he tried from the notes, there can be no mistaking, from the content, Morris’

true knowledge and motivation.

[865] Photocopies of portions of JB 3071 appear on the covers of Chester’s written

argument. As Morris was extensively cross-examined about JB 3071 and as the Notes were

relied upon in the Defendant’s argument generally as “contradict[ing]” his “trial position” and

demonstrating that Morris’ testimony is “unworthy of acceptance,” I have referred to the Notes

and Morris’ evidence about them here.

[866] I shall deal with the points made in the Notes, seriatum. Where I am quoting from

January evidence, below, I am quoting from Morris’ evidence in chief. When I am quoting

February evidence, I am quoting from his cross-examination. I have included the submissions

relating to each item together with the evidence respecting the same.

[867] Items 3 to 7

Item 3: “Blackmail”

Morris, January 26, 1999

Q. What does that mean?

A. right now, I don’t know…

Item 4: “Promise two years ago of $1 million to get started”

Morris, January 26, 1999

Q. What does that refer to?

A. Chester wanted to give Michael a million dollars so he would get an office at Ennis’

office and go into the mortgage business. I said to Chester at that time, if it’s that good,

why don’t you send one of your sons there and I’ll have room here for Michael. Nothing

happened.

Q. Why did Chester want Michael to get an office at Ennis’?

*A. So he wouldn’t be around…. Michael, who had an M.B.A., would have asked me

questions and asked me to look at the books of IWS, which I wouldn’t understand even

if I got them.

Item 5: “no revealing to me of any change or difference. No meetings at all in the

last 4 years.”

Morris, January 26, 1999

Q. Why did you write that?

A. There was no communication … between myself and Chester as to the business or

as to his sons, and there was no change in the atmosphere. There … were no meetings.

There was no discussion about anything.

Item 6: “I was told that what was in the papers was 50%”.

Item 7: “In talking to Steve found out different”

Morris, January 26, 1999

Q. What does that mean?

A. “in talking to Steve found out different”. I had several meetings for

that one, but in looking at this document again, it looks like it could go together with #7

and I was told by Chester that I did get 50% and in talking to Steve, which was earlier in

January, meaning Steve [Wiseman] and Sam [Taylor], I found out it wasn’t so.

Q. When did Chester tell you that you got 50%?

A. In one of my discussions with him in January [1984].

[868] The Defendants submitted in written argument that Item 6 demonstrates Morris’

substantive knowledge of the Share Sale because he “was told that what is in the papers was

50%-50%.”

[869] Items 8 to 11:

Item 8: “Paul was given instructions to check the books and he knew about the

property and the $4.5 million.”

Morris, January 26, 1999

Q. And what does that refer to?

A. That refers to Paul being given instructions by Chester and Wayne and Taylor

Leibow, so he knew what was going on in the business, and he was there when the deal

was struck with Lasco, and the Lasco deal said that if they were to buy out the rest of

the 50%, there was supposed to be $4.5 million paid to IWS and at the time,

somewhere, I asked Steve if there was provision made for that particular—that money in

the sale…

Item 9: “Paul called me the night the papers were signed, nearly crying that he

could not help what he did”

Morris, January 26, 1999

A. …He said, “don’t blame Chester, it was Bobby’s fault”

Morris, February 16, 1999

Q. And to this day, when you wrote this note … towards the end of January 1984, … you

never went back to Paul and said: What did you mean; or investigate that circumstance,

correct?

A. No. Once in my office, when he came to visit Chester, he came into my office. I said

what the hell did you do to me? And he ran out.

Item 10: “In the whole world and in matters of importance as to the business and

friendships, the people I trusted most are (1) Brother (2) Sam Taylor; (3) Steve

Wiseman (4) Kevin Hope??”

Morris, January 26, 1999

Q. Why was your brother the person you trusted the most… if you had found out about

this deal by that time?

A. Because before I wrote these notes he had told me we were going to straighten the

matter out, and you just don’t throw 60 years of living with your brother as close as we

did, being in business, and being at home and being together most of the day, and throw

that out the window in 30 seconds. I was trying to do everything I could to straighten out

the problem and put my brother back where he belonged.

Item 11: “I did not read the documents, only one where I found the rent for the

property stopped after the first five years.”

Morris, January 26, 1999

A. Now I don’t know where that came from. I’ve scoured every piece of paper I own to

find out… I thought probably there was some mechanism whereby the Lasco deal

because it came up every five years might be taken away….

Q. On the day that you signed papers … did you read or see something that refers to

rents for properties stopping after the first 5 years?

A. No. It says I did not read the documents.

Q. What do you mean where you say the only one where I found the rent for the

property stopped after the first five years?

A. …I don’t know. I probably at that time I was imagining the rent might stop after five

years because it was in five year increments.

Q. Did you know whether you read that in one of the documents that day in Mr. Ennis’

office?

A. No, I did not. I’ve looked at all those documents since and I can’t find it

Morris, February 16, 1999

Q. …So you acknowledge that you read one document?

A. Well, if you can show me the document, sir, where it says the rent stops after five

years, I will be very happy to look at it. I don’t know what that is.

…Q. And when you said: I did not read the documents, only one. Surely you’re referring

to the events of December 1983, are you not?

A. I’m referring—I don’t know whether I am there. I really don’t.

Q. What did you mean by: I did not read the documents?

A. I don’t know, I don’t know.

…I’ve tried to look at every document that is in this case and I can’t find one where that

is applicable.

[870] With respect to Item 11, in written argument counsel for Chester submitted:

Although slightly incorrect, it is a reference to clause 8 of the Lease which was amended

on December 20^thto include Morris’ observations and to include the words “subject to

any renewals of the IWS Ferrous Ltd. Lease aforementioned.” Thus, clearly, Morris read

the Lease, was present on December 20^thand initiated the discussion of the change,

just as Chester testified and this Item evidences Morris’ substantive knowledge of the

share sale…

[871] Item 12:

Item 12: “Paul did not explain the documents to me except to make sure I signed

one that exonerated him.

Morris, January 26, 1999

A. …which didn’t happen until after the fact when I found out what this piece of paper

was.

Morris, February 12, 1999

Q. You remember he explained that to you?

A. Paul did not explain the documents to me, except to make sure I signed one that

exonerated him. That doesn’t say he explained it to me. This is the one where Chester

said: This is to save your ass.

…Mr. Lenczner, before I met you I heard that you were a very good lawyer, and you

probably are, but please don’t misconstrue my words. It says here Paul did not explain

the documents to me, except to make sure I signed one that exonerated him. Where

does it say that Paul explained anything to me?

[872] The Defendants submit this item demonstrates Morris’ substantive knowledge of the

Share Sale, that Morris’ comment was an acknowledgement that he knew on December 22

he was signing a waiver of ILA.

[873] Item 13:

Item 13: “I signed with cats clawing at my stomach, but knew they were not legal”

Morris, January 26, 1999

A. This is an after-thought and this trying to explain how I felt that day, how my stomach

was.

Q. What’s that day?

A. When I signed the documents.

Q. Says but knew they were not legal?

A. I found that out after from the discussions I had with Steve and Sam that I felt that

they were not legal.

Morris, February 12, 1999

Q. …Knew what was not legal, the documents?

A. Yes.

Q. So when you signed those documents, you harboured in your own mind that what

was happening there was not legal?

A. No. What I said there is after the fact. All I know, sir, is that for the longest time, okay,

what I was harbouring in my mind and my stomach was something people didn’t see,

but I honestly believe and I feel today that those documents are not legal.

Q. But towards the end of January, you knew they were not legal. How did you know

they were not legal?

A. That was my belief. Maybe Sam Taylor or Steve Wiseman said something to me. I

don’t know. Maybe Kevin said to me? I don’t know.

Q. I’ll tell you what Steve Wiseman said to you. He said he consulted with Sidney

Goldenberg and Sidney Goldenberg said until he saw the documents he couldn’t tell, but

you could only set aside an agreement if there was fraud or duress or something of that

nature?

A. No, he didn’t. He didn’t say why Mr. Goldenberg gave him the information, but you

also have to understand, sir, these were discussions I had with people that I trusted

before I was going into the hospital, and that’s why these notes were made up. I can tell

you now—no, go ahead. Carry on.

Q. We’ll show you how you’ve got the words, “under duress” in here. Look at the second

last page of this tab?

…A. That word was probably told to me.

Q. By Steve Wiseman?

A. I don’t know.

[874] Item 14:

Item 14: “It was told to me after that my brother did not want anyone to know what

was done. Therefore there was no tax advice as to the best way to turn over the

money.”

Morris, January 26, 1999

A. the day we had the meeting in Sam Taylor’s office with … Steve, before [Chester]

went in he asked me not to say anything, he would do all the talking.

Morris, February 12, 1999

Q. …Number 14?… “It was told to me after…” Who told you … that your brother didn’t

want anyone to know?

A. Somebody must have told me that.

Q. Who?

A. Sir, you’re looking at notes that I made when J couldn’t sleep and all I know is that I

did go in with Chester to see Sam Taylor at the end of January, and Steve Wiseman,

and before we walked in the building, Chester said to me: Don’t say anything, I’ll do the

talking. Okay? I think that Chester, in the early days, didn’t want anybody to know what

happened because he was ashamed of what he did.

Q. You were the one who was trying to keep this secret from day one?

A. No, I wasn’t.

[875] Items 15 through 19:

Item 15: “The method of payment is such that my boys and family would not be

able to do anything of consequence.”

Item 16: “How could this be done to me.”

Morris, January 26, 1999

A. My life, what Chester did to me, the fact that I’m going to go through a heart

operation, I just felt the world was coming down on me.

Item 17: “I have to raise my family.”

Morris, January 26, 1999

A. hoping that whatever was going to be left was going to be enough.

Item 18: advise after Sam and Steve

Morris, January 26, 1999

A. “Talking about the advice that was in that letter …. if anything should happen, Sam

and Steve would give advice.”

Item 19: “I know that I signed the papers. However, I was told days before that the

test I was taking had a risk of heart attack, stroke and even death.”

Morris, January 26, 1999

A. I’m referring to the fact that after the fact, after discussions in January, I found out that

I had signed the papers.

[876] The Defendants submit that Item 19 demonstrates Morris’ substantive knowledge of

the Share Sale, because he admitted he knew he had signed Share Sale Agreements. He

was attempting to set up an excuse for his heirs with this comment: “However, I was told days

before that the test I was taking had a risk of heart attack, stroke or even death.” They rely on

the following excerpt from Morris’ cross-examination on Item 19:

Morris, February 16, 1999

Q. Mr. Waxman, we were dealing with these notes of yours, and I want to go to

paragraph or item number 19… In here, you’re not saying you didn’t know what I signed.

You’re saying: I knew I signed the papers, but prior to signing them I was told I had a

risk of a fatal accident. Correct?

A. That’s right.

Q. And nowhere in here, sir, do I find just the simple statement: I never intended to sell

my shares?

A. These notes were made after the fact, not before the fact, and after I talked to Steve

and Kevin and Sam and to Chester during January—

Q. And—

A.—and I knew by then that I had signed the papers, sir. There was no secret any more.

Q. So why are you writing this?…

A. I don’t know how to answer a lot of these questions. I’m doing the best I can. This

was not the Morris Waxman that you’re talking to now who wrote this. This was not the

middle of the afternoon when I wrote this. This was not a calm person. I was doing the

best I could. I thought I was leaving a trail for my son in case anything happened to me.

[877] Item 20:

Item 20: “For the past 4 years my treatment and knowing I was to have heart

surgery was really something of a mental problem to cope with. This was not a

voluntary thing, but one that was pressured on me by my brother and somewhat

by Paul saying there was plenty there. When my brother knew that all I wanted

was to bring my two boys into the business. As yet, I have not told them or my

wife.”

Morris, January 26, 1999

Q. How did your brother pressure you?…

A. The fact that he was there before me and had read the papers and said sign them

and that was a normal thing, even if I wasn’t sick, that would have happened. When

Chester read something and told me to sign it, I signed it. Paul Ennis is in the room with

him, the lawyer, doesn’t tell me anything. That was pressure, that was, to me, pressure

afterwards.

Q. And it says “somewhat by Paul saying that there was plenty there”

A. …before these documents were signed that we’re talking about, and he told me that I

should sell my shares to Chester because there was plenty of money there.

Q. What does the last part of that paragraph say?

A. My brother knew all I wanted was to bring my two boys into the business. As yet I

have not told them or my wife…. I’m referring to the fact that I wanted my sons in the

business, which was something I wanted all my life, as Chester wanted for his, and

Chester knew that and as yet I have not told them or my wife. I was ashamed to tell my

wife that my brother had done to me what he did and I was ashamed to tell my children.

Q. Why were you ashamed?

A. I was ashamed for him.

Q. For who?

A. Chester.

Q. Why were you ashamed for him?

A. I was ashamed for me.

Q. Why were you ashamed for your brother?

A. I was ashamed for my brother because at one point in time, the Waxman family was

probably the most thought-of family in the Jewish community and that’s going down the

drain.

Q. Why were you ashamed for yourself?

A. For the same reasons. I didn’t take myself out of the family. I was part of the family.

Anything we did should have been done with a moat around it. None of this should hit

the light of day, and I tried, I tried, I tried, going forward from this day.

Q. Tried what?

A. To solve this problem with my brother.

[878] The Defendants submit that this evidence indicates that prior discussions had occurred

and that representations had been made.

[879] Items 21 and 22:

Item 21: “As to item 18, Sam and Steve to advise and write down best way to

transfer assets from Shirley to Michael and Douglas.”

Morris, January 26, 1999

Q. What does that refer to?

A. That refers to any will I would have had and I would have wanted Sam and Steve to

help Michael look after their mother and to see that the assets were turned over to

Michael and Douglas and I had told Michael and Douglas what I wanted them to do with

Karen.

Item 22: “If I had known that the Centennial property was not included, I would not

have signed even under my condition.”

Morris, January 26, 1999

A. …that refers to I had no information as to what I was signing. If they would have told

me anything, if they had given me a clue, I wouldn’t have signed those papers.

Q. Why do you refer specifically to the Centennial property?

A. Because that’s what was said to me, but I refer to the whole deal. They should have

given me some information …. they should have given me and told me what I was

signing. They gave me no information.

Morris, February 16, 1999

Q. I see. Let’s go to number 22 … about the Centennial property…

A. Yes.

Q. We’ve looked at this a number of times and may I just suggest to you you have said

to this court in examination-in-chief that when you learned from Taylor and Wiseman

that you had signed away your shares for three million dollars on January 5th, that you

raised that matter with Chester Waxman on a number of occasions during the month of

January?

A. That’s right.

Q. And I suggest to you, sir, that you never raised it with Chester, the share sale, ever,

once, until—sorry, in January?

A. Not true.

Q. And I suggest to you in your examination for discovery, which took place seven full

years ago, you never told us that you had a number of discussions with Chester during

the month of January about the share sale. What you told us was that you had a

discussion with Chester about Centennial property. Remember that?

A. No, I don’t. That’s seven years ago. If I had it in front of me, it might help me.

…Q. Question: Yes, and my question to you is, given the fact that your relationship with

Chester hadn’t diminished by the events of December 22nd, why didn’t you immediately

if not sooner, pick up the phone or go to Chester’s home to discuss this new fact you

had just learned? Answer: I was ashamed of the fact that, if it was true, that Chester

would do anything wrong to me, very ashamed. Question: Ashamed? Answer: Yes, for

him and for me. Question: When did you speak to Chester for the first time about the

share sale issue? Answer: I don’t recall whether I did anything about anything specific. I

just asked him, and I can’t tell you when, because our conversation in the hospital was

one that he already knew about when I started to talk to him. Okay? Question: The

conversation was in the hospital? Answer: Yes. No, no. Before I spoke to him before,

exactly when I can’t tell.

Q. And the hospital we’re talking about is at the end of January, February 1, February

2nd?

A. That’s right.

Q. Question: But was it in contemplation and anticipation of your operation? Was it not?

Answer: No, it wasn’t. It was because I asked him why the Centennial property didn’t

belong to me and he said we’ll discuss it after.

Q. Were you asked that question and did you give that answer?

A. If it says that there.

Q. Question: But when was that? Answer: Before I went into the hospital in February for

my operation. Question: When you say before, was it sort of immediately before?

Answer: I don’t recall, sir. Question: A short time before, sir? Answer: I don’t recall.

Question: In anticipation of your going in? Answer: No, it was in anticipation of trying to

find out what happened to me. Question: Was it in anticipation of your going in in the

sense of a few days, or a day or two or three before you went in? Answer: I don’t recall. I

don’t recall. Question: But even in that discussion, you never once mentioned the

question of shareholding in I. Waxman & Sons, did you? Answer: I don’t remember, sir.

…Q. Okay. I suggest to you, sir, that is precisely why note 22 appears as it does and

focuses on Centennial property, because that’s what you had been upset about when

you learned what you ultimately realized, or realized shortly after the share sale, was

that Centennial property was part of the assets you had sold and you were operating

under the mistaken belief that it was not?

A. No…. I tell you that I didn’t know anything was wrong on the 26th, and what I was told

was that I didn’t own the Centennial property. So how could I have added anything else

to it?

[880] Items 23 and 24:

Item 23: “I have never had a bank savings or chequing account or saved any

money over the last 40 years because I had the business. What I used or took

went to the family for immediate things.”

Morris, January 26, 1999

A. …the bank account you saw was being handled by Chester and Wayne. I never put

anything in. I never took anything out. I’m talking about a bank account when Morris

Waxman had money left over from his wages and saved money for his family. I didn’t

have a bank account like that. I did not have a normal bank account.

Item 24: “I have never checked the books in all this time because I trusted my

brother.”

Morris, January 26, 1999

A. I trusted him with my life. I trusted him with the business. We were 50/50 partners.

Morris, February 16, 1999

Q. “I’ve never checked the books in all this time because I trusted my brother” and I just

confirm you always had access to the books of the company if you had wanted to see

them?

A. That’s true.

Q. And your brother—sorry, your son, you could have always gone in, prior to 1984, got

the financial statements of the company, we allege you had them at all times, given

them to your son, or got any books and records and had your son look them over. Isn’t

that right?

A. If I was sneaky and so inclined, but I didn’t think my brother did anything wrong to me,

sir. So it’s really you’re putting the facts that I know today that I didn’t know then.

[881] Items 25-26:

Item 25: “And the only cheques I have signed in the last 4 years is when Bob is

not there and Chester is not there and they [the cheques] must go out.”

Item 26: “As President of the company, my knowledge since Chester’s boys came

in is nil. I was not consulted, although I believe I signed the purchase order for the

first copper line after it was bought.”

[882] Morris was cross-examined on Item 26:

Morris, February 16, 1999

Q. …You’re leaving an impression that you were excluded from the affairs of the

company. Correct?

A. That’s correct and that was correct.

Q. Lasco, the sale—the sale to Laidlaw, ’80 to ’81, fully involved?

A. Fully involved, with the proper people giving me the proper information, so I knew

what I was doing.

Q. Not excluded from the Laidlaw deal, were you?

A. No. And we were very proud of it. Didn’t try to keep it a secret.

Q. Lasco deal September ’80 to September ’81? Fully involved?

A. Fully involved. And the people who gave us the information we needed to make

decisions, and we weren’t ashamed of that deal, by the way.

Q. Blue building construction ’79, ’80 fully involved?

A. Pretty well.

Q. Office renovation. Involved?

A. No, they horsed me out of an office. I had to go make my own.

Q. But you knew that the office was being renovated?

A. Yes, I did.

Q. You weren’t excluded?

A. I was excluded to the fact that they horsed up my drawings, the way it was supposed

to be. I’m sorry if I’m not using the proper word.

Q. The two million dollar shear, you were the one looked after that?

A. I spent a lot of time researching that shear. And by the way, when I came back I told

Chester what we should buy. He didn’t ask me for my papers. He didn’t ask me where I

went. Mind you, I probably told him, but I didn’t discuss every minute detail of how the

shear worked, under what pressure it worked, how many horse power motor was in it,

how much oil was needed, et cetera… So we trusted each other.

Q. But, sir what I’m pointing out, in the four years prior to writing this note, the significant

activities of this company, sale of divisions, purchase of expensive equipment,

construction of a new building, the expansion; you were involved in all of them, yet by

this note you’re trying to convey the impression you’re being excluded. Isn’t there a total

inconsistency?

A. No, sir.

Q. You don’t think so?

A. No, sir. I was only used for when they couldn’t get anybody else to do what I could

do.

Q. I see.

A. And I want to make this clear, that if there were any negotiations done on this so

called share sale purchase or land rental thing, if there was any negotiation at all, there

was none with me and had I known about it, you call me a good negotiator?

Mr. Lenczner, you wouldn’t let anybody sign this. You cannot make me believe that I

had any information before I went into that office. That was a cruel thing to do.

[883] Items 27-31:

Item 27: “And my advice was not asked for on the second line, I don’t know how

much it cost or whether it was really needed.”

Morris, January 26, 1999

A. that refers to another [copper] line that went in in Centennial in 1983 when they’re

claiming business was bad…

Q. Were you involved in the purchase of the second line on Centennial?

A. No I wasn’t… I didn’t know it was coming and nobody told me.

Item 28: “My doctor sensed my problem of not sleeping as being something that

was bothering me.”

Morris, January 26, 1999

A. I was bothered before this because I was having problems getting Michael into the

business … at one point Chester even wanted Michael and Douglas to go into

St. Catharines and operate a Vic Tannys… I took Michael down as a matter of fact, and

he thought it was an insult that I did that.

Item 29: “He was right Who could I talk to, my wife, my sons. This would be a

disaster.”

Morris, January 26, 1999

Q. Who was right?

A. The doctor told me if there was something bothering me I should talk to somebody,

including him.

Item 30: “I have been under pressure and duress for years because I could not

bring my sons into the business.”

Item 31: “Michael to date who because of me took an M.B.A. course was not let to

use his knowledge.”

Morris, January 26, 1999

A. …Michael could have looked at the books. Michael understood finances. Michael

could have told me what was going on. If Michael had seen those minutes, he would

have told me what was going on and I would have known. But he wasn’t allowed to.

[884] The Defendants submit these items reveal a long gestation period and motivation, an

important reason why Morris sold his shares for appropriate consideration.

[885] Item 32:

Item 32: “I want to make it clear I am not jealous of my nephews. However, my son

does not yet have the opportunities they had to get where they are under my

direction. Why was my brother against this, and why only after tricking me into

signing did he say to let Michael have an office in a building which I thought I

owned, and after my death he could be kicked out”.

Morris, January 26, 1999

Q. What do you mean when you say why only after tricking me into signing did he say to

let Michael have an office in the building which I thought I owned and after my death he

could be kicked out. What are you referring to there?

A. What I’m referring to there is I used other words, but tricking me into signing was

really a common thing. Very common. He was in the lawyer’s office, I came in, not

feeling good. He knows I’m going into the hospital very shortly. He’s got a bunch of

papers sitting in front of me—in front of him, rather, and he pushes them to me to sign,

Who else could I trust?

[886] The Defendants submit the Notes reveal that Morris’ difficulties in being honest with his

own immediate family arose long before the Share Sale and have nothing to do with the

“shame” Morris gave as an excuse. Item 32 demonstrates the “unjustifiable, incomprehensible

claims against Morris’ nephews, brother and professional advisers.”

In spite of the fact that, contemporaneously with the Share Sale documents, Morris says

he was not jealous of his nephews, he nevertheless has sued them for breach of

fiduciary duty, oppression, knowing assistance and knowing receipt. Further the

reference to “tricking” is wholly unsupported on the evidence and, if it were true, would

have occasioned a claim in fraud or deceit. Additionally, the mention of “building which I

thought I owned” is a clear reference to Centennial Property, which was the real

self-induced mistake that Morris made and the real reason for his dissatisfaction with the

Share Sale.

[887] Items 33 and 34:

Item 33: “It is now 3:30 o’clock in the morning of the hundreds of nights in the last

four years that I cannot sleep because of this and no explanation given to me:

when we should he happy because of the business decisions we have made and

the money we have which is enough for all.”

Morris, January 26, 1999

Q. Why do you say that there have been hundreds of nights in the last 4 years that you

could not sleep because of this?

A. There were… “This” is the problem I was having with getting Michael into the

business, trying to integrate him into a business where Chester’s children just walked

in…. I wasn’t consulted, but when it came to my son, I was having problems talking to

Chester, I gave him the courtesy of telling him I wanted Michael in the business. Still

didn’t help.

Q. When you say we should be happy because of the business, what’s the next word?

A. Because of the business decisions we have made.

Q. And the money we have—

A. Which is enough for all.

Q. What are you referring to there?

A. I’m referring to the fact that we sold the refuse department and we sold the ferrous

department and my understanding was that before I asked Wayne anything, which I’ll

come to later, not here, but I’m sure you’ll ask me a question, I knew there was at least

ten million dollars there. There was 1.6, I believe, or 1.8 from the sale to Laidlaw. There

was 6.4 from the sale to Lasco. There was 2 point something for the shear. Six and two

is eight and one is nine and add the rest together it comes close to 10 million dollars,

and at the time I didn’t know that there was stocks and bonds.

Item 34: “In 40 years I have not asked nor did I care what my brother took from the

business, nor do I know what wages his sons take, or the bonuses given to them

or him.”

[888] Morris was cross-examined about his knowledge of bonuses as of January 29, 1984:

Morris, February 9, 1999

Q. Now, I suggest to you, sir, that you knew about bonuses in January of 1984 when

you wrote those notes prior to your surgery.

A. I knew about bonuses, I assumed there were bonuses, and I knew about the bonuses

because I had discussions with Sam Taylor and Steve Wiseman in January of 1984.

However, we are talking about this bonus [the 1979 bonus]. I did not know about this

bonus until my lawyer showed it to me.

Q. All right. In January, 1984, you say you had a discussion with Taylor and Wiseman

and, in the course of that discussion, you heard that the boys had received bonuses?

A. Something came out. I had three discussions in January with Steve and Sam.

Q. All right. And out came…

A. Information.

Q. Information that the boys received bonuses?

A. Something was said, otherwise I wouldn’t have known.

[889] Morris later clarified the matter on February 16, 1999 during further cross-examination

about Item 34:

Morris, February 16, 1999

Q. In paragraph 34… You make mention of two things. You don’t know what everybody

has taken out of the business; and two, you mention bonuses and we’ve dealt with this

before, but you don’t know what—you allege that you don’t know what the bonuses

were?

A. That was true then and it’s true now, except for the fact for the things you’ve pointed

out to me in this courtroom. In 40 years I have not asked nor did I care what my brother

took from the business, nor do I know what wages his sons take or the bonuses given to

them or him.

Q. Well, sir, look, if your story is to be believed that you learned in early January that you

had signed a share sale agreement that you didn’t intend to sign, and you take the

trouble to make this note, why did you not go, January, February, March, April, at any

time over four years, or a year at least, why didn’t you go to Wayne Linton and say: Give

me a list of the bonuses?

A. At the time I wrote this, I didn’t know there were bonuses.

[890] Item 35:

Item 35: “and yes the idea to make five equal shares for the boys instead of 50%

for his and 50% for mine, was not discussed with me before but told to me in

Scace’s office. However, I must admit that Sam Taylor and I think Paul Ennis

cautioned me about this and I was ashamed to say otherwise. They cautioned me

separately and in private after the meeting.”

Morris, January 28, 1999

Q. “You’re ashamed to say otherwise”. What does that refer to?

A. When I was in the room I didn’t say anything and when Sam Taylor and Paul Ennis

cautioned me on the street I said to them: My brother and I will look after it. I didn’t want

to have a discussion with them about what I was going to say to my brother.

…I was ashamed that day because Chester tried to pull this without telling me and it was

obvious to Mr. Ennis and Mr. Taylor that he was trying to do something.

[891] Findings re Notes from the Grave

[892] There are parts of the Notes that could be read as suggesting that Morris knew what

he was signing on December 22. However, in my view, the Notes read as a whole and in

context indicate that Morris did not wish to sell his shares. “…my brother knew that all I

wanted to do was to bring my two boys into the business,” that “Paul did not explain the

documents,” that he “did not read them”, and that he believed that Chester had “tricked” him

into signing.

[893] Morris’ Notes are indicative of a very troubled man trying to grapple with a growing

recognition that his brother, whom he had loved and trusted implicitly since childhood, had

betrayed him. That Chester would “trick” him would have been inconceivable before

December 22. They are indicative that that dawning realization upset Morris tremendously.

He was confused, inarticulate, frightened, and ashamed for himself and for Chester. He failed

to distinguish clearly in his notes between what he knew on December 22 when he signed

and what he had learned after he signed but before January 29, 1984. By January 29, 1984,

Morris knew that he had signed documents in Ennis’ office. At the time of signing, he did not

understand what was in the “papers”. They were not explained to him. By the time he wrote

his notes, Morris knew generally what he had signed because he had spoken to Taylor and

Wiseman. The Notes make no reference to the details of the Share Sale documentation.

When he wrote the notes he had no copies of the “papers” to which he could refer.

[894] It is an understatement to say that Morris does not have a facility with the English

language, spoken or written.

[895] With respect to item 11, for reasons outlined in detail earlier, I have found that there

was only one meeting at which the lease was signed, and I have rejected Chester’s evidence

that Morris initiated a discussion about “renewals of the IWS Ferrous lease” on December 20.

I have found that that change was made before December 22 without any input from Morris.

The only lease document presented to Morris was the one he signed on December 22. I have

accepted Morris’ evidence that he did not read the documents he signed. I accept his

explanation about this note. The December 1983 lease contains no provision to the effect that

“the rent stopped after the first five years”. Whatever he thought he read and whenever he

read it, it could not have been the December 1983 lease.

[896] I have accepted Morris’ evidence that he signed a document about which Chester

commented to Ennis, “This is to save your ass.” I have also found that Morris did not read or

understand its import at the time and that Ennis did not explain it to him. I do not accept the

Defendants’ submission that Item 12 demonstrates Morris knew on December 22, 1983 he

was signing a waiver of ILA or what such a waiver was.

[897] With respect to items 13 and 19, as of January 29, 1984, Morris knew he had signed

documents on December 22. I do not interpret this to be an admission he knew on December

22 what he was signing. By January 29, 1984, he had reviewed them with Wiseman.

[898] I do not accept the Defendants’ submissions with respect to Item 19.

[899] While Morris’ use of tenses is confusing, I do not agree that Item 20 indicates prior

discussions and representations. I have found that before the 22^nd, Chester and Ennis had

urged Morris to sell his shares but Morris had said he was not prepared to sell. On December

22, Morris did not intend to sell his shares, as all he wanted was to bring his two boys into the

business.

[900] I do not interpret Morris’ evidence with respect to Item 22 to be an admission that on

December 22, 1983 he knew what he had signed on December 22. In my view, it is an

expression of dismay that no-one explained the content of any of the documents to him. He

did not know that anything was wrong on December 22, 1983, including that Centennial was

being included.

[901] I do not accept the Defendants’ submissions about item 30 and 31. I find they merely

reflect the pressure Morris was under.

[902] I do not accept the Defendants’ submission that Item 32 demonstrates “unjustifiable,

incomprehensible claims against Morris’ nephews, brother and professional advisors”. Morris

wrote Item 32 before he learned about the bonuses and the Greycliffe profit diversions. Given

all of my findings in these Reasons, I reject the submission that “trickery” is “wholly

unsupported by the evidence”. Morris’ reference to “trickery” indicates that in January 1984,

Morris believed Chester had tricked him into signing the Share Sale documents the previous

month.

[903] With respect to Morns’ knowledge of the bonuses in January 1984, Wiseman gave

evidence that when he told Morris about the bonuses, Morris was surprised and upset. For

reasons outlined elsewhere in these Reasons, I have accepted Morris’ evidence in chief,

clarified on February 16, 1999 in cross-examination, that in January 1984 he was unaware of

the bonuses.

1984

[904] Morris gave evidence that on February 1, 1984, the eve of his open heart surgery,

Chester promised to rip up the Share Sale. Chester said they had no such discussion.³⁴³

³⁴³Chester, October 29, 1999

Wiseman gave evidence that Morris told him shortly after his operation that Chester promised

the night before his surgery to rip up the Share Sale.³⁴⁴

[905] During Morris’ surgery on February 2, 1984, his heart was stopped for 89 minutes. He

was hospitalised for about a week and then convalesced at home until mid-1984.

The Contra Scheme

[906] In January 1984 IWS made the first $2000 rental payment [JB 3045] to Windermere

Investments under the December 1983 lease. However, in February 1984, the month of

Morris’ open-heart surgery, Linton implemented a “tax scheme” (the “contra scheme”) which

had the effect of depriving Morriston and Chesterton of any further payments under that lease

until after Morris hired a lawyer in 1988.

[907] Chester gave evidence that Linton had an idea in early 1984, that would allow

Morriston and Chesterton to receive money “up front” instead of as monthly rental payments.

IWS would charge them each $55,000 for legal costs related to the drafting of the 1981 IWS

Ferrous lease, and for bookkeeping and management services. Over a period of 55 months,

IWS would apply the monthly rental payments otherwise due under the December 1983 lease

against those charges. Chester said Morris approved of the contra scheme.

[908] Linton said the contra scheme afforded Morriston a tax saving by way of a $55,000 tax

deductible expense. At the end of 1983, without the $55,000 deduction, Morriston would have

owed about $25,000 for taxes. However, he agreed in cross-examination that Morriston could

have similarly reduced its taxes by simply declaring bonuses [e.g. to Morris.]

Q. And yet you say, (your) brother, who you had been so close to for 40 years, gave you no indication whatsoever of his anxiety?

A. He did not.

Q. And then we know he went into the hospital?

A. Yes.

Q. And he was operated on on February 2nd?

A. I believe that’s true.

Q. And you heard Mr. Morris Waxman and his wife testify that you were there to visit Morris on the evening of February 1st?

A. Yes, I heard that.

Q. And you deny that?

A. That’s not true.

Q. You went in to see him the night before?

A. That’s not true.

Q. And I suggest to you, you did see your brother that night and he told you again about his extreme distress over these share sale

documents. And you told him your brother, who trusted you with his life, you told him you would tear up those documents, didn’t you?

A. No, I did not. And he didn’t tell me again because he never told me the first time.

Q. And I gather you’re saying there was no discussion about the share sale at all?

A. That’s correct.

³⁴⁴Wiseman, February 14, 2000

[909] After the $55,000 was paid, IWS charged each of Morriston and Chesterton a further

$11,000 for grading the Back 7.7 Acres and applied the rent under the December 1983 lease

against this second charge (JB 3538.)

[910] Linton said the contra scheme afforded a real “benefit” to Morriston, because the

$66,000 charges were “real” and to be repaid somehow.”³⁴⁵

[911] Morris said he did not learn until after the litigation began that Morriston had not

received any rent after January 1984 under the December 1983 lease. He did not know that

Morriston had been charged $55,000 plus $11,000 to reduce its taxes.

[912] JB 4466, prepared by Linton as of December 31, 1988, reflects charges of $55,000

and $11,000 to each of Morriston and Chesterton, 11 months of contras in 1984, 12 months

of contras in each of 1985, 1986, 1987 and 1988 and $7,000 still owing to IWS by Morriston.

[913] Greycliffe Ceases Hauling for IWS

[914] In February 1984, IWS stopped using Greycliffe for its trucking and Greycliffe stopped

its trucking activities.

[915] Robert explained the reasons. He said at the end of 1983 or the beginning of 1984,

IWS was unsuccessful in renewing some of its American contracts. Its sales of non-ferrous

metals were down, but the Asian market seemed to be picking up. Robert made a number of

contracts to sell copper via ocean container FOB the IWS plant in Hamilton. He also cited

³⁴⁵Linton, June 16, 2000:

Q. …by definition, Morriston gets less after tax referable to the rental income than it would if it simply got a thousand a month without any

expense charge and paid taxes. Right? That has to be so.

A. Well, I haven’t done a calculation, but I’ll tell you by putting that charge in Morriston and Chesterton there was a $27,000 or $28,000

immediate tax refund….

Q. I’m a simple guy and I’ve got a choice. I can either receive over time $1,000 a month in rent and pay my taxes on it or have the same

income, but be charged $55,000 in expenses and pay the tax on the balance. Wouldn’t I rather not have the expense?

A. I don’t understand that rationale. What you could do is take your $27,000 tax refund and invest it and have a cash flow off that.

Q. But this makes no sense? if the expenses aren’t real. Why would anybody in their right mind charge themselves for expenses unless they

were real?

A. That’s what I’m saying, They were real charges…

Q. …The effect of this plan of yours from the perspective of I. Waxman & Sons was of course that I. Waxman & Sons had no cash outlay

with respect to this rent. Correct?… I, Waxman & Sons has incurred whatever expenses it has incurred in the past. It’s got a rental obligation

of $2,000 a month and under your plan, going forward, starting in February, 1. Waxman & Sons does not have the cash outlay of $2,000 a

month, does it?

A. No. But the … charge had to be repaid somehow and Morriston and Chesterton didn’t have that kind of funds available to pay it

immediately so we started to contra the rent.

Q. Do you agree with the first part that it doesn’t have cash out for the rent?

A. Yes, I would agree there was no cash flowing after January 1984 out of 1. Waxman & Sons.

…Q. Sir, if Morriston, for example, wanted to reduce its taxable income, … it could have as you had done in the past just bonused out some

money. That would be a way to do it, wouldn’t it?

A. Yes….

Q. …In terms of tax planning a simple way to reduce any taxes payable that Morriston otherwise might have had for 1984 would have been

to just put on a bonus of $55,000. Right?

A. Yes. We could have done that.

high insurance costs related to the fatal truck accident in December 1983 to which I have

earlier alluded.

[916] Robert said in March 1984, Greycliffe purchased the trucks it had been leasing and

resold five or six of them to IWS for use by IWS. JB 3547 and JB 3307 are Taylor Leibow

1984 IWS working papers, which reflect that IWS purchased Greycliffe trucks in March 1984

and resold them the following month at a loss.

Morris’ Convalescence

[917] From February - June 1984, Morris was convalescing at home.

[918] Chester said he held a birthday party for Morris in March 1984.³⁴⁶Michael said there

was no such party. In 1984, Morris was 59. [There was a party a year later to celebrate

Morris’ 60^thbirthday. JB 3386 is an invoice to IWS from the Royal Connaught Hotel dated

March 31, 1985]

[919] During the spring of 1984, Morris said he asked Chester for $15,000 to pay bills and

buy pearls for Shirley.³⁴⁷JB 3129 is an IWS cheque for $15,000 dated April 26, 1984 payable

to Morris.

[920] Linton said Chester instructed him to have the words “Re: Payment on Note” typed on

the back of the cheque.³⁴⁸He probably deposited it directly into Morris’ account.³⁴⁹Chester

denied directing that those words be typed on the cheque.³⁵⁰

[921] Morris said he learned towards the end of April that Chester had not torn up the Share

Sale. He felt sick, because he would have bet anything his brother would have kept his

promise.³⁵¹Shortly before he returned to work full-time in the summer of 1984, he again asked

Chester to tear up the deal. Chester said that they would talk later when Morris was feeling

better.³⁵²

³⁴⁶Chester, October 29, 1999

³⁴⁷Morris, January 28, 1999

³⁴⁸Linton, May 26, 2000

³⁴⁹Linton, May 26, 2000 and June 15, 2000

³⁵⁰Chester, September 24, 1999

³⁵¹Morris, January 28, 1999

³⁵²Morris, January 28, 1999

[922] Wiseman said he was aware in May 1984 that Ennis had told Taylor there was going to

be trouble with “the boys.”³⁵³Morris told him in May 1984 that Chester had not ripped up the

Share Sale.³⁵⁴

[923] Taylor said that in the spring of 1984, at a synagogue function, Ennis appeared to have

been drinking. He suggested that they arrange a meeting with Morris and Chester because

there was going to be “a problem.” Taylor understood Ennis to be referring to a problem with

the Share Sale.

[924] Dr. Goldberg gave evidence that Morris continued to look worried and unwell and to

suffer from severe headaches and sleeplessness, even though he had come through the

surgery well.³⁵⁵

Other Developments

[925] On the first or second day after he returned to work full-time, Morris said he asked

Chester to let him see what he had signed. He reviewed the Share Sale papers and said to

Chester: “I don’t know what I read. I don’t understand it. What did you do to me?” Chester

said they would talk later.³⁵⁶

[926] Chester denied this incidenct.

[927] In August 1984 IWS received the $250,000 dividend refund in respect of the $1 million

dividend declared in December, 1983, just as Linton had contemplated in Exhibit 289, tab

33.³⁵⁷

1984 Year End

[928] The IWS balance sheet for the year ended December 31, 1984 reflects retained

earnings of about $6.58 million, cash and near cash of about $8.7 million. Tonnage fees had

increased to $938,260.

[929] At the end of 1984, a $172,000 IWS dividend was declared in Chester’s favour only.

³⁵³Wiseman, March 10, 2000

³⁵⁴Wiseman, March 6, 2000

³⁵⁵Dr. Goldberg, June 8, 1999

³⁵⁶Morris, January 28, 1999

³⁵⁷Linton, June 16, 2000; Exhibit 289, Share Sale Brief, tab 33

[930] In December 1984, Linton deposited a $250,000 IWS cheque into Chester’s account.

Chester wrote a $250,000 cheque to Morris and Linton deposited it into Morris’ account.³⁵⁸

Findings - 1984

[931] IWS’ $55,000 contra charge to Morriston for the legal costs related to drafting of the

1981 IWS Ferrous lease was not booked until more than two years after that lease was

drafted or until Chester thought he was a 100% owner of IWS. Ennis kept no separate record

of time spent drafting the IWS Ferrous lease. His account for services inter alia with respect to

that lease was rendered in December 1981. No adequate documentation or evidence was

provided to justify IWS’ further $11,000 charge to Morriston. I find the charges to Morriston

were not real charges for real expenses. But for the contra scheme, the charges would never

have been made.

[932] Morriston did receive the benefit of a $66,000 deduction, but it did not receive any of

the rental income to which it would otherwise have been entitled. Morriston could have

achieved the same tax saving by simply declaring bonuses of $66,000. Under the contra

scheme Morriston received $250 a month net after tax by way of a deduction against income

instead of net after-tax rental income of $500 a month. IWS (i.e. Chester) was obviously the

beneficiary of the contra scheme.

[933] Ennis’ January 1984 notes reflect that he and Chester were discussing “M.W.” Ennis

said in chief he had no idea why Morris had not signed the January 1984 amended

documents,³⁵⁹but in cross-examination, he said he met with Chester on March 26, 1984

about the fact that Morris had not signed them.³⁶⁰

[934] Ennis’ note dated July 19, 1984 records a conversation during which Chester said he

would call Linton and ask him to call Morris. Ennis said he believed his note “has to come to a

³⁵⁸Linton, June 15, 2000 and June 16, 2000

³⁵⁹Ennis, December 6, 1999

³⁶⁰JB 2557, Ennis’ services performed diary: January 20, 2000

Q. look at March 26th at tab 123 of the share sale brief, JB 2557…. You have note of meeting with Chester. Meet C.W. re M.W. Right?

A. Yes.

Q. And JB 2557, and you wrote down the time, 7:30 to 8:30 at night. And at this point, Morris Waxman was at home recovering from his

valve replacement…. So there isn’t any doubt that there was discussion with Chester about Morris and about the share sale and about the

fact that he hadn’t signed the ‘84 documents?

A. That’s what I believe was discussed.

[On cross-examination, Ennis said that he went to see Chester because Morris had not signed the 1984 documents. Chester said he would

get Morris to sign them. At that time Morris was still recuperating at home. Ennis denied that Chester indicated that he was having trouble

with Morris.]

head” refers to the January 1984 amended Share Sale documents.³⁶¹I find that by July of

1984, Ennis and Chester were very concerned that Morris had not signed them.³⁶²

[935] I do not accept Robert’s reasons for Greycliffe’s cessation of trucking activities within

months of the Share Sale. For a short time in January 1984, the fleet policy of Greycliffe,

Icarus and IWS was transferred to a Facility Plan. However, coverage was re-established on

February 16, 1984 (JB3126) at approximately the rates paid before the accident.³⁶³I find that

Chester decided shortly after the Share Sale, on the assumption he was the 100% owner of

IWS, that he was no longer prepared to allow IWS to continue diverting profits to Greycliffe.

[936] I accept Taylor’s evidence that during the spring of 1984, Ennis suggested to Taylor

that they should arrange a meeting with Morris and Chester because there was going to be a

problem with the boys. I find Ennis knew in early 1984 that Morris was unhappy about the

Share Sale.

[937] I have accepted Morris’ evidence about his repeated complaints to Chester about the

Share Sale starting in January 1984. Chester’s behaviour in April 1984 indicates his

knowledge that Morris wanted the Share Sale set aside. I accept Linton’s evidence about

Chester’s instructions to have the words “Re Payment on Note” typed on the back of IWS’

April 26, 1984 cheque to Morris. I find Chester was deliberately attempting to create

³⁶¹Ennis, December 6, 1999 and January 20, 1999

³⁶²Ennis, January 20, 2000

Q. Isn’t it the case by this time you knew that there was a real problem?

A. I didn’t know what their problem was. I had no idea what their problem was. Why the two brothers weren’t getting along didn’t concern me

at that particular time. I wanted to get the documentation completed. The problems could have been unrelated to the share purchase

agreement. It could have been almost anything. I wasn’t aware of it.

Q. But did you know there was problems between the two of them?

A. There could have been.

Q. Could have been—

A. There could have been problems.

Q. Did you feel there were problems at that time?

A. There could have been problems.

Q. Your mental state back then in July 1984 was there could have been problems between the two of them?

A. We have got Solid Waste Reclamation Inc. kicking around. We have got Chester. We have got Morris Waxman in bed with Allen Fracassi.

Who knows what’s going on with these two brothers? These two aren’t strangers…

Q. Without speculating—

A. You know, you see, without speculating. When I give you an answer, it’s speculation. When you give me an answer or suggest something

to me, it’s pure fact.

Q. Did you believe, for whatever reason, from your dealings with Chester in July 1984 or earlier, that there was a problem of some sort

between Chester and Morris?

A. No, I did not believe it.

Q. When you said there could have been a problem, why did you say that?

A. Because there could have been, but I didn’t know of any problem. There could have been a problem. There could have been a problem

between the brothers involving a domestic situation. It could have been with respect to other members of the family. It could have been all

sorts of things. You’re trying to say to me there was a problem between Chester and Morris with respect to the share sale agreement, and I

say to you it doesn’t necessarily mean there was a problem with respect to it. There could have been family problems. There was all kinds of

problems with the Waxman family.

Q. Did you feel there was a problem of some sort between Chester and Morris and that’s why Morris wasn’t signing the share sale

documents?

A. No….

documents to be used to assert that Morris had ratified the Share Sale. Morris did not see the

words on the cheque, as Linton deposited it directly into his bank account.

[938] I accept Morris’ evidence that shortly after he returned to work in mid-1984, he asked

to review the documents he had signed in December 1983 and that after doing so, he said to

Chester, “What did you do to me?”

[939] The amalgamation, in May 1984 during Morris’ convalescence, of Caroline Steel and

Pipe Ltd., owned by Bailey and Shirley, with Circuital, owned by Robert’s Children’s Trust, is

yet another example of Chester’s directions resulting in the blurring of ownership interests

within the family without Morris’ knowledge and approval.

[940] I accept Morris’ evidence that in 1984 or early 1985, while visiting Chester at IWS,

Ennis came into Morris’ office. Before he could sit down, Morris said, “Paul, what the hell did

you and my brother do to me?”³⁶⁴Ennis immediately left Morris’ office.

[941] Late in 1984, when IWS declared a dividend of $172,000, Chester received it all

despite the concern that had prompted the redrafting of the Share Sale documents in January

[i.e., the December documents provided for a staged sale under which Morris was entitled to

continuing benefits of ownership.] Although Morris never signed the amended documents,

IWS distributed its profits after December 1983 as if Morris had no continuing ownership

interest in IWS.

[942] Throughout 1984, Chester provided perquisites to Morris that made it appear to

outsiders that Morris continued to be an owner of IWS and which made Morris hope that he

could privately straighten out with Chester before what Chester had done to him was publicly

known.

1985

[943] JB 3152, a list of 1981-1982 bonuses, contains the following note: “1982 bonuses were

unpaid at 1983 year end but were apparently paid in 1984.” [Emphasis added]

[944] Wiseman said in chief that in May 1984, Morris told him that Linton had mentioned that

IWS was worth $12 million. Wiseman explained to Morris that from that figure, accrued

³⁶³Robert, April 10, 2000 and April 17, 2000

³⁶⁴Morris, January 28, 1999

liabilities, including bonuses, had to be deducted. Morris said, “Bonuses? What bonuses?

There were bonuses?” He had never authorised any bonuses. Morris wanted to know who

had received bonuses.

[945] Wiseman said he prepared JB 3152 and gave it to Morris. When Morris reviewed it, he

was extremely upset, saying he had been raped, he would never have authorised such

amounts for himself and Chester, let alone Chester’s sons. It made him sick. He was going to

talk to Chester.³⁶⁵Wiseman called Chester to warn him there was going to be a “blowout.”³⁶⁶

Morris later told him that Chester had said the bonuses to his sons were not leaving/had not

left IWS.

[946] Morris thought Wiseman just gave him JB 3152 sometime in early 1985. Morris did not

ask him about bonuses beforehand and Wiseman did not explain JB 3152 to him.³⁶⁷When

Morris asked Chester about the bonuses, Chester said “Don’t worry about it. It’s just for tax

purposes.”³⁶⁸

Spring 1985 Meetings

[947] Wiseman said in spring 1985 he told Morris he must finalise his discussions with

Chester about the Share Sale because it would have to be reflected on his 1984 tax return.³⁶⁹

He suggested if Morris and Chester were to meet with him and Taylor to discuss a

restructuring of the Share Sale to reduce Morris’ taxes, Morris could voice his concerns about

it.³⁷⁰The meeting was held. They talked about a restructuring. Wiseman said it would require

³⁶⁵Wiseman, February 14, 2000

³⁶⁶Wiseman, February 14, 2000

³⁶⁷Morris, January 28, 1999 and March 3, 1999

³⁶⁸Morris, January 28, 1999

³⁶⁹Wiseman, March 2, 2000

A. …we’re moving into the taxation period… Morris had told me … that he was dealing with Chester and I told him that it was imperative that

he settle this issue once and for all because we were coming to the end of in terms of him having to file a personal income tax return in which

case … the transaction would have to be reported and that if he was going to straighten out with Chester, that he do so…. It was agreed

between Morris and myself as well as Sam Taylor and Chester that there would be a meeting in which we would propose an income tax

restructuring and such meeting was to provide Morris with a forum to air his views. Now I fully expected based on the number of discussions

that Morris Waxman had had with myself over the course of over a year, that this matter would be resolved and the deal undone as he

wished…

³⁷⁰Wiseman, February 14, 2000. Later in cross-examination on March 27, 2000, Wiseman said:

A. …What doesn’t ring true is prior to the meeting that was held between him and his brother and Sam Taylor, we told Morris Waxman what

the purpose of that meeting is from our point of view, that this was a meeting in which we would propose an income tax restructuring

program or plan and that it was up to Morris to air his views with respect to his unhappiness in regards to other aspects of the share sale ….

he knew this going in, that if he had any concerns he was to have raised them at that meeting. He sat at that meeting for better part of an

hour and a half and didn’t say anything in regards to the share deal…. [Morris] was told. It was up to him [Morris] to raise the issue with

respect to the price, bonuses, interest, with respect to any other issue he wanted to raise - that was the forum in which he was supposed to

have raised it as I understood it and he knew that… Because we heard one side of a story. A year and a half had gone by since that share

sale. There was no discussion with Morris, evidence I was told by Morris he was going to have meetings and in fact had meetings and so a

whole year went by, almost a year and a half?… And nothing was raised at that meeting.

a valuation of the IWS shares. Chester said if he wanted to pursue the proposal, he would get

back to them.

[948] None of Morris, Wiseman or Taylor raised any concerns about the Share Sale at that

meeting. Morris thought Wiseman and Taylor would raise the Share Sale issue with Chester.

[949] Chester said he did not understand the meeting was convened to discuss the Share

Sale.

[950] On April 18, 1985, Linton and Ennis met with Scace.³⁷¹Morris said Chester told him

that Ennis and Linton met with Scace to find out how to undo the deal.³⁷²

[951] Linton provided a hand-written report about his meeting with Scace to Chester only,

dated April 19, 1985 (Exhibit 289 tab 139/JB3399,) which includes the following:

You have paid $1,250,000 to date for 105 of Morris’ shares…. The 1984 taxable

dividend of $172,000 allocated to Chester will be reallocated as follows: Chester 334

shares, $114,896; Morris 166 shares, $57,104…. The remaining 145 shares should be

purchased in 1985 with payment terms spread out over 5 years. This will delay capital

gains in Morris’ holding company (small anyway) but more importantly, will eliminate the

need to show a minority interest position in 1985.

[952] JB 3033, which appears to be a Linton file, not only includes JB 3399 but also a

number of other documents, including JB 1733 headed “Summary of Payments 1981-1984”

and another headed “Share Buyout.” Under the heading “1984 Taxable Dividend” Linton

suggests the following:

if Morris’ … Class A shares converted to Class B [non-voting shares], $172,000 dividend

could apply only to Class A [voting] shares.

[953] In his memo to Chester, Linton wrote:

(e) Campbell placed a value in the range of 7-8.5 million for the company. Because of

the ongoing operating losses … plus the Lasco restriction … Scace felt we may not

need an updated valuation performed depending on Revenue Canada’s course of

action.

³⁷¹Linton, May 26, 2000

³⁷²Morris, January 28, 1999

[954] Chester said “in spite of Scace and Taylor and Ennis,” he did not want documents

drawn up changing the deal, as he was “scared of the tax department.” He denied that he did

not want Campbell valuing IWS.³⁷³

[955] Wiseman said JB 1733, prepared by Linton listing monies that Morris had received

1981-1984, overstates the payments by $810,002.72.³⁷⁴

Morris’ 1984 Taxes

[956] As usual, Linton accumulated the information needed to complete Morris’s 1984 tax

return, drafted it and sent it to Wiseman.³⁷⁵Linton had amended the Share Sale Agreement in

January 1984 because of concerns it would be interpreted as a staged sale. I have found he

spoke to Wiseman about those concerns before the end of 1983. Although Linton knew that

Morris had not signed those amended documents, he nevertheless prepared Morris’ tax

return on the assumption that the Share Sale was a completed sale, i.e., that Chester owned

100% of the shares of IWS after January 4, 1984. He did not explain any of this to Morris.

[957] Wiseman said he did not follow his usual practice and send Morris’ return back to

Linton. He considered whether Morris had sold 84 or 250 shares to Chester on January 4,

1984 i.e., whether capital gains would be payable in the 1984 tax year on the sale of 84 or

250 shares. He said that in late April 1985, he spoke to Linton, who said he thought it was a

completed sale. Linton suggested that Wiseman check with Ennis, who said the parties

intended an outright sale.³⁷⁶The preparation of Morris’ return is the subject of a claim against

Taylor Leibow and Linton in action 44142/89.

³⁷³Chester, October 29, 1999

Q. I don’t have the precise date but it would appear to be dealing with the contemplated rollover and here’s my question. You will see at the

bottom, it says valuation five or six page update, Ian Campbell. See that? Then it says December 31, 1983? … and December 31, 1984?

A. Yes.

Q. Is it possible, sir, that you recognized that you did not want Mr. Campbell doing an updated valuation in regard to this share sale and put a

stop to it right then and there?

A. No.

³⁷⁴Wiseman, February 15, 2000

Q. the last page of the tab, a document that says—is titled Mr. Morris Waxman, summary of payments, it says 1981 hyphen 1984….

A. If this document represents a stream of payments out of the company, then it’s fine as far as it goes. But that as far as I was concerned

the drawings amounts that are indicated in the fourth column, all those numbers that add Up to $810,002,72 … should not be included and it

was a double count. I told Morris that was his money in the first place

Q. What did Morris say during this discussion?

A. He listened to me, understood. What I said to him I said take this back to Wayne Linton and tell him I said the $810,000 is not appropriate,

it shouldn’t be included in there

A, Morris left with the documents and I never heard back from him.

Q. the $750,000 that Sam Taylor seems to have written on to the document at 1733 was also discussed?

A. But that money wasn’t money from the company. That was money from Chester Waxman that was in respect of the monies that was in his

bank account…. Well, Sam wrote it down and explained this is not money from the company, it’s from Chester Waxman. So the total being

3,422, that was added up by Sam. I said no, no, no, it’s not 3,422, you can’t include the 810, you’ve got to take that off. It’s his own money.

³⁷⁵See Vol 77 for 1984, tab B

³⁷⁶Wiseman, February 14, 2000

[958] In chief, Wiseman said later that day, he reviewed the return with Morris line by line,

telling him it reflected the sale of 250 shares.³⁷⁷He also sent a letter (JB 3407) to Morris, as

follows:

We have prepared your 1984 personal income tax return and you should review the

standard transmittal letter attached thereto prior to signing on page four. In finalizing

your 1984 personal income tax return, you should pay particular attention to schedule 3,

statement of capital dispositions contained therein. This schedule indicates that you

have disposed of all of your shares in I Waxman & Sons during the 1984 taxation year.

A reserve has been claimed against the related capital gain in accordance with a

provision for claiming such reserves under the income tax act.

The inclusion of the capital gain and related reserves as calculated is based on the

instructions provided to us by Wayne Linton… [Emphasis added.]

[959] On cross-examination, Wiseman conceded he did not discuss the staged sale issue

with Morris at the time of the filing of the 1984 tax return.³⁷⁸

[960] Morris said when he met with Wiseman in April of 1985 to discuss his 1984 tax return,

he did not want to file a return showing any sale of shares to Chester. Wiseman advised him

not to mail the return but to pay the taxes to avoid a penalty.³⁷⁹He could not recall receiving

or reviewing JB 3407.

³⁷⁷Wiseman, February 14, 2000

A. I said I’ve called you in … to review your tax return. It’s an important tax return. I provide him with his copy, client copy. And I had the

department copy with me and I went over this return with him line by line… I explained to him that the return included the sale of his shares,

the 250 shares of IWS, and as I said before, I went through a calculation—I explained that you can claim the reserve for the unpaid portion

and that this was the amount, the 291,000 represents the net portion of the capital gain that had to be included in the return.

³⁷⁸Wiseman, March 27, 2000

Q. Did he object to a reporting of the sale of all of his shares as opposed to some of them?

A. No, that was not his main concern at all.

Q. Was that raised as a concern by him?

A. No. Didn’t get into staged sale, outright sale….

Q. What did Morris say at that meeting or what were his concerns, if any?

A. It didn’t get to the point discussing outright sales and staged sales. Morris didn’t want the transaction reported on his 1984 tax return. He

wanted me to remove it…. I told him, Morris, I don’t think that’s a good idea. You can’t just not report something. I said there’s a signed

agreement. You told me you sold your shares. You’ve received money. You can’t not report something.

Q. …did not discuss the fact that you had been considering first of all, the issue of whether Morris had really disposed of all his shares. Did

you not discuss that with Morris?

A. I considered that on December 28th, 1983 and I mentioned that to Morris Waxman virtually a minute after I perused that share purchase

agreement…. And I indicated to him at that time that a tax opinion should be secured. I thought it would be a good idea.

Q. So in April 1985 he was to remember that conversation you had back in December 1983?

A. No. He was to remember hopefully my discussions with him at the end of the year, 1983, to go to a lawyer. He was to remember all the

various times that I suggested to him to go and get a lawyer.

³⁷⁹Morris, January 28, 1999

[961] Linton was usually responsible for ensuring that cheques paying Morris’ personal taxes

were prepared and forwarded to the Receiver General.³⁸⁰In April of 1985, he delivered IWS

cheque #1608 in the amount of $156,638 to Revenue Canada for Morris’ taxes.³⁸¹He did not

advise Morris that the amount of the tax payment had been deducted from the balance to his

credit in the loan account.³⁸²When asked in chief how it happened that Morris’ 1984 tax

payment of $156,638 was taken out of the loan account, Linton replied he was instructed to

pay the tax out of that account.³⁸³In cross-examination, he could not remember receiving any

such instructions from Morris. He said if Chester had asked him to pay Morris’ taxes, he

would have charged the loan account.³⁸⁴

[962] Morris said as usually happened at tax time, Linton paid his taxes. He did not know

about the loan account and did not ask that $156,638 be charged to it.³⁸⁵

Morris Meets with Chester and His Sons

[963] Morris gave evidence that in April 1985, he was very frustrated and angry. He was

concerned about filing a tax return reflecting a Share Sale he was attempting to void. He

decided to meet with Chester and his sons. He wrote the notes at JB 3983 in preparation for

that meeting. The discussions at the meeting tracked the points in the notes. [In quoting this

³⁸⁰Linton, May 16, 2000

³⁸¹Linton, June 16, 2000

Q. You see, the way this was done is that initially the payment of the taxes was done by an I. Waxman & Sons cheque, wasn’t it?

A. Yes, it’s shown here.

Q. What you didn’t do was draft up a cheque for Morris to sign?

A. No…

³⁸²Linton, June 16, 2000

Q. …There’s nothing in writing other than this account in your working papers communicating to Morris that this IWS cheque paying the

taxes was taken right off his loan account?

A. No. I didn’t write him…

³⁸³Linton, May 26, 2000

³⁸⁴Linton, June 16, 2000

Q. And isn’t what happened that with regard to Morris paying his taxes in 1985, that he had left the tax payment up to Chester and Chester

told you that and you guys decided you would cut a cheque paying his taxes and because you knew what they were because you had his

draft return, and you cut an IWS cheque and charge his loan account and that’s what you did, isn’t it?

A. No, it’s not what happened.

³⁸⁵Morris, February 18, 1999

Q. Under—this is for your 1984 taxes. You see that a cheque was issued to the Receiver General for $156,638.73. Do you see that?… How

did you think your taxes were paid for 1984?

A. I’ve said it many times that your client told me that until this was resolved, everything would remain the same. I was of the understanding

that it was the same. Wayne was looking after preparing my taxes. It went to Taylor Leibow, I guess, for verification. It came back. They

would have me to sign them. I signed them and I left the checking up to them…

Q. So we’re dealing with the intervening year and don’t, again, isn’t this your money that you have to use to pay Revenue Canada?

A. If it came from I. Waxman & Sons? No.

Q. It wasn’t your money?

A. It was not my money. I had no loan account there. I didn’t know about a loan account. Nobody told me about a loan account. And the first

time I’ve heard about that was when this litigation started.

…Q. And do you not recognize, sir, that if the company paid the 156 on your behalf, you would have to add that on as part of your income for

the following year?

A. Sir, I’m not a tax man. I’m not a money man.

Q. I suggest to you, sir, that your version is totally inconsistent with the facts, and the fact was that you said you had—you knew you had a

loan account and you asked the company to take the money out of the loan account?

A. That, sir, is a lie.

evidence, I have underlined the contents of the notes to differentiate them from Morris’

explanatory evidence]:

Morris, January 28, 1999

[Point # 1] “No one sick or incapacitated.”

Q. …What did you say at the meeting in relation to that point, if anything?

A. I asked everyone there if they were either sick, or occupied with anything that couldn’t

allow us to have a meeting…. I wanted them to understand how I felt when I was in the

board room of Ennis’ office.

Q. What was said by Chester or his sons when you said that?

A. Nothing.

[Point # 2] “When was the last board meeting?”

A. …What I meant by that was when was the last time we got together to discuss

anything…. I wanted them to know how I felt and nobody was paying any attention to

me, and the business was being run by people who weren’t including me in decisions.

[Point # 3] “Did you give bonuses to the boys?”

A. …I can’t recall what I said there. I wanted them to know that after I got that piece of

paper from Steve Wiseman—and Chester telling me for tax purposes. I wanted

somebody to tell me … that the bonuses weren’t so…

Q. Did you get an answer to that question?

A. No.

[Point # 4] “What wages are they getting?”

A. …I asked Chester directly. I said: What wages are the boys getting?

Q. What did he or they say to you.

A. Nothing.

[Point # 5] “How much does IWS gross and what is its net for the last five years?”

A. I wanted to know why I only got $3 million, that they said I was going to get which I

never got, and I wanted to know where the amount of money that Chester came up with

for my 50% came from. I got no answer to that.

[Point # 6] “1 share”

A. I brought up about the one share that was … taken from me and to get it back.

…I was referring to how my father treated Chester and [me].

Q. But what were you referring to in terms of the one share?

A. That it was taken from me and I knew why it was taken from me when it was taken,

but I didn’t know they didn’t take one share from Chester and I didn’t know he would

have the gall to say that… I wanted the boys to know that.

Q. What response did you get when you raised the issue?

A. No response.

[Point # 7] …”Solid Waste. 50%”

A. …Chester kept asking me during some of our discussions that he wanted 50% of

Solid Waste billing to go through IWS.

Q. When were these discussions?

A. They were from time to time while I was having discussions with him.

Q. What discussions were you having with him?

A. Trying to straighten out the problem.

Q. The Solid Waste that’s referred to, what is that?

A. Solid Waste Reclamation Inc., the company that Michael and Douglas own.

Q. What was said in response when you read that point at the meeting?

A. Nothing … what were they prepared to throw in to Michael and Douglas to get 50% of

this.

Q. What does that mean?

A. Well, if he was going to give up something, could I go back and negotiate with him so

I could tell him what they were going to do for him.

[Point # 8] “Cars”

A. …I was probably referring to the fact that the boys were well looked after; they had

company cars and their wives did also.

[Point # 9] “without discussing the contents, would I wait until you might die and no

interest, then have you sign.”

A. …I told them that based on what their father did to me, they now had a very good

example of what they can do to each other if one of them gets sick or they want him out

of the way. That all they have to do is find a Mr. Ennis, draw up some papers, make sure

you bring him down when he’s sick and can’t defend himself, and you can put any deal

to him you want.

[Point # 10] “Then tell me it’s only because of the operation”

…A. I think I told them that .. they probably figured I was going to die on the table, and

this would eliminate Michael and Douglas from being a problem to them.

Q. Why would Michael and Douglas have been a problem for them?

A. Well, it’s obvious up to that point, Michael’s out of school, he’s working at SWRI

because Chester turned that company over to Michael and Douglas so they wouldn’t be

involved in IWS and keep them out of their hair.

Q. Why would Michael and Douglas be a problem to Chester and his boys?

A. Michael had an MBA…. Michael could get himself involved in things that I couldn’t,

and that was the banking of the company … the money of the company, the

investments. He could have told me what was going on. And I don’t think that Chester

and his boys wanted anybody to know what was going on.

[Point #11] “What you want to do with your children. … that’s up to you.”

A. …What I meant by that, I guess, whatever you want to give your children you can

give them, and again I reiterated I can’t raise his family, but what he’s taking out, I

should have got…. I wanted the same amount at all times given to me. And I would have

done with mine what I wanted to do with my family.

Q. What was said in response when you raised this point?

…A. Gary started to laugh, seeing that I was very troubled. And he thought it was a big

joke and I said to Chester the next day, Your children really are something. Gary was

laughing and you didn’t say a damn thing.

Q. What became of your efforts at this meeting? Did anything happen as a result of

having this meeting with Chester and his boys?

A. No, absolutely nothing.

[964] Chester, Robert, Gary and Warren all denied that the meeting took place.

Transfer to Chester of Warren’s, Robert’s and Gary’s 1982 Bonuses - July 1985

[965] As of December 31, 1983, the 1982 bonuses on the IWS books still to be paid to the

recipients included $600,000 payable to Robert, $501,000 to Warren and $500,000 to Gary.

Linton said that between July of 1984 and July of 1985, some of their personal expenses

were paid by IWS and charged against their “drawings” accounts [even though they were not

shareholders of IWS.] Chester instructed Linton to pay the taxes on their 1982 bonuses and

to transfer the remaining balances to him. In July 1985, Linton transferred $594,378 after tax

to Chester: $239,190 from Robert, $104,888 from Warren, and $250,300 from Gary. In other

words, Chester received the $594,378 after tax or the before-tax equivalent of about $1.2

million [in addition to the $700,000 allocated to him under the February 22, 1982 minute and

the $649,050 of 1982 bonuses reallocated to him on December 21, 1983 from Kumer, Rosen,

Leibowitz and Morris.]

[966] Chester cited banking reasons for the 1985 transfer from his sons. He said that while

his sons agreed to the transfer, they did not agree to give up the 1982 bonuses; they simply

agreed that he could hold the money for them.

[967] [Given my finding that Wiseman and Chester discussed Morris “hocking a chinik”

earlier than Wiseman was prepared to admit, I have placed Wiseman’s evidence about those

discussions here.] Wiseman said in chief that in 1987 he spoke to Chester during dinner at a

restaurant called Shakespeare’s about the fact that Morris was upset with the Share Sale.

Chester used a Yiddish expression indicating that Morris was “hocking a chinik”, banging his

head with a kettle, driving him crazy, or continuously harping about wanting his shares back:

Wiseman, March 27, 2000

A. …I was aware from Morris that there were meetings, this was never confirmed by

Chester, but I was aware that’s what Morris had told me and that when Chester

indicated to me that he had discussions with Morris, that more or less confirmed in my

mind, maybe it was an inappropriate assumption, but it confirmed in my mind at that time

that in fact Morris had discussions…. Chester told me he was hocking a chinik with

respect to the shares. He told me that it was a meeting that he had, I’m surmising that

there were other meetings, but that’s just my surmise. That’s not what Chester said.

Q. …that phrase “continuously harping” which is your phrase, not mine, meant to you

that Morris had been speaking to Chester on numerous occasions wanting his shares

back. Isn’t what what you understood Chester to be saying to you?

A. That’s what it meant to me. That’s not what he said, but that is what it meant to me…

…Q. And finally, you have now acknowledged I think that what Chester told you Morris

was saying was he wanted his shares back?

A. He certainly wanted back in. That’s the terminology I’m using and I’m going back as a

result of that meeting, and at this time when I was being examined, going back to the

discussions I had with Morris really from day one that he wanted out of this bullshit deal,

he wanted it cancelled and going back to the telephone call I had with Morris from the

hospital in early February of 1984 in which the deal was ostensibly according to Morris

ripped up or Chester promised he would rip it up and that’s basically what I’m getting at

here. That’s what went through my mind at that meeting…. Chester’s thrust of the

meeting was to get me to offer him tax advice regarding the repurchase of shares …. it

was clear to me that Chester was talking about reselling him shares.

[968] Wiseman’s credibility suffered when he was confronted with answers given on his

examination for discovery to the effect that that discussion could have been in 1985, 1986 or

1987.³⁸⁶

[969] [Given my finding that Chester spoke to Robert earlier than 1987, I have also placed

this evidence here.] Robert gave evidence that in 1987 Chester spoke to him about the

possibility that Morris would buy his shares back; he was opposed:

Robert, May 2, 2000

Q. And you told your father, didn’t you, that that was not a good idea?

A. I said I didn’t think it would be a great idea.

Q. And you told your father that you did not want Michael as a partner. Isn’t that so?

³⁸⁶Wiseman, March 10, 2000

A. I said I didn’t think it would be a good idea and I also mentioned that I didn’t think it

would be a good idea with Michael… First of all, I told you before, it wasn’t my call… I

told my father in my view at that time I didn’t think it would be a good idea because of

familial relationships and also Michael and familial relationships meant more than just

Michael it was now a growing family, the Chester Waxman was a growing family and

those aspects likely should be looked at. Michael’s work conduct which had come to me

a number of times over the past five or six years from other employees, and I don’t think

I ever used the word partner. Because it wasn’t my call.

Q. Don’t think you ever used the word partner. Can we look at your transcript, please,

page 617, April 16, 1998. …question 3859:

Question: What else did your father say in that regard … in terms of possibly

buying back Morris’s shares? Answer: That’s about it. He just told me Morris

wanted to buy back shares and he wanted to know my opinion. Question: What

was your opinion? Answer: I told him I didn’t think it was a great idea. Question:

Why? Answer: I thought it was better for the family especially with the familial

relationship with Michael to just leave things the way they were. Question: By that

you mean the fact that you weren’t getting along with Michael? Answer: That I

really wouldn’t want him as a partner per se at some point in the future.

[970] Robert said that he was asked those questions, gave those answers and that they

were true. He also said that he did not say to his father that he would not want Michael as a

partner.

[971] JB 3271 Hope’s Services Performed reflects that in November of 1985 Hope drafted

an Amending Agreement re Purchase from Morris for Chester. JB3522, a draft agreement

between Morris and Chester dated November 1985, includes the following recitals: Whereas

the vendor and purchaser desire to make amendments to the sale purchase agreement and

… as of the date hereof the purchaser has purchased and paid for 125 shares.

[972] In November 1985, Chester received JB 3522A, a Woods Gordon report about

development options for the Centennial property. The report concludes “there appears to be

considerable development potential for this property for tourism and recreation-related

developments and possibly for a mixed commercial/office development.”

[973] 1985 Year End

[974] JB 3537A is a “unanimous” resolution of the IWS Board of Directors authorising a

$250,000 dividend on the outstanding Common Shares to be paid out of the capital dividend

account, signed by Chester only. For 1985, Chester received a $250,000 non-taxable

dividend, a $42,000 taxable dividend and a $625,000 bonus.

[975] In 1985, the tonnage fees paid to IWS by IWS Ferrous were $1,020,832.³⁸⁷

[976] By JB3525, a letter dated November 22, 1985, Chester gave Morris notice that he

would not be making a $500,000 Share Sale payment in 1985 but was extending the time for

payment.³⁸⁸

Findings re 1985

[977] I find that Wiseman did not speak to Morris about bonuses in May 1984, as JB 3152

refers to payments “made in 1984.” I do not accept Wiseman’s evidence on that point. I find

that Wiseman’s discussion with Morris about bonuses was in early 1985. I do not accept

Wiseman’s evidence that Morris told him Linton said that IWS was worth $12 million. [Even if

Linton thought that, I find it highly unlikely he would have so advised Morris.] I accept Morris’

evidence that Wiseman simply provided the bonus information to Morris. When Wiseman told

Morris about the bonuses, Morris was so upset that Wiseman called Chester to warn him that

he thought there was going to be a “blowout.” I have earlier noted that Morris had never

received a cheque representing 1981 or 1982 bonus payments. I find that Morris knew

nothing about the 1981-1982 bonuses before Wiseman notified him in early 1985.

[978] Even after the discussions with Wiseman about 1981-1982 bonuses, Morris wanted to

trust Chester. When Morris spoke to Chester, Chester misled him about the bonuses and for

a time Morris believed him. At the April 1985 meeting with Chester and his sons, Morris

asked, “Did you give bonuses to the boys?” He received no answer.

[979] I accept Morris’ evidence about the April 1985 meeting with Chester and his sons. I

find that the notes at JB 3983 are authentic and that Morris referred to them during the

meeting as a memory aid to raise the matters set out therein. I find he mentioned SWRI. I

reject the evidence of Chester and his sons about that meeting.

³⁸⁷Branch, June 29, 2000

[980] I do not accept Wiseman’s evidence at trial that Chester and Wiseman spoke in 1987

about Morris “hocking a chinik.” I find that the discussion probably occurred earlier in 1985 or

1986. Whenever it took place, Wiseman understood from Chester that Morris had been

speaking to him continuously about getting back his shares.³⁸⁹

[981] I find that in April of 1985, Chester, knowing that Morris was unhappy about the Share

Sale, met with Taylor, Wiseman and Morris and then asked Linton and Ennis to meet with

Scace about restructuring the deal. Chester told Morris that Ennis and Linton were meeting

with Scace about undoing the deal. Linton did not copy Morris with his memorandum to

Chester, JB 3399 about his meeting with Scace, nor did he involve Wiseman. Linton’s file

about a possible restructuring JB 3033 includes JB 1733, Linton’s list of monies that Morris

had received 1981-1984. I reject Wiseman’s evidence that he received it from Morris and find

that he received it from Linton during the restructuring discussions. Wiseman discussed it with

Morris because he thought that Linton’s schedule overstated the payments that Morris had

received by $810,000.

[982] Linton prepared Morris’ 1984 tax return as if the Share Sale were a completed not a

staged sale, even though he knew Morris had never signed the January 1984 amending

documents. Wiseman followed Linton’s “instructions” despite the wording of the Share Sale

Agreement, which clearly and unambiguously provides that Morris continued after January 4,

1984 to own shares of IWS and to be entitled to ownership benefits. If the Share Sale were

valid, Morris should have received his pro rata share of IWS profits including dividends during

the period that Chester was buying his shares. Linton and Wiseman should have treated the

sale as a staged sale on Morris’ tax returns.

[983] I prefer Morris’ evidence to Wiseman’s about their discussion in April 1985 about the

payment of Morris’ 1984 taxes. I find that Morris and Wiseman did not discuss the source of

the money for Morris’ taxes. I do not accept Wiseman’s evidence that he prepared and gave

JB 3308 to Morris in April 1985 and that they discussed the balance in the loan account

available in April 1985 to pay Morris’ 1984 taxes. JB 3308 shows IWS owing $244,000 to

Morris, which was the amount owing at the end of 1985. Wiseman could not have given

Morris a document in April showing the amount IWS owed Morris at the end of the year.

³⁸⁸Morris, January 28, 1999

³⁸⁹Wiseman, March 27, 2000 and March 28, 2000

[984] I reject Chester’s evidence about discussions with Morris in 1985 about holding

companies.

[985] Chester discussed the possibility that Morris would get his shares back with Robert.

Whenever that took place, it is clear from Robert’s evidence that he did not respond positively

to the suggestion. Given my findings about Morris’ continuing complaints to Chester about the

Share Sale, Chester’s discussions with Robert may well have taken place in 1985 or even

earlier.

[986] I do not accept Chester’s evidence to the effect that the transfer of his sons’ 1982

bonuses net of tax in the summer of 1985 was not intended to be permanent. Linton’s

musings, JB 2801, refers to reallocation of $2.9 million of $1982 bonuses to Chester, No

documents were produced to prove that Chester was holding the money on behalf of his

sons. There is no other credible evidence to corroborate Chester’s evidence. The IWS

financial statements reveal no obvious need for this transfer in 1985. Between 1983 and

1988, IWS shareholders’ equity remained virtually unchanged.

[987] Notwithstanding the contents of the February 22, 1982 minute, once the 1982 bonuses

had reached their ultimate recipients in the summer of 1985, Chester had received more than

$2.5 million of the $3.3 million in 1982 bonuses. Morris had received $288,000.

[988] In late 1985, Hope drafted an amending agreement but Chester never discussed it with

Morris.

[989] Between December 1983 and December 1985, Morris had received three “payments,”

a $500,000 cheque from IWS in January 1984, a “credit” of $500,000 as if he had loaned

$500,000 to IWS; and a $250,000 cheque from Chester at the end of December 1984. [If

there had been no Share Sale and a $ 1 million dividend had been declared by IWS in

December of 1983, Morris would have received a $500,000 dividend as a 50% shareholder of

IWS]

[990] In December 1983 Chester had received $412,000 of the 1982 bonus originally

allocated to Morris. In August 1984, IWS had received a $250,000 dividend refund [as a result

of the $1 million dividend declared in December 1983 in connection with the Share Sale.] At

the end of 1985, IWS had declared a tax-free dividend payable to Chester in the amount of

$250,000 [which had been generated by a capital dividend account, most of which had been

in place since the sales to Laidlaw and Lasco in 1981 and to which Morris would have been

entitled to 50% if paid before the Share Sale (see JB 3544.)] A taxable dividend of $40,000

and a bonus of $625,000 were also declared in Chester’s favour for 1985. As of December

1985, IWS had not repaid the $500,000 interest-free loan. IWS was deducting all of Morris’

“drawings” from the “loan account” without Morris’ knowledge. The $500,000 payment due to

Morris under the Share Sale Agreement on December 31, 1985 was deferred.

1986

Ancaster Transfer

[991] I have earlier mentioned Morris’ 1956 purchase of the Ancaster property. On January

1, 1986 Morris conveyed it to Warren for $1.

[992] Morris said that Warren asked him to transfer the property to him in late 1985. When

Chester also asked him to transfer it because Warren would have to spend about $200,000 to

buy a lot, Morris said, “That’s not a bad idea. You’ve taken everything else from me, why don’t

I give Warren the property in Ancaster?” Chester promised to “straighten out” if he did so, so

Morris agreed, relying on that promise. Warren said he would reconvey part of the property so

Morris could transfer it to Douglas. After the conveyance, when Morris asked Chester to fulfil

his promise, Chester said he would talk to his boys. Morris said, “when did we ever have to

talk to the boys to do what we had to do?” Chester stalled. Morris continued to try to resolve

the problem.³⁹⁰

[993] Shirley said that she was angry when she heard Morris had transferred the property to

Warren, because he had already promised it to Douglas.³⁹¹

[994] Warren characterised Morris’ claim in respect of the Ancaster property as “simply

neither more nor less than total mean-spirited action.”³⁹²He said that when he approached

his uncle about the property, Morris said that he thought Warren was “a little crazy for moving

into an area like that.” When Warren mentioned the type of “ordeal” that he would have to go

through with the Niagara Escarpment Commission to build a house there, Morris said that he

knew all about it, that it was frustrating that the land could never be severed. Morris esti-

mated that the land was worth $40,000 to $50,000. On the day Morris signed the deed, he

³⁹⁰Morris, December 17, 1998 and January 28, 1999

³⁹¹Shirley May 31, 1999

said to Warren, “at least this can make up in some way for the mistreatment I gave you a few

years ago.”

[995] Chester said that he and Isaac thought that the Ancaster property was a good piece of

land when it was purchased in 1956. $2000 of the $4000 purchase price was paid using

partnership funds. He did not promise Morris to straighten out if he gave the property to

Warren.

[996] Taylor said that he thought it curious that Morris had conveyed the property to

Warren.³⁹³

IWS Corporate Documents

[997] JB 377 contains an Ennis letter to Chester dated February 10, 1986, copied to Linton,

referring to a letter that Linton had sent to Ennis dated February 6, 1986, setting out the many

corporate documents which Morris had not signed.

[998] Ennis wrote another letter dated February 10, 1986, also in JB 377, to Chester marked

“private, personal & confidential”

Re: Issued and Outstanding Shares.

With respect to the issued and outstanding common shares of the capital stock of I.

Waxman & Sons Limited, the following is a recap…:

Owned by Morris J. Waxman

Owned by Chester H. Waxman

[Emphasis added]

145 Shares

355 Shares…

Morris’ 1985 Taxes

[999] Morris gave evidence that when Chester told him in April of 1986 he needed $60,000

to pay his taxes, he asked Chester for an IWS cheque.

[1000] Linton deposited Chester’s personal cheque for $60,000 (JB 3659), with the words

“Payment for 5 Shares” typed on the back, into Morris’ account. He also prepared JB 3663, a

typewritten cheque to the Receiver General for $48,844.53 dated April 30, 1986 drawn on

³⁹²Warren May 4, 2000

³⁹³Taylor, February 4, 2000

Morris’ Parkdale account to cover Morris’ 1985 taxes.³⁹⁴JB3390 is a cheque stub for the

cheque from Morris to Revenue Canada for $48,844.53 in Linton’s handwriting dated April 30,

1986. JB 3660 is a copy of a cheque from IWS to Chester in the amount of $60,000 dated

April 29, 1986.

[1001] Linton said Chester directed that the words “Payment for 5 Shares” should be typed on

the back of JB 3659, Chester’s personal cheque to Morris.³⁹⁵

[1002] Chester said one of the typists at IWS put the words “Payment for 5 Shares” on the

back of JB 3659 “at the request of Wayne Linton.”³⁹⁶Morris saw those words and was

content.

[1003] Other Developments

[1004] By the middle of 1986, Ennis said Chester had told him he and Morris were not getting

along. He assumed Chester’s problem had something to do with the Share Sale.³⁹⁷

[1005] The Share Sale Agreement provided that Chester was to pay $500,000 to Morris at the

end of 1986. As he had already given Morris his personal cheque for $60,000 in April 1986,

the amount due was $440,000.

[1006] JB 3922 is a note in Morris’ handwriting dated December 31, 1986 directed to Linton:

³⁹⁴Morris, February 18, 1999

Q. And you paid the tax from your own account. We have that at tab 3663. It’s your cheque that went to the Receiver General for this amount

of money?

A. That $60,000 cheque?

Q. The $48,844.53?

A. Came out of my account?

Q. Yeah.

A. …This cheque was made out on a typewriter. It wasn’t made out by Morris Waxman… Sir, I can’t tell you how that came about. Wayne

made out the cheque; Wayne made out the tax papers; Wayne sent them to Taylor Leibow; Wayne would tell me what to pay and I would

pay it, however he said to pay it.

Q. Thirty-six forty. Do you see it, sir? This is your statement for the month of April and you will see on April 30th, 1986, $60,000 went into

your account?

A. At Parkdale?

Q. Yes.

A. The account Wayne Linton looks after…. Sir, who put the cheque in the account at Parkdale and who signed the back of the cheque?…

I’m not resiling from that statement, sir. I’m telling you that that cheque was not put into that account by Morris Waxman, and after it was put

into the account—that’s a typewritten cheque. Would have been made out by Wayne Linton for my signature.

Q. But it came out of your account. The company didn’t pay it, you paid it?

A. I paid no attention to that, sir. All I know is that Wayne Linton and Chester looked after all of my financial things up until 1988

³⁹⁵Linton, May 29, 2000

³⁹⁶Chester, September 24, 1999

³⁹⁷Ennis, December 6, 1999 and January 21, 2000

Q. Is it possible indeed, sir, that Chester told you that he wasn’t getting along with Morris because of the share sale?

A. He didn’t tell me in as many words. Morris wouldn’t sign any documentation. He wouldn’t sign the third set of documentation with respect

to the share sale. I assumed it had something to do with the share sale, but I didn’t know what their problem was with respect to the share

sale.

Q. So when Chester told you that he and Morris weren’t getting along, although Chester didn’t say in so many words, you assumed it had

something to do with the share sale. Is that so?

A. Logically I assumed that, yes.

This letter is to inform you that no cheques or moneys for Morris Waxman from any

source can be deposited by you or withdrawn for me without my written approval. This

applies to any and all documents for whatever reason.

[1007] Linton acknowledged receiving JB 3922, yet said he deposited Chester’s $440,000

cheque into Morris’ account 21-52835 on the very same day:

Linton, June 16, 2000

Q. …Is it the case that you were under clear instructions from Chester to deposit that

money no matter what Morris said because he wanted to make sure that he had made

that payment because he knew Morris was upset. Is that what happened?

A. No. We owed Morris that money on the 31st and we had given him a $60,000

advance in April and those funds were due to him on that day. I was instructed to make

the cheque up and I deposited it.

[1008] Later, however, Linton said he may not have made that deposit. JB 3932/JB 3895 is a

debit memo that shows a transfer of $440,000 directly from Chester’s account 95-07914 to

account 21-52835, which Linton categorically stated he did not make because he didn’t know

Morris had that account:

Linton, June 16, 2000

Q. Let’s look at this deposit, JB 3932 … that’s a debit advice. Right?

A. Yes.

Q. Dated December 31st, 1986. Right?

A. Yes.

Q. Whereby you caused to be transferred from Chester Waxman’s account, the sum of

$440,000 into Morris’s account number 2152835?

A. No. I didn’t cause that transfer to take place.

Q. You didn’t?

A. No. I wasn’t aware of that account that Morris had.

Q. I thought you deposited 440,000 into Morris’ account that day?

A. Yes, funds went into his account.

Q. And they came by debit advice from Chester Waxman. Right?

A. I have to look at the sequence of what happened with cheques and transfers, but 440

went out from Chester, yes.

…Q. So [JB 3861/JB 3134] is a deposit slip that would suggest that you deposited

440,000 into account 95-07612?

A. Yes.

Q. But this debit advice, which you also produced, shows that the 440,000… that went

into Morris’s account 21835 came from Chester Waxman, doesn’t it?

A. Yes.

Q. And that’s Chester’s account number at the top, 95-07914, isn’t it?

A. Yes, it is.

Q. Is what happened that—you can’t explain it, how it found its way into this account?

A. No. As I say, I didn’t make that transfer of funds.

Q. Because you insist you didn’t know about this account?

A. That’s correct.

Linton, June 19, 2000

Q. …we have the debit memo of JB 3895, directly from Chester Waxman’s account

showing a transfer 440,000 to the other account, the 21-52835 account?

A. Yes.

Q. And your evidence is you don’t know anything about this?

A. I don’t know anything about the transfer, no, I don’t.

Q. Are you sure that this deposit was made, that’s reflected in JB 3134 [the deposit

slip]?

…Q. So in fact on the records we have, do you agree that there’s no indication, no

independent record of the cheque theoretically deposited by you at JB 3134, there’s no

record of that cheque ever in fact coming out of Chester Waxman’s account, is there?

A. No, it doesn’t appear so, and I don’t know if the deposit was made into Morris’s

account. I haven’t seen his December statement.

Q. Is it possible that although this looks like a record of the deposit, the deposit wasn’t

actually made?

A. I can just tell you that it doesn’t look, from looking at the transactions here, that it was

made.

[1009] In 1986, Morris continued to speak to Chester about undoing the deal:

Morris, February 16, 1999

A. All I can tell you, sir is I spent the better part of four years talking to my brother. As a

matter of fact… in 1986 or ’87 - I want to see him on the stand deny this—there was at

the Christmas break when there was nobody in the office, he and I were left and I

started to talk to him and what did he do? He went over to the bar and poured two

drinks, put his arms around me and had a tear in his eye, the first time I saw my brother

with a tear in his eyes, grabbed me around and let’s have a drink, have a l’chaim. I want

to see him in this chair and deny it. That was ’86 or ’87 and I’m trying my best to keep

this out of the papers and away from everybody.

[1010] Of the same incident, he had earlier said:

Morris, January 28, 1999

A. Yes, I remember one incident, I believe it was ’86, I think, or ’87, but I think it was ’86,

where we, Chester and I, were the only two left in the Windermere office at the

Christmas and New Year’s break, and I was back in Chester’s office and I said to him:

Chester, it’s another year. When are we going to straighten this out? As there were only

the two of us there, he got up from behind his desk, he grabbed me around and give me

a hug and then he went over to the bar and poured a scotch for himself and one for me

and he said: Let’s drink to a good new year, and we’ll talk, we’ll really sit down and talk

next year. That didn’t happen either.

1986 Year End

[1011] In 1986, IWS had metal sales of $25,500,404 and tonnage fees of $1,071,523.

[1012] For 1986, IWS declared bonuses of $600,000 and dividends of $12,000 to Chester.

Findings - 1986

[1013] In early 1986, Morris transferred Ancaster to Warren. I prefer Morris’ account of his

discussions with Warren and Chester. I find that Chester promised Morris that they would

“straighten out” if he would convey the Ancaster property to Warren. They both understood he

was referring to undoing the Share Sale. Morris relied on Chester’s promise and would not

otherwise have transferred the property to Warren.

[1014] In 1986, Ennis and Linton were concerned that Morris had not signed numerous IWS

corporate documents. Ennis recapped the ownership of IWS’ shares as of February 1986,

saying that Morris still owned 145 IWS shares.

[1015] I find in April 1986, Chester instructed Linton to prepare Chester’s personal cheque for

$60,000 payable to Morris with the words “Payment for 5 Shares” typed on the back. Although

the amount Morris needed for taxes was only $48,844.53, the Share Sale price for 5 shares

was $60,000. Morris had ample funds to cover his taxes in his loan account earning no

interest. Chester knew Morris had no need for an advance on a share sale payment not due

until December. I find Chester knew Morris was unhappy and was attempting to build a

ratification argument.

[1016] I accept Morris’ evidence that in late 1986 he instructed Linton not to deposit any

cheques into any of his bank accounts without his written approval. He never revoked those

instructions.

[1017] JB 3895/JB 3932, the debit memo, signed by two bank employees, evidences the

transfer of $440,000 from Chester’s account to Morris’ account 21-52835 in late 1986.

[1018] Linton’s doubts that he actually made the deposit of $440,000 evidenced by the

deposit slip JB 3861 dated December 31, 1986 recalls his earlier evidence that JB 3029, a

deposit slip dated January 4, 1984, evidences the deposit of a $1 million into Morris’ Queen &

York St. account. I do not accept either deposit slip as conclusive proof of the respective

deposits.

[1019] Throughout 1986, Morris continued to complain to Chester about the Share Sale.

Chester continued to make Morris believe they would be able to privately resolve their

problems. Chester allowed Morris to continue to appear to outsiders to be an owner of IWS.

More importantly, Chester’s actions permitted Morris to continue to think the problem could be

resolved privately so that outsiders would never know what had happened in December 1983.

1987

The Trust Account

[1020] Chester said the CIBC called him sometime in January 1987 to advise that Morris had

directed that the $440,000 Share Sale payment deposited into Morris’ account at the end of

December 1986 had been returned. When he called Morris to ask him “what the hell he was

doing,” Morris said he was having a lot of trouble with his situation. He had not told his family

about the Share Sale. The only thing that he could think of was to buy back 40% of the IWS

shares. Chester said that was not going to happen. Morris said he did not know what to do.

Chester said, “Why don’t you try the truth? You have given your family expectations that they

should not have right now. We’re going to have trouble.”³⁹⁸

[1021] Chester then set up trust account no. 50-17637 at the CIBC (the “trust account”) and

directed that the $440,000 be deposited into it (see JB 3947.)

[1022] From February 28 to March 14, 1987, Morris and Shirley vacationed in Cartagena,

Columbia:

Morris, January 28, 1999

Q. Did anything of significance in relation to this lawsuit happen while you were in

Cartagena, Columbia?

A. Yes…. we met some people … near the pool … the gentleman asked me my name

and I told him, and I asked him his and he told me. Whereby he proceeded to ask me if I

was one of the Waxmans that was involved in the scrap business in Hamilton, and I said

yes. He asked me my first name, I gave it to him and he said Oh, you’re the brother

that’s no longer involved. You’re retired, you sold your business. I said to him, How did

you know that? And he told me that he was a neighbour of Gary Waxman’s sister-in-law.

³⁹⁸Chester, September 24, 1999

A. Yes. As I stated before, I called him I told him I wanted to see him and he came over to my office and I used the words that I stated

already. I said what the hell are you doing? He said what’s that I said you’ve taken the money I put in your account and you’ve sent it back to

my account and I wanted to know why. He started to plead he was having a lot of trouble with his situation. He hadn’t told his family about

the share sale. He said he doesn’t know what to do, he needs to do something about it and the only thing he can think of is I sell him back

40% of his shares. I told him no, that’s not going to happen. He said he doesn’t know what to do about it and I said to him, why don’t you try

the truth. It usually works. Why don’t you tell your family. Why ever haven’t you told them already. You’re given them expectations that they

So it filtered all the way down there and filtered into Cartagena, I’ve got to tell you that

my Cartagena vacation was shot…. I went up to my room and I started to write some

notes.

[1023] 1987 Meeting with Chester and His Sons

[1024] JB 3983 includes the Cartagena notes. Morris said he used the outline for the points in

his notes as a guide for his item by item discussion with Chester and his sons at a meeting

shortly after he returned to Hamilton.

[1025] At the beginning of the note, the following words are included: Bonuses, Side

Businesses, paid for to rape the company.” Morris said by 1987, he still did not know about all

of the bonuses or side businesses or about the extent of revenues/profits. The notes include

the following:

Item #4. “There was plenty of room for your three and none for mine.”

Item #5 “Allan - was my brother and nephews… I owe Allan and Philip my sanity and my

life, because I had someone to talk to and someone to listen.”

Item #5. “The night before my O you promised to tear up everything…”

Item #6. “You have taught these three that if any of them gets so sick they can’t think all

they have to do is get P and he will help to screw them…

Item #7. “When I was at the lowest point of my life, you C, concocted a scheme to take

from me what we worked for and I found out later that the 500 you needed was part of

what you needed to rape me.

Item #8. “I am now awake … there are three things you can do and by yourself if you

want: (1) go back to where it should be; (2) if you don’t want me … say so and I will

decide what should be; and (3) leave things as they are which I can assure you will not

be…”

Item #9 There are two things not negotiable (1) the desk and (2) the property.

[1026] After that meeting, Mortis continued to talk to Chester.

[1027] Chester and his sons denied that the meeting occurred.

shouldn’t have right now and we’re going to have trouble or you’re going to have trouble I didn’t think I would, I thought he would. He knew it

was not equivocal I was not going to sell him back 40% of the shares and he should do what I suggested, tell his family.

[1028] Morris’ 1986 Taxes - April 1987

[1029] JB 3993 is a letter from Chester to Revenue Canada dated April 30, 1987 enclosing a

cheque for Morris’ 1986 income taxes in the amount of $90,000.

[1030] At one juncture, Chester said Morris used the trust account to pay his 1986 taxes.³⁹⁹At

another, he said Morris specifically asked him to make the payment out of the trust account.

He would never have touched the money without Morris’ specific instructions to do so.

Chester denied he caused the payment to be made out of the trust account without

discussing it with Morris.

[1031] Linton had no specific recollection of reviewing Morris’ 1986 tax return with him.

Chester instructed him to draw a cheque for $90,000 out of the trust account. Linton had no

discussion with Morris.

[1032] Morris said that he knew nothing about JB 3993.⁴⁰⁰

Other Developments

[1033] Chester said his relationship with Morris in 1986 and 1987 was good. In 1987, they

agreed to develop a property (Spencer Creek) and together they arranged financing of

several million dollars.

[1034] Morris said he felt very good when Chester asked him to participate in Spencer Creek.

Given the large amount of financing required, he assumed IWS would be involved. To Morris,

that meant he and Chester were getting back together.⁴⁰¹

[1035] [Spencer Creek was the subject of separate litigation. The Reasons for Judgment are

Exhibit 157]

[1036] Chester was asked about JB 4042, an October 1987 article in “Business and

Finance”, Volume 5, #17, which quotes him as follows:

[Isaac Waxman] was a great man. He worked hard and he was always involved but he

never interfered. I hope this is the same way in which my brother and I will pass on the

³⁹⁹Chester, September 24, 1999

⁴⁰⁰Morris, January 28, 1999

⁴⁰¹Morris, September 28, 2000

business to our sons. And, in the spirit we made the company grow, they will do the

same.

[1037] Chester said, “I don’t know if that’s verbatim, but that certainly was a good hope.”⁴⁰²

1987 Year End

[1038] In 1987, IWS had metal sales of $32,102,000 and tonnage fees of $1,084,326.

[1039] JB 4080-B, (working paper BB-49) and JBs 377 and 378 reflect that IWS declared and

accrued 1987 bonuses of $2,165,500. $2.1 million was allocated to Chester. Robert also

received $1,000,000, which was not accrued on the IWS books but paid immediately.

[1040] Chester said he specifically asked Morris what he wanted him to do with the $250,000

Share Sale payment due on December 31, 1987 and Morris instructed him to deposit it into

his bank account. Chester did so.

[1041] JB 4077 is a cheque for $250,000 drawn on Chester’s King and James account,

payable to Morris.⁴⁰³Chester’s bank statement shows a debit of $250,000 on January 4, 1988

and a credit of $250,000 later in January.

Findings re 1987

[1042] In early 1987 Chester set up a trust account to hold the Share Sale payments Morris

was refusing to accept.

[1043] I find that Morris’ meeting with Chester and his sons in early 1987 occurred as he

described. When he commented that Allan was his brother and nephew, Morris was not being

secretive about his dealings with the Fracassis/Philip.

[1044] I find that Chester, not Morris, instructed Linton to pay Morris’ taxes out of the trust

account. Chester wrote the covering letter enclosing payment to Revenue Canada.

[1045] Morris did not instruct Chester to deposit the December 1987 Share Sale payment into

his account. Chester wrote a cheque with “Re Shares” on it and deposited it into Morris’

account because he was attempting to build a ratification argument.

⁴⁰²Chester, November 1, 1999

⁴⁰³Chester, September 24, 1999

[1046] I find that Chester’s actions in 1987 with respect to Spencer Creek and the Business

and Finance interview helped Morris continue to cling to the hope that Chester would

straighten out their problems and return Morris’ IWS shares. The Cartagena incident

diminished Morris’ hope that the problem could be privately resolved before outsiders were

told he had ceased to be an owner of IWS.

1988

[1047] Morris said in 1988 he continued to try to resolve the issue privately with Chester.

Chester continued to hold out the hope he would reverse the Share Sale. In April 1988, Morris

said he and Chester drove to the centre of the Centennial property in Morris’ car. He told

Chester if he had guts, he would commit suicide because of what Chester had done to him

and to his family. Morris said he would be prepared to go ahead with the estate freeze at 60-

40. They discussed side businesses. Michael would throw in SWRI. Warren could keep his

business and Robert could keep his horses. Chester said he would think about it and talk to

his sons.⁴⁰⁴

[1048] In 1988, Morris’ IWS salary was $31,302, Robert’s $172,820, Warren’s $125,738,

Gary’s $193,922, Kumer’s $143,000, Linton’s $65,794 (JB361.) Warren, Gary and Kumer

were working primarily for IWS Ferrous.

[1049] Right after Morris returned Chester’s $250,000 Share Sale payment in January 1988,

Linton prepared a summary of Morris’ assets and estimated income through 1992. He said he

was not sure whether Chester requested it.

[1050] Chester said when Morris again told him that he wanted to buy back 40% of the

shares, he told Morris he would not sell. IWS was a totally different company. The reasons for

the Share Sale still pertained.⁴⁰⁵He attempted to tie the timing of Morris’ request to the

⁴⁰⁴Morris, February 18, 1999

Q. Yeah, and your version is that you were prepared to allow Chester and his sons to have 60 percent?

A. My version is, sir, at that particular time I called Chester because I was getting nowhere and I didn’t know what was happening. As a

matter of fact, I told him at one point or twice that if I had the guts I would commit suicide because of what he did to me and my family. I

phoned him to—he came over from the Windermere office. I asked him to come into my car and I drove to the center of the plant there where

there was nobody around. If I remember correctly, and I’m sure you’ll correct me if I’ve changed this, sir, is that I said to him: Okay, I’ve had

it. You want 40%, you want 20% each for your sons, let them take it. My sons will get along fine with 40%. I don’t need the money you need.

You won’t give me half of the Centennial property? At least leave 50% of it in I. Wax-man & Sons. That’s good enough for me. I don’t know

whether I brought it up or he did, but it came out, what are we going to do with the side businesses? I said put them all together. Michael only

has Solid Waste to throw in, that’s it, and you throw everything in, and he said to me, “I can’t do that because Warren is just now starting to

make some money out of his little business and he needs it.” I said, “Let him keep it.” He says, “You don’t want anything to do with the

horses, because it’s costing a lot of money.” I said, “Let Bobby keep it, and let’s put this together and let’s put this to bed before you drive me

crazy.” Do you know what he said to me? He said, “Let me think about it and I’ll talk to the boys and get back to you.” This was in April 1988.

⁴⁰⁵Chester, September 24, 1999

improving state of the economy. Prices were up. If one could obtain supply of a commodity, it

could be sold. By 1988, IWS had gained access to most of the primary Canadian suppliers of

copper, including Perelli, Northern Telephone, Canada Wire & Cable.

Morris’ 1987 Taxes - April 1988

[1051] Chester said in chief around May 4, 1988, Morris requested a cheque out of the trust

account for $69,295.95. In cross-examination, he said Morris in effect took it out of the trust

account by requesting Chester to pay his taxes on his behalf.⁴⁰⁶

[1052] Linton said in chief that he specifically recalled reviewing Morris’ 1987 tax return with

him in April 1988. Morris instructed him to draw a cheque from the trust account to pay his

taxes. Linton had a trust cheque typed up, which Chester signed.⁴⁰⁷On cross-examination,

Linton said that his instructions came from Chester.⁴⁰⁸

May-August 1988

[1053] Linton said when the loan account went into a deficit position in May or June of 1988,

he did not write Morris or discuss it with him⁴⁰⁹because Chester said not to worry about it.

[1054] On June 23, 1988, Linton said he and Morris discussed interest being earned on funds

in the trust account. On JB 4166, a direction dated June 20, 1988, Linton sought Morris’

written consent to invest trust funds in treasury bills but he refused to sign. Morris did give him

oral instructions to do so.⁴¹⁰On June 23, Linton invested $565,560 in a treasury bill.

A. …The discussion was Morris indicating that he had a lot of problems. He’s very concerned about telling his family. He hasn’t told them yet

and we’re now into 1988, and again he asks for me to sell him 40% of the shares back. And again I told him I didn’t want to. I wasn’t going to

sell him 40% of the shares back. The company was totally different than it was in the end of 1983 and most of the reasons that were viable

then are still viable now for this—for me not to sell him the shares back.

Q. What did you mean by that?

A. I didn’t think that the boys would get along, that there could be enough congeniality created that would make them good partners or joint

shareholders in anything.

⁴⁰⁶Chester, September 24, 1999

⁴⁰⁷Linton, May 18, 2000

⁴⁰⁸Linton, June 19, 2000

⁴⁰⁹Linton, May 29, 2000

⁴¹⁰Linton, May 29, 2000

Q. Please tell us what you recall of that discussion. What did you say, what did Morris say…?

A. Well, as I recall that whole discussion started with me approaching Chester first of all with the idea that as the trustee of the account we

could do better for Morris and he said he had no problem with that, to talk to Mr. Morris about increasing the return on those funds. And I had

a subsequent discussion with Mr. Morris and that entry in the pass book reflects his direction for me to purchase some government bonds for

him.

Q. What do you recall saying to Morris and what do you recall him saying to you at the time of your discussion?

A. Well, I had a discussion, I drafted up a note for him to sign, went over that note. He was unwilling to sign it, but gave me instructions to

invest funds.

[1055] Morris denied that discussion, saying if he had agreed, he would have signed JB

4166.⁴¹¹

Summer 1988 - Morris First Sees A Lawyer

[1056] Morris gave evidence that in summer 1988, he took some SWRI invoices to the IWS

offices to be typed. Rioux told him Robert had directed the IWS staff not to type SWRI

invoices any more. When Morris confronted Robert about that in Chester’s presence, Robert

said that he was running a big business and did not have the time. Chester did not say

anything. A few minutes later, Chester sheepishly advised Morris to take the invoices to IWS

Ferrous to be typed. At that point, Morris perceived that Chester no longer had authority.⁴¹²

He consulted a lawyer named Mr. Ronald Moldaver (“Moldaver”) at the law firm of Gordon

Traub and Rotenberg (“Gordon Traub”) and gave him instructions to write JB 4182A, a letter

to Chester dated July 13, 1988, which includes the following:

We have been retained by your brother and any relevant holding companies as a result

of the agreements drawn some time ago by Mr. Ennis. Without going into it in any detail

at this time, it is our client’s position that there were serious breaches of fiduciary duty

and other matters which are fatal to the agreements. Moreover, prior to the agreements,

there appear to have been further serious breaches of fiduciary duty concerning

bonuses and other matters.

It would appear to serve no useful purpose to delineate the detail of this at this time.

Mr. Waxman would like to have the opportunity to vet his complaints at a private meeting

at which you will attend with solicitors on mutual ground, say a rented office at Hamilton

or some such thing.

If you are interested in having such an exploratory meeting prior to commencement of

litigation to put aside the contracts and for damages and other relief, please advise

within seven business days of the date hereof.

[1057] Chester said in July 1988, their sister Sylvia was very ill. Both brothers spent a great

deal of time at the hospital with other family members. One day when he returned to the office

from the hospital he found Moldaver’s letter there. Ennis recommended that he hire Cassels

Brock and accompanied him to a meeting with Mr. Kenneth Cancellera (“Cancellera”) in

⁴¹¹Morris, February 18, 1999

Toronto. On July 20, 1988 Cancellera replied to JB 4182A, indicating that he would contact

Moldaver as soon as his investigation had been concluded. Even after receiving the letter,

Chester continued to spend time at the hospital with Morris and the rest of the family. Weeks

went by. Morris never mentioned the letter. Chester knew Moldaver was suggesting a

meeting but he was very distracted by Sylvia’s illness.

[1058] Moldaver wrote to Cancellera on August 17, 1988 (Ex. 155B):

My instructions are to proceed as quickly as possible with either a meeting or action.

Obviously the preference is for the former and I would appreciate hearing from you as

quickly as possible.

[1059] In August of 1988, Chester asked Linton to prepare JB 4208, another summary of

Morris’ net worth, this one as of August 31, 1988.⁴¹³

[1060] Even after the Moldaver letter was sent, Morris said he attempted to talk to Chester.

He told Chester he and Michael had come up with a system to recycle plastic from the IWS

copper chopping line and suggested they could save IWS a lot of money. Chester told him

Robert wanted to look after that. Robert told Morris he had already purchased equipment. He

wanted to look after everything that came out of the copper chopper himself. Morris was

upset.⁴¹⁴

[1061] Chester said when he questioned Morris and Michael about it, “the answers weren’t

very good.” Robert was in charge of the copper line. Chester would not make a decision

without him.

[1062] Robert said he went to see Morris, who was looking at “some kind of sink float or other

kind of plastic recycling option.” He said in chief:

Robert, April 11, 2000

⁴¹²Morris, January 29, 1999

⁴¹³Linton, June 19, 2000

Q. Isn’t it the truth that this was asked for in the context of litigation that was starting to boil? Surely that’s obvious?

A. Honestly sir, I can’t remember…

⁴¹⁴Morris, February 19, 1999

Q. Well, Mr. Waxman, I suggest to you, why do you think that this request to Chester would meet with favor when you’ve already gone to a

lawyer and threatened him with a lawsuit to put aside the contracts? Why do you think he would be—favorable to your request?

A. Well, because he kept telling me what he was going to do and I thought that maybe that … saving him money, which is really what they

were interested in other than the family at that time, might wake him up…. Michael spent over 3 years investigating what to do with the

plastic. Chester knew it, Gary knew it and Bobby knew it. Bobby used to bring me down information on plastics so Michael could further find

out what he was doing. Gary, at one time in Chester’s office, told Michael he had no time for the plastic. Michael spent over 3 years and we

finally got successful in Georgia with somebody that we met there, and I said to Chester we want to put a line in which will save IWS a lot of

A. …At which point I told him I really wasn’t that interested in anything dealing with the

plastics at that point in time, that we had the problem under control and in any event I

didn’t think anything was going to be accomplished until he did something with my father

with respect to SWRI… He got red in the face and he told me Michael will be back in a

couple of days, I’m going to tell Michael a story and you guys better watch out.

[1063] Robert’s credibility on the point suffered when he was taken to the transcript of

answers given on his examination-for-discovery respecting that discussion, which differed

significantly from his trial evidence.

[1064] September 7, 1988

[1065] On September 7, 1988 Morris finally told Michael about the Share Sale.

[1066] Michael said on that day, Morris told him he was suing Chester. He was going to tell

him a disgusting story. When Morris told him what had happened, Michael was “outraged.”

Although he had known that Morris was no match for Chester, he “never in a million years”

would have believed that Chester would have done such a thing. Michael was “super-

outraged” that Chester had taken advantage of his father at a time in his life when Morris

needed Chester the most. Michael’s “blood was boiling”. He went to Windermere, entered

Chester’s office and said, “Chester, you have to be lower than snake shit to do to my father

what you did to him at that time in his life. You will straighten out this mess or I’ll kill you, I’ll kill

the boys and I’ll kill this business.” Chester said “get out.” Michael banged a cabinet directly

opposite to where Chester was standing and said, “as Zaidy is my witness, if you don’t

straighten this out, Chester, I will.”

[1067] Michael then went to Robert’s office. He grabbed Robert’s turtleneck, pulled him up out

of his chair, pushed him up against the wall, held his forearm to his chest and said, “Robert

you will help your father straighten out this mess with my father or I’ll kill you”. Robert said

okay and Michael turned around and left.

[1068] Chester said he heard bellowing. Michael was saying, “For what you did to my father in

the hospital, I’ll kill you.” A fist came flying beside his ears. He was frightened: “I saw murder

in his eyes.” Then Michael said, “you fix it or I’ll fix it” and ran out. A few moments later, Gary

money, because they were paying at that time … to dispose of it in a landfill site. And I saved them a lot of money because I knew the people

at the landfill site… When I left, their price went from $15 per ton.. to $50 U.S.

called, saying that Michael had assaulted Robert. Chester said that Michael’s behaviour was

“frightening and cowardly in every way … that’s what bullies do.”⁴¹⁵

[1069] Robert said he was in his office, discussing a business matter. Michael grabbed him

around the neck, threw him against the credenza, insulted him and yelled something like

“your father, the deal, I’ll kill you.” He felt he should go to the hospital, but he had heard

Michael say something about Chester, so he asked Gary to drive him to Windermere. When

he arrived, Michael had already been there. Chester asked him not to go to the police.

Concerned about safety, Robert put special locks on the upstairs doors and hired security

personnel.

[1070] Chester said during cross-examination:

Chester, October 5, 1999

A. If you … were subject to everything and my family were subject to between

September 7 and November 18, you would have realised that the war had started long

before November 18.

September 8 - October 25

[1071] Cancellara wrote a letter to Moldaver dated September 8, 1988 (Ex. 155D) which

includes the following:

I understand from our client that their sister Sylvia is seriously ill and slowly recovering

from her recent brain surgery. Mr. Waxman has asked me to convey to you his shock at

your client’s suggestion that a meeting be scheduled at this time to discuss their private

affairs. At this point in time, the brothers should be concerned about the health of their

sister rather than what your client may perceive as a personal dispute. We are therefore

not prepared to meet at this time but would be happy to meet with you once the health

status of Sylvia has been more clearly determined…

[1072] Shirley gave evidence that she first learned of problems between Morris and Chester in

September of 1988, on a Friday evening:

Shirley May 31, 1999

⁴¹⁵Chester, September 30, 1999

A. Morris said please sit down, I have something serious to talk to you about. And he

told me the situation with his brother and I just went into shock. I couldn’t believe it….

They were so close. They were like two coats of paint on a wall… I remember spending

the balance of that Friday evening in the washroom throwing up. I was beside myself

[1073] She observed that Michael was extremely angry, hurt for his father, disturbed and

distressed.

[1074] The same month, Shirley was diagnosed with bladder cancer. She said her health

condition was known to members of the extended family.⁴¹⁶Chester denied learning about

Shirley’s cancer until sometime after Morris’ termination on October 26, 1988.⁴¹⁷Morris said

although he did not tell Chester, his sisters knew. If they knew, everyone in the family knew.

[1075] As reviewed in more detail in the section of these Reasons pertaining to the Inducing

Breach of Contract action and the Counterclaims in respect of SWRI, I have found that during

the fall of 1988, Robert and others under Chester’s direction surreptitiously entered, searched

the SWRI offices at Centennial and removed and/or photocopied many of the documents

there, including Morris’ personal documents.

⁴¹⁶Shirley May 31, 1999

A. Well, September of 88 was not a very auspicious month for the Morris Waxman family. I was diagnosed … with bladder cancer and …

they scheduled surgery for [the middle of] October. I was in the hospital for 4 days.

Q. To your knowledge was your health condition known to other members of the extended family?

A. Certainly was. I had spoken to my sister-in-law Eva and my sister-in-law Molly and if they knew, then everybody knew…. My sister-in-law

Lily knew not through me but through them and had arrived at the hospital with her husband the day I was having the surgery.

⁴¹⁷Morris, February 19, 1999

Q. And you also suggested that Shirley … had cancer and you told us that, although you didn’t tell Chester that?

A. Sir, my sister Lily, may she rest in peace knew it. My other sisters and brothers were alive. Although I didn’t speak to Chester, there is no

way in the world you can convince me that none of my sisters or brothers didn’t talk amongst themselves and tell them. They were all talking

to each other. Sir, that’s very, very low.

Q. It isn’t low. You were the one who raised it. I don’t intend to get into. And you made a big deal about the fact that your hospitalization was

cut off and left the impression, again, you would have to pick up some significant bills, and may I suggest to you that in December of 1988

and I’ll show you this, Shirley went in for a test—

A. When?

Q. She went for a test in December 1988?

A. December 1988?

Q. Yes.

A. She went in for a test after they took part of the cancer off her bladder to see what was left, sir.

Q. She’s never had radiation or chemotherapy?

A. Thank God, no.

Q. And the account we have, that your account you had to pay was $55 for a one-day stay in the hospital?

A. Sir, you’re talking to me about things that make me sick that you would even bring it up. I had no source of income after I was let go. I had

no hospitalization. I can see myself now wandering around the halls of the hospital. I didn’t know what to do or where to go. So I did use

Wax-man’s card that I had in my pocket, and if you will look, sir, you will see that Wayne Linton wrote a letter saying that he was not going to

pay the bill and I had to pay it.

Q. Fifty-five dollars, Mr. Waxman.

A. I don’t care what it was, sir. When your wife goes into, which I don’t wish, and you’re in that position, let me know how you feel.

Q. Mr. Waxman, I didn’t raise it. You did, You brought this into this lawsuit. It had nothing to do with this lawsuit?

A. Yes, it does. It shows the type of people I’m dealing with.

[1076] When in cross-examination, Mr. Harrison suggested facetiously to Chester that those

schemers and fraud artists left all their documents there throughout all this entire period,

Chester replied, “It’s the first time you’ve described them correctly.”

[1077] On October 12, 1988, Moldaver wrote a letter to Cancellara, Exhibit 139A:

Sometime ago we invited a meeting… We’ve heard empty reasons which are

unsupported in fact as to why such a meeting could not take place.

[1078] Chester said that at that time, “We were busy having a complaint of our own.”

[1079] Michael said that in the fall of 1988, Wiseman furnished him with the names of Robert’s

Companies, and a sheet listing IWS bonuses between 1981 and 1983. Morris told Michael he

had given Wiseman some documents before his surgery. As counsel wanted them retrieved,

they called Wiseman to arrange to pick them up. On October 24, 1988, Wiseman dumped the

contents of an unsealed manila envelope onto a table, including a number of Share Sale

documents and agreements, some whited out, some not, and another smaller sealed

envelope containing JB 3070 and JB 3071. On the same day, Wiseman swore an affidavit, JB

4240, respecting the documents he had received from Morris.

[1080] Morris objected at the time to the contents of JB 4240. He said Wiseman was mistaken

when he deposed in that affidavit that Morris had given him Share Sale documents.

[1081] October 26, 1988 - Termination of Morris’ “Employment” at IWS

[1082] Morris’ claim for damages for wrongful dismissal on October 26, 1988 is the subject of

action #36583/89. It is also the basis of a claim against Chester/IWS for an oppression

remedy.

[1083] Morris said Linton handed him JB 4247, a letter containing the following:

As a result of certain events which have recently come to our attention, this is to notify

you that effective immediately, you, your son Michael and your wife Shirley will be

removed from the payroll of I. Waxman & Sons Ltd. All benefits which you have hitherto

received will similarly be discontinued…

[1084] Morris was surprised that Linton was firing a President. Linton did not specify the

“events” mentioned in the letter. Prior to that date, no one had ever confronted Morris or

suggested that he had acted improperly. Morris was shocked his health benefits were being

terminated when everyone in the family knew Shirley had been diagnosed with cancer and

needed an operation. He said, “I wouldn’t have done that to a dog, sir. Not to a dog.”⁴¹⁸

[1085] When he told Linton he wanted all of his, Morriston’s, Michael’s and Shirley’s

documents, Linton replied, “I can’t do that. That will screw everything up.” Morris received no

documents.⁴¹⁹

[1086] On the same day, October 26, 1988, Ennis sent Morris JB 4248, an account for

services provided to Morriston going back several years.

[1087] Chester said Morris was terminated for breach of fiduciary duty, theft of accounts,

lying, cheating, and permitting acts of violence. It was necessary to hire guards and change

locks because Michael and Morris had “overall harassment going on day in and day out”.

Michael was very unpleasant and would glare at Gary with “those murderous eyes of his.”

Chester said he did not deliver JB 4247 personally or ask any of his sons to deliver it because

he did not want to put himself, Robert or Gary in danger, to “take a chance with that loose

cannon … [Michael].”

[1088] Prior to his removal as director of IWS, Morris never signed any minutes approving any

bonuses or dividends declared or paid after December 1983. For example, Morris never

signed the IWS minute recording the declaration of 1987 bonuses of $2,165,500. Ennis said:

Ennis, December 6, 1999

A. It was sent over. He [Morris] could read it. It has no effect until he signs it. If he’s not

happy with it, speak to Wayne Linton. I’m not directing who gets the bonuses. They send

something over to my office. I give it to whoever was doing the corporate work and said

here, prepare a minute. The fact that I prepare a minute and it’s unexecuted not signed

and not approved, it’s, in my view worthless and useless. Until it’s signed by the

directors, it has no meaning…. There’s not much point in me calling him [Morris] up and

saying by the way, I received a note from Wayne Linton telling me there would be

shareholder and management bonuses. He wouldn’t even cooperate to sign the existing

minutes that were sent over to him.

⁴¹⁸Morris, January 29, 1999

⁴¹⁹Linton, June 15, 2000

[1089] Some of the bonuses, e.g. the 1987 bonus to Robert of $1 million, were not minuted at

all.

[1090] 1988 Events After Morris’ Termination

[1091] Morris said Chester did not contact him on October 26, 1988 or the days that followed.

He and Michael continued to conduct SWRI business out of Centennial until December 22,

1988.

[1092] Robert continued to surreptitiously enter the SWRI offices to review/photocopy/remove

documents. Robert did not disagree when it was suggested during his cross-examination that

Chester let Morris and Michael stay at Centennial until the photocopying was finished.⁴²⁰

[1093] On October 27, 1988, Chester wrote JB 4254 to Taylor Leibow:

Under no circumstances are you to release any documents, financial information or

other sundry information you possess relating to business partnerships or activities in

which I have an interest…

[1094] Around the same time, Ennis wrote a letter, JB 4242, to Husband (then acting for

Morriston and SWRI):

I have been instructed by Chester Waxman and his counsel… that I am not to release

any documentation which in any way relates to any dealings with your clients and

Chester Waxman until advised further….

[1095] On November 2, 1988, Morris’ lawyer wrote JB4265 to Linton protesting his failure to

deliver the books and records of Morris, Morriston and Windermere.

[1096] Chester said that one afternoon in November of 1988, Michael was seen burning

documents to the east of the building at Centennial. Robert said he and Vjecko Culig saw

⁴²⁰Robert, May 2, 2000

Q. And the fact is you know that Morris and Michael were allowed to stay and did stay until December 22nd?

A. That’s right.

Q. How come, were you not finished photocopying their documents in their office. Is that it?

A. That was a decision of my father.

Q. Were you finished photocopying their documents by the time you fired them?

A. I can’t recall the last visit.

Q. Well, without recalling the date, had Morris and Michael been fired before you had finished photocopying or not?

A. I don’t recall.

Michael standing over a fire, placing papers into it.⁴²¹Culig was not called to give evidence.

Michael denied the incident.

[1097] The Statement of Claim in the Main Action was issued on November 18, 1988.

[1098] Morris said on the day before it was issued, he went to speak with Chester to make

one final effort at resolution:

There was more to this than Chester and I. There was a family and I didn’t want to lose

that family. And I didn’t truthfully want to lose Chester either.

[1099] He handed Chester the un-issued Statement of Claim and asked him to read it and

straighten out the problem, so it did not go any further. Chester said he had nothing further to

say.⁴²²

[1100] Chester said on November 17, when Morris came into his office with the Statement of

Claim, he sounded “rehearsed.”

[1101] On December 6, 1988, Cancellera wrote JB 4318, a letter to Morris’ lawyers which

includes the following: “…Please be advised there has been some inadvertent comingling of

documents of the plaintiffs and defendants.”

[1102] At Chester’s request, Branch sent Morris a letter dated December 1, 1988 (at JB

4301), notifying him that effective December 15th, IWS Ferrous would be disconnecting

SWRI’s telephones. JB 4329 is an undated letter from Linton to Bell notifying it that no

equipment installation or service work was to be done at Centennial without Chester’s

authorisation.⁴²³Doors on a washroom at Centennial used by Morris and Michael were

locked.

[1103] An associate at Cassels Brock sent a letter to Morris dated December 21, 1988 (JB

4331-4332) including the following: “It has come to our attention that your client, Morris

Waxman, his son Michael Waxman and companies with which they are associated, are

currently carrying on business … at 500 Centennial North … without title or colour of right”

and demanding that they leave.

⁴²¹Robert, April 11, 2000

⁴²²Morris, January 29, 1999

⁴²³Chester said, ‘Well you’ve got six or eight customers, you can call them yourself and tell them how to get in touch with you.”

Chester, November 9, 1999

Q: I guess that’s why you cut off the phone?

[1104] Morris said that Michael told him early in the morning of December 22, 1998 that

security guards were preventing him from removing SWRI’s possessions from Centennial,

including a roll-top desk of personal importance to Morris. Someone with a walkie-talkie was

conversing with Robert. Michael suggested Morris call the police. When they arrived, Michael

informed them he was just trying to take out his own belongings. Morris suggested that

Chester be called, but Chester did not come. After the police spoke to Michael’s lawyers,

Michael and Morris were allowed to remove the furniture. Since SWRI had spent substantial

sums to turn empty space into offices, Michael decided to wreck those improvements, so that

IWS could not get the benefit of them.

[1105] Chester said after they left, the SWRI offices looked like “a bombed out house.” Exhibit

40 contains photographs. JB 4334 is a police report prepared on December 22, 1988.

[1106] The share transfers now contained in the IWS Minute Book dated December 21, 1984,

1986, 1987 and 1988, signed by Chester on behalf of Morris, were not prepared in Ennis’

office. Rather they were prepared by Mr. Peebles, a lawyer at Cassels, Brock after the

litigation had been commenced. Peebles also prepared minutes to reflect that Chester was

the only shareholder and director of IWS after December of 1983. Exhibit 315 contains IWS

corporate documents prepared by Mr. Peebles.

1988 Year End

[1107] In 1988 IWS had metal sales of $51,737,000, tonnage fees of $1,214,076.

[1108] Shortly after the litigation was commenced IWS declared bonuses of $8,750,000 in

favour of Chester and his sons and dividends in Chester’s favour of $300,000. The 1988

bonuses were allocated as follows: $3,000,000 to Chester, $2,500,000 to Robert, $1,700,000

to Warren and $1,550,000 to Gary. A spouse of one of Chester’s sons received a bonus of

$62,000.

[1109] On December 29, 1988, Chester paid $1 million (JB 3949) into the trust account. He

advised Morris by letter (JB 4337) that he had deposited $1 million in “Full and Final payment”

of amounts owing under the Share Sale.

1988 Findings

A: I cut it off because it deserved to be cut off.

[1110] In early 1988, Morris returned a Share Sale payment to Chester. In April, he made a

proposal to Chester. Morris continued to attempt to resolve his problem privately with Chester

until the Statement of Claim was issued in November.

[1111] In mid-1988, Morris finally retained a lawyer. When he learned that Morris had taken

steps to litigate, Chester decided to have “a complaint of his own” and ordered the

investigation of SWRI.

[1112] Chester’s and Robert’s negative response to Morris’ offer in September 1988 to

become involved in the recycling of plastic from the copper chopper is yet another example of

Morris’ exclusion from IWS, despite his desire to use his expertise for the benefit of IWS. It

was the last straw for Morris, who resolved to tell Michael and pursue this litigation.

[1113] On September 7, 1988, Morris told Michael what had happened. Michael confronted

Robert and Chester, vowing to help Morris to straighten out.

[1114] In October 1988, IWS terminated Morris’ “employment,” demanded payment of an

overdraft on a loan about which Morris had never previously been advised, and cut off his

medical benefits just after his wife had been diagnosed with cancer.

[1115] The Statement of Claim was served in November 1988. The Defendants co-opted

Ennis, attempted to interfere with the Plaintiffs’ efforts to obtain their own documents and

sought to obtain SWRI and other documents to which they were not entitled.

[1116] I accept Michael’s evidence that he did not burn documents at Centennial in broad

daylight.

[1117] The SWRI “investigation” (copying & removal of documents) continued until December,

at which time Chester/IWS made it impossible for SWRI to conduct business at Centennial.

SWRI’s phone service was disconnected and its washrooms were locked.

1989

[1118] JB 4471 contains a letter written by Linton to the Ontario Ministry of Revenue dated

January 9, 1989, which includes the following:

Re: Solid Waste Reclamation Inc.

…Due to our own administrative mix up, we believe that two sets of returns may have

been filed for the years 1977 to 1984 inclusive. In order for us to determine whether this

in fact occurred, would you please be good enough to forward a history of the tax

account and payments credited thereto for the period 1977 to the present time.

[1119] Linton said he believed he was entitled to that information.

[1120] Linton wrote JB 4100 to Morris on January 19, 1989, returning a hospital claim form for

Shirley and making it clear IWS would not pay it.

[1121] In January 1989, the Defendants launched a $50,000,000 counterclaim inter alia

against SWRI, Morris, Michael and Philip. The circumstances surrounding the dismissal of

IWS’ counterclaim against Philip are covered in the Inducing Breach of Contract Action. On

March 7, 1989, the same day IWS dismissed its counterclaim against Philip, Philip ceased

doing business with SWRI.

[1122] Chester gave evidence that on March 13, 1989, when he, Robert and their lawyers

were driving in separate cars to a meeting with Philip, Michael drove up beside Chester’s car,

making “murderous, red-faced, red necked looks,” then drove up beside Robert’s, making

threatening motions. This vehicular stalking continued for 1-1 ½ miles in heavy traffic.⁴²⁴After

they parked, Michael walked beside Chester, his coat rubbing against Chester’s, “a

frightening experience”. He then entered an elevator with Robert, Chester and their lawyers,

rode up ten stories with them, and followed them into the offices of Philip’s lawyers’. He left

after being asked to do so. This incident frightened Chester. On that day, he met with the

Hamilton chief of police. Michael was charged in respect of his actions of September 7, 1988

with assault, threatening and destruction of property.

[1123] On April 25, 1989, Cassels Brock wrote a letter, JB 4461 to Evans Husband seeking

copies of SWRI documents.

[1124] On April 28, 1989, Morris sent JB 4463, a letter to Lasco with respect to rental

payments to Morriston under the IWS Ferrous lease dated September 21, 1981 as follows:

“This is your authority to send all future rent payments previously sent to Windermere

Investments to Morriston Investments.” Cancellera then wrote a letter to Morris’ lawyer (JB

4467) saying that JB 4463 was “to say the least, unclear and ambiguous.”

⁴²⁴Chester, September 30, 1999

[1125] Chester said that Morris provided a “a new ambiguous direction” with respect to

payment of rent under the IWS Ferrous lease. Branch, Chester, and Smith, the Vice-

President of Lasco, decided that in spite of that ambiguity, they would split the IWS Ferrous

rent 50/50 and would send half to Morriston and half to Chesterton. However, the lawyers for

Lasco stopped that from happening. Chester found himself “forced to open up a trust account

for Windermere Investments…” He said Morriston received no rent “until such time as we

could get a new clear direction that would be satisfactory to the lawyers for Lasco and of

course, the lawyers for IWS Ferrous.”⁴²⁵

[1126] On August 17, 1989, Cassels Brock wrote JB 4502, a letter to Husband noting that

SWRI files and documents in his possession were highly relevant to the litigation:

We ask that you advise me of any request for files and documents relevant to these

companies made by Morris Waxman, members of his family and legal counsel.

[1127] The Flood

[1128] Gary said a number of IWS documents were destroyed in a flood in 1989. As I

consider his evidence to be very telling, portions of his evidence in chief and on cross-

examination are reproduced here:

Gary, May 8, 2000

Q. What happened?

A. The elevation at Centennial is such that the yard sits well above where the main

office is at Centennial, the office is in a lower elevation and the yard sits above. When

there’s rain or run-off, any time of the year, that run-off has nowhere to go and

historically has always gone down into that valley and has always gone and caused

problems at the Centennial office and it caused … flooding … flooded the basement at

Centennial.

Q. What was in the basement at the time of the flood?

A. Files.

Q. And did you have anything to do with trying to salvage the documents that were down

there?

⁴²⁵Chester, September 24, 1999

A. Yes.

Q. What did you do?

A. …I had men … put them into the warehouse to endeavour to try to dry them out.

Q. And were your efforts to dry those documents out successful?

A. No, they weren’t. The documents were very badly soiled and water damaged…. I

remember I asked Wayne can we dispose of these and Wayne says no, he has to write

Revenue Canada and get permission… So they sat for a period of time until some point

Wayne had indicated to me he had received a response back from Revenue Canada…

Ultimately the documents were disposed of.

Q. And why didn’t you hang on to them. Were they causing a problem?

A. They were garbage. There was no value and they had a very bad odour, taking up

space in the warehouse. There was no reason to hold on to them.

Gary, May 12, 2000

Q. You told Mr. Lenczner the papers weren’t drying?

A. I told Mr. Lenczner the papers, when you tried to pull them apart, they disintegrated

like tissue.

Q. Did you try to call any professionals that might assist you in preserving these

documents?

A. No.

Q. And you didn’t call the plaintiff’s counsel or have your counsel call the plaintiff’s

counsel and advise them you were about to destroy a number of records of I. Waxman &

Sons, did you?

A. All I did was what I was asked to do in reference to those.

. . .

Q. And why was it that if you had this historical problem of water running into the

basement of Centennial, you were keeping all of your business records down there in

1989?

A. That wasn’t my call.

Q. Whose call was it?

A. That wasn’t my call.

Q. Oh. Any chance you put them there, deliberately?

A. That’s absurd.

. . .

Q. There are some documents that have been produced that obviously were flooded or

were sopping wet, for example Mr. Harrison reviewed some invoices from Exhibit …

257. reviewed invoices with your brother Bob that had obviously been soaked and then

dried. Why is it those invoices, which by the way support your counter-claim, have been

produced and were salvageable, but all these other documents weren’t salvageable.

Any idea?

A. No….

Q. And you made some reference to a letter to Revenue Canada. Do you have that

letter?

A. No.

[Emphasis added]

[1129] Gary said the accounts payable journal, the general ledger, cancelled cheques and the

cheque register were not among the documents they tried to salvage in 1989. Gary did not

know why they were not available for production in this litigation.

Michael’s Trial

[1130] Michael’s criminal trial on charges of assault causing bodily harm, uttering death

threats and mischief over $1,000 in connection with the events of September 7, 1988 was

scheduled for December 7, 1989. Chester brought five lawyers: (1) Cancellera, (2) a Cassels

Brock associate lawyer, (3) Ennis, (4) an Ennis associate lawyer, (5) Mr. Robert Carter, a

criminal lawyer. Chester denied that Mr. Carter sought to intervene to change a plea bargain

that had already been negotiated. Michael pleaded guilty to assaulting Robert and signed a

peace bond. The court directed that the ownership of the furniture should be decided at this

trial.

1989 Year End

[1131] In 1989 IWS had metal sales of $51,542,000, tonnage fees of $1,136,060.

[1132] IWS declared 1989 bonuses of $6,450,000, allocated as follows: $2,500,000 to

Chester, $1,425,000 to Robert, $1,300,000 to Warren and $1,225,000 to Gary. In 1989, IWS

declared dividends of $300,000, payable to Chester.

1989 Findings

[1133] By 1989, as Chester said, the “war” was well underway.

[1134] At the end of 1989 IWS declared bonuses of $6,450,000 in favour of Chester and his

sons and dividends in Chester’s favour of $300,000. Based on the evidence of Cole, I have

found that these bonuses and the 1988 bonuses of $8,750,000 were a distribution of equity of

IWS made after the Defendants had notice of the Plaintiffs’ claims to ownership of 50% of

IWS.

[1135] I do not accept Linton’s statement that he believed he was entitled to seek information

about SWRI from the Ministry of Revenue. I have found in my Reasons respecting the

Counterclaims that by January 1989, Linton had been aware for years that Michael and

Douglas owned SWRI. There are numerous documents in the Joint Briefs illustrating that he

also knew SWRI was being operated apart from IWS for Michael’s and Douglas’ benefit. For

instance, Linton prepared the corporate returns of Morriston and Chesterton in a manner

reflecting knowledge of SWRI’s ownership. I find that in January 1989, Linton was fishing for

information to which he knew IWS was clearly not entitled.

[1136] In 1989, IWS launched a $50,000,000 counterclaim with respect to SWRI that I have

found to be without merit. In Action # 37616/89 the Inducing Breach of Contract Action, I have

also found that in early 1989, Robert, with Chester/IWS’ active assistance and without

justification, deliberately induced Philip to breach its contract with SWRI by tampering with the

Lasco documents, offering not to compete with Philip for the business Philip had previously

shared with SWRI and refusing to dismiss its counterclaim against Philip unless Philip ceased

doing business with SWRI. Those actions caused Philip to breach its contract with SWRI,

which in turn decimated SWRI’s business.

[1137] It would have been obvious to Chester and Robert that destroying SWRI’s business

would reduce the resources available to pursue this litigation. Chester was obviously

interested in Morris’ resources, for he had Linton prepare documents about Morris’ net worth

and projected income on at least two occasions, once just after Morris returned a Share Sale

payment in early 1988 and once shortly after he received Moldaver’s July 1988 letter. I also

find the Defendants deliberately interfered with the payment to Morriston’s of its 50% share of

the IWS Ferrous rent. I do not accept Chester’s evidence about the “ambiguous” direction. An

objection to the direction would obviously have the effect of making those rents unavailable to

Morris to fund the litigation or pay personal expenses.

[1138] I note that Chester’s and Robert’s meeting with Philip on March 13, 1989, occurred

after the SWRI breach had already been induced and IWS had already provided releases to

Philip. The purpose of that meeting is unclear.

[1139] From a review of Gary’s evidence quoted above, Linton’s evidence as to the multiple

locations of documents, the failure to call Rioux as a witness, and the documents that were

and were not produced, I have concluded the Defendants’ inability to produce critical

documents in this litigation was not accidental, but deliberate.

[1140] The Loan Account

[1141] The same day that Morris’ employment was terminated, Linton wrote a letter (JB 4246)

demanding that Morris pay IWS $51,058.02. This was the first written notice to Morris

notifying him about the existence of the loan account.

[1142] Linton gave evidence that he set up the loan account on the same day Morris lent

$500,000 to IWS, January 4, 1984. Every time Morris took drawings from IWS after

December 21, 1984, he reduced the balance owing by IWS to Morris.

[1143] Between December 22, 1983 and October 1988, Morris drew $551,058.02 from IWS.

His drawings account was kept in place, but all amounts charged to it were charged in turn to

the loan account. On occasion, Linton covered shortfalls in Morris’ bank account with

transfers from IWS, charged them to Morris’ drawings account, then charged them to the loan

account.⁴²⁶

[1144] I have noted earlier that the promissory note said to evidence Morris’ $500,000 loan to

IWS bore no interest. Although it was payable on demand after October 31, 1984, Linton

⁴²⁶Linton, May 26, 2000 and June 15, 2000

never provided Morris with statements showing amounts owing to Morris. He said “I don’t

think that was my job, really…”⁴²⁷

[1145] I have noted that the promissory note, signed by Chester only, seems to reflect the

October 31, 1984 payment date contained on an earlier draft of the Share Sale Agreement,

which had been superseded by December 22, 1983.

[1146] Chester said Morris knew about the loan account and discussed it with him. For

example, he said that after Linton debited the loan account by $10,720 for a car for Shirley in

December 1985, Morris complained, saying that Shirley was entitled to a car. In December

1986, Chester said Morris complained that Linton had charged about $10,000 in Visa bills to

his loan account that should have been IWS expenses. Chester directed the preparation of JB

3919, a $10,000 IWS cheque payable to Morris dated December 29, 1986⁴²⁸⁴²⁹

.

[1147] Linton’s records, JB 4075, reflect that in December 1985 he charged a new car for

Shirley against Morris’ loan account. In March 1986, he reversed the entry, after speaking to

Chester who said that the car should have been charged to IWS.⁴³⁰Linton said he did not

speak to Morris.

Morris could not remember any discussion with Chester about Shirley’s car.⁴³¹

[1148] Morris gave evidence that in December 1986 he complained to Chester about the fact

that he had not been paid for work he had done for IWS Ferrous. [For instance, Morris had

been involved in obtaining permits under Regulation 309 for IWS Ferrous trucks.⁴³²] He

understood that JB 3919 was in payment for those services. The loan account was not

mentioned. At that time Morris said he was unaware such an account existed.

⁴²⁷Linton, June 15, 2000

⁴²⁸Chester’s Examination for Discovery, April 17, 1998, page 1201, Question 6362:

Q: Who was the cheque payable to, Morris?

A: To Morris Waxman. $10,000 I believe he said.

Q: How did you know they were Solid Waste Inc. expenses?

A: He said so.

Q: So have I got it on your evidence today, did Morris Waxman tell you these were expenses for Solid Waste Reclamation Inc.?

A: I’d say he said it was expenses. My recollection is that it was expenses for the disposal division and he might well have said Solid Waste

Reclamation Inc. I Waxman & Sons covers those expenses and always did.

⁴²⁹Chester, September 24, 1999

A. To clean up those bills that Morris claimed were company expense, I had a cheque made out to Morris for that reason for $10,000 on that

day. So that didn’t negatively affect the note payable account.

⁴³⁰Linton, June 16, 2000

⁴³¹Morris, February 18, 1999

⁴³²Chester, September 30, 1999

[1149] Linton said in chief that he reviewed the balance IWS owed Morris on a regular basis

with Morris.⁴³³In cross-examination, he adopted answers given on discovery to the effect that

he [Linton] probably made the decision to charge every item to the loan account.⁴³⁴

[1150] I find that before October 24, 1988, Morris knew nothing about the loan account and

Linton knew it. Linton’s working papers reflect he did not expect Morris to demand payment

under the promissory note. His characterisation of part of the loan as “non-current” is

consistent with (1) his awareness of Morris’ ignorance of the loan account and therefore his

view that Morris would not be demanding payment immediately, and (2) his assumption,

based on Morris’ rate of drawings at the time, that it would take at least 2 years to draw down

the loan account to zero.⁴³⁵Linton would not have characterised part of the loan as “non-

current” if Morris had known the loan account existed, the money in it was not earning interest

and that IWS was obligated to repay the balance of the loan in full on October 24, 1984.

[1151] I have accepted Morris’ evidence that Chester told him that pending “straightening out”,

his drawings privileges would stay the same. Morris took that to mean that he would continue

to receive the same level of remuneration (salary and drawings) as he had formerly received.

Morris was not told and did not appreciate that beginning December 1983, all monies that he

received from IWS would be charged first to his drawings, then to the loan account.⁴³⁶He

continued on as President and director of IWS, as before, and he expected to be

compensated as before. He did not distinguish between salaries and drawings, although a

person with more business sophistication would have appreciated that drawings are a benefit

of ownership, and salaries are not.

[1152] On one level it is difficult to fathom how Morris could assume entitlement to benefits of

ownership when he had been told he no longer owned his shares of IWS. On another level, it

is understandable, given his lack of sophistication in business matters and Chester’s conduct

supporting his conviction that Chester would tear up the deal.

[1153] I accept Morris’ evidence that until October 24, 1988, he had no idea that every time he

accessed his drawings account, a loan account was being charged.

⁴³³Linton, May 16, 2000 and May 26, 2000

⁴³⁴Linton, June 15, 2000

⁴³⁵Linton, May 26, 2000; June 16, 2000 and June 20, 2000

⁴³⁶Morris, January 28, 1999

[1154] None of the incidents cited by the Defendants as evidence of Morris’ awareness of the

loan account prove that Morris knew about the loan account. I find that Linton, on Chester’s

instructions paid Morris 1984 taxes out of the loan account. I find that Linton, again on

Chester’s instructions and without speaking to Morris, reversed the entry on Morris’ loan

account in respect of a car for Shirley in March 1986.I accept Morris’ evidence that IWS paid

him $10,000 in December 1986 for services performed for IWS Ferrous.

[1155]1990 - 1992

[1156] In 1990, IWS had metal sales of $43,680,364, tonnage fees of $1,108,288. Bonuses of

$3,700,000 were declared in favour of Chester and his sons.

[1157] In 1991, IWS had metal sales of $45,027,994, tonnage fees of $980,048. A bonus of

$1 million was declared in favour of Chester.

[1158] In 1992, IWS had metal sales of $48,599,817 and tonnage fees of $927,360.

Summary of Dividends to Chester 1984-1993

[1159] IWS declared dividends in Chester’s favour of $172,000 in 1984, $292,000 in 1985 [of

which $250,000 was non-taxable,] $12,000 in 1986, $300,000 in 1989, $225,000 in 1992 and

$2,250,000 in 1993.

[1160] Between 1984 and 1993 IWS dividends totalling $3,197,000 were declared in

Chester’s favour.

[1161] Summary of Bonuses 1984-1993

[1162] Between 1984 and 1993 IWS declared bonuses in Chester’s favour as follows:

$625,000 in 1985, $600,000 in 1986, $2,100,000 in 1987, $3,000,000 in 1988, $2,500,000 in

1989, $1,700,000 in 1990, $1,000,000 in 1991.

[1163] Bonuses declared in Robert’s favour were as follows: $1,000,000 in 1987, $2,500,000

in 1988, $1,425,000 in 1989, $1,500,000 in 1990.

[1164] Bonuses declared in Warren’s favour were as follows: $4,000 in 1986, $7,500 in 1987,

$1,700,000 in 1988, $1,300,000 in 1989, $250,000 in 1990.

[1165] Bonuses declared in Gary’s favour were as follows: $4,000 in 1986, $12,500 in 1987,

$1,550,000 in 1988, $1,225,000 in 1989, $250,000 in 1990.

[1166] Therefore from 1984 to 1993, IWS declared bonuses in favour of Chester and his sons

totalling $24,258,000. Chester’s evidence about the rationale for the bonuses is contained in

the endnote to this paragraph.⁴³⁷

⁴³⁷Chester, September 27, 1999

Q. What was Warren’s role in this time period?

A. Warren boosted the tonnages available and for sale from the ferrous division of I.W.&S. Limited, assisted by Gary. They both assisted me

and we assisted to the best of our ability, Bob, in his regard. And Gary was—could have been a back-up for Bob, which he did try to help.

Q. What was Warren’s work ethic in this time period? What were the boys’ work ethic?

A. Warren’s amazing. He can be in Detroit, Owen Sound and some place else all on the same day. He doesn’t miss a trick. Probably the

best industrial representative in Canada for scrap steel and some metals, and metals there’s nobody better. Gary, close behind. He’s very,

very good. Gary, very tenacious very gentlemanly. He’s not just a kid. He’s a very intelligent, excellent businessman and representative of

our company and of l.W.&S. Ferrous Limited.

Q. What about yourself, what role did you play through 1984 through 1988?

A. I continued to look after all of the accounts that I normally looked after. Warren assisted me along with Gary in taking some of those over.

We did acquire a lot of new accounts during that period of time and enhanced the industrial part—the industrial supply part of our business.

In fact I told Mr. Schmelzle and Mr. McCormick, if we have to give up the purchase of scrap, it should be obsolescent scrap. We should

never ever give up an industrial account. You’re not likely to ever get it back again.

Q. At that time, what other commitments were you satisfying?

A. Are you talking about the community or—the community.

Q. Was that a commitment you were satisfying in the time frame?

A. Yes.

Q. What were you doing in respect of the community?

A. I became a member of the board of governors of the Hamilton Civic Hospitals appointed by the Hamilton-Wentworth Regional Council in I

believe February 1983. Went through both institutions which was the Hamilton General Hospital and the Henderson General Hospital from

basement to roof on both occasions. I became extremely interested in the future of the Hamilton General Hospital. That’s where I was born.

That’s the hospital that saved my father’s life when he had very serious pneumonia when pneumonia was a killer. Unfortunately that’s where

my mother passed away. That’s the last place that I saw her. That’s where I had my appendix out when I was about nine or ten years old. So

the family had a very emotional attachment to the Hamilton General Hospital. I took a great interest in the board work and a great interest in

when the Hamilton General Hospital was going to be redeveloped because it was in the newspapers for several years that it was either going

to go down to the east end of Hamilton or be redeveloped on site. I inquired as to what was happening, why it wasn’t done, where are the

plans, who puts the money up for this? So I was getting to be quite inquisitive at the board and I talks myself into becoming chairman of

property and on behalf of the Hamilton Civic Hospital foundation, which is a different board, I eventually took on the chairmanship for fund

raising for the redevelopment of the Hamilton General Hospital.

Q. What was the—if you can recall, sort of the average length of your working day amount of time spent on these issues, the business, the

community and all these other activities?

A. Before I took on the chairmanship of the campaign, my days started I’d get up about 6:00 in the morning and be home by probably, 7:00,

7:30. After I took on the chairmanship of that campaign I was getting up at quarter to five, 5:00 and dealing with the cabinet of the campaign.

We had our meetings at 7:30 in the morning and I was often out with the various chairman and canvasser until as late as 11, twelve o’clock

at night talking to service clubs, et cetera.

Q. And in between?

A. In between calling on industry, et cetera in Hamilton, Toronto and elsewhere, until we raised our $16 million. So all this was taking place

and I don’t think I missed any time at the business. It had full support and blessings of Lasco. With Warren, Bobby and Gary and Sheldon

Kumer, I had great support there and one major support, my wife. She supported me and encouraged me, that this was something that we

all needed to get done, and it was done.

Q. In the time period, 1984 to 1988, where was Wayne Linton employed?

A. He was employed by I. Waxman & Sons Limited.

Q. What role did he play in respect of the business activity of I. Waxman & Sons in those years?

A. We thought he was a good accountant and controller as we called him. He did his job, loyal, to both Morris and myself previously and to

myself after 1984. He was really good at what he did and he was an accountant. He wasn’t an integral part of the advancement of accounts.

That business as far as I’m concerned is the incoming materials and the sales and—but he certainly did what he did well. I couldn’t be rating

accountants because with my education, the intricacies of accounting don’t trouble me, but.

Q. Mr. Cole made some or attempted to make some point by comparing Mr. Linton and the role he played to that of your boys in that time

frame. What do you say about that comparison?

A. It’s apples and oranges. The future of that business was Warren, Bobby and Gary. They worked night and day to accomplish what needed

to be accomplished. Wayne Linton did his job, but company’s advance in the business field wasn’t dependent on Mr. Linton.

Q. Mr. Cole also mentioned in his evidence and in his report, Mr. Culig. How do you compare the contributions of Mr. Culig to that of yourself

and your boys in the time frame?

A. Mr. Culig I understand was an excellent plant manager, superintendent of chopper lines, et cetera. He was very good at what he did and

in talking to Bob, he asked for bonuses, I believe he got some, but his importance was far less than Bob, Gary warn and myself. There’s

really nothing, no job for him if the business portion isn’t done properly. No accounts, nothing to chop. Nothing to sell. Don’t need a

superintendent. Don’t need the machinery and you don’t need accounts.

[1167] I note that during those years, Warren and Gary were working primarily for IWS

Ferrous. In 1988 and 1989, for example, they received bonuses from IWS well in excess of

the total tonnage fees paid to IWS by IWS Ferrous [i.e., more than the total profit being

generated for IWS from IWS Ferrous]

[1168] I accept the evidence of Cole and I find that the bulk of the post-1983 bonuses were a

distribution of equity. I also find that all bonuses paid out to Chester after January 1984 were

received with knowledge of the facts outlined here. After the litigation was started, Chester’s

sons also clearly had notice of the facts.

[1169] On September 17, 1993 IWS transferred substantially all of its operating assets to

Waxman Resources Inc. in exchange for 12000 class A preference shares and 15000 class B

common shares. Subsequently, Philip Environmental Inc. purchased the Class A preference

shares and Class B common shares for consideration of $12,000,000 cash plus Philip shares

which by 1997 had all been sold for a total of $18,420,031.24. Therefore IWS received a total

of $30,420,031.24 from the Philip sale.⁴³⁸Assets excluded from the sale included the Front 13

Q. In respect of the ferrous and non-ferrous core businesses, in the time frame being discussed, 1984 to 1988, what contribution or role did

Morris Waxman play?

A. None.

Q. In respect of the ferrous and non-ferrous core businesses discussed, in the time period 1984 to 1988, what contribution or role did

Michael Waxman play?

A. None.

Q. We’ll come back to the third core business you’ve described, being the waste business… Some moment has been made more recently in

the context of this lawsuit, about bonuses and dividends declared and/or paid in 1984 to 1988. Mr. Cole spoke of bonuses to Warren and

Gary each in the amount of $4,000 in 1986. Why were those bonuses given?

A. That was a management decision.

Q. Who was management?

A. Me and the boys.

Q. What was the basis of the management decision made to declare bonuses in those amounts to those people at that time?

A. They hadn’t had anything for a couple of years or so and it may have been something they overdrew their drawing account or whatever

and I decided to give the bonuses to clear them up.

Q. In 1987, leaving aside the smaller bonuses to each of the boys, there was a million dollars paid to Robert?

A. Yes.

Q. Who made that decision?

A. I did.

Q. Why?

A. Because we now saw that business in a position to flourish, which it did. And he spent 1984, 1985, 1986 and 1987 and put in more time

than anybody I’ve ever seen and worked hard, and he was worth it. Because that was given for past performance, for his current

performance at that time, and for a future expectations.

Q. In 1988 significant bonuses were declared and/or paid to Bobby, or Robert, Warren and Gary. Who made the decision to declare or pay

bonuses to them at that time?

A. I did.

Q. What was the basis of the decision to declare or pay bonuses in those—in the amounts indicated?

A. What year is this?

Q. 1988?

A. We went through 1983, 1984, 1985, 1986 and 1987 and very—and other people couldn’t make it. We made it and they deserved it. If it

wasn’t for them, we wouldn’t have made that money. We may not even have been in the non-ferrous business and they helped. They

supplied the energy along with myself, Gary and Warren, to get the management fees up to where the minimum should have been which is

250,000 ton a year, get into the million dollar range, that helped support us through. Kept us out of losses. They were part of the team and

they deserved it, they made it and they were entitled to it.

⁴³⁸Chester, October 4, 1999 [Philip documents are Exhibit 134]

Acres at Centennial, the scale house at Windermere, the grease pit at Glow, the December

1983 lease and the name “I. Waxman & Sons.”

[1170] Therefore, between 1984 and 1993, Chester/his sons/IWS received a total of

$57,875,031 comprised of $24,258,000 in bonuses to Chester and his sons, $3,197,000 in

dividends to Chester and $30,420,031.24 to IWS from Philip. IWS retained Centennial, its

name and a number of other significant assets.

[1171] I have dealt further with the continuing benefits to Chester/his sons/after 1984 in the

Quantification and Remedies sections of the Reasons.

General Comments On The Evidence

Chester Waxman

[1172] I recognise that Chester has done much charitable work for which he deserves great

credit. However, for reasons which I have set out in detail, I have concluded that much of

Chester’s evidence was untrue.

[1173] Chester started his evidence with apparent confidence. During his evidence in chief, he

was charming and personable. However, when he was confronted during cross examination,

he chose to smirk, to be derisive, to trivialize (“that is false and getting quite boring”), and to

categorically deny without attempting to explain the many and serious inconsistencies

between his “truth” and that of other witnesses and in the contemporaneous documents.

[1174] I said at the beginning of these Reasons that initially Chester’s version of the truth

seemed more plausible. As I listened, I made a concerted effort to try to reconcile Chester’s

evidence with the other evidence.

[1175] As the trial progressed, the problems with Chester’s “truth” became more and more

apparent. The frailty of Chester’s evidence was exposed by a meticulous examination of its

details. By the end of the trial I had concluded without reservation that Chester had fabricated

much of his story.

Chester’s Supporters

[1176] It is evident that Chester wields the power of the purse strings within the Waxman

family. He clearly relishes being at its centre. He clearly dominates and expects to dominate

most of its members. He expects and routinely receives the loyalty of those who rely upon his

largesse. The evidence called to corroborate his version of events was in large measure

given by people who fall within that category, including his sons and Kumer. Much of their

evidence was also shown to be unreliable and untruthful when subjected to the glare and

scrutiny of detailed and effective cross examination.

Warren Waxman

[1177] Apart from working as a salesman for the Fuller Brush Company, Warren has only

worked at IWS/IWS Ferrous, as a salesman/buyer of waste/scrap. After September 1981, he

worked full-time for IWS Ferrous not for IWS [although he had an IWS title, as did many other

family members, including some of Morris’ and Chester’s sisters.] After 1981, IWS, not IWS

Ferrous, paid Warren large salaries and millions of dollars in IWS salaries and bonuses.

While it was clear he is hard-working and extremely loyal, it was also evident that payments

for his services on the open market would not have approached those he has commanded

from IWS.

[1178] In my view, Warren lacks objectivity and perspective, especially in regard to his own

abilities, contributions and deserved compensation. I have quoted at length from his evidence

about his rationale for his requests for huge 1981-1982 bonuses.

[1179] Much of Warren’s evidence seemed to be designed to corroborate Chester’s evidence.

It was also often at odds with other evidence that I ultimately concluded was more reliable.

For example:

[1180] • Warren said Chester told him he would be receiving a bonus in excess of $1 million

before the Lasco closing in September of 1981. Ennis’ note (Exhibit 194,) prepared after the

Lasco closing and produced well into the trial, reflects that late in 1981 bonuses of $250,000

to each of Chester’s sons were not only under consideration but were actually minuted.

Linton’s evidence corroborated by contemporaneously prepared working papers also

contradicted Warren’s evidence.

[1181] • Warren purported to remember a discussion in 1982 in which Morris said he was

giving up part of his 1982 bonus. However, as I have found, the working papers and Linton’s

evidence make it clear that Chester’s decision to reallocate the 1982 bonuses came in late

1983 in the context of the Share Sale, not in 1982.

[1182] In short, in trying to determine what really happened, I have given little credence to

Warren’s evidence.

Robert Waxman

[1183] Robert was a clever, but not a credible, witness. Again, I found him to be lacking in

perspective about his own contributions and just desserts. His evidence, like Warren’s,

seemed contrived to corroborate Chester’s, and unlikely in the light of the other evidence. I

have concluded that Robert was far more involved in the Share Sale than he was prepared to

admit.

[1184] As the manager of IWS’ non-ferrous operations, Robert diverted profits from IWS to

Greycliffe and other related companies [i.e. himself] while IWS paid Greycliffe expenses. He

took gains on IWS commodity trading for himself, while IWS bore the brunt of his losses. He

tampered with SWRI documents in order to induce Philip to breach its contract with SWRI. He

removed documents from the SWRI file at Evans Husband relevant to the consent of its

original common shareholders to the transfer of the common shares to Michael and Douglas.

Gary Waxman

[1185] After September 1981, Gary like Warren, was working primarily for IWS Ferrous.

Nevertheless, he retained a title at IWS and received millions of dollars of IWS salaries and

bonuses.

[1186] Gary was a tentative witness. For example, when outlining his participation in the

SWRI investigation, he seemed to be guessing at answers, rather than remembering what

really happened. I have concluded that Gary was less of a player than Chester and Robert,

but he did his best, if unsuccessfully, to bolster their evidence.

Sheldon Kumer

[1187] In 1979, Chester directed that Kumer receive a “salary” of $172,000 because he

needed to pay a debt. In 1980 his salary reverted to $43,000.⁴³⁹

[1188] Prior to the Lasco sale, Kumer worked in the scale house at Windermere. After

September 1981, he worked out of the same scale house for IWS Ferrous. Nevertheless,

⁴³⁹Kumer, March 31, 2000

after September 1981, Kumer retained a title at IWS. He was listed as “manager, purchasing”

in the 1982 IWS financial statements. He could not think of any employment duties he

performed for IWS after September 1981, apart from seeing that the work IWS Ferrous was

doing for IWS was carried out fairly. Nevertheless, he received for example a $200,000 1981

bonus from IWS.

[1189] Kumer too gave evidence about discussions about 1981-1982 bonuses at about the

time of the Lasco closing and about 1982 bonus reallocations in early 1982. I have found

much of Kumer’s evidence to be unreliable.

Wayne Linton

[1190] Linton is still an IWS employee. Since 1979, he has reported primarily to Chester and

Robert. In the Taylor Leibow Action, as well as earlier in this section of the Reasons, I have

found that Linton does just what Chester tells him to do.

[1191] Much of Linton’s evidence was obviously given in an attempt to corroborate Chester’s.

However, the Taylor Leibow working papers, not produced until after Chester’s discoveries,

contain documents that he contemporaneously prepared and which he could not credibly

disown or explain away. Given the existence and contents of those documents, Linton

ultimately contradicted Chester, his sons and Kumer on a number of critical issues, including

the timing of and the rationale for (a) the 1981-82 bonuses and (b) the reallocation to Chester

of $412,000 of Morris’ 1982 bonus.

Morris Waxman

[1192] When giving evidence about IWS’ equipment and his own operational and technical

role within IWS, Morris seemed confident and animated. He is proud and knowledgeable

about such matters. I find his expertise stands behind much of IWS’ technical success. Morris

justifiably perceives that he and Chester share the credit for IWS’ great good fortune, having

each taken important complementary responsibilities for defined aspects of its business.

[1193] Morris, like Linton, Kumer and Chester’s sons, deferred to Chester in certain areas

outside of his own areas of responsibility. In financial and other matters for which Chester was

primarily responsible, Chester expected to dominate Morris and he did.

[1194] During the early stages of the trial, I reacted with scepticism to Morris’ evidence about

his lack of knowledge of the events recounted in these Reasons. I wondered how he could be

at IWS every day, yet know as little about financial matters as he claims to have known.

However, as the trial progressed and I became more familiar with the details of the case, and

as I listened to the evidence of the Defendants, my scepticism about Morris’ version of the

truth lessened. Financial matters were handled for him. He totally trusted Chester and did not

check up on him.

[1195] Time after time, little and seemingly unlikely details of Morris’ evidence were borne out

in ways that Morris could not have predicted. I shall give five examples:

(1) Morris gave evidence that he did not receive a copy of the letter to Schmelzle dated

December 21, 1983. Ennis and Chester both said Morris did receive the letter, even

recalling that on December 22, 1983, after reviewing it, Morris said he wanted

assurances that Chester was buying all of his shares at one time. Ennis discovered an

original of that letter with Morris’ name checked [i.e., Morris’ copy] in his garage during

his cross-examination much later in the trial.

(2) Morris’ evidence that Chester understood Michael was earning $10,000 per month

from SWRI was given credence when Linton said much later in the trial that he had seen

an SWRI bank statement including a $10,000 cheque payable to Michael and that he

had told Chester about it.

(3)

1968 will, which had been produced. They were identical and provided for 50/50

ownership of the shares of IWS [i.e., 50% by Chester’s heirs, 50% by Morris’

heirs] for 20 years after their deaths.

(4) Morris said he did not receive copies of IWS financial statements. Counsel for the

Defendants were able to point to one with Morris’ name on it, JB 2178, a 1981 IWS

financial statement. It turned out that JB 2178, which was not marked “draft,” differs in at

least one very important respect from the IWS 1981 financial statement as finalised. JB

2178 does not anywhere reflect the $3.3 million in 1981 bonuses declared by IWS. The

1981 financial statement as finalised does reflect those bonuses in the note about

statutory remuneration.

(5) Morris’ evidence that the IWS Ferrous rents were being “gyrated” was borne out in

Linton’s evidence, including his evidence about his November 15, 1982 memo. As

Morris had said, the IWS Ferrous rentals were indeed being “gyrated” by Linton and

Chester. [I have found Morris did not know or approve of increases in Morriston’s loans

by $300,000 in 1982 in connection with the Blue Building, which had been built in 1978-

1979]

[1196] I have found that prior to January 1984 Morris loved and trusted Chester absolutely.

He believed Chester felt the same respect for him that he felt for Chester. Even after the

Share Sale, he wanted to believe that Chester would “straighten out” and things would be the

way he had thought they were. When Morris learned about the Share Sale in January 1984,

and said he wanted it ripped up, Chester promised Morris that he could stay on as President

of IWS, and could receive his salary, drawings and company car as before and that Shirley

and Michael would continue to receive IWS benefits. Chester made it appear to the outside

world that nothing had changed, that Morris was still an IWS owner. Because of those

actions, Chester made it possible for Morris to hope that his Share Sale problem could be

privately resolved and that the outside world would never know what Chester had done to him

in December 1983.

[1197] Given Chester’s outward treatment of Morris as if he were an owner of IWS, and

Morris’ fervent desire to believe Chester and to resolve the matter privately, it took Morris a

very long time to finally realise that Chester would not rip up the Share Sale. Morris attempted

to avoid litigation, but when it was clear that the only way to effectively deal with his problem

was to sue, he did so. In all of the circumstances here, Morris’ delays in bringing this litigation

do not detract from his credibility. He was trying to spare himself, Chester and the Waxman

family from the glare of unfavourable publicity that he rightly feared this litigation would bring.

[1198] Overall, I found Morris to be a much more credible, if inarticulate, witness than

Chester, Chester’s sons and Kumer.

Michael Waxman

[1199] Chester said Michael is different. He portrayed him as pampered and lazy, the

“personification of baleful and malignant passion … a loose cannon … a total non-

contributor.”

[1200] From the evidence, it is clear that Michael is different from Chester’s sons and Kumer.

Michael does not let himself be dominated by Chester. Michael does not hesitate to confront

or oppose him. Michael has an MBA and does not defer to Chester on financial matters.

Michael is not dependent on Chester’s largesse.

[1201] So long as Chester led Morris to believe Morris could solve his problem with Chester

privately, Morris did not tell Michael about it. He knew that if he told Michael what had

happened, Michael would immediately confront Chester and take steps to do whatever was

necessary to set things right. The appearance of harmony and unity in the Waxman family

would be destroyed. Morris was right.

[1202] When Morris finally told Michael about the Share Sale, Michael did confront Chester,

vowing, “As Zaidy is my witness if you don’t straighten this out, Chester, I will.” Since that day

Michael has attempted to keep his promise. He has helped Morris to start and to sustain this

extraordinary litigation against a powerful and well-financed adversary. Morris now relies on

Michael in much the same way he once relied on Chester. I accept Morris’ evidence that this

war could not have been fought without Michael’s determination and assistance.

[1203] I have generally accepted Michael’s evidence. I have found him to be an impressive,

articulate, credible, knowledgeable and realistic witness, a creative, hardworking and

competent businessman, who was and is responsible for much of SWRI’s success. I do not

condone his violence on September 7, 1988 but I have found that his outrage about the way

Morris was treated was well justified.

The Effect of the Events Described Herein on Morris

[1204] Towards the end of his evidence, Morris described his feelings about his involvement

in this lawsuit and the events which precipitated it, saying:

Morris, January 29, 1999

A. I don’t know whether I have the words in English to explain it. I’m 74 years old. This is

not where I expected to spend that particular time, and my brother sitting at the other

end of this room. Didn’t expect that. I have had what I consider the best years of my life

taken from me, the last 15 years. I have lost a lot of good times that my wife and I could

have had. I wish now that I have the ability to tell this court how I feel and how I felt. I

don’t have it. I don’t have it. My brother even left me for many years without a penny of

income, and I believe he is trying now with some tactic that he is using to do the same

thing. I can’t go on with that. I just can’t. Can’t answer that question anymore.

Q. Mr. Waxman, how do you feel about your brother today?

A. I don’t like him. But he is my kid brother and I love him. I don’t want any harm to come

to him. I don’t want him to be sick, I don’t want him to be hurt, but I don’t like him.

[1205] Dr. Goldberg gave evidence that, based on his observations, the problem with his

brother and the ensuing lawsuit has had an effect on Morris’ emotional health. He said Morris

was closer to his family and extended family than anyone else he has treated. The split with

his extended family has significantly affected Morris.⁴⁴⁰

[1206] Shirley described the effect upon her, Morris, their children and their relationships with

other members of the extended family:

Shirley May 31, 1999

A. Well, it’s been all-consuming in our lives and Morris is distressed. He is hurt, he’s

angry. He’s disappointed. All the things we talked about and dreamed about for

ourselves and doing for our children and grandchildren, we are no longer financially able

to do them…. And my husband is a very private man. He was embarrassed for any of

this to become known, not only for our family but because of Chester’s family too. Bailey

and I … haven’t spoken in ten years.

A. My children are angry and stressed and very hurt by the treatment their father

received.

A. [The extended family] don’t talk to us… and unfortunately when all this happened

nobody bothered to come and talk to Morris and hear his side of things. They swallowed

Chester’s line … and he controls the money and that’s who they are siding with.

Summary Of Findings Of Fact

[1207] This is a short summary of my findings of fact in the Main Action. My reasons for these

conclusions have been detailed in Part II.

⁴⁴⁰Dr. Goldberg, June 8, 1999

[1208] Morris and Chester built IWS together from a horse and wagon in the 1940’s into a

large and lucrative commercial enterprise, which by the 1970’s had been valued at around $8

million.

[1209] From childhood they depended on each other to an extraordinary extent. In IWS’ early

years, they were 50/50 partners in an unincorporated partnership, later 50/50 shareholders.

They divided responsibility according to their different but complementary interests and

aptitudes.

[1210] Morris is mechanically and technically adept. He seems comfortable with concrete

things he can touch and feel. He seems uncomfortable with words, ideas, concepts.

[1211] Chester is charming and flamboyant, unlike Morris, a conceptual thinker capable of

devising financial and other business schemes, of thinking in the abstract and of

understanding legal documents and financial statements.

[1212] Morris was responsible for building the infrastructure at the foundation of IWS

business, the cranes, compacters, balers, shears and other complex equipment necessary to

process scrap metal to meet the specifications of IWS’ target customers, the steel mills.

[1213] Chester is a consummate salesman. He had the personal skills needed to buy and sell

the huge quantities of scrap steel that Morris’ complex equipment was capable of processing.

Chester was responsible for IWS’ legal and financial management.

[1214] Neither ever questioned the other’s decision within his respective domain.

[1215] From the beginning, there was a blurring of business and personal finances. In the

early days of IWS, family members lived together and pooled their money. Later, Morris’ and

Chester’s holding companies Morriston and Chesterton were treated as part of IWS.

[1216] Morris’ personal banking and finances were by and large handled through IWS. Morris

not only relied on Chester to ensure IWS’ profits were distributed fairly and equally, according

to their 50/50 ownership, but also to protect his personal financial interests apart from IWS.

[1217] Morris had had a crucial role in the building of IWS. He believed Chester trusted and

respected him in his operational role in the same way he trusted and respected Chester in his

financial role.

[1218] Despite the success of IWS, Morris’ manner and lifestyle were unassuming. He drew

money from IWS only as needed. He gauged IWS’ financial success from the activity in the

yard. He wanted to build IWS with Chester for the eventual benefit of his and Chester’s sons.

He perceived his own security was in IWS.

[1219] In the 1940s, 1950s, 1960s and early 1970s, Chester recognised that Morris’

contributions were vital to IWS and generally ensured that Morris received his due. For

instance, in 1968 he directed the preparation of wills for himself and Morris, providing that “so

long as [IWS] is … in business my side of the family shall own … half of the issued common

shares in [IWS] and this shall obtain for a period of 20 years after my decease.”

[1220] Chester knew Morris depended on his financial expertise and he willingly assumed that

responsibility. He knew Morris trusted and relied upon him without reservation, and would

never question or monitor his actions in financial matters. He knew Morris would never

challenge him in the presence of others.

[1221] As Chester was responsible for ensuring that IWS’ corporate documentation was in

order, he knew Morris would sign whatever documents he was asked to sign without

question. He encouraged Morris to relax the care and vigilance he would have exercised in

dealing with strangers.

[1222] In the 1970s Chester’s sons joined IWS without completing university. Morris’ sons

were pursuing their education. Thereafter, Chester’s attitude towards Morris’ contributions to

IWS began to change. Chester began to see himself and his sons as the reason for IWS’

success. At the same time, he was curtailing Morris’ opportunities to contribute to IWS.

[1223] By the late 1970s, without telling Morris, Chester was trying to gain control of IWS for

himself and his sons by the use of an estate freeze.

[1224] Morris did not know what Chester was doing and continued to rely on him to protect his

financial interests. He expected Chester to ensure that he received 50%. “What was good

enough for Chester was good enough for me.”

[1225] Given the historical division of responsibility, Morris’ level of trust in Chester, his

unassuming lifestyle and his attitude about money—”money & me I spent it but it was being

looked after from the office and that was good enough for me”—and given Morris’ lack of

sophistication, Morris was completely vulnerable in legal and financial matters throughout the

relevant period and Chester knew it. Morris relied totally on Chester. Morris never monitored

the value of IWS or asked Chester for financial information. He was in the yard every day. He

could see IWS seemed to be doing well and that was all he needed to know.

[1226] After his sons joined IWS, Chester overstated their contributions to the profits, growth

and value of IWS. In the early 1980s, he started to divvy up the profits and equity of IWS

according to his own ideas of contribution. Morris continued to take only what he needed,

assuming the equity of IWS was being increased for the equal benefit of himself and Chester

and the eventual benefit of the next generation, his and Chester’s sons.

[1227] For the year ending December 31, 1979 without consulting or advising Morris,

Chester/IWS declared bonuses in the amount of $250,000 to be allocated $75,000 to each of

Chester and Morris, and $100,000 to his sons collectively. Then, in early 1981 without

consulting or telling Morris, Chester instructed that all of the $250,000 be paid to his sons.

Morris knew nothing of the 1979 bonuses or their reallocation in 1981, although he apparently

signed the necessary IWS corporate minutes.

[1228] In 1981 IWS sold the assets of two divisions that Morris and Chester had built up over

40 years: the refuse division to Laidlaw/Superior for $1.6 million as of June 1 and the ferrous

division to Lasco/IWS Ferrous for approximately $8.7 million as of September 21. Pursuant to

the Lasco deal, IWS owned 50% and Lasco 50% of IWS Ferrous, a company set up to

process the scrap being supplied to Lasco. It paid IWS a tonnage fee of $4 for every ton

handled. The Lasco/IWS Shareholders’ Agreement dated September 21, 1981 contains a

shotgun clause that provides if either Lasco or IWS sold its interest in IWS Ferrous to the

other, it would pay a minimum of $4.5 million to the other.

[1229] Morris privately told Chester in the fall of 1981 that his side of the family should receive

50% of any bonuses declared. He assumed without checking that that would happen. Since

he was a 50% shareholder, that was a reasonable expectation.

[1230] In early 1982, Chester unilaterally decided to distribute the proceeds of the Laidlaw

and Lasco sales without consulting or telling Morris. Chester did not share 50% of those

proceeds with Morris and/or Morris’ sons. He arranged the finances of IWS to minimise its

profits and to maximise payouts to himself and his own sons. IWS declared 1981-1982

bonuses totalling $6.6 million, which represented a distribution of IWS equity that Morris and

Chester had built over 40 years. More than $5 million of the $6.6 million was eventually paid

to Chester and his sons. $988,000 was paid to Morris. Morris’ sons, dubbed by Chester as

“total non-contributors” received nothing.

[1231] I have rejected the evidence of Chester and his sons about the 1981 and 1982

bonuses. Much of the bonus money that Chester said was given to his sons to “justly

compensate them for their enormous contributions to IWS,” had, by 1985, ended up in

Chester’s own pocket. Chester’s sons did not merit the amounts of the bonuses they did

receive.

[1232] Chester allowed Robert to incorporate, own, and operate Greycliffe and other

companies that overcharged IWS by millions of dollars for services provided to it. Chester

knew about the overcharging. He did nothing to stop the profit diversions from IWS to

Greycliffe until shortly after the Share Sale.

[1233] By early 1982, Morris did not understand why he was feeling stressed. He was not

aware of the 1979, 1981 or 1982 bonuses or profit diversions at that time. He was continuing

to repose faith in Chester’s handling of their finances, signing whatever documents Chester

asked him to sign without question.

[1234] Morris’ son Michael completed an MBA in 1982. Chester excluded him from any

involvement in IWS and therefore any opportunity to contribute to IWS. Michael was equipped

to knowledgeably question Chester’s handling of IWS and Morris’ finances [Morris was not.]

Michael has always been assertive and does not automatically defer to Chester like other

members of the family. Michael had the potential to protect the interests of Morris’ side of the

family. For example, Michael learned and told Morris that Chester was holding one more IWS

share than Morris. When Morris quite properly asked for the return of the share, Chester was

upset. Chester became concerned that Michael would sooner or later become a large

shareholder in IWS and would interfere with his financial management of IWS. With Robert’s

encouragement, Chester blocked all Morris’ attempts to integrate Michael into IWS. If Chester

had allowed it,

[1235] Michael could have greatly contributed to IWS. Chester would not give Michael the

chance to prove himself.

[1236] In 1982, Chester decided he was not prepared to proceed with an estate freeze that

would have given Chester’s sons 60% of the common shares of IWS, Morris’ sons 40%

(“60/40”.) Morris had thought that 50/50 was fair. By 1982, Chester did not want Morris’ sons

to eventually hold even 40% of the IWS shares. He wanted 100% ownership of IWS. He

wanted Michael completely out of the IWS picture. He knew Morris did not want to sell his

shares, but wanted Michael at IWS.

[1237] In 1982 Chester arranged to transfer SWRI to Michael and Douglas. He was not

interested in the waste business and wanted Michael to be busy away from IWS.

[1238] I have found that Chester met with Ennis about buying Morris’ shares in the fall of

1982.I have rejected Chester’s evidence that Morris asked Chester to buy Morris’ shares in

the summer of 1982 and that he and Morris had ongoing Share Sale negotiations after that

time.

[1239] During the period of the “negotiations,” no professional, independent, outside valuation

of IWS was obtained, despite the fact that Campbell, a professional valuator, had earlier been

retained to determine the fair market value of the IWS shares for estate freeze purposes and

had prepared two reports. At about the time Chester said he first spoke to Morris about

buying his shares, Campbell was directed not to pursue an independent valuation.

[1240] I have found Chester did not want an independent valuation, as an independent

valuator would likely have considered matters including, but not limited to the following:

• the reasonableness of the 1981 and 1982 bonuses to Chester’s sons;

• the diversion of revenue from IWS to Greycliffe and other related parties;

• the value of IWS’ non-ferrous division;

[1241] • the value of IWS’ 50% interest in IWS Ferrous.

[1242] Consultation with independent, knowledgeable, objective outsiders might have fettered

Chester’s otherwise untrammelled power and discretion in IWS financial matters and also had

the effect of bringing the bonuses and profit diversions to Morris’ attention.

[1243] Instead, in November 1982, Chester asked Linton to prepare a valuation of IWS. Linton

valued the shares of IWS on the very questionable bases set out in JB 2473, Linton’s

November 15, 1982 memo. He:

[1244] a) placed no value on IWS’ 50% interest in IWS Ferrous [despite a shotgun clause

s.6.03 in the September 1981 share agreement between Lasco and IWS, which provides that:

No sale offer made pursuant to s. 6.01 shall be of any force … unless … and the purchase

price … is not less than $4,500,000;]

[1245] b) placed no value on IWS Ferrous’ earning potential [despite IWS Ferrous’ obligation

to pay IWS $4 for every ton processed by IWS, a minimum of $500,000 per year and despite

expectations at the time that IWS Ferrous was set up in September 1980 that the tonnage

fees would be much higher than $500,000;]

[1246] c) ignored the earnings potential of the non-ferrous operations “since Morris has not

significantly contributed to the growth or the future earnings potential of the non-ferrous

operations” [despite Morris’ 50% ownership of IWS and IWS’ large expenditures for non-

ferrous equipment;]

[1247] d) valued fixed assets at cost or liquidation value, whichever was lower [despite sales

of IWS assets to (i) Laidlaw/Superior less than two years earlier at a sale price exceeding

book value by $987,000 plus an extra $350,000 for goodwill; and (ii) Lasco/IWS Ferrous at a

sale price exceeding book value by $5,649,357;]

[1248] e) wrote down inventories [to nil in some cases];

[1249] f) mentioned the need to tie up the properties owned by Morriston and Chesterton for

IWS’ benefit on a long-term basis.

[1250] I have found JB 2473 was far from an objective attempt to determine the real value of

IWS. Campbell, or any other independent valuator, would not have prepared such a

“valuation.”

[1251] I have found that Linton’s low end value of $1.5 million plus Morris’ $1.144 million

share of an unpaid dividend was the basis of the “value” of $2.65 million that Chester used

thereafter for Morris’ shares. [When Chester decided in December 1983 to reallocate

$412,000 of Morris’ 1982 bonus to himself to pay for Morris’ shares, the Share Sale price was

“increased” to $3 million. In other words, Chester intended to pay Morris $412,000 of the

purchase price using Morris’ own money]

[1252] In July 1983, when it was apparent that Chester could not arrange an immediate

purchase of Morris’ shares, Chester instructed Ennis to prepare the Lasco Covenant

Agreement for Morris to sign, so Michael could be prevented from doing anything in the

meantime to foil Chester’s plans for 100% ownership of IWS.

[1253] Morris had had a heart condition for years. When he had a fainting spell in October of

1983, Chester was concerned about Morris’ health because of the spectre of dealing with

Michael in the event of Morris’ death or incapacitation. He became even more concerned after

Morris was seen by Dr. Goldberg on November 22, 1983 and learned that Morris would likely

have to undergo open heart surgery. The prospect of having to deal with Michael galvanised

Chester into action. Chester and Ennis met repeatedly from November 23 to December 21,

1983, but apart from December 22, 1983, when Morris was called in to sign Share Sale

documents, Morris was never included.

[1254] In late 1983 Chester briefly spoke to Morris about selling his shares, but Morris was not

interested. However, he was clearly tired, preoccupied and concerned about dying.

[1255] On December 19 Chester first gave Ennis instructions to draft (1) a Share Sale

Agreement under which Chester would buy all of Morris’ shares, and (2) a long-term lease to

tie up the properties owned by Morriston and Chesterton upon which IWS was operated.

[1256] Ennis drew up a lease containing a rental rate well below market and a number of

unusual terms patently unfavorable to Morriston/Morris. I have rejected Chester’s attempts to

rationalise those terms [i.e. that Morris agreed to the low rental rates because Chester/IWS

agreed to assume family obligations and environmental liabilities]

[1257] The documents were prepared in a rush because Chester wanted them signed before

Morris’ upcoming angiogram. They contain obvious errors. Morris knew nothing about the

drafting of Share Sale documents and was not involved in any Share Sale negotiations. He

did not want to sell his shares to Chester. He wanted to pass his 50% interest in IWS to

Michael and Douglas. Chester did not tell Morris he was taking steps to buy his shares

because he didn’t want Morris to involve Michael or independent valuators, lawyers or

financial advisors. If Morris had known Chester was moving to buy his shares and had wanted

to sell, he would have asked for drafts of the documents to give to Michael to review. Morris

and Michael would have discussed the business and financial aspects of the sale. They would

have brought in professional financial advisors, valuators, lawyers. Chester, not Morris, was

the secretive one.

[1258] I have found that if he had wanted to sell, Morris would not have been competent to

value his shares on his own. But Morris was not interested in selling.

[1259] Before December 22, 1983, there was no reason for Morris to direct his mind to the

value of his IWS shares.

[1260] There was only one meeting at which Morris signed Share Sale documents. On

December 22, 1983, Chester called Morris to ask him to come to Ennis’ office to sign

documents, as he had often done before. Morris was not aware that anything unusual was

going to happen. He thought he was being asked to sign documents in the ordinary course of

IWS business. Morris had no idea he was about to transfer his life’s work to Chester. He had

never seen the Share Sale documents before.

[1261] Chester knew Morris trusted him and Ennis to ensure that documents were in order.

That was usually Chester’s responsibility, not Morris’. Chester also knew Morris was unwell,

preoccupied with the state of his health, the possibility of dying. He knew Morris would not

read the documents.

[1262] I have accepted Morris’ evidence that given his preoccupation with his health, his trust

in Chester and Ennis and his belief that nothing out of the ordinary was happening, he did not

comprehend what he was signing on December 22, 1983. The documents were not read

aloud. They were not explained. If they had been reviewed, their obvious mistakes would

have been detected and corrected.

[1263] Chester knew Morris did not know he was being asked to sell his shares, that he was

signing Share Sale documents and a lease.

[1264] Chester also knew that Morris (1) had received no advice from anyone; (2) did not

want to sell his shares; (3) had no idea of the value of his IWS shares; (4) had no idea that

$6.6 million in equity had already been stripped from IWS by way of 1981-82 bonuses; (5)

had no idea millions of dollars of IWS profits had already been diverted to Greycliffe and other

companies owned by Chester’s sons; (6) had no idea that Chester intended to buy his shares

in part using $412,000 of Morris’ own money; (7) did not know he was receiving a $500,000

dividend to fund a Share Sale payment to himself, to which he would have been entitled even

if there had not been a Share Sale; (8) did not know IWS would receive a dividend tax credit

of $250,000 on the million dollar dividend being declared to fund the Share Sale; (9) did not

know about the adverse tax effects to him by reason of the manner in which the Share Sale

was structured; (10) did not know no interest would be payable on a $500,000 promissory

note from IWS.

[1265] None of this was explained to him. Morris received no advice. He signed documents on

December 22, 1983, as he had done many times before, because Chester asked him to sign

and because he trusted Chester not to do anything which would adversely affect him. His

lawyer Ennis was in the room and (1) did not tell the documents were at all unusual; (2) did

not tell him the documents were Share Sale documents; (3) did not provide any advice or tell

him to obtain ILA.

[1266] Morris did not receive copies of the documents he signed on December 22, 1983.

[1267] My conclusions on the fairness of the deal should be reviewed in their entirety. They

are in Part II, the Facts, and Part V, the Valuation/Quantification, sections of these Reasons.

[1268] As of December 1983, the shares in IWS were conservatively worth almost $9 million,

apart from $6.85 million in equity that had been earlier stripped from IWS by way of bonuses

and the $1 million dividend declared to fund the Share Sale.

[1269] The December 1983 lease includes rentals well below market rentals over a term of 50

years. I have quantified Morriston’s share of the difference between rents payable under the

December 1983 lease and market rents over the term at $2,529,607. That lease also includes

a number of other terms that are unusual and patently unfavourable to Morris/Morriston.

[1270] Morris did not receive the $3 million share price appearing on the face of the Share

Sale Agreement. Morris really received less than $1.6 million.

[1271] Morris did not find out about the Share Sale or begin to understand what he had signed

until January 5, 1984, when Wiseman and Taylor first generally explained what he had

signed. Morris was shocked and extremely upset.

[1272] He did not learn about the 1981-82 bonuses until early 1985. When he did he was

extremely angry. He confronted Chester, who gave him misleading information.

[1273] He did not learn about the 1979 bonuses or the extent of the profit diversions to related

parties until 1997 or 1998.

[1274] From early January 1984 until he finally commenced this litigation in late 1988, Morris

repeatedly asked Chester to undo the deal. Chester led him on, promising on February 1,

1984, the night before Morris’ open-heart surgery, to rip up the deal. Chester told Morris he

would continue to be compensated as before. He continued to allow Morris to be President of

IWS and to have an IWS drawings account, an IWS car and benefits. Shirley and Michael

continued to receive IWS benefits. These actions indicated to Morris that Chester was

continuing to treat him as his partner [Morris did not know and was not told his “drawings”

were being deducted from an undisclosed “loan account.”]

[1275] By his conduct and words, Chester led Morris to believe they could privately resolve

their problem. Morris wanted to preserve his world and spare himself, Chester and the whole

family from the shame and embarrassment that would result if the events of December 22,

1983 were made public. Chester led Morris on for five years.

[1276] Morris did not tell Michael because he knew if he did, Michael would immediately

confront Chester and seek to set things right, but the outward harmony of the Waxman family

would be shattered.

[1277] In 1988, Morris finally retained counsel. Chester received a lawyer’s letter in July.

Chester and Robert then set about having a “complaint of their own.” Robert undertook an

“investigation” of SWRI and photocopied and/or removed much of SWRI’s and Morris’

personal documentation from Morris’/Michael’s/SWRI’s offices. Morris’ “employment” with

IWS was terminated and his medical benefits terminated on October 26, 1988, shortly after

Morris’ wife was diagnosed with cancer.

[1278] After Robert was finished his “photocopying,” Morris and Michael were asked to vacate

their offices at Centennial and they did.

[1279] In early 1989 the Defendants launched a $50 million counterclaim against SWRI and

the Plaintiffs, which I have found to be without merit. They also deliberately induced the

breach of SWRI’s contract with Philip causing damage to SWRI.

[1280] Between December 1983 and up to and including the sale to Philip in 1993, the

Plaintiffs’ experts estimated that Chester/IWS/Chester’s sons benefited from the business by

more than $57 million.

Part III - Liability in the Main Action

Introduction

[1281] What follows is a review of the law relating to the claims and defences in the Main

Action. The Plaintiffs base their claims on several alternative causes of action outlined below.

All of the facts as I have found them in the preceding section of these Reasons in detail in the

body and in summary at the end of Part II are applicable to my legal conclusions, but for the

sake of brevity I have repeated only the most salient pertinent to each cause of action and

defence.

[1282] Counsel for the Defendants strongly urge me to take a very technical,

common-law/contractual approach to the issue of liability, and without saying so directly,

advocate that I should ignore equitable considerations. They submit that all or most of the

evidence to which I have already referred is irrelevant to an appropriate resolution. They ask

me to treat the Share Sale as if it were a commercial transaction between two equally

sophisticated and knowledgeable arm’s length businessmen, who should have been expected

to protect their own interests. They submit that one who signs a contract, without taking the

trouble to read it, is liable and cannot plead ignorance of its terms.⁴⁴¹

[1283] Submitting that this rule is a complete answer to Morris’ claims, they say Chester

should be allowed to enforce documents signed by Morris, as if Chester were an innocent

arm’s length commercial purchaser. They would have it that, having established Morris signed

the Share Sale documents, he has no case. Having established that Morris signed the bonus

minutes, he has no claim to a larger share of the bonuses. On their view of the law, Morris

slipped up. He should have protected himself better, obtained more information, sought more

advice. Morris and only Morris must bear responsibility for his own carelessness. “On all of

the evidence, the only person responsible for this over-lengthy trial is the very person who

participated actively and willingly in every event - Morris Waxman”.

⁴⁴¹Marvco Color Research Ltd. v Harris, [1982] 2 S.C.R. 774 (S.C.C.).

[1284] The Plaintiffs submit that Morris’ signing of Share Sale documents in December 1983

must be considered in context. Chester is not an innocent outsider seeking commercial

certainty. He is not trying to enforce documents signed in circumstances about which he has

no personal knowledge or involvement. Chester’s actions, as well as Morris’, must be

carefully scrutinised. These events took place in a close family context. For Morris and

Chester, business and family were inseparable. Chester knew of Morris’ pride of place in

IWS, his perception of self-importance arising out of responsibility for defined aspects of the

IWS business and his exceptional trust in Chester. Chester knew Morris could not conceive

that Chester would ever attempt to cheat him or IWS. Chester abused Morris’ trust. He took

advantage of Morris’ vulnerability resulting from his dependence in financial matters

exacerbated by poor health. Relief from contractual obligations is widely and frequently given

on equitable grounds including breach of fiduciary duty, undue influence, unconscionability

and under s.248 of the Business Corporations Act⁴⁴².

[1285] I shall here canvas the causes of action asserted by the Plaintiffs as they relate to the

Share Sale, the bonuses and the Greycliffe profit diversions in the following order: (1) Breach

of Fiduciary Duty; (2) Knowing Receipt and Knowing Assistance; (3) Undue Influence; (4)

Unconscionability; (5) s.248 of the OBCA, and (6) Breach of Contract with respect to the

Ancaster property.

[1286] This will be followed by the Defendants’ submissions about common-law and equitable

defences. I shall then consider the alternative claims, the defences asserted and the

appropriate remedies.

[1287] I shall then set out my liability findings in summary form.

Causes of Action

A. Breach of Fiduciary Duty

[1288] The Plaintiffs have alleged that Chester owed Morris fiduciary duties, which he

breached in connection with the Share Sale, the bonuses and the profit diversions to related

companies; and, that Robert owed fiduciary duties to Morris in connection with the Greycliffe

profit diversions.

⁴⁴²R.S.O. 1990, c.B.16 [hereinafter OBCA].

[1289] In Norberg v Wynrib⁴⁴³, McLachlin J. [as she then was] dissenting, but not on this point,

differentiated between the foundation and ambit of fiduciary obligations and those of contract

and tort:

[1290] at 272:

The foundation and ambit of the fiduciary obligation are conceptually distinct from the

foundation and ambit of contract and tort. Sometimes the doctrines may overlap in their

application, but that does not destroy their conceptual and functional uniqueness. In

negligence and contract, the parties are taken to be independent and equal actors,

concerned primarily with their own self interest. Consequently, the law seeks a balance

between enforcing obligations by awarding compensation when those obligations are

breached and preserving optimum freedom for those involved in the relationship in

question. The essence of a fiduciary relationship, by contrast, is that one party exercises

power on behalf of another and pledges himself or herself to act in the best interests of

the other.

[1291] at 274:

The fiduciary relationship has trust, not self interest, at its core and when breach occurs,

the balance favours the person wronged. The freedom of the fiduciary is limited by the

obligation he or she has undertaken - an obligation which “betokens loyalty, good faith

and avoidance of conflict of duty and self interest… to cast a fiduciary relationship in

terms of contract or tort… is to diminish this obligation. If a fiduciary relationship is

shown to exist, then the proper legal analysis is one based squarely on the full and fair

consequences of a breach of that relationship.

Is there a Fiduciary Duty owing to Morris by Chester and Robert?

[1292] Normally, fiduciary relationships do not arise between arm’s length independent parties

in commercial transactions, as commercial interactions normally derive their utility from the

pursuit of self-interest.

[1293] However, there is no absolute rule precluding the finding of a fiduciary relationship in

the context of a commercial transaction. In Hodgkinson v. Simms⁴⁴⁴, LaForest J. said:

443

[1992] 2 S.C.R. 226 (S.C.C.) [hereinafter Norberg].

(1994), 117 D.L.R. (4th) 161 (S.C.C.) [hereinafter Hodgkinson].

444

[1294] at p. 179

The precise legal or equitable duties the law will enforce in any given relationship are

tailored to the legal and practical incidents of a particular relationship. To repeat a

phrase used by Lord Scarman:

there is no substitute in this branch of the law for a meticulous examination of the

facts.

[1295] at p. 186:

The desire to protect and reinforce the integrity of social institutions and enterprises is

prevalent throughout fiduciary law. The reason for this desire is that the law has

recognized the importance of instilling in our social institutions and enterprises some

recognition that not all relationships are characterized by a dynamic of mutual

autonomy, and that the marketplace cannot always set the rules…

Traditional Categories of Fiduciary Relationships

[1296] Both the majority of the Supreme Court of Canada in International Corona Resources

Ltd. v. Lac Minerals Ltd.⁴⁴⁵, and the majority in Hodgkinson referred to the presumption that

fiduciary obligations will arise in the context of certain classes of relationships, including

partnerships.

There are some relationships which are generally recognized to give rise to fiduciary

obligations - director-corporation, trustee-beneficiary, solicitor-client, partners… and the

like.⁴⁴⁶

[1297] Also in Lac, Sopinka J. said:

[1298] at p.62

When the court is dealing with one of the traditional relationships, the characteristics or

criteria for a fiduciary relationship are assumed to exist. In special circumstances, if they

are shown to be absent, the relationship itself will not suffice.

[1299] Other courts have often found that when partners transact business with each other

they owe each other fiduciary duties.⁴⁴⁷

⁴⁴⁵(1989), 61 D.L.R. (4th) 14 (S.C.C.) [hereinafter Lac].

⁴⁴⁶Ibid at 61; Hodgkinson, supra endnote 442 at 215.

Application to the Case at Bar

[1300] IWS was originally a partnership. In 1956 it was incorporated. Each brother owned

50% of the shares.

[1301] I am of the view that, prima facie, as Morris’ partner, Chester owed him fiduciary

duties. There are no special circumstances to make the imposition of a fiduciary relationship

here inappropriate. Indeed, there is much to suggest the imposition of such a relationship

would be highly appropriate.

[1302] This view is consistent with the position taken at trial by Chester’s counsel up until final

submissions. They conceded on several occasions that Chester and Morris owed fiduciary

duties to each other.

Lenczner, December 17, 1998:

If what my friend, through all of this, is trying to show in the first part is that there was a

fiduciary duty owed between these brothers, that fact has to be evident just from the fact

that they ran a business together and owned 50 percent of the shares. I don’t think there

is any issue about that.

Lenczner, May 10, 1999:

Can there be any doubt when two people own a business together there is a fiduciary

duty? Why are we spending our time asking about the relationship?

I wouldn’t have thought anybody could argue against the proposition if they are 50/50

partners in a business, there are fiduciary obligations going both ways, end of story.

Lenczner, May 31, 1999:

There is no issue that there is a fiduciary duty. Two people who owned a business 50/50

have a fiduciary duty to each other. You start with that proposition. What Your Honour is

going to have to decide at the end of the day, in this regard, what do you have to do to

fulfil that duty and was it fulfilled?

[1303] Chester conceded that he owed fiduciary duties to Morris:

Chester, October 5, 1999

⁴⁴⁷Olson v. Gullo (1994), 17 O.R. (3d) 790 (Ont. C.A.); Hogar Estates Ltd v. Shebron Holdings Ltd. (1979), 101 D.L.R. (3d) 509 (Ont. H.C.)

Q: Now you have acknowledged through your counsel and in your pleading that you and

your brother owed fiduciary duty to one another:

A: Yes, parallel duty.

Q: And you owed fiduciary duties to one another both as partners and as brothers?

A: Yes.

Chester, October 12, 1999

Q: And there was an enormous amount of trust between the two of you isn’t that so?

A: There was.

Q: And insofar as you were doing your job Morris had no reason because of the trust

you had between you, to go and check what you were doing, did he?

A: Morris would have to answer that. I don’t think he needed to.

[1304] However in written argument, Chester’s counsel submitted that Chester and Morris

owed fiduciary duties to IWS, not to each other as shareholders.

[1305] In my view Morris and Chester owed fiduciary duties to each other as partners.

Fiduciary Relationships Outside of the “Traditional” Categories

[1306] Rather than impose liability on Chester solely on the basis of the traditional relationship

(i.e. partnership), I shall also refer to the legal test outlined by the Supreme Court of Canada

in Lac and in Hodgkinson to be applied where the parties’ relationships do not fall within the

traditional categories. I shall refer to a number of other cases decided by other courts in

respect of relationships falling outside of the traditional categories.

[1307] In considering the existence and scope of fiduciary duties falling outside of the

traditional categories, I have been troubled by what I perceive to be differences in the test

applied in Lac and in Hodgkinson.

[1308] In Lac⁴⁴⁸, Sopinka J. for the majority made it clear that fiduciary duties in commercial

transactions between arm’s length parties should be imposed rarely, if ever:

[1309] at p 60:

⁴⁴⁸Supra endnote 443.

The consequences attendant on the finding of a fiduciary relationship and its breach

have resulted in judicial reluctance to do so except where the application of this “blunt

tool of equity’” …is really necessary. It is rare that it is required of an arm’s length

commercial transaction.

[1310] at p.62-63:

…when confronted with a relationship that does not fall within one of the traditional

categories, it is essential that the Court consider: what are the essential ingredients of a

fiduciary relationship and are they present? While no iron-clad formula supplies the

answer to this question, certain common characteristics are so frequently present in

relationships that have been held to be fiduciary, that they serve as a rough and ready

guide. I agree with the enumeration of these features made by Wilson J. in dissent in

Frame v. Smith, [1987] 2 S.C.R. 99 [hereinafter Frame]. The majority, although

disagreeing in the result, did not disapprove of the following statement at pp. 135-136:

‘Relationships in which a fiduciary obligation have [sic] been imposed seem to

possess three general characteristics

1. The fiduciary has the scope for the exercise of some discretion or power.

2. The fiduciary can unilaterally exercise that power or discretion so as to

affect the beneficiary’s legal or practical interests.

3. The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary

holding the discretion or power.’

It is possible for a fiduciary relationship to be found although not all of those

characteristics are present, nor will the presence of these ingredients invariably identify

the existence of a fiduciary relationship.

The one feature, however, which is considered to be indispensable to the existence of

the relationship… is that of dependency or vulnerability…

The necessity of this basic ingredient… is underscored in Prof. Weinrib’s statement in

Guerin, supra at p. 340:

The hallmark of a fiduciary relationship is that the relative legal positions are such

that one party is at the mercy of the other’s discretion.’

[1311] LaForest J., dissenting in Lac, said of the vulnerability criterion at p.39:

As I indicated above, vulnerability is not in my view a necessary ingredient in every

fiduciary relationship… Persons are vulnerable if they are susceptible to harm or open to

injury. They are vulnerable at the hands of a fiduciary if the fiduciary is the one who can

inflict that harm… I cannot therefore agree with my colleague Sopinka J., that

vulnerability or its absence will conclude the question of fiduciary obligations. As I

indicated above, the issue should be whether, having regard to all the facts and

circumstances, one party stands in relation to another such that it could reasonably be

expected that that other would act or refrain from acting in a way contrary to the interests

of the other… Certainly in commercial law it is no doubt an important value but it is not

the only value… In any event it is difficult to see how giving legal recognition to private

expectations will throw commercial law into turmoil. Commercial relationship will more

rarely involve fiduciary obligations. That is not because they are immune from them, but

because in most cases they would not be appropriately imposed.

[1312] In Hodgkinson v. Simms⁴⁴⁹, La Forest J., who was then in the majority, noted at p. 176,

that the three-step analysis proposed by Wilson J. in Frame v. Smith⁴⁵⁰, creates difficulties

identifying relationships where the fiduciary aspect arises as a matter of fact out of the

particular circumstances of the relationship. He reiterated what he had said in Lac that the

question to ask is whether, given all the surrounding circumstances, one party could

reasonably have expected that the other party would act in the former’s best interests with

respect to the subject matter at issue. He listed discretion, influence, vulnerability and trust as

non-exhaustive examples of evidentiary factors to be considered in making this determination.

He said that outside of the established categories, what is required is evidence of a mutual

understanding that one party has relinquished its own self-interest and agreed to act on

behalf of the other. He said:

[1313] at p. 178:

The existence of a fiduciary duty in a given case will depend upon the reasonable

expectations of the parties, and these in turn depend on factors such as trust,

confidence, complexity of subject matter, and community or industry standards.

[1314] at p. 179:

⁴⁴⁹Supra endnote 442.

⁴⁵⁰[1987]2 S.C.R. 99 (S.C.C.).

the relative “degree of vulnerability”…does not depend on some hypothetical ability to

protect one’s self from harm, but rather on the nature of the parties’ reasonable

expectations.

[1315] at p. 192:

I would have thought it self-evident that the type of disclosure that routinely occurs in

these kinds of [professional advisory] relationships results in the advisor acquiring

influence which is equivalent to a discretion or power to affect the client’s legal or

practical interests. As I stated in Lac Minerals, 61 DLR (4th) 14 at p. 41, 26 CPR (3d) 97

p. 124, power and discretion in this context mean only the ability to cause harm,

Vulnerability is nothing more than the corallary of the ability to cause harm viz the

susceptibility to harm. For this reason, it is undesirable to overemphasize vulnerability is

assessing the existence of a fiduciary relationship. In this I am in substantial agreement

with the following description of the concept of vulnerability by Lambert J.A. in Kelly

Peters supra at p. 600:

…the concept of vulnerability expressed in the Hospital Products case is nothing

other than a description of the victim’s situation when he is in a position where the

fiduciary can exert influence over him by abusing his confidence in order to obtain

an advantage…

In the advisory context, the advisor’s ability to cause harm and the client’s susceptibility

to be harmed arise from the simple but unassailable fact that the advice given by an

independent advisor is not likely to be viewed with suspicion; rather it is likely to be

followed. [Emphasis added.]

In Hodgkinson the majority distinguished the facts in Lac:

[1316] At p. 181:

In sharp contrast to arm’s length commercial relationships, which are characterized by

self-interest, the essence of professional advisory relationships is precisely trust,

confidence and independence. Thus, the concern expressed by Sopinka J. in Lac

Minerals, supra about the dangers of extending the fiduciary principle in the context of

arm’s length commerical relationships is simply not transferable to professional advisory

relationships.

[1317] At p. 189-90:

I see nothing in Lac Minerals, supra, that purports to create a new higher legal standard

for the finding of a fiduciary duty. Rather, in Lac Minerals, this court grappled with a

difficult fact situation and the result was, not surprisingly, different views…

[1318] Sopinka and McLachlin JJ. resisted the attempt by LaForest J. to distinguish Lac on its

facts:

[1319] At p. 219:

The reasons of both the majority and the minority in Lac Minerals canvassed the entire

spectrum of fiduciary and potential fiduciary relationships. Professional relationships as

such were not identified as a separate category that attracted special consideration.

Rather, the preoccupation was with respect to the different treatment to be accorded

certain relationships, which traditionally have been recognized as giving rise to fiduciary

obligations and others which may be found to be so by reason of the presence of

characteristics commonly associated with traditional fiduciary relationships.

[1320] They said of the test to be applied:

[1321] At p. 218:

…the cases suggest that the distinguishing characteristic between advice simpliciter and

advice giving rise to a fiduciary duty is the ceding by one party of effective power to the

other. It is this mutual conferring and acceptance of power to the knowledge of both

parties that creates the special and onerous trust obligation. Wilson J. referred in Frame

v. Smith at p. 99 to the “scope for the exercise of… discretion or power” in the fiduciary

and to the power of the fiduciary to unilaterally exercise that power or discretion so as to

affect the beneficiary’s legal or practical interests.

She also referred to the beneficiary being “at the mercy of” the fiduciary. Sopinka J.

approved this language in Lac Minerals at p. 63 D.L.R. p. 146 CPR, and underscored

the indispensable nature of the feature of vulnerability requiring “the protection of equity

acting upon the conscience of that other”…

Vulnerability in this broad sense, may be seen as encompassing all three characteristics

of the fiduciary relationship mentioned in Frame v. Smith. It comports the notion, not only

of weakness in the dependent party, but of a relationship in which one party is in the

power of the other…

Vulnerability does not mean merely “weak” or “weaker”. It connotes a relationship of

dependency, an implicit dependency by the beneficiary on the fiduciary… a relationship

where one party has ceded power to the other and is. hence, literally “at the mercy” of

the other.

This then is the hallmark to which a court looks in determining whether a fiduciary

relationship exists: is one party dependent upon or in the power of the other? In

determining if this is the case, the court looks to the characteristics referred to by Wilson

J. in Frame v. Smith. Does one party possess power or discretion over the property or

the person of the other? Can that power or discretion be exercised unilaterally, that is

without the consent of the other? In the final analysis, can the powerless party be said to

be “peculiarly vulnerable” or “at the mercy of the party who holds the power?

…Phrases like “unilateral exercise of power”, “at the mercy of the other’s discretion” and

“has given over that power” suggest a total reliance and dependence on the fiduciary by

the beneficiary. In our view, these phrases are not empty verbiage… To date, the law

has imposed a fiduciary duty only at the extreme of total reliance. [Emphasis added.]

[1322] Although Iacobucci J. concurred with LaForest J. in the result, he preferred to simply

distinguish the facts in Lac from those in Hodgkinson.

The Test to be Applied

[1323] Unlike Corona in Lac, Morris was not a party to open, arm’s-length negotiations. He

was asked to sign documents in the absence of any negotiations without the benefit of any

advice. He had no idea he needed advice or information because he was not aware Chester

had been taking steps to acquire his shares. He had no idea he was being asked to sign

away his 50% ownership of IWS. There was nothing to distinguish Chester’s request for his

signature on that day from many other similar requests over the preceding decades. Morris

routinely signed documents without reading or understanding them because the preparation

of necessary corporate documentation was usually not his responsibility.

[1324] Ensuring that IWS documentation was in order was Chester’s responsibility. Chester

and Morris were brothers who trusted and confided in each other from the time they were very

young. They were 50/50 shareholders, analogous to partners, who had built a business

together using disparate but complementary skills and they relied on each other to an

exceptional degree within their respective areas of responsibility. In financial and legal

matters Morris depended on Chester.

[1325] Far from being an arm’s length commercial negotiator, who should have been

expected to warily protect his own interest, Morris was dependent upon Chester and relied

upon him.

[1326] The unique relationship that existed between Morris and Chester made it possible for

Chester to induce Morris to sign Share Sale documents on December 22, 1983. Chester had

accepted, even cultivated, Morris’ dependence in financial and legal matters for years. He

knew Morris would not suspect anything untoward. He knew Morris would comply with his

request that he come to Ennis’ office to sign documents without question. Practically

speaking, in financial matters that in any way involved IWS, whether or not they affected

Morris personally, Morris relied totally on Chester. The reality was that Chester’s requests

and/or recommendations in financial matters, both business and personal, were effectively

Morris’ decisions. Morris’ view was that what was good enough for Chester was good enough

for him.

[1327] Although the relationship between Chester and Morris did not involve a professional

advisory relationship, in all of the circumstances here, I am of the view that the facts in this

case should be distinguished from the facts in Lac. The circumstances here are more

analagous to those in Hodgkinson and I should apply the test applied by the majority in that

case.

Applying the Hodgkinson Test - Could Morris Reasonably Expect Chester to Act in his

Best Interest With Respect to the Subject Matter at Issue?

[1328] By his conduct, Chester represented to Morris that he was the protector of Morris’

personal and business interests and their personal and business interests were without

conflict. In his dealings with Morris, Chester willingly assumed multiple roles: financial

decision maker, handler of financial matters (often including Morris’ personal financial

matters), business partner, director, adviser, brother, confidante. There was no dynamic of

mutual autonomy with respect to financial matters affecting IWS and even as they affected

Morris personally. Chester knew Morris had complete and utter trust in him and was relying

on him to act in their mutual best interests. At the time of the Share Sale, Morris was totally

unaware of the bonuses and profit diversions.

[1329] Applying the words of LaForest J. in Hodgkinson, at p. 176, quoted earlier, in all the

circumstances here, based on Chester’s conduct and words, Morris could reasonably expect

that Chester would act in his best interests with respect to the subject matter at issue.

[1330] The policy concern about extending the fiduciary principle in the context of arm’s-

length commercial relationships is inapplicable here, where it is clear on the particular and

unusual facts of this case these were not arm’s-length transactions.

Alternative Analysis

[1331] If I am incorrect in applying the test used by the majority in Hodgkinson to the facts in

this case, I have also considered whether the criteria set out by Wilson J. in Frame, adopted

by the majority in Lac and the minority in Hodgkinson, have been met.

Scope for Exercise of Discretion/Can Power be Exercised Unilaterally so as to Affect

the Beneficiary?

[1332] In the case at bar, given the dynamics of their relationship and their historical division

of responsibility within IWS, Chester knew he had, practically speaking, an unmonitored,

unilateral, unfettered discretion in financial and legal matters. While Morris was technically

required to sign documents, Chester knew Morris completely deferred to him in such matters,

trusting and relying upon him to act in good faith and in both IWS’ and Morris’ personal best

interest. Morris would sign whatever he was asked to sign without questioning or reading it.

[1333] Morris was vulnerable to Chester’s abuse of his trust in financial matters. Although

Morris assumed Chester was consulting him, in reality Chester was acting unilaterally. Morris

did not comprehend what Chester was doing. Morris’ inability to perceive what was happening

does not excuse Chester, who was well aware of Morris’ vulnerability and took advantage of

it.

[1334] Chester’s influence in financial matters was equivalent to a power to effect Morris’ legal

and practical interests. Morris did not know before December 22 that he would be asked to

sign Share Sale documents. On the day he was asked to sign the Share Sale documents,

Morris was not clearly warned that they were any different from the hundreds of documents

he had signed without question in the past. Chester knew Morris (1) did not want to sell his

shares, (2) did not know he was signing documents to sell his shares, (3) had received no

legal, tax, financial or valuation advice and (4) was particularly vulnerable, given the state of

his health.

Vulnerability

[1335] While Morris’ vulnerability was particularly acute in light of his preoccupation with the

possibility of an imminent death in late 1983, given the dynamic of the relationship, I have

found Morris would have signed the documents that Chester asked him to sign on December

22, 1983 whether or not he had been in ill health. Morris was vulnerable because he relied on

Chester, never viewing Chester’s requests, advice or actions with suspicion.

[1336] If I am wrong in concluding I should apply the test used by the majority in Hodgkinson,

[i.e. vulnerability is susceptibility to harm] even applying the reasoning adopted by Sopinka J.

in dissent in Hodgkinson, and even assuming that vulnerability means that one party is

dependent upon or in the power of the other, I would find that Morris was “peculiarly

vulnerable” or “at the mercy” of Chester. In financial matters Morris totally relied and

depended on Chester even in matters affecting Morriston and his other personal interests. In

all of the circumstances, Morris was, practically speaking, at the mercy of Chester’s

discretion. To use the words of Sopinka J. in Hodgkinson⁴⁵¹at p. 222, Morris “…unreflectively

and automatically accept[s] the advice of…” Chester.

[1337] In attempting to apply the reasons of the majority of the Supreme Court in Lac and in

Hodgkinson to the facts of this case, I have noted Sopinka J.’s recognition in Lac that even in

a corporate context, there could be a psychological dependence sufficient to give rise to a

fiduciary duty. He said at p.68:

Illustrations of this type of dependency are not difficult to find. They include parent and

child, priest and penitent and the like. Clearly, a dependency of this type did not exist

here. While it is perhaps possible to have a dependency of this sort between

⁴⁵¹Supra endnote 442.

corporations, that cannot be so when, as here, we are dealing with experienced mining

promoters, who have ready access to geologists engineers and lawyers…⁴⁵²

[1338] Here Morris was psychologically dependent on Chester in financial matters.

[1339] Morris made it clear, and I accept, that he would not have signed blindly if he had been

asked to do so by a stranger. In short, even applying the vulnerability test used by the

majority in Lac to the facts in this case, I would find that it has been met.

Reliance

[1340] On the requisite degree of reliance required, I have had some difficulty reconciling the

tests used in Lac and Hodgkinson.

[1341] Sopinka J., writing for the majority in Lac, referred to a requirement of unilateral

exercise of power, a total assumption of power by the fiduciary, coupled with total reliance by

the beneficiary.”

[1342] In Hodgkinson⁴⁵³LaForest J. said at p. 193:

It is important… to add further precision about the nature of reliance, particularly as it

applies in the advisory context. Reliance in this context does not require a wholesale

substitution of decision-making power… This is simply too restrictive. It completely

ignores the peculiar potential for overriding influence in the professional advisor and the

strong policy reasons… favouring the law’s intervention by means of its jurisdiction over

fiduciary duties to foster the fair and proper functioning of the investment market… [T]he

reality of the situation must be looked at to see if the decision is effectively that of the

advisor…

[1343] I have found on December 22, 1983, when Morris signed Share Sale documents,

Chester did not clearly advise him about what he was doing. Morris was not aware the

documents he was signing were out of the ordinary and that his signature would take his life’s

work away from him. He did not know he needed independent legal, tax and valuation advice

and neither Ennis nor Chester suggested it. Chester was aware Morris would sign whatever

he asked him to sign and would rely on him to ensure the documents were in order. It is no

answer to say that Morris could have had access to the information that Chester did not

⁴⁵²Supra endnote 443.

provide to him. He did not know he needed it. Further, on financial matters, Chester was the

one with expertise.

[1344] In all the circumstances, I am of the view that the test used by the majority in

Hodgkinson, should be applied. However, even applying the more stringent reliance test used

by Sopinka J. in Lac, the test is met on the facts here.

Other Cases Decided by Other Courts Dealing with Specific Relationships

Director/Shareholders

[1345] The Defendants submit, as a general rule, that a director or officer does not

automatically owe a fiduciary duty to a shareholder.

[1346] In Weiss v. Schad⁴⁵⁴, Garton J. said at paragraphs 91-92:

In Brant Investments Ltd. v. KeepRite Inc. (1991), 3 O.R. (3d) 289… [A]fter reviewing a

number of authorities, McKinlay J.A. concluded at page 301 that none of them imposes

a fiduciary duty on majority shareholders or directors in favour of minority shareholders.

There must be some further aspect of the relationship, either by virtue of an agreement

or as a result of the circumstances, before a fiduciary duty arises…

…Courts impose fiduciary duty only in situations where someone stands in a particular

position of trust by virtue of an agreement or as a result of the circumstances of the

relationship of the parties.’

…In McKinlay Transport Ltd. v. Motor Transport Industrial, [1996] O.J. No. 461 (Ont. Ct.

Gen. Div.),… [it] was submitted that the position as a director did not preclude the

existence of a fiduciary relationship and that where the indicia of a fiduciary relationship

existed, directors did owe fiduciary duties directly to the shareholders. Some of the

cases relied on by the plaintiff in McKinlay were also referred to by the plaintiffs in the

present case. They included, among others, Allen v. Hyatt (1914), 30 T.L.R. 444

(J.C.P.C.); Coleman v. Myers, [1977] 2 N.Z.L.R. 225 (C.A.) at 324; Vladi Private Islands

Ltd. v. Haase (1990), 96 N.S.R. (2d) 323 (N.S.C.A.); and Tongue v. Vencap Equities

Alberta Ltd. (1994), 17 Alta. L.R. (3d) 103 (Q.B.). Lane J. found that these cases fell

short of imposing duties upon directors by reason only of the fact of directorship.

⁴⁵³Supra endnote 442.

[1347] At paragraph 99:

It is the dynamics of the director-shareholder relationship which are important in

determining if a fiduciary duty exists and not the bare fact that there has been a share

transaction between the director and a minority shareholder. Sometimes the contract will

be upheld; other times it will be set aside. The rationale for this approach and the reason

for taking into account all of the circumstances is discussed in the text Contractual Non-

Disclosure: An Applied Study in Modern Contract Theory (Melbourne: Longman

Professional, 1994). At pages 179-181, the authors state:

There are cases involving contracts between directors and shareholders for the

purchase or acquisition of shares in the company, in which the contracts were later

set aside on the ground of non-disclosure: see page 64. The reason usually given

for holding the non-disclosure actionable is that the director owed fiduciary

obligations to the shareholder: see, for example, Coleman v. Myers, [1977] 2

N.Z.L.R. 225. The reference is to the second of the two kinds of fiduciary

relationship discussed above, involving undue influence. The relationship usually

arises out of special circumstances (such as a family connection) giving rise to a

relationship of trust between the parties, which the director exploits by inducing the

shareholder to enter into a disadvantageous transaction. In the absence of special

circumstances giving rise to a relationship of trust, the contract is unlikely to be set

aside, since directors are not generally regarded as owing fiduciary responsibilities

to the company’s shareholders…

…where there is a relationship of trust between the director and the shareholder

• There is a problem with monitoring costs; and

• The shareholder will be off guard at the time of the contract and may fail to see

the risks.

For both reasons, intervention will be warranted. These considerations suggest that a

general rule either way (always requiring disclosure, or always permitting non-

disclosure) may not be the best alternative. Instead, the decision whether to intervene

should be taken by reference to the dynamics of the director-shareholder relationship in

each case. [Emphasis added]

⁴⁵⁴[1999] O.J. No. 4356 (Ont. S.C.J.)

[1348] Counsel for the Defendants referred in argument to Garton J.’s holding in Weiss that

the dynamic of the relationship between the defendants and the plaintiff did not justify the

imposition of a fiduciary duty. However, I note that on the particular facts of that case she

found, inter alia, that the plaintiff placed no trust in the defendants and had no expectation

that they would act in his best interest. The contract being reviewed was executed after a

negotiation between two sophisticated parties who at all times dealt with each other at arm’s

length. The plaintiff did not rely on the defendants for any advice. In the bargaining process

the parties did not rely or one another. The plaintiffs were not peculiarly vulnerable. It could

not be said that any unfair or undue pressure was exerted on them.

[1349] I see nothing in Weiss that prevents a finding on the facts here that Chester owed

fiduciary duties to Morris.

Director/Director

[1350] A director of a corporation may be so positioned in relation to another director that the

former may owe a fiduciary duty to the latter not to cause harm to the latter’s interests⁴⁵⁵.

Family Relationships/Closely Held Companies

[1351] Family relationships will not automatically give rise to fiduciary relationships. They may,

depending on the particular circumstances.

[1352] In Gregoric v. Gregoric⁴⁵⁶, Granger J. found that a husband owed a fiduciary duty to his

wife based primarily on the trust she reposed in him regarding financial matters.

[1353] at p. 603:

In applying the tests suggested by Finn and Wilson J., it appears that there was a

fiduciary expectation which arose from the conduct and relationship of the parties and

that Mr. Gregoric owed a fiduciary duty to Mrs. Gregoric. Mr. Gregoric had access to all

the information regarding 442711 and Space-Flite [closely-held corporations of which he

was a shareholder] and between the parties, he made all of the financial and business

decisions without consulting Mrs. Gregoric. Mr. Gregoric had complete control of 442711

and Space-Flite so far as the interest of himself and Mrs. Gregoric was concerned. The

⁴⁵⁵Beamish v. Solnick (1980), 10 B.L.R. 224 (Ont. H.C.); MacDonald Estate v. Martin, [1993] M.J. No. 396 (Man. Q.B.), varied as to

quantum, [1994] M.J. No. 398 (Man. C.A.) at para. 78 [hereinafter MacDonald Estate].

relationship between the parties indicates clearly that Mr. Gregoric was the dominant

party in the relationship and that Mrs. Gregoric placed her trust in Mr. Gregoric to make

both business decisions and deal with the financial management of the family unit.

Accordingly, as a result of the fiduciary relationship, Mr. Gregoric was required to act in

the interest of Mrs. Gregoric, selflessly with undivided loyalty. This obligation would have

required that financial disclosure be made to Mrs. Gregoric.

[1354] In Coleman v. Myers⁴⁵⁷, the appellants were minority shareholders in a closely held

family company. They sold their interest to the respondent, who was also its managing

director. When he gained control, the respondent sold company assets, dividended the

proceeds to himself and used the dividend to pay for the shares. The New Zealand Court of

Appeal held that the respondent director owed fiduciary duties to minority shareholders, who

were relatives. He was found to have breached his duties in financing the acquisition by

lending and by dividending the substantial cash resources of the company to himself and by

using the proceeds from the sale of company assets after he had acquired control company,

and in not disclosing the magnitude of his potential gain.

[1355] Woodhouse J. set out the appropriate test at pp. 324-325:

As I have indicated it is my opinion that the standard of conduct required from a director

in relation to dealings with a shareholder will differ depending upon all the surrounding

circumstances and the nature of the responsibility which in a real and practical sense

the director has assumed towards the shareholder. In the one case there may be a need

to provide an explicit warning and a great deal of information concerning the proposed

transaction. In another there may be no need to speak at all. There will be intermediate

situations. It is, however, an area of the law where the courts can and should find some

practical means of giving effect to sensible and fair principles of commercial morality in

the cases that come before them; and while it may not be possible to lay down any

general test as to when the fiduciary duty will arise for a company director or to prescribe

the exact conduct which will always discharge it when it does, there are nevertheless

some factors that will usually have an influence upon a decision one way or the other.

They include, I think, dependence upon information and advice, the existence of a

relationship of confidence, the significance of some particular transaction for the parties

⁴⁵⁶(1990), 4 O.R. (3d) 588 (Ont. Gen. Div.)

⁴⁵⁷[1977] 2 N.Z.L.R. 297 (New Zealand C.A.)

and, of course, the extent of any positive action taken by or on behalf of the director or

directors to promote it.

[1356] Cooke J. agreed with Woodhouse J. and described the facts giving rise to the finding

of a fiduciary relationship in that case at pp. 330-331:

Broadly, the facts giving rise to the duty are the family character of this company; the

positions of father and son in the company and in the family; their high degree of inside

knowledge; and the way in which they went about the take-over and the persuasion of

shareholders. They were in a position where confidence had to be placed in them and in

the negotiations and recommendations they invited that confidence. the shareholders

must have come to repose inevitable, justifiable repose of trust and confidence in [the

family member who was the managing director of the company].

[1357] Coleman was approved in Dusik v. Newton⁴⁵⁸. In that case, the defendant, a 90%

shareholder, was found to owe fiduciary obligations to the plaintiff, a 10% shareholder. The

breach consisted of failing to inform the plaintiff of a third-party offer to purchase the

defendant’s shareholding that was substantially better than the price the same third party had

earlier offered for the plaintiff’s shares. The British Columbia Court of Appeal found a special

relationship between the parties which gave rise to a fiduciary duty at para. 39:

We go now to the area of fact and the question whether there is a basis for interference

by this court with the finding of the judge that Newton, as a director, was in breach of a

fiduciary duty to Dusik, minority shareholder, causing him loss. The background and

general circumstances are significant. Fletcher’s was a company of two shareholders.

There was a special relationship between the two. In 1968, upon acquiring 90 per cent

of the shares of Fletcher’s, Newton hired Dusik as general manager. He was looking for

the best available salesman and induced Dusik to leave his employment with Pacific

Meats, in part, by the option to purchase Fletcher’s shares. The two men worked

together to build up the company. Newton pressed Dusik to sell his shares and told him

if he did not, his shares would be purchased directly from his bank. [Emphasis added.]

[1358] Coleman was also cited with approval by Eberle J. in Bell v. Source Data Control

Ltd.⁴⁵⁹. At pp 589-590 of the Appeal Court decision, Cory J.A. (as he then was), dissenting on

⁴⁵⁸[1985] B.C.J. No. 18 (B.C. C.A.)

⁴⁵⁹[1986] O.J. No. 621 (Ont. H.C.); aff’d (1988), 53 D.L.R. (4th) 580 (Ont. C.A.)

the application of the legal test to the facts, noted that the Coleman test was consistent with

the Ontario jurisprudence.

Summary of Findings on Existence of a Fiduciary Duty Here

[1359] I find that, in all of the circumstances here, there was a fiduciary expectation that arose

from the conduct and the relationship of the parties. Chester owed Morris fiduciary obligations

in the exercise of his power and discretion over financial and legal matters, even as they

affected Morris personally. They had a special and close personal relationship as brothers.

They had a special and close business relationship as 50/50 partners, who had built IWS

together. In the financial and legal sphere, Morris was dependent on Chester both in relation

to IWS and personally. By his conduct, Chester represented to Morris that their personal and

business interests were common, identical and without conflict. Morris relied absolutely and

completely on Chester in legal and financial matters. Chester was fully aware of the trust and

confidence that Morris reposed in him and of Morris’ vulnerability

The Scope of the Fiduciary Duty owed by Chester to Morris

[1360] Generally speaking, a fiduciary must act in a manner consistent with the best interests

of the beneficiary in all matters relating to the undertaking of trust and confidence. The

obligations imposed upon fiduciaries will vary depending on the relationship but will most

often include the avoidance of a conflict of duty and interest, and a duty not to profit at the

expense of the beneficiary.

[1361]Absolute Duty of Good Faith

[1362] In MacDonald Estate v. Martin⁴⁶⁰, Schwartz J. set out the fiduciary duties of partners to

each other:

[1363] Para 197:

The duty of one partner not to compete with the other is described in the leading cases.

Each partner is obliged to deal with his/her partners in absolute good faith. Fidelity lies

at the base of the foundation of a partnership. Disclosure to and avoidance of conflict

with those partners is an absolute requirement.

⁴⁶⁰Supra endnote 453.

Duty to Avoid Conflict

[1364] A fiduciary owes the beneficiary a duty to avoid any conflict between his duty to the

beneficiary and his own self-interest:

The law scrupulously requires avoidance of any personal pursuit inconsistent with the

basic interests of the duty of loyalty owed. To personally benefit from an opportunity, the

awareness of which arises from the fiduciary position, is inconsistent with the basic

premise of fidelity in that it promotes the fiduciary’s disposition toward self-interest.

The fiduciary is responsible for complete disclosure of any material information,

materiality being governed by the principle that only a fully informed beneficiary can

adequately advise the fiduciary… the fiduciary is obliged to make his beneficiary aware

of all matters of relevance to the mandate with respect to which that confidence is

reposed.⁴⁶¹

Duty to Disclose Material Facts

[1365] Even where one partner has actively negotiated with the other partner, their contracts

have been set aside where the purchasing partner has not made full disclosure to the selling

partner. In Maddeford v. Austwick (1826), 57 E.R. 512 (Eng. V.-C.), two partners carried on a

transport business together. Like Morris, the plaintiff was involved in the “outside” operation of

the business (buying the horses and looking after the equipment), and like Chester, the

defendant was employed in the “indoor” business of keeping the accounts and supervising

the clerks. The defendant purchased the plaintiff’s share of the past profits as well as his

future share of the profits for the ensuing three years, without disclosing fully the state of

accounts of the partnership. At p. 513, the Vice-Chancellor set aside the agreement:

The Defendant, being the partner whose business it was to keep the accounts of the

concern, could not, in fairness, deal with the Plaintiff for his share of the profits of the

concern, without putting him into possession of all the information which he himself had

with respect to the state of the accounts between them. The Defendant knew, from the

account in his possession, that the £1,000 in his possession was not an adequate

consideration for the plaintiffs share of profits; and he cannot be permitted, in a Court of

Equity, to maintain advantage which he gained over the plaintiff’s ignorance; and the

⁴⁶¹M. Ellis, Fiduciary Duties in Canada, (Toronto: Carswell, 2000) at 1-6 [hereinafter Ellis].

Plaintiff, for that reason, appears to me to be entitled to avoid the agreement of 1817.

The supposed account of the profits of the concern, up to the end of 1817, necessarily

formed the basis of the Plaintiff’s calculation of profits for the ensuing three years; and,

being misled in that respect, he is entitled to avoid the whole agreement, and to have an

account of the profits of the concern up to the dissolution in 1821.

[1366] In the Scottish case of Ferguson v. MacKay, [1985] S.L.T. 94, a partner retired from a

partnership and received sums in respect of salary and compensation for post-retirement

consulting work but nothing in relation to work in progress. The partner’s share of work in

progress was larger than his fellow partners told him. He brought an action alleging breach of

fiduciary duty. The Lord Ordinary held that the remaining partners owed to the departing

partner a duty of full disclosure in relation to the state of the partnership accounts.

The Extent of the Disclosure Requirement - Is the Duty to Disclose Limited to

Disclosure of Information Relevant only to Value of the Interest being Sold/Purchased?

[1367] Chester’s counsel, assuming that Morris knew that he was selling his shares to

Chester on December 22, 1983, submitted that Chester’s duty to Morris was limited to making

full disclosure of information relevant to the value of the shares. In support of that submission

they cited a portion of “Ask No Questions and I’ll Tell You No Lies: Statutory and Common

Law Disclosure Requirements Within High Tech Joint Ventures” by Allan W. Vestal⁴⁶²:

The general maxims provide no realistic guidance on the practical outlines of the

common-law disclosure requirement. The common-law disclosure obligation—even if

stated in the sweeping commands of fiduciary duty—has been severely limited by

distinctions drawn from the factual settings in the cases. The general pronouncements

of the courts merely set the stage for the more tightly focused holdings, which set the

actual limits of the common-law disclosure obligation… Professors Harold Reuschlein

and William Gregory do a credible job of bypassing the rhetoric for the substance of the

decisional law in this area. They parse the obligation into two classes of specific fact

patterns: “prepartnership transactions” and the purchase by one partner of another’s

interest. These classifications are consistent with the holdings in the reported cases, if

not the rhetorical flourishes of the deciding courts.

⁴⁶²(1991) 65 Tulane Law Review 705 at 728-730.

…The second category cited by Reuschlein and Gregory [in their 1979 book] involves

actions and transactions of the partners with each other, in which questions of self-

dealing arise: “Both selling and purchasing partner are duty hound to reveal such facts

as touch the value of the property which are not available to other partners.” This

classification of cases includes those situations in which one partner is purchasing

another partner’s interest in the partnership and the purchasing partner has information

relevant to the price, information that the selling partner does not have. Such information

can range from the expected (one partner conceals a third-party bid for all of the

partnership assets) to the positively grotesque (the purchasing partner knows of the

selling partner’s fatal and undisclosed disease).” [emphasis added by Defendants]

[1368] I have reviewed the article in its entirety, and I note that the same article continues at

p.731:

In the context of a sale of a partnership interest between partners, there is an obligation

to disclose relevant facts unknown to the other partner. This obligation may be

especially acute if the party with the information is the managing partner of the

enterprise.

[1369] The Defendants submit that Chester did disclose the material facts relevant to the

value of the shares. Even were I to accept the underlying assumption and were I to limit

Chester’s fiduciary obligation to disclosing that restricted information [and I do not], I would

find that he failed to fulfil this obligation.

[1370] I have already found that Chester did not disclose to Morris much material information

relevant to the value of IWS prior to the execution of the Share Sale documents, including but

not limited to the following:

1. Linton’s valuation memo of November 1982;

2. information that the $3 million share price in the December 22, 1983, Share Sale

Agreement included and reflected a reallocation to Chester of $412,000 previously

allocated to Morris;

3. information that the same $3 million share price did not reflect $6.6 million in 1981-

1982 bonuses and $250,000 in 1979 bonuses, which as of December 22, 1983, had

been or were in the process of being removed from IWS without Morris’ knowledge or

approval. If the bonuses had not been declared, the value of the IWS shares would have

been correspondingly higher;

4. information that the $3 million share price did not reflect the $1,930,806 that I have

found had been improperly diverted from IWS to Greycliffe, or the other improper

diversions of profits to related companies, including $272,842 to Icarus; $61,951 to

Servtross; $47,644 to Big Rig; and, $46,905 to Circuitel. But for those profit diversions to

Greycliffe and other related companies, the value of the IWS shares [quantified

elsewhere in these reasons as of December 31, 1983] would have been correspondingly

higher;

5. information that IWS would be receiving $250,000 in the summer of 1984 resulting

from the declaration of the $1 million dividend as part of the Share Sale;

6. information that Chester was in large measure expecting to use Morris’ own money to

buy Morris’ shares, including a $500,000 dividend to which Morris would have been

entitled, whether or not a Share Sale had occurred and the $412,000 and half of the

$250,000 which have already been mentioned;

7. information that no interest would be payable on the $500,000 to be loaned to IWS;

8. information that the Share Sale documents included a long-term lease with Morriston

at rental rates which were well below market. [I have found the difference between

market rents and rents under the lease term to be $2,529.60]

[1371] Other undisclosed facts not necessarily related to value, but which in all of the

circumstances should have been disclosed to Morris, include but are not limited to the

following:

1. the basic fact that Chester was asking Morris to sign Share Sale documents;

2. the basic fact that the documents he was being asked to sign were not IWS

documents being signed in the ordinary course;

3. the basic fact that Chester was trying to gain control of IWS and later to buy Morris’

shares and to own 100% of IWS;

4. the basic fact that the 1979, 1981 and 1982 bonuses had been declared; and the

amounts which had been allocated to Morris, to Chester, and to Chester’s sons;

5. the basic fact that substantial profits had been and were being diverted from IWS to

Greycliffe and other related companies;

6. the fact that Chester had been communicating with Linton for more than a year to

obtain financial and tax advice in relation to a Share Sale and lease and with Ennis to

obtain legal advice, that he had excluded Campbell and Taylor Leibow from providing in

put on the value of IWS and on the most tax-efficient method to structure the deal.

Was Morris Required to Protect Himself?

[1372] On the assumption that Morris was involved in the negotiations and he knew he was

entering into the Share Sale, the Defendants submit that Morris had an obligation to perform a

sufficient degree of due diligence before entering into the sale. He had to know what he was

going to sell. He had to review the financial statements of IWS and any material assets or

contracts.

The Defendants’ submission assumes an active negotiation.

[1373] I have of course concluded that when he was brought into Ennis’ office on December

22, 1983, Morris had received no notice he was being asked to sign Share Sale documents.

He did not wish or intend to sell his shares on that day. There had been no negotiations.

Chester knew Morris had had no occasion or opportunity to make independent inquiries in the

context of a possible Share Sale. Morris had had no reason to seek such information because

he was not intending to sell his shares.

[1374] Given Chester’s concern that Michael would get in his way, I have found that the lack

of notice to Morris was in large part to prevent Morris from talking to Michael.

[1375] In all of the circumstances here, it is not reasonable to impose an obligation on Morris

to inform himself from all available sources of the value of the shares when he did not know

he was selling his shares.

Findings re Scope of Chester’s Fiduciary Duties to Morris and Their Breach

In Relation to the Share Sale

[1376] On the facts of this case, Chester owed fiduciary duties to Morris in the financial

management of IWS and Windermere Investments/Morriston/Chesterton and in his direction

of Morris’ personal finances.

[1377] Chester could not attempt to buy Morris’ shares in bad faith and without adequate

disclosure.

[1378] Morris has demonstrated that Chester withheld the most basic material information that

Morris needed in the circumstances which, given the nature of their relationship and the

obligations that Chester had willingly assumed, should have been disclosed to Morris.

Disclosure of material facts relevant to the transaction would have caused Morris to refuse to

sign even if he had intended to sell his shares.

[1379] I have earlier found that the Share Sale Agreement, lease and other documents, taken

together, are grossly unfair.

[1380] While I agree with counsel for the Defendants that the fiduciary duty principle is not a

substitute for personal responsibility, I also agree with LaForest J. in Hodgkinson that the law

has recognised the importance of instilling in our enterprises the recognition that the

marketplace cannot always set the rules. Here, where the trust of a vulnerable family member

and partner was abused, there are ample circumstances to engage the equitable jurisdiction

of this Court.

[1381] Chester breached his fiduciary duty to Morris with respect to the Share Sale, the lease

and other documents signed on December 22, 1983, when he failed to adequately disclose to

Morris the fact of the sale and the nature of the documents. It was not enough to simply say

“this is the sale and look over the documents.” Chester asked Morris to sign documents he

knew Morris had not read and would not read, to transfer shares he did not want to transfer.

Chester knew Morris was ill. He did not disclose the other information set out above. I have

found that Chester did indeed “trick”/“hoodwink” Morris into signing documents that day.

Chester stood to benefit enormously. In all of the circumstances here, Chester clearly

breached his fiduciary duty to Morris.

In Relation to Bonuses

[1382] Morris relied upon Chester and reasonably expected he would act in IWS’ and his own

personal best interest. Given his 50% ownership, Morris was entitled to assume he would

receive 50% of IWS profits and equity.

[1383] Given the division of responsibility within the partnership, Chester’s willing assumption

of responsibility for financial matters, his cultivation of Morris’ trust, and Morris’ resulting total

dependence and reliance on Chester in financial matters, his knowledge that Morris did not

read corporate documents before he signed because corporate documents were Chester’s

responsibility, Chester owed Morris a duty to properly disclose the declaration of the 1979,

1981 and 1982 bonuses to Morris and obtain his consent. Chester did not do so.

[1384] Chester knew Morris was totally unaware of the bonuses or he would not have

unilaterally directed the reallocation in 1981 of $150,000 of the 1979 bonuses from himself

and Morris to his sons.

[1385] I have found that in 1979 Chester directed Linton to make arrangements with Ennis to

destroy the existing 1979 minute and to prepare a new one. If Morris had known about the

1979 minute when it was first declared, that substitution would not have been possible.

[1386] I have found that Morris did not approve of bonuses when the idea was broached at a

meeting. He was unaware of the declaration of the 1981-1982 bonuses. Again, Chester was

able to substitute an earlier IWS resolution prepared in late 1981 [showing bonus amounts in

Exhibit 194] with a new minute prepared on January 12, 1982 [showing much larger bonus

amounts to Chester’s sons.] Chester did not consult with Taylor Leibow before they were

declared. He kept them from Campbell even after they were declared. He knew they could not

be justified on any objective basis. He knew his sons were receiving Morris’ equity of IWS. He

knew he was breaching his partnership fiduciary duties to Morris in declaring the bonuses.

[1387] Chester had to avoid a conflict of duty and interest and could not profit at Morris’

expense. The 1981-1982 bonuses were a distribution of IWS equity that Morris and Chester

had built over 40 years. The bonuses to Chester’s sons were unfair and did not approximate

reasonable compensation. The bonuses that Chester received were not proportionate to

those received by Morris. The bonuses could not be, and were not, reasonably justified or

justifiable. IWS could have received the same tax savings by allocating all of the bonuses to

Morris and Chester equally. Chester had a duty to disclose material information to Morris, to

act in good faith and to avoid a conflict of interest. He breached his duty to Morris in all

respects.

[1388] The reallocation of Morris’ bonus in December 1983 without Morris’ knowledge or

consent was similarly a flagrant breach of Chester’s fiduciary duty to Morris.

In Relation to Greycliffe and Other Related Companies

[1389] Chester, without discussing it with Morris or seeking and obtaining his approval,

allowed Robert to incorporate Greycliffe. As time passed, he allowed Robert to direct more

and more IWS haulage to Greycliffe and to charge uncompetitive rates to IWS, and to have

IWS bear expenses that Greycliffe should have borne and to earn profits that would otherwise

have remained in IWS. Chester knew Robert was running IWS and at the same time was

setting the rates that Greycliffe was charging to IWS for haulage. I have found that by the

1981 audit at the latest, Chester was aware of the auditors’ concerns about unreasonable

charges. Taylor discussed the Greycliffe rates with Chester at a wrap-up meeting in early

1982. Chester did nothing to ensure that the rates were competitive or that Greycliffe paid its

own expenses. He did not direct that IWS’ trucking be handled in-house or by an IWS

subsidiary although he knew that by so doing, the profits could have remained in IWS.

Chester did not disclose the profit diversions to Greycliffe and other related companies to

Morris.

[1390] Chester knew that profit diversions to related companies were affecting IWS’

profitability. He had the power to stop the improper profit diversions. He waited until shortly

after the Share Sale to do so.

[1391] Chester breached his fiduciary duties to Morris in respect of the profit diversions to

Greycliffe and the other related companies. He failed in his duty of good faith, his duty of

disclosure, his duty to avoid a conflict.

The Caution in Brant v. Keeprite

[1392] I have considered the caution issued by the Court of Appeal in Brant Investments Ltd.

v. KeepRite Inc.⁴⁶³that the enactment of s. 247(2) of the OBCA and s. 234 of the Canada

⁴⁶³(1991), 80 D.L.R. (4th) 161 (Ont. C.A.) [hereinafter Brant].

Business Corporations Act⁴⁶⁴has rendered any argument for a broadening of the categories

of fiduciary relationships in the corporate context unnecessary and inappropriate.

[1393] I shall return to the Brant case in considering the Plaintiffs’ claim for an oppression

remedy, but I say here only that fiduciary remedies for the type of egregious breaches that I

have found here have existed for many years. My liability findings involve no “broadening” of

the categories of fiduciary relationships.

B. Knowing Receipt and Knowing Assistance

[1394] The Plaintiffs have asserted claims in the Main Action based on knowing assistance

and/or knowing receipt against Chester’s sons in connection with the 1979, 1981 and 1982

bonuses; and against Gary, Robert’s companies, Chester and IWS in connection with the

Greycliffe profit diversions.

[1395] Knowing receipt and knowing assistance were considered in 1997 by the Supreme

Court of Canada in Gold v. Rosenberg⁴⁶⁵and Citadel General Assurance Co. v. Lloyds Bank

Canada⁴⁶⁶. In those cases, the Court mentioned Air Canada v. M & L Travel Ltd.⁴⁶⁷, as well as

a number of English cases and commentaries.

[1396] I note that many of the cases on equitable secondary or participatory liability, including

Gold and Citadel, have involved defendants who were banks or professional agents. The

courts in such cases, and the commentators with respect to such cases, have addressed

policy considerations related to their important commercial functions. For example, Simon

Gardner states in “Knowing Assistance and Knowing Receipt: Taking Stock”:

Nevertheless, the bulk of the authority in knowing assistance remains sympathetic to the

defendants… [T]he general modern leniency in knowing assistance may be an aspect of

the wide tendency, visible in the last ten or fifteen years, to curb the liabilities of banks

and other commercial undertakings.⁴⁶⁸

[1397] Such policy considerations have no relevance to the case at bar.

The Distinction between Knowing Receipt and Knowing Assistance

⁴⁶⁴R.S.C. 1985, c.C-44 [hereinafter CBCA].

⁴⁶⁵[1997] 3 S.C.R. 767 (S.C.C.).

⁴⁶⁶[1997] 3 S.C.R. 805 (S.C.C.) [hereinafter Citadel].

⁴⁶⁷[1993] 3 S.C.R. 787 (S.C.C.) [hereinafter Air Canada].

⁴⁶⁸(1996), 112 L.Q.R. 56 at 77-78 [hereinafter Gardner].

[1398] In Citadel, LaForest J. distinguished between the two categories of liability:

…the distinction between the two categories of liability is fundamental: Whereas the

accessory’s liability [knowing assistance] is “fault-based”, the recipient’s liability [knowing

receipt] is “receipt-based”. In an extrajudicial opinion, Millett J. described the distinction

as follows:

…the liability of the accessory is limited to the case where the breach of trust in

question was fraudulent and dishonest; the liability of the recipient is not so limited.

In truth, however, the distinction is fundamental; there is no similarity between the

two categories. The accessory is a person who either never received the property

at all, or who received it in circumstances where his receipt was irrelevant. His

liability cannot be receipt-based. It is necessarily fault-based, and is imposed on

him, not in the context of the law of competing priorities to property, but in the

application of the law which is concerned with the furtherance of fraud.⁴⁶⁹

[Footnotes omitted]

[1399] Gardner makes a similar point at p. 85:

…it is questionable whether knowing receipt is about wrongfully causing loss at all.

There may be more than one other thing that it could be about, but most modern opinion

takes it to be a restitutionary liability, based on the fact that the defendant has acquired

the plaintiff’s property.⁴⁷⁰

[1400] Paul Perell has written in “Intermeddlers or Strangers to the Breach of Trust or

Fiduciary Duty”:

…the measure of the stranger’s liability differs from doctrine to doctrine. The stranger

who is liable for knowing receipt or unjust enrichment is liable to the extent of his unjust

enrichment. The stranger who is liable under property law is liable to restore the property

in his or her possession. In contrast, the stranger who is liable for knowing assistance or

as a trustee de son tort is exposed to the same liability as a trustee or fiduciary who

breaches his or her equitable obligations. This liability may extend beyond the

disgorgement of any property and indeed the trustee de son tort or stranger under the

⁴⁶⁹Supra endnote 464 at 836.

⁴⁷⁰Supra endnote 466. 469(1999), 21 Adv. Q. 94 at 115.

doctrine of knowing assistance may not have received any personal benefit or

property.⁴⁷¹

[1401] While damages for knowing receipt are measured by the recipient’s unjust enrichment,

damages for knowing assistance are measured by the plaintiffs injury consequent upon the

trustee’s misconduct. Thus, in knowing assistance, the plaintiff’s injury may exceed the

defendant’s benefit⁴⁷².

[1402] A claimant may not succeed in either claim against a bona fide purchaser for value

without notice.

(a) Knowing Receipt

The Elements

[1403] The elements of knowing receipt were summarised by Perell as follows: “(1) a trust or

fiduciary relationship; (2) the stranger receiving property from the trust or fiduciary relationship

in his or her own personal capacity [i.e. beneficially], and (3) the stranger having actual or

constructive knowledge that the property was transferred to the stranger in breach of trust or

fiduciary duty” (at 110). “Constructive knowledge” means knowledge of facts sufficient to put a

reasonable person on notice or on inquiry of the possibility of a breach of trust or fiduciary

duty. Knowledge of the trust alone is not enough. Failure to inquire as to the possible

misapplication of the funds grounds liability⁴⁷³.

(i) Application to the Case at Bar - Bonuses

[1404] The liability of Chester’s sons for knowing receipt of the 1981-1982 bonuses hinges on

the extent to which they knew or had constructive knowledge that they were declared and

disbursed in breach of Chester’s fiduciary duty to Morris and without Morris’ consent.

[1405] If Chester’s sons had actual or constructive knowledge that they were receiving

bonuses in breach of Chester’s breach of fiduciary duty to Morris, or if they failed to inquire

where the circumstances required them to do so, they are liable to Morris.

⁴⁷¹(1999), 21 Adv. Q. 94 at 115.

⁴⁷²Ibid, at 113.

⁴⁷³Citadel, supra endnote 464 at 837-88; See also M. Bryan, “The Receipt-Based Constructive Trust: A Case Study of Personal and

Proprietary Restitution in the Supreme Court,” (1999) 37 Alta. L. Rev. 73 at 87.

[1406] As mentioned earlier, 1981-1982 bonuses were declared in favour of Chester’s sons

for each of 1981 and 1982 as follows: Robert, $600,000; Warren, $550,000; and Gary,

$500,000. The 1981 bonuses were paid in full to Chester’s sons. Warren actually received

$590,000 for 1981 bonuses. Of the 1982 bonuses, they ultimately kept the following amounts:

Robert, approximately $22,000; Warren, approximately $340,000.

[1407] Of a total of $6.85 million in bonuses in 1979, 1981 and 1982, apart from the $988,000

paid to Morris, the lion’s share was paid to Chester and his sons. The tax on the 1982

bonuses was paid and for a time the net 1982 bonuses remained in “drawings accounts” of

Chester’s sons. Some withdrawals were made but most were paid to Chester in 1985. By

1985, Chester had himself received approximately $2.6 million of the $3.3 million in 1982

bonuses.

[1408] While Chester’s sons are not liable for knowing receipt with respect to the 1982

bonuses, which were originally allocated to them but ultimately paid to Chester, their

knowledge of the original allocation colours their likely perception of the appropriateness of

the bonuses they actually received.

[1409] At all material times, Chester’s sons were active in the business of IWS on a full-time

basis. They knew Morris was a 50% owner. They knew IWS had disposed of the assets of the

ferrous and refuse divisions in 1981 for approximately $10 million. Warren and Robert made it

clear in their evidence about their entitlement to large bonuses that they were aware of the

terms including the amount of proceeds of the Lasco and Laidlaw deals. They were in a

position to assess the circumstances surrounding the disbursement of the bonuses in context.

At the time they received their 1981 bonuses, they were each slated to receive the same

amounts for 1982. Each of them were to receive a total of at least $1 million pre-tax. They

were all in their 20s, recently out of school but with no post-secondary degrees. Gary, for

example, was 25 and had moved away from home the year before. His bonus was 25 times

his annual salary. Reasonable young men, even with healthy egos, would have understood

that the bonuses were a distribution of IWS equity rather than payment of reasonable

compensation.

[1410] Were the circumstances such that Chester’s sons had a duty to inquire about a

possible breach of Chester’s fiduciary duty to Morris? In other words, were the circumstances

such as to suggest to Chester’s sons that Morris may not have consented to the bonuses?

[1411] Earlier in these Reasons, I have quoted Robert’s and Warren’s evidence given in an

obvious attempt to justify their bonuses. I did so because it was illustrative of the lengths to

which they were prepared to go in order to attempt to justify obviously unjustifiable actions.

[1412] Robert and Warren could not reasonably have ever thought and cannot reasonably

now think they deserved the IWS bonuses declared in their favour for 1981 and 1982. They

may have needed the money, but they could not have believed honestly that the bonuses

declared in their favour were properly owing to them. They could not have reasonably

believed Morris would ever have agreed they deserved such sums. Gary did not even make

an attempt at justification. I have rejected the evidence of Chester’s sons about discussions

with Morris regarding bonuses. I have found that Morris gave them no reason to assume he

had approved of them. Given the obvious source of the money used to pay the bonuses (the

proceeds of the sales to Laidlaw and Lasco of the goodwill and assets Morris and Chester

had built together over 40 years as 50/50 owners), Chester’s sons, at the very least, had good

reason to inquire about a possible breach by Chester of his fiduciary duty to Morris. I find that

the Plaintiffs have proven the elements of knowing receipt in connection with the 1981 and

1982 bonuses. The amounts are: Robert - $622,000; Warren - $930,000; Gary -$500,000.

[1413] With respect to the 1979 bonuses, the amounts were relatively small and consistent

with the type of gift that might be made to the offspring of wealthy families in their house-

buying years. Chester’s sons might reasonably have assumed their Uncle had approved of

those bonuses. I find that the sums were not so extravagant as to put reasonable persons in

the positions of Chester’s sons on notice of a possible breach of fiduciary duty.

(ii) Application to the Case at Bar - Greycliffe Profit Diversions/Robert’s Companies

[1414] As a senior employee of IWS, as someone who was in charge of the IWS non-ferrous

division, Robert clearly owed fiduciary duties to IWS, which he breached in arranging for

Greycliffe to charge IWS rates for haulage that far exceeded competitive rates. As detailed

earlier in these Reasons, instead of acting in IWS’ best interest, Robert lined his own pockets.

Morris was unaware that was happening and did not consent or approve.

[1415] There is no dispute that Robert owed fiduciary duties to IWS as a senior employee and

an officer. The primary remedy the Plaintiffs seek against Robert in this regard is detailed

later in this section under the Oppression Remedy.

[1416] Robert’s companies were his alter egos. Robert’s knowledge, as the directing mind,

may appropriately be imputed to them.⁴⁷⁴I therefore hold that the Plaintiffs have proven all

the elements of knowing receipt with respect to the receiving companies.

(b) Knowing Assistance

[1417] As with knowing receipt, the departure point is a finding that a breach of fiduciary duty

occurred. Only the remaining elements are at issue.

[1418] In Air Canada, the Supreme Court held that the plaintiff must prove not only that the

breach of trust was fraudulent and dishonest, but also that the defendant participated

knowingly in the breach. “The knowledge requirement for this type of liability is actual

knowledge; recklessness or wilful blindness will also suffice.⁴⁷⁵” Constructive knowledge is not

enough.

[1419] Perell parsed the elements of knowing assistance at 106-08:

A stranger to a trust or fiduciary relationship may be liable under the equitable doctrine

of knowing assistance if he, with actual knowledge, assists the trustee or fiduciary in a

dishonest and fraudulent scheme… [T]he stranger will be liable to compensate the

beneficiary for his or her losses, including losses of opportunity. The four essential

elements of a claim for knowing assistance against a stranger are: (1) a trust or fiduciary

relationship; (2) the trustee or fiduciary fraudulently or dishonestly breaching his or her

equitable duty; (3) the stranger having actual knowledge of the misconduct, and (4) the

stranger assisting in the fraudulent or dishonest design.⁴⁷⁶

(i) Application to the Case at Bar - The Share Sale

[1420] I have found that Robert was far more involved in discussions leading up to the Share

Sale than he was prepared to admit. He did not want Chester to proceed with an estate

freeze even on a 60/40 basis. He attended with Chester at Ennis’ office in early 1983 to

discuss Chester’s purchase of Morris’ shares. Robert was at Ennis’ office the morning of the

day the Share Sale documents were signed and Ennis’ note of his meeting with Robert

includes “84 shares.” Chester met frequently with Ennis. Chester structured the deal with

⁴⁷⁴See, e.g., Northland Bank v. Willson (1999), 249 A.R. 201, [1999] A.J. No. 1010 (Alta. Q.B.)

⁴⁷⁵Supra endnote 465 at 811.

⁴⁷⁶Supra endnote 469.

Linton’s assistance. If Robert knew the patently unfair terms of the deal and actually assisted

Chester, knowing Chester was breaching his fiduciary duties to Morris, Robert could be found

liable for knowing assistance. On the evidence before me, however, I am unable to find that

the Plaintiffs have proved Robert knowingly assisted Chester in breaching his fiduciary duties

to Morris in respect of the Share Sale. There is even less evidence of Warren’s and Gary’s

involvement in the Share Sale.

(ii) Application to the Case at Bar - Bonuses

[1421] Apart from receiving the money, I can not conclude on the evidence that Chester’s

sons assisted in the dishonest design with actual knowledge - assuming, without having been

provided with authority on the point, that the relevant time is at the commission of the

improper acts. The sons have subsequently attempted to assist in maintaining the transfers

through their litigation conduct, but that is a different matter.

(iii) Application to the Case at Bar - Greycliffe/Robert, Gary & Robert’s Companies

[1422] Robert, as a person who breached the duty, cannot also be liable as an accessory to

the breach. Gary, as the other shareholder, could be. Robert’s and Gary’s companies did

have actual knowledge and issued the inflated invoices. They are liable in knowing assistance

in the same amounts as Robert; however, there can be only one recovery in respect of the

same events.

(iv) Application to the Case at Bar - Greycliffe/Chester

[1423] I have found that in early 1982, Taylor spoke privately to Chester, the IWS partner with

domain over matters financial. In the section of these Reasons relating to the liability of Taylor

Leibow, I have found that Taylor advised Chester of the auditors’ concerns that Greycliffe was

overcharging IWS. I find at least from that point in time but probably before, Chester knew

about the overcharging.

[1424] Thus, Chester had actual knowledge that Robert was breaching his fiduciary duty to

IWS, that the equity of IWS was being stripped as a result of improper profit diversions to

Greycliffe and that Morris as a 50% owner of IWS could reasonably expect to suffer 50% of

that loss.

[1425] Chester could have stopped the profit diversions at any time and obtained restitution.

Instead, he allowed the situation to continue until after the purported Share Sale and when he

personally had more to lose, then the profit diversions to Greycliffe did, in fact, stop. By his

deliberate actions and his inaction, he made the profit diversions possible, stripping profits

from IWS to the detriment of Morris, so long as Chester thought Morris was a shareholder.

Thus the elements of knowing assistance are met.

[1426] Chester is liable to Morris for knowing assistance in the amount of 50% of the

Greycliffe profit diversions, which I have quantified for reasons given in the valuation

section at $965,403. There was no evidence of Chester’s knowing assistance in respect of

profit diversions to the other related companies.

The Relationship between the Causes of Action for Breach of Fiduciary Duty, Undue

Influence and Unconscionability

In Hodgkinson⁴⁷⁷, LaForest J. said at pp. 173-174:

…the fiduciary duty may properly be understood as but one of a species of a more

generalised duty by which the law seeks to protect vulnerable people in

transactions with others… Vulnerability… is… the “golden thread that unites such

related causes of action as breach of fiduciary duty, undue influence,

unconscionability, and negligent misrepresentation…”

[1427] The concepts of unequal bargaining power and undue influence are often linked to

discussions of fiduciary principle:

Claims based on these causes of action… will often arise… side by side with claims

related to duty of care and fiduciary duty… Indeed, all three equitable doctrines are

designed to protect vulnerable parties in transactions with others. However, whereas

undue influence focuses on the sufficiency of consent and unconscionability looks at the

reasonableness of a given transaction, the fiduciary principle monitors the abuse of a

loyalty reposed.⁴⁷⁸

C. Undue Influence

⁴⁷⁷Supra endnote 442.

⁴⁷⁸Ibid, at 174.

[1428] The Plaintiffs seek to set aside the Share Sale and lease on the ground of undue

influence, an equitable doctrine under which patently unfair contracts may be set aside

because undue influence by a wrongdoer has infected the sufficiency of a party’s consent.

[1429] In Goodman Estate v. Geffen⁴⁷⁹, Wilson J., writing for herself and Cory J., said that this

branch of equity seeks to “control the process rather than the outcome of transactions.” She

quoted from M. Ogilvie, “Undue Influence in the House of Lords” (1986), 11 Can. Bus. L.J.

503 at 511:

Undue influence is designed to protect more than mere commercial interests; rather it is

meant to protect the integrity of the weak or the momentarily weak from entering into

disadvantageous transactions, however measured.

[1430] Courts binding on me have recently adopted a standard taxonomy of undue influence,

as set out by Lord Browne-Wilkinson in Barclays Bank plc v. O’Brien:

Undue Influence

A person who has been induced to enter into a transaction by the undue influence of

another (the wrongdoer) is entitled to set that transaction aside as against the

wrongdoer. Such undue influence is either actual or presumed. In Bank of Credit and

Commerce International SA v. Aboody (1998) [1992] 4 All E.R. 955 at 964 [1990] 1 QB

923 at 953 the Court of Appeal helpfully adopted the following classification:

Class 1: actual undue influence. In these cases it is necessary for the claimant to

prove affirmatively that the wrongdoer exerted undue influence on the complainant

to enter into the particular transaction which is impugned.

Class 2: presumed undue influence. In these cases the complainant only has to

show, in the first instance, that there was a relationship of trust and confidence

between the complainant and the wrongdoer of such a nature that it is fair to

presume that the wrongdoer abused that relationship in procuring the complainant

to enter into the impugned transaction. In class 2 cases therefore there is no need

to produce evidence that actual undue influence was exerted in relation to the

particular transaction impugned: once a confidential relationship has been proved,

the burden then shifts to the wrongdoer to prove that the complainant entered into

⁴⁷⁹(1991), 81 D.L.R. (4th) 211 (S.C.C.) at 225 [hereinafter Geffen].

the impugned transaction freely, for example by showing that the complainant had

independent advice. Such a confidential relationship can be established in two

ways, viz:

Class 2A. Certain relationships (for example solicitor and client, medical

advisor and patient) as a matter of law raise the presumption that undue

influence has been exercised.

Class 2B, Even if there is no relationship falling with class 2A, if the

complainant proves the de facto existence of a relationship under which the

complainant generally reposed trust and confidence in the wrongdoer, the

existence of such relationship raises the presumption of undue influence. In a

class 2B case therefore, in the absence of evidence disproving undue

influence, the complainant will succeed in setting aside the impugned

transaction merely by proof that the complainant reposed trust and

confidence in the wrongdoer without having to prove that the wrongdoer

exerted actual undue influence or otherwise abused such trust and

confidence in relation to the particular transaction impugned.⁴⁸⁰

[1431] In Bank of Montreal v. Duguid⁴⁸¹, Feldman J.A. described the category of 2B,

Presumed Undue Influence, at p. 753:

relationships where the complainant can show that de facto, she reposed trust and

confidence in the wrongdoer. Once that is shown, then the onus shifts to the wrongdoer

to disprove undue influence.

[1432] Wilson J., in Geffen, described the two-step approach to be followed:

[1433] pp. 227-228

What then must a plaintiff establish in order to trigger a presumption of undue influence?

In my view, the inquiry should begin with an examination of the relationship between the

parties. The first question to be addressed in all cases is whether the potential for

domination inheres in the nature of the relationship itself…

⁴⁸⁰[1993] 4 All E.R. 417 (U.K. H.L.) at 423.

⁴⁸¹(2000), 47 O.R. (3d) 737 (Ont. C.A.), leave to appeal to S.C.C. granted on other grounds [2000] S.C.C.A. No. 298 (S.C.C.) [hereinafter

Duguid].

Having established the requisite type of relationship to support the presumption, the next

phase of inquiry involves an examination of the nature of the transaction. When dealing

with [a] commercial transaction… the plaintiff should be obliged to show, in addition to

the required relationship between the parties that the contract worked unfairness either

in the sense that he was unduly disadvantaged by it or that the defendant was unduly

benefitted by it… A court of equity, even while tempering the harshness of the common

law must accord some degree to the principle of freedom of contract and inviolability of

bargains…⁴⁸²

[1434] Although the court in Geffen was otherwise divided, it agreed in the result and with the

above statement.

Did the Potential for Domination Inhere in the Nature of the Relationship?

(i) The Test

[1435] In Geffen, Wilson J. said that domination in this context “simply means to exercise a

persuasive influence over him or her.”⁴⁸³The ability to exercise such influence may arise from

a relationship of trust or confidence but it may arise from other relationships as well. The test

embraces relationships of dependency that defy easy categorisation. When one speaks of

“influence,” one is referring to the ability of one person to dominate the will of another,

whether through manipulation, coercion or outright but subtle abuse of power. Where a

claimant relies upon a presumption of undue influence, the court must look at the nature of

the relationship and must determine whether the potential for domination exists as a matter of

fact or whether it may be presumed.

[1436] Osborne A.C.J.O. in Duguid noted:

…(class 2B - presumed undue influence)… Mrs Duguid must establish that she did in

fact repose trust and confidence in her husband. This burden may be met by showing

that she left decisions on financial affairs to him…

…the characteristics of trust and confidence create an increased risk of undue

influence,…a wife may set aside a transaction where she can establish that the

⁴⁸²Supra endnote 477 at p. 230

⁴⁸³Ibid, at p. 227.

transaction was actually procured by undue influence or where she can raise a

presumption of undue influence…⁴⁸⁴

[1437] In Csada v. Csada⁴⁸⁵, a case that involved two brothers, one strong and domineering,

the other ill and dependent, the Saskatchewan Court of Appeal said at p. 279:

The evidence established beyond peradventure that although the plaintiff was not

mentally incompetent on these dates, he was mentally weak, vulnerable and highly

susceptible to influence from a domineering person…

[1438]ii) Application to the Facts at Bar

[1439] Chester has a very powerful personality. I have found he exercised a very powerful

persuasive influence over Morris that allowed him to manipulate Morris and to seriously and

adversely affect his interests. He obviously intimidated others as well. In early 1982, Wiseman

asked Taylor to speak to Chester about his Greycliffe and bonus concerns rather than

speaking to Chester directly. Michael, a large assertive man, well educated and confident, felt

the need in early 1983 to prepare an agenda for use at a meeting with Chester to air

grievances. In early 1984, Wiseman prepared notes to be used at the 1983 wrap-up meeting

with Chester because he anticipated a tough meeting and because he did not want to be

side-tracked. Even then Wiseman did not stick to his own script and did not confront Chester

directly about his concerns. In early 1984, although Taylor and Wiseman promised to discuss

the Share Sale at a meeting with Chester and although they all went to a meeting, no one

confronted Chester about the Share Sale. Again in 1985, at a meeting ostensibly to discuss a

restructuring, but really to discuss Share Sale concerns, Taylor and Wiseman did not raise

concerns about the Share Sale with Chester as they had promised to do.

[1440] On one level, as a brother who expected Chester’s brotherly love and as Chester’s

longstanding business partner, Morris expected Chester to respect his decisions about

aspects of the business for which he had taken responsibility. At the same time, he

completely deferred to Chester on financial matters, business and personal, trusting him to

act in his and in IWS’ best interests. Chester was the “money guy” and the “tax guy” in the

family, and by long custom, what he decided in these areas went unmonitored and

unchallenged.

⁴⁸⁴Supra endnote 479 at 745-746.

⁴⁸⁵(1984), [1985] 2 W.W.R. 265 (Sask. C.A.).

[1441] I find that Morris has proven a relationship of trust and confidence giving rise to a

presumption of undue influence. The fraternal relationship went to the heart of Morris’ identity.

His lifetime habit of trusting Chester was his bedrock and not readily abandoned. Even after

Morris first learned in January 1984 what he had signed on December 22, 1983, Chester was

able to continue to manipulate Morris, to abuse his trust by making Morris believe that he

would “straighten out.” I find that Chester’s influence over Morris persisted and that Morris

was not free from it until approximately 1988, when he finally was able to bring himself to

consult with a lawyer and to launch these actions.

Was the Transaction Unfair?

(i) The Test

[1442] At this stage of the factual inquiry, the plaintiff must show, “in addition to the required

relationship between the parties, that the contract worked unfairness either in the sense that

he or she was unduly disadvantaged by it or that the defendant was unduly benefited by it…

[T]he magnitude of the disadvantage or benefit is cogent evidence going to the issue of

whether influence was exercised.⁴⁸⁶”

[1443] Some uncertainty remains after Geffen as to whether manifest disadvantage is

required.

(ii) Application to the Facts at Bar

[1444] Given my findings, inter alia, about the wide gap between the value of Morris’ IWS

shares and the Share Sale price in December 1983, the wide gap between market rentals

and rentals under the December 1983 lease, other unfair terms, and the payment terms, the

terms of the gifting agreement, the deal was manifestly unfair to Morris. Even if manifest

disadvantage is required, I would find that the Plaintiffs have proven that element. Morris was

manifestly disadvantaged in the entire transaction for all of the reasons mentioned earlier

under the heading “Fairness of the Deal” and later in the Quantification and Valuation

sections of these Reasons. If I had allowed the Share Sale to stand, Chester would have

received Morris’ shares of IWS for about Morris’ share of the value of the cash in it and would

have received the operating business and goodwill for nothing or almost nothing. He would

have paid Morris to a large extent with Morris’ own money. He would have had lengthy

interest-free use of substantial sums belonging to Morris. If I had allowed the lease to stand,

the value of the land owned by Morriston would have been effectively transferred to IWS for

virtually nothing.

Was the Presumption of Undue Influence Rebutted?

(i) The Test

[1445] In Geffen Wilson J. said at 228 that to rebut a presumption of undue influence, the

defendant must prove that the plaintiff entered the transaction as a result of his own “full, free

and informed thought.”⁴⁸⁷

[1446] In Krys v. Krys⁴⁸⁸, the Supreme Court cited with approval the following passage from

the Privy Council case of Inche Noriah v. Shaik Allie Bin Omar⁴⁸⁹:

…their Lordships are not prepared to accept the view that independent legal advice is

the only way in which the presumption can be rebutted; nor are they prepared to affirm

that independent legal advice, when given, does not rebut the presumption, unless it be

shown that the advice was taken. It is necessary for the donee to prove that the gift was

the result of the free exercise of independent will. The most obvious way to prove this is

by establishing that the gift was made after the nature and effect of the transaction had

been fully explained to the donor by some independent and qualified person so

completely as to satisfy the Court that the donor was acting independently of any

influence from the donee and with the full appreciation of what he was doing; and in

cases where there are no other circumstances this may be the only means by which the

donee can rebut the presumption. But the fact to be established is that stated in the

judgment already cited of Lord Justice Cotton, and if evidence is given of circumstances

sufficient to establish this fact, their Lordships see no reason for disregarding them

merely because they do not include independent advice from a lawyer. Nor are their

Lordships prepared to lay down what advice must be received in order to satisfy the rule

in cases where independent legal advice is relied upon, further than to say that it must

be given with knowledge of all relevant circumstances and must be such as a competent

and honest advisor would give if acting solely in the interests of the donor.

⁴⁸⁶Geffen, supra endnote 477 at 228.)

⁴⁸⁷Ibid at 228.

⁴⁸⁸(1928), [1929] S.C.R. 153 (S.C.C.).

(ii) Application to the Case at Bar

[1447] Morris received no advice, whether legal or any other kind. Ennis did not provide

Morris with any independent legal advice, based on all the relevant circumstances and such

as a competent and honest advisor would have given if acting solely in the interests of the

donor. He should not have purported to act for Morris at all, and he should have avoided any

pretence of acting for him on December 22, 1983. Morris did not wish to sell his shares and

did not know what he was signing. He did not freely exercise his independent will. His true

consent was lacking. The presumption of undue influence has not been rebutted by the

presence of Ennis at the meeting.

[1448] The Plaintiffs have proven that Chester is liable to the Plaintiffs on the grounds of

undue influence.

D. Unconscionability

[1449] The Plaintiffs also claim that the Share Sale and lease should be set aside as

unconscionable.

[1450] The Two-Part Test

[1451] In “Banks, Fiduciary Obligations and Unconscionable Transactions” Professor

Donovan Waters has written,

Unlike the doctrine of undue influence, equity is not concerned in these situations with

whether the mind of one party was overborne by another or that the victim’s true consent

was lacking; it asks the question as to whether, looked at objectively, the transaction in

all the circumstances was sufficiently unconscionable that it cannot be allowed to stand.

As Professor Sheridan put it, writing in 1957, the question is whether, given the

weakness of one party’s bargaining position and the undervalue which he received, “a

greater advantage” was obtained by the stronger party “than the current morality of the

ordinary run of business allows.”⁴⁹⁰

⁴⁸⁹(1928), [1929] A.C. 127, 45 T.L.R. 1 (Straits Settlements P.C.) at 3.

⁴⁹⁰(1986), 65 Can. Bar. Rev. 37 at 48-49.

[1452] Wilson J. (dissenting) in Syncrude Canada Ltd. v. Hunter Engineering Co.⁴⁹¹said

rescission is available by reason of unconscionability in circumstances where the contract in

question is unreasonable and where that unreasonableness stems from an inequality of

bargaining power.

[1453] In Norberg⁴⁹², the Supreme Court of Canada considered various tort claims advanced

against a physician who sought sexual favours from a drug addict in return for prescriptions.

LaForest J., writing for three of six judges, referred to the following reasons of Davey J.A. in

Morrison v. Coast Finance Ltd. (1965), 55 D.L.R. (2d) 710 (B.C. C.A.) in which the elements

of unconscionability are outlined:

…a plea that a bargain is unconscionable invokes relief against an unfair advantage

gained by an unconscientious use of power by a stronger party against a weaker. On

such a claim, the material ingredients are proof of inequality in the position of the parties

arising out of the ignorance, need or distress of the weaker, which left him in the power

of the stronger, and proof of substantial unfairness of the bargain obtained by the

stronger. On proof of those circumstances, it creates a presumption of fraud which the

stronger must repel by proving that the bargain was fair, just and reasonable.⁴⁹³

[1454] He stated the elements of the test as follows:

(1) proof of inequality in the positions of the parties, and

(2) proof of an improvident bargain⁴⁹⁴

[1455] I have also been referred to the decision of the Ontario Court of Appeal in Mundinger v.

Mundinger⁴⁹⁵, a case in which a separation agreement was set aside for unconscionability.

The Court adopted inequality of bargaining position and improvidence as the required

elements and said the onus was then on the party seeking to uphold the contract to show that

his or her conduct throughout was scrupulously considerate of the other’s interests. This

reasoning was followed by the Ontario Court of Appeal in Black v. Wilcox:

The plaintiff’s bargaining power was grievously impaired by reason of his excessive

indulgence in alcohol. This condition was readily apparent to the defendant who

⁴⁹¹(1989), 57 D.L.R. (4th) 321 (S.C.C.) at p. 378.

⁴⁹²Supra endnote 441.

⁴⁹³Ibid, at 458.

⁴⁹⁴Ibid, at 464.

⁴⁹⁵(1968), [1969] 1 O.R. 606 (Ont. C.A.), aff’d, (1970), 14 D.L.R. (3d) 256 (note) (S.C.C).

exploited it to his advantage as evidenced by the enormous discrepancy between the

purchase price of the property and its market value.

It would not be consistent with equity and good conscience to permit this bargain to

remain unimpeached. The plaintiff was hopelessly over-matched and the defendant,

who had to be aware of the great disparity in their positions, overreached and sought to

obtain a benefit immoderately advantageous to him. In such circumstances, in my

opinion, a Court must exercise its equitable jurisdiction and set aside the

unconscionable transaction.⁴⁹⁶

[1456] I note the recent statement of the Ontario Court of Appeal in Fraser Jewellers (1982)

Ltd v. Dominion Electric Protection Co.⁴⁹⁷:

While I agree that such inequality is a relevant criterion, the fact that the parties may

have different bargaining power does not in itself render an agreement unenforceable.

Mere inequality of bargaining power does not entitle a party to repudiate an agreement.

The question is not whether there was an inequality of bargaining power. Rather, the

question is whether there was an abuse of the bargaining power.

Part 1 of the Test: Was the Position or Bargaining Power of the Parties Unequal? Was

there an Abuse of Bargaining Power?

[1457] Inequality of position or bargaining power may be of different kinds, ranging from the

extreme example of the drunken signatory to the more subtle. In Norberg, LaForest J. said

that there must be an “overwhelming imbalance in the power relationship between the

parties.⁴⁹⁸” He quoted with approval the following passage from Boyle and Percy, Contracts:

Cases and Commentaries, 4th ed. (Toronto: Carswell, 1989) at 637-638:

[A person] may be intellectually weaker or simply situationally weaker because of

temporary circumstances: Alternatively, the “weakness” may arise out of a special

relationship in which trust and confidence has been reposed in the other party. The

comparative weakness or special relationship is, in every case, a fact to be proven.⁴⁹⁹

[1458] I have attempted to apply the test as stated by LaForest J. in Norberg bearing in mind

the reasoning of the Court of Appeal in Fraser.

⁴⁹⁶(1976), 12 O.R. (2d) 759 (Ont. C.A.) at 764.

⁴⁹⁷(1997), 34 O.R. (3d) 1 (Ont. C.A.) at 12 [hereinafter Fraser].

⁴⁹⁸Supra endnote 441 at 458.

[1459] I conclude there existed an overwhelming imbalance in the power relationship between

Morris and Chester, an abuse of bargaining power, over-reaching conduct and a preying upon

Morris by Chester.

[1460] Morris was disadvantaged in several ways. Chester asked him to come to sign

documents. He had often been called to sign documents before. His illness and temporary

preoccupation with his own mortality made him situationally weaker and vulnerable. Ennis’

presence and silence lent an impression of normalcy and security to the meeting. Morris was

unaware the documents he was being asked to sign were anything out of the ordinary. There

had been no negotiations. Morris reposed an exceptional level of trust and confidence in

Chester, a fact already covered in the sections of these Reasons on fiduciary duty and undue

influence.

[1461] I have considered whether Morris knew that he was signing Share Sale documents on

December 22, and I have decided that he did not. Even if I had found, in the absence of prior

negotiations, that Morris became aware for the first time on December 22, 1983, that he was

being asked to sign Share Sale documents and that he did so knowingly, applying the criteria

set out above, I would have found the Share Sale and lease to be unconscionable. Even if

Morris had known that they were Share Sale documents, and if he had read them, he would

not have been able to understand the terms of the proposed deal or whether they were fair

without appropriate legal and financial advice. Morris needed advice of several types. He

received none. Chester exploited Morris’ vulnerability, abusing his position of power. He

actively preyed upon Morris in order to obtain significant benefits for himself.

Part 2 of the Test - Was the Bargain Improvident? Has Chester Rebutted the

Presumption of Unconscionability? Has Chester shown that His Conduct Throughout

was Scrupulously Considerate of Morris’ Interests? Has he proven that the bargain

was fair and reasonable?

[1462] Chester has not rebutted the presumption of unconscionability arising out of the

relationship of trust and confidence and out of Morris’ situational disadvantage, weakness and

vulnerability. On the contrary, I have found that Morris has proven that his interests were

trampled. He was asked to sign a deal that Chester knew he did not want to sign, without any

⁴⁹⁹Ibid, at 459.

meaningful review. Fairness demanded independent advice, including legal, valuation and tax

advice, and genuine negotiations. They are all lacking.

[1463] From the time when he began to consider a purchase of Morris’ shares, the deal got

better and better for Chester. The price decreased in real terms. The rent payable by IWS

under the lease also decreased.

[1464] I have earlier found that the documents signed on December 22, 1983, were patently

unfair to Morris. My reasons for finding that, including the $1 million dividend but excluding the

$6.6 million in 1981-82 bonuses earlier stripped from IWS, the value of IWS at December

1983 was conservatively $9.5 million are given later in these Reasons in the Quantification

and Valuation section. They should be referenced on this issue. The December 1983 lease

contained a rental rate drastically below market rents and terms that were patently

unfavourable to Morris. I have found in the Quantification and Valuation section that the lease

deficiency [i.e. the difference between market rents and the rents under the December 1983

lease over the lease term is $2,529,607.] Chester and Linton structured the share purchase

so that Chester would to a large extent pay for Morris shares with Morris’ own money. As

someone familiar with the finances of IWS, Chester would have known that the amount Morris

would actually receive reflected little more than the value of Morris’ share of the cash and

near cash in IWS. The deal was substantially unfair and improvident. It would not be

consistent with equity and good conscience to permit this bargain to remain unimpeached.

[1465] Morris and Morriston have proven that the Share Sale and lease were unconscionable.

E. The Oppression Remedy

[1466] The oppression remedy is a creature of statute and not an equitable cause of action

giving rise to equitable remedies per se. However, since it has much in common with the

equitable causes of action, and it allows for remedies similar to the equitable remedies, I shall

consider it here.

[1467] Morris claims a remedy against Chester and IWS in relation to the Share Sale under

s.248 of the OBCA; against Chester and IWS in relation to the December 1983 lease and the

1979, 1981 and 1982 bonuses; against Chester, IWS and Robert in relation to the profit

diversion to Greycliffe and other related companies; and against Chester, Robert, Gary and

Warren in relation to the 1984-1988 bonuses and dividends. Morriston also claims in relation

to the December 1983 lease.

[1468] Chester used Morris’ personal and business resources to support and expand IWS;

treated his own 50% ownership of IWS as if it were a majority ownership; and operated IWS

as if Morris were not a 50% owner, directing huge bonuses to himself and his sons. He

operated IWS to his personal advantage.

Section 248 of the OBCA provides as follows:

248.

(1) A complainant… may apply to the court for an order under this section.

1982, c.4, s.247(1); 1994, c.27, s.71(33).

(2) here, upon an application under subsection (1), the court is satisfied that

in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or

threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are,

have been or are threatened to be carried on or conducted in a manner;

or

(c) the powers of the directors of the corporation or any of its affiliates

are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of

any security holder, creditor, director or officer of the corporation, the court may

make an order to rectify,’ the matters complained of.

(a) Threshold Issues

(i) Standing

[1469] Applicants for relief must fall within the definition of “complainant” as defined in s. 245

of the OBCA:

(a) a registered holder or beneficial owner, and a former registered holder or beneficial

owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or of any of its

affiliates,

(c) any other person who, in the discretion of the court, is a proper person to make an

application under this part.

[1470] Morris, as a shareholder or former shareholder qualifies as a complainant. As in

Gandalman Investments Inc. v. Fogle⁵⁰⁰power and authority here were not divided equally.

Therefore, Morris, a 50% shareholder, is not precluded from applying for relief- If I am

incorrect in setting aside the Share Sale, I have held in the alternative that the Share Sale

was a staged sale, and that Morris continued to be an IWS shareholder until the end of

December 1988.

[1471] In Novacrete Construction Ltd. v. Profile Building Supplies Inc.⁵⁰¹, Novacrete, as

landlord, was a complainant under the OBCA and was found to be entitled to a remedy

against the tenant corporation, the sole director personally, and a third company set up by the

director. Himel J. said at para. 99:

Similarly, I find that Mr. Valente as the sole shareholder and director of Profile Building,

Profile Woodworking and Profile Tile, exercised his powers in an unfair manner which

disregarded the interests of the plaintiff and that under the statute, the court is

empowered to make an order it thinks fit including compensating an aggrieved person.

By transferring all the assets of Profile Building to Profile Tile, he has caused prejudice

or oppression to the landlord who is entitled to recover compensation for damages.

[1472] The court has wide discretion to grant standing under s. 245(c). Creditors have on

occasion been afforded complainant status.⁵⁰²

[1473] Morriston was IWS’ landlord in the December 1983 lease, which was an integral part of

the Share Sale. There is a nexus between Morriston and the harm done. As Morris’ personal

holding company, Morriston has an identity of interest with Morris.

[1474] Therefore both Morris and Morriston have standing to make an application under the

OBCA. This approach allows the Court to consider the transaction as a whole and in context.

⁵⁰⁰(1985), 22 D.L.R. (4th) 638 (Ont. H.C.)

⁵⁰¹(2000), 7 B.L.R. (3d) 248 (Ont. S.C.J.)

⁵⁰²See e.g. Sidaplex-Plastic Suppliers Inc. v. Elm Group Inc. (1995), 131 D.L.R. (4th) 399 (Ont. Gen. Div. [Commercial List]), varied (1998),

162 D.L.R. (4th) 367 (Ont. C.A.)

(ii) Does the Share Sale Fall Under S.248?

[1475] The Defendants submit that the Share Sale was a private transaction between

shareholders and as such is not covered under s.248. They submit that there was no battle

for control between Chester and Morris and no series of corporate steps taken to thwart

Morris’ legal rights or expectations.

[1476] “Business or affairs” of the corporation, an expression found in s.248(2)(b), relates to

the definition of “affairs” found at subsection 1(1) of the OBCA:

‘affairs’ means the relationships among a corporation, its affiliates and the shareholders,

directors and officers of such bodies corporate but does not include the business carried

on by such bodies corporate…

[1477] The court may intervene where in respect of a corporation or any of its affiliates» the

requirements under s.248(2)(a), (b) or (c) are met.

[1478] In GATX Corp. v. Hawker Siddeley Canada Inc.⁵⁰³, a shareholders’ agreement

between Hawker Siddeley and GATX provided for a right of first refusal unless either

shareholder was transferring shares to an affiliate. Hawker Siddeley, which held the control

block of shares, wished to sell to a third party. GATX insisted on its right of first refusal.

Instead of selling the shares directly to GATX, Hawker Siddeley transferred them to an

affiliate company, and then purported to sell the shares in the affiliate to the third party. GATX

brought an application seeking various forms of relief and alleged, inter alia, that the conduct

of Hawker Siddeley was oppressive.

[1479] Blair J. found that GATX could invoke the oppression remedy with respect to the sale

of the shares:

[1480] at p. 292

In a very narrow and technical sense it may be argued that the battle over the majority

position in GATX does not relate to the corporation itself but merely to the shares in that

corporation. The Court ought not to adopt such a narrow and technical approach to the

interpretation of the oppression remedy, in my view, however. The phrase ‘in respect of

is quite broad, and I am satisfied that a fight which will determine the control of a

⁵⁰³(1996), 27 B.L.R. (2d) 251 (Ont. Gen. Div. [Commercial List]) [hereinafter GATX].

corporation is a fight ‘in respect of that corporation. In the same way, conduct which is

designed to infringe upon the prerogative of an existing shareholder to have first right of

refusal at that control position is “oppressive”—in the broad sense of that word—of the

shareholder ‘in respect of’ the corporation.

I am fortified in this view by the concept of the “affairs” of a corporation as prescribed in

the CBCA itself… The relationship between the shareholders of a corporation

constitutes a part of the “affairs” of that corporation, as do the relationships among the

corporation itself and its affiliates and its shareholders, officers and directors. Matters

impinging upon those relationships must accordingly be matters ‘in respect of the

corporation…

[1481] In Fulmer v. Peter D. F aimer Holdings Inc.⁵⁰⁴, a sale of shares was found to fall under

s.248. In that case, the dominant managing director with day-to-day operating control over the

company dismissed the plaintiff from his employment with the company in a manner contrary

to a unanimous shareholders’ agreement, then prevailed upon him to transfer his shares

when he was involuntarily committed to a psychiatric facility. On the plaintiff’s application for

an oppression remedy, McDermid J. granted relief, including an order setting aside the Share

Sale. He found that the director had abused his power in ignoring the unanimous

shareholders’ agreement, in improperly terminating the plaintiff and in manipulating him to sell

his shares.

[1482] The Defendants have cited a number of authorities in an attempt to support their

submission that the oppression remedy cannot apply to a Share Sale.

[1483] In Benedetti v. North Park Electronics (1980) Ltd.,⁵⁰⁵the allegation of oppression was

based on a disappointed expectation that a contract would be fulfilled. The parties had never

agreed on a key term. The Divisional Court upheld a finding at trial that the oppression

remedy did not apply. The following, quoted at para. 6 by the Divisional Court from the trial

judge’s endorsement, formed the basis of its oral reasons:

The oppression remedy is designed to protect interests qua security holder, creditor,

director or officer—it is not designed to enforce contracts between people, just because

they happen to be shareholders. That is properly the subject of an action.

⁵⁰⁴(1997), 36 B.L.R. (2d) 257 (Ont. Gen. Div.) [hereinafter Fulmer].

⁵⁰⁵[1997] O.J. No. 5244 (Ont. Div. Ct.)

[1484] Referring to the decision of the Court of Appeal in Naneff v. Con-Crete Holdings Ltd⁵⁰⁶,

the Divisional Court held that an order under s.248 must rectify oppressive conduct and it

must protect shareholders’, directors’ or officers’ interest as such, and not other interests⁵⁰⁷. It

also referred to Wittlin v. Bergman,⁵⁰⁸involving shareholders who were disputing the

distribution of shares of a family member. Referring to the definition of “affairs,” Farley J.

commented that the applicant’s complaint was that he did not receive shares in the

corporation when one shareholder bought out another and declined to find oppression. On

appeal, the Court of Appeal did not comment on the applicability of the oppression remedy.

[1485] Smith v. Red Green Productions III Inc.⁵⁰⁹was a contractual dispute among

shareholders in which the claimant’s interests as a shareholder were not adversely affected.

[1486] The last case cited by the Defendants, Di Nicola v. Pietrangelo,⁵¹⁰is distinguishable on

its unusual facts. A minority shareholder’s poor credit rating was making it difficult for the

company to obtain a loan. After declining independent legal advice, he voluntarily redeemed

his shares, then claimed oppression when he was not allowed to buy them back. Lax J. held

that his voluntary business decision could not give rise to an oppression remedy.

[1487] In all of the cases cited by the Defendants in which the Court refused to apply s.248 to

a shareholder, the interests the complainants were trying to protect had nothing to do with

their status as shareholders.

[1488] In my view, the Plaintiffs’ complaint about the Share Sale falls under s.248. I do not

accept the submissions of the Defendants that there was no battle for control between

Chester and Morris, no series of corporate steps taken to thwart Morris’ legal rights or

expectations. While I agree that the oppression remedy should not be applied to extraneous

disputes, the events here were intimately connected to Morris’ status as a 50% shareholder in

an incorporated partnership. The way in which the Share Sale was implemented deeply

implicated IWS. Chester, acting as if he were already the 100% owner of IWS, put the

resources of IWS at his own disposal to make his share purchase so that he would have

100% ownership of IWS. By causing the corporation to act, he engaged s.248(2)(a). He

arranged for IWS to declare a million-dollar dividend that he would use to pay for part of

⁵⁰⁶(1993), 11 B.L.R. (2d) 218 (Ont. Gen. Div. [Commercial List]); (1995), 23 B.L.R. (2d) 286 (Ont. C.A.) [hereinafter Naneff].

⁵⁰⁷Ibid, at 298.

⁵⁰⁸(1994), 19 O.R. (3d) 145 (Ont. Gen. Div.); varied on other grounds (1995), 25 O.R. (3d) 761 (Ont. C.A.)

⁵⁰⁹95 O.T.C. 389, [1999] O.J. No. 1704 (Ont. S.C.J.)

Morris’ shares; for IWS to reallocate $412,000 of Morris’ 1982 bonus to himself to pay for

Morris’ shares; for IWS to borrow $500,000 from Morris, interest-free; for Linton, the IWS

comptroller, to issue an IWS cheque in the amount of $500,000 payable to Morris, even

though the Share Sale Agreement provided that payments were to be made by Chester

personally. By his actions and IWS’ actions, Chester secured control of IWS. Chester made

IWS a party to the December 1983 lease.

[1489] Especially given the complete lack of negotiations, all of this corporate conduct was, to

use the word of Blair J. in GATX⁵¹¹, capable of being “designed to infringe upon the

prerogative of an existing shareholder” (Morris) and “was capable of being ‘oppressive’ of the

shareholder in respect of the corporation.”

(iii) Can A Derivative Claim be Brought Under the Oppression Remedy?

[1490] The Defendants submit that a derivative claim should have been brought in respect of

the Greycliffe profit diversions and the bonuses. The Plaintiffs submit that no derivative action

is necessary to pursue an oppression remedy with respect to Greycliffe and the bonuses. I

have earlier held that by virtue of their relationship, Chester owed Morris fiduciary duties in

connection with the bonuses and Greycliffe. Therefore, in my view, no derivative action is

necessary in that respect.

[1491] Professor Jeffrey G. Macintosh in “The Oppression Remedy: Personal or

Derivative”⁵¹², has noted that authorities allowing actions of a derivative character under the

oppression remedy go back at least to Scottish Co-operative Wholesale Society Ltd. v.

Meyer,⁵¹³. After citing a number of early cases including A Company, Re⁵¹⁴, which “comport

more with the manifest intention of the [U.K.] legislature to open up the oppression provision

to actions of a derivative character,” he said at page 43 that the ambiguous wording of the

CBCA, which refers to breaches of directors’ duties, appears “to have contemplated that

these derivative wrongs [would] be cognizable under the oppression provision.” At p 46, he

observed that in the private company context:

The distinction between derivative and personal actions loses a good deal of its bite.

⁵¹⁰[1998] O.J. No. 4680 (Ont. Gen. Div. [Commercial List])

⁵¹¹Supra, endnote 501.

⁵¹²(1991) 70 Can. Bar. Rev. 29 at 36 ff.

⁵¹³[1958] 3 All E.R. 66 (U.K. H.L.)

⁵¹⁴(1985), [1986] 2 All E.R. 253 (Eng. Ch.)

If this description of the oppression remedy (which parallels Gower’s rationalization of

the English cases) is correct, then the oppression remedy embraces two types of

actions: those that are purely personal, and those which might be brought as either

derivative or personal actions, but which are pursued in personal form under the

oppression remedy. [emphasis in original; footnote omitted]

[1492] After canvassing the Canadian case law to the time of writing, he concluded at p. 52

that “the balance of authority appears to favour the proposition that all types of derivative

actions are permitted under the oppression remedy.”

[1493] In Jabalee v. Abalmark Inc.⁵¹⁵the Plaintiffs appealed the decision of a motions court

judge who had refused to add JMJ Inc. as a party. They claimed this party aided and abetted

the oppressive conduct that was the subject of the action. The Ontario Court of Appeal said at

paras. 4-5:

The oppression remedy in s.248 of the Ontario Business Corporations Act is very broad

and may well entitle a minority shareholder in a closely-held company to relief arising out

of a director’s breach of fiduciary duty. Equally although some of the claims in the

proposed amended statement of claim could be the subject of a derivative action, they

may also make out a case of oppression. The two are not mutually exclusive…

[1494] In Jabaco Inc. v. Real Corporate Group Ltd.⁵¹⁶, Doherty J. (as he then was) held that

the fact that the same allegations could be made by way of derivative action, or by way of

actions for breach of fiduciary duties commenced against the various respondents, does not

deny access to section 241 [of the CBCA.]

[1495] The Supreme Court of Canada in Hercules Management Ltd. v. Ernst &. Young⁵¹⁷

appears to have breathed new life into the rule in Foss v. Harbottle⁵¹⁸, which had been

considered “notorious” and “infamous” with reference to the oppression remedy as long ago

as the Dickerson Report.⁵¹⁹Hercules, while important to the claim against Taylor Leibow is

not an oppression remedy case.

(iv) Does Morris’ Signature Bar Him from Complaining under the OBCA?

⁵¹⁵[1996] O.J. No. 2609 (Ont. C.A.).

⁵¹⁶[1989] O.J. No. 68 (Ont. H.C.).

⁵¹⁷(1997), 146 D.L.R. (4th) 577 (S.C.C.) at 606 [hereinafter Hercules].

⁵¹⁸(1843), 67 E.R. 189 (Eng. V.-C.) [hereinafter Foss].

⁵¹⁹R. Dickerson et ai, Proposals for a New Business Corporations Law for Canada. (Ottawa: Information Canada, 1971) at para. 482, also

citing Gower, Modern Company Law at v.

[1496] The Defendants submit that Morris is barred from recovery under s.248, as he signed

various documents personally and on behalf of IWS, that he is trying to escape the legal

consequences of his own conduct and carelessness, and that a unanimous resolution of the

directors is a valid corporate act.⁵²⁰

[1497] I am troubled by this submission. It seems to me that it amounts to the following: There

are only two shareholders/partners/brothers. One knows the other trusts and relies on him to

handle all financial and legal matters. The one knows the other does not monitor his activities.

The one takes advantage of this lack of monitoring to cheat the other. As between the one

partner who cheats, and the other partner who trusts and fails to monitor, it is the latter who

should bear the loss.

[1498] I do not accept this proposition. In almost all oppression cases, something has taken

place that could have been prevented. The statute offers a means of effecting broad justice,

particularly regarding disputes in small, closely held, family corporations where there is often

a measure of blameworthy behaviour on all sides.

[1499] If I am wrong in this conclusion, I have already found in any event that the inequities of

the Share Sale, lease and bonuses may be addressed and remedied having resort to causes

of action including breach of fiduciary duty, undue influence and unconscionability.

[1500] I note that Morris did not sign the resolution approving the $1 million dividend declared

in the context of the Share Sale or any documents with respect to IWS’ dealings with

Greycliffe.

[1501] Whether or not my finding with respect to the Share Sale, lease and bonus is correct,

Morris is not automatically barred from recovering with regard to the $ 1 million dividend and

the profit diversions or with respect to bonuses and dividends declared after 1983.

(v) May the Oppression Remedy be Applied Retrospectively?

[1502] The amendments to the OBCA that created the oppression remedy received Royal

Assent on June 7, 1982. The Defendants submit that the oppression remedy cannot apply to

conduct before the legislation came into force including the declaration of the 1979, 1981 and

1982 bonuses and the Greycliffe profit diversions before that date.

⁵²⁰OBCA s. 117(2); Eisenberg v Bank of Nova Scotia, [1965] S.C.R. 681 (S.C.C.) at 694.

[1503] The Divisional Court in Mason v. Intercity Properties Ltd.,⁵²¹held otherwise. Reid J.

said:

We are not persuaded there was any error in the decision of Smith J. that the applicant

was entitled to relief under [then] s.247 of the Business Corporations Act.

Although we disagree, with respect, with his view that the 1983 [sic] legislation was

largely procedural and did not create new obligations, we think he was right in

concluding from the plain language of the provisions that they were intended to be

retrospective in application. The discretionary nature of the powers granted to the court

under the section provide a safeguard against a retrospective application that would be

unjust or inequitable.

[1504] In “The Retrospectivity of the Oppression Remedy”, Professor Jeffrey G. Macintosh

suggested policy grounds to support the result in Mason:

As a matter of first principle, there appears to be no compelling reason why the courts

should not extend the oppression remedy to situations of inequity arising out of facts

occurring before the effective date of the oppression provision. The presumption against

retrospectivity is sometimes stated as a presumption in favour of vested rights. There is

little intuitive appeal in arguing in favour of a vested right to act oppressively or

unfairly.⁵²²

[1505] Professor Sullivan defines retroactivity as the application of legislation to facts that

occurred before the legislation came into force. Successive fact situations consist of facts that

occur at separate times. Such a fact pattern is not complete and does not become part of the

past until the final fact occurs. An application of law is not retroactive unless all the relevant

facts were past when the provision came into force.⁵²³

[1506]Application to the Case at Bar

[1507] On the authority of Mason⁵²⁴I conclude that s.248 may be applied retrospectively.

Regardless of the correctness of that holding, large portions of the 1981 and 1982 bonuses

⁵²¹unreported, Nov. 12, 1985, summarized (1985), 34 A.C.W.S. (2d) 729 (Ont. Div. Ct.), varied on other grounds (1987), 59 O.R. (2d) 631

(Ont. C.A.) [hereinafter Mason].

⁵²²(1987-88) 13 C.B.L.J. 219 at 226.

⁵²³R. Sullivan, Driedger on the Construction of Statutes, 3rd ed. (Markham: Butterworths, 1994) at 512-515.

⁵²⁴Supra endnote 519.

were not paid to the recipients until after June 7, 1982. Greycliffe profit diversions continued

well after June 7, 1982.

(b) Were the Actions in Question Oppressive?

[1508] This Court in Sahota v. Basra⁵²⁵summarized some general principles respecting the

oppression remedy:

(1) one of the goals of s.248 of the Act is to protect the reasonable expectation of

shareholders;⁵²⁶

(2) when dealing with a closely held corporation, the court may consider the relationship

between the shareholders and not simply their legal rights as such;⁵²⁷

(3) it is not necessary for the applicant to establish that there is an element of bad faith

present in the alleged misconduct in order to succeed in obtaining an oppression

remedy;⁵²⁸

(4) it is sufficient to establish that the interests of the complainant have been unfairly

disregarded or prejudiced;⁵²⁹

(5) the burden of proof concerning unfair prejudice or disregard of interest is less

rigorous than the burden of proof where oppression is claimed, as what is at issue is the

unfair result rather than a state of mind.⁵³⁰

[1509] A remedy is available under s.248 for conduct that is oppressive, unfairly prejudicial to

or unfairly disregards the interests of a complainant. These often overlapping terms, which

are listed here in decreasing order of gravity, have been described as referring to wrongful

conduct, an unfair result, and an unfair process.⁵³¹

[1510] In Brant⁵³², McKinlay J.A. for the Ontario Court of Appeal [referring to the CBCA] said:

Section 234(2) of the CBCA is drafted in substantially more detail than the provisions of

the English Act. Clause (a) makes specific reference to the wrongfulness of the result of

⁵²⁵(1999), 45 B.L.R. (2d) 143 (Ont. Gen. Div.) at 150-51 [hereinafter Sahota].

⁵²⁶Brant, supra endnote 461.

⁵²⁷M. v. H. (1993), 15 O.R. (3d) 721 (Ont. Gen. Div.) [hereinafter M. v. H.]

⁵²⁸Naneff, supra endnote 504.

⁵²⁹Brant, supra endnote 461.

⁵³⁰Such v. R.W.-L.B. Holdings Ltd. (1993) 11 B.L.R. (2d) 122 (Alta. Q.B.); Mason, supra endnote 519.

⁵³¹See J. Campion, S. Brown, & A. Crawley, “The Oppression Remedy: Reasonable Expectations of Shareholders” in L.S.U.C. Special

Lectures 1995—Law of Remedies (Toronto: Carswell, 1995) at 233.

⁵³²Supra, endnote 461 at 247.

corporate conduct. If the result is oppressive, unfairly prejudicial, or unfairly disregards

the interests of the complainant, then the court may grant a remedy. Clause (b) refers to

the manner in which the business affairs of the corporation are carried on. If they are

carried on in a manner that is oppressive, unfairly prejudicial, or unfairly disregards the

interests of the complainant, a remedy may be available. Clause (c) refers to the manner

in which the powers of the directors have been exercised. If they have been exercised in

a manner that is oppressive, unfairly prejudicial, or that unfairly disregards the interests

of the complainant, a remedy may be available. It can thus be seen that clause (a)

emphasizes the results of behaviour whereas clauses (b) and (c) emphasize the manner

in which acts have been carried out. Although the emphasis in wording is different

between clause (a) and clauses (b) and (c), I am satisfied that the difference is not

significant in any practical sense in this case. It may be significant in cases where clause

(a) is inapplicable because no oppressive or unfair result has been alleged, but where

the acts complained of allegedly have been carried out in a manner which is oppressive

or unfair so as to engage clause (b) or clause (c).

What were the Reasonable Expectations of the Parties?

[1511] Reasonable expectations lie at the heart of the oppression remedy. Galligan J.A. wrote

in Naneff⁵³³:

The law is clear that when determining whether there has been oppression of a minority

shareholder, the court must determine what the reasonable expectations of that person

were according to the arrangements which existed between the principals. The cases on

this issue are collected and analyzed by Farley J. in 820099 Ontario Inc. v. Harold E.

Ballard Ltd. (1991), 3 B.L.R. (2d) 113 at p. 123 (Ont. Gen. Div.), affirmed (1991), 3

B.L.R. (2d) 113 (Ont. Div. Ct.). I agree with his comment at pp. 185-86:

Shareholder interests would appear to be intertwined with shareholder

expectations. It does not appear to me that the shareholder expectations which are

to be considered are those that a shareholder has as his own individual “wish list”.

They must be expectations which could be said to have been (or ought to have

been considered as) part of the compact of the shareholders

⁵³³Supra, endnote 504 at 298-99.

The determination of reasonable expectations will also, in my view, have an important

bearing upon the decision as to what is a just remedy in a particular case.

[1512] Especially in small, family-owned private corporations, these expectations have been

described as part of the shareholders’ “compact” regulating the conduct of the corporation’s

affairs⁵³⁴.

[1513] The personal relationships among the “partners” in an incorporated partnership

situation may influence the determination of reasonable expectations that are entitled to the

protection of the oppression remedy. For example, the Court of Appeal in crafting a remedy in

Naneff⁵³⁵considered the reasonable expectation of the parties in light of the family

relationship among them.⁵³⁶

[1514] In 820099 Ontario Inc. v. Harold E. Ballard Ltd.,⁵³⁷Farley J. quoted, inter alia, Ebrahimi

v. Westbourne Galleries Ltd.,⁵³⁸where Lord Wilberforce said:

My Lords, in my opinion these authorities represent a sound and rational development of

the law which should be endorsed. The foundation of it all lies in the words ‘just and

equitable’ and, if there is any respect in which some of the cases may be open to

criticism, it is that the courts may sometimes have been too timorous in giving them full

force. The words are a recognition of the fact that a limited company is more than a

mere judicial entity, with a personality in law of its own: that there is room in company

law for recognition of the fact that behind it, or amongst it, there are individuals, with

rights, expectations and obligations inter se which are not necessarily submerged in the

company structure. That structure is defined by the Companies Act 1948 and by the

articles of association by which shareholders agree to be bound. In most companies and

in most contexts, this definition is sufficient and exhaustive, equally so whether the

company is large or small. The ‘just and equitable’ provision does not, as the

respondents suggest, entitle one party to disregard the obligation he assumes by

entering a company, nor the court to dispense him from it. It does, as equity always

does, enable the court to subject the exercise of legal rights to equitable considerations;

considerations, that is, of a personal character arising between one individual and

⁵³⁴M. v. H., supra, endnote 525 at 729; Sahota, supra endnote 523 at 150-151.

⁵³⁵M. v. H., ibid, at 299-300

⁵³⁶See also Fulmer, supra, endnote 502 at p. 274; M. v. H., ibid.

⁵³⁷(1991), 3 B.L.R. (2d) 123 (Ont. Gen. Div.), aff’d (1991), 3 B.L.R. (2d) 113 (Ont. Div. Ct.) [hereinafter Ballard]..

⁵³⁸[1972] 2 All E.R. 492 (U.K. H.L.) [hereinafter Ebrahimi].

another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise

them in a particular way.

It would be impossible, and wholly undesirable, to define the circumstances in which

these considerations may arise. Certainly the fact that a company is a small one, or a

private company, is not enough. There are very many of these where the association is

a purely commercial one, of which it can safely be said that the basis of association is

adequately and exhaustively laid down in the articles. The superimposition of equitable

considerations requires something more, which typically may include one, or probably

more, of the following elements: (i) an association formed or continued on the basis of a

personal relationship, involving mutual confidence - this element will often be found

where a pre-existing partnership has been converted into a limited company; (ii) an

agreement, or understanding, that all, or some (for there may be ‘sleeping’ members), of

the shareholders shall participate in the conduct of the business; (iii) restriction on the

transfer of the members’ interest in the company - so that if confidence is lost, or one

member is removed from management, he cannot take out his stake and go

elsewhere.⁵³⁹

[1515] At a minimum, reasonable expectations must be presumed to include expectations that

directors and officers will fulfil their statutory duties of good faith and loyalty to the corporation,

that shareholders will share the profits of the company in proportion to their ownership of a

given class of shares, and that distributions of equity of the company will only be made to

shareholders.

[1516] In Diligenti v. RWMD Operations Kelowna Ltd.,⁵⁴⁰Fulton J. stressed that in a closely

held private company, especially one formed to take over the business of a close partnership

relation, each “partner” has a real interest in participating in the management of the affairs of

the company. He went on at p. 46 to note that in an incorporated partnership, it is appropriate

to look to equitable rights that arise out of the circumstances in which one holds shares:

I consider that there are rights—equitable rights—attaching to the position of the

applicant as shareholder in the circumstances present here, in respect of which he has

been unfairly prejudiced, and in reaching this conclusion I rely upon and respectfully

⁵³⁹Ibid. at pp. 499-501.

⁵⁴⁰(1976), 1 B.C.L.R. 36 (B.C. S.C.) [hereinafter Diligenti].

adopt the reasoning of Lord Wilberforce as distilled from a perusal of the whole of his

judgment in the Ebrahimi case.⁵⁴¹

[1517] An important aspect of these principles is that “partners” in a business, even an

incorporated business, should be treated equally and share in the profits of the enterprise

according to their partnership share. One partner is not entitled to appropriate to himself a

disproportionate share of the remuneration, management fees, bonuses and other like

payments. As Fulton J. noted:

Here, there is clear indication of the intent that “the partners” would collectively provide

and collectively share, whereas what has happened is that Diligenti has been effectively

excluded.⁵⁴²

Application to the Case at Bar

[1518] I have accepted Morris’ evidence that he expected Chester to act in his and IWS’ best

interest and that as a 50% shareholder, he expected to receive 50% of the profits and

increases in value of IWS. He also expected to participate in the management of IWS and for

his sons to be able to work in IWS just as Chester’s sons had been able to do. I find that

those were reasonable expectations.

[1519] Beyond that, the shareholders ‘/partners’ compact that existed between Morris and

Chester may be inferred from the manner in which the IWS was managed during the decades

before Chester’s sons joined. Each brother was in charge of particular areas of the business

according to his talents, was entitled to trust the other brother absolutely to carry out his

duties in good faith.

[1520] As discussed earlier, even “partners” in an incorporated company, such as Morris and

Chester, owe each other special duties. While “partners” in this context might not include two

large corporations each owning equal shares in a company, it would include individual

partners of a closely held company having a shared history and shared expectations, and an

understanding of shared obligations. In these circumstances, given the statutory scheme that

allows for the consideration of equitable principles, the courts have super-imposed equitable

principles relating to partnerships on corporations which are owned by individual partners.

⁵⁴¹Ibid. at 43-44.

⁵⁴²Ibid at 53.

(c) Oppressive Conduct

[1521] Oppressive conduct is “burdensome, harsh and wrongful”.⁵⁴³Oppression may include

appropriation of corporate property and breaches of fiduciary duty, typically arising from an

abuse of corporate power.⁵⁴⁴The payment of excessive bonuses, directors’ fees and other

compensation has been found to be oppressive.⁵⁴⁵Transactions that confer benefits on or

divert corporate opportunities to related parties, to the detriment of the corporation or its

shareholders, may also constitute oppression.⁵⁴⁶

[1522] The oppression remedy is not directed exclusively to discrete acts. “Oppression” may

be found on the basis of a pattern of conduct, some of the individual elements of which, taken

alone, would not provide a sufficient basis for intervention.⁵⁴⁷

Application to the Case at Bar

[1523] I have found that several of Chester’s actions may properly be described as

oppressive. He asked Morris to sign Share Sale documents knowing that Morris did not want

to sell his shares and did not appreciate that he was selling his shares. He knew that he had

no advice or professional assistance. The terms of the deal, including the December 1983

lease and the unusual financing arrangements for the Share Sale were patently unfair,

improvident and unconscionable for reasons cited earlier. Chester used Morris’ and IWS’

resources for his own purposes in order to facilitate and to pay for the purchase of Morris’

shares.

[1524] Chester’s other oppressive actions include the progressive exclusion of Morris from

management and decision making and the payment by IWS at Chester’s instance of

excessive bonuses to Chester’s sons and eventually to Chester. Chester did not disclose the

enormous bonuses to Morris. As a 50% shareholder in IWS, Morris could reasonably have

expected that such bonuses (unjustifiable if measured against services performed,) would

never be declared. The bonuses represented distributions of equity, 50% of which Morris

⁵⁴³Brant, supra endnote 461; Abraham v. Inter Wide Investments Ltd. (1985), 51 O.R. (2d) 460 (Ont. H.C.) at 468 [hereinafter Re Abraham];

Diligenti, supra, endnote 538 at 45.

⁵⁴⁴D. Peterson, “Shareholder Remedies in Canada,” looseleaf (Markham: Butterworths, 2000) at §§ 18.48-49.

⁵⁴⁵Re Abraham, supra endnote 541 at 466; Wright v. Donald S. Montgomery Holdings Ltd. (1998), 39 B.L.R. (2d) 266 (Ont. Gen. Div.)

[hereinafter Wright]; Loveridge Holdings Ltd. v. King-Pin Ltd. (1991), 5 B.L.R. (2d) 195 (Ont. Gen. Div.) at 199-200 [hereinafter Loveridge].

⁵⁴⁶400280 Alberta Ltd. v. Franko’s Heating & Air Conditioning (1992) Ltd., [1995] 4 W.W.R. 558 (Alta. Q.B.) at 567 hereinafter Franko’s

Heating]’, Loveridge, ibid, at 199-200; Wright, ibid, at 274; Redekop v. Robco Construction Ltd. (1978), 7 B.C.L.R. 268 (B.C. S.C.)

⁵⁴⁷See Ferguson v. Imax Systems Corp. (1983), 43 O.R. (2d) 128 (Ont. C.A.) at 138 [hereinafter Re Ferguson]; Wright, ibid, at 273-74;

Ballard, supra, endnote 535 at 219-220; See also Fulmer, supra endnote 502; Loveridge, ibid.

could reasonably expect to belong to him. The declaration and payment of the bonuses were

oppressive as Morris was not consulted.

[1525] Chester’s actions in respect of profit diversions from IWS to Greycliffe and other

related companies as described elsewhere were also oppressive. From Morris’ perspective

they were burdensome, harsh and wrongful. Again, Morris was not consulted about the

incorporation of Greycliffe and was not advised about the extent of the profits being earned by

Greycliffe and other related companies that could have been earned within IWS.

[1526] I have found that even if the Share Sale had been valid it was a staged sale, under the

wording of the share shale agreement, Morris had rights as a continuing shareholder, which

were totally ignored. Bonuses and dividends paid to Chester and his sons between 1984 and

1988 were similarly oppressive.

[1527] I make the same observation on the facts here as did Farley J. in Ballard⁵⁴⁸, “I find that

there has been an aggregation of matters of which [he] rightly complains. Individually they

cannot be excused, collectively they are overwhelming.”

[1528] As IWS was involved in the implementation of the Share Sale, it is also liable for the

same burdensome, harsh and wrongful acts. It was a party to the December 1983 lease and

is liable to Morris and Morriston. All of Chester, Robert and IWS are liable for their harsh,

wrongful and burdensome acts in relation to profit diversions to Greycliffe and other related

companies and for the payment of expenses properly by Greycliffe.

(d) Unfairly Prejudicial

[1529] “Oppressive” conduct is not the only conduct that may warrant the exercise of the

remedial power of s.248. Where it is “unfairly prejudicial” to, or “unfairly disregards” the

interests of, inter alia, a shareholder, oppression remedies may be imposed. McKinlay JA for

the Court of Appeal said in Brant⁵⁴⁹:

…there may be many situations where the rights of minority shareholders have been

prejudiced or their interests disregarded, without any remedy being appropriate. The

difficult question is whether or not their rights have been prejudiced or their interests

disregarded “unfairly”. In testing the facts in a given case against the word “unfairly”,

⁵⁴⁸Ballard, supra endnote 535 at 219.

evidence of bad faith as to motive could be relevant, but there may be other cases

where particular acts effect an unfair result, but where there has been no bad faith

whatsoever on the part of the actors. Such a case came before the Ontario Divisional

Court in Palmer v. Carting O’Keefe Breweries of Canada Ltd. (1989), 67 OR. (2d)

161,41 B.L.R. 128, 56 D.L.R. (4th) 128, 32 O.A.C. 113.

[1530] Karen C. Ulmer noted in “Business Issues: The Oppression Remedy”, that under this

heading “[g]reater attention may be given to the effect of the conduct on the shareholder,

whereas ‘oppression’ focuses more closely on the character of the conduct.⁵⁵⁰” The courts will

look for unfairness, conduct that directly affects the shareholder, and financial detriment,

[footnotes omitted.] She continued:

[1531] at 215-18:

The content of “unfairly prejudicial” appears to be more flexible and equitable than

“oppressive”. The courts will determine what is “fair” given the circumstances of the

shareholder and the corporation.

…Unfairness and conduct which directly affect the shareholder are two components of

“unfairly prejudicial”. Financial detriment is a third factor.

[1532] at p. 216:

Actions that were not found oppressive in Abraham v. Inter Wide Investments Ltd. (the

payment of dividends without formal declaration by the board of directors, and the

payment of management and consultant fees and automobile expenses) were

nevertheless “unfairly prejudicial or at the very least disregarded the applicant’s interest

as a shareholder.” (See Keho Holdings Ltd. v. Noble, supra note 12 at 205) The basis

for this determination was that the payments were not properly authorized or related to

the director’s duties. (Abraham v. Inter Wide Investments Ltd., supra, note 12 at 187;

Sparling v. Javelin International Ltd., supra, note 24 at 1131 [Footnotes omitted.]

[1533] (e) Unfairly Disregarding the Interests

[1534] Where one or more of the first two criteria has/have been met, it is unnecessary to

resort to this somewhat vague standard. The test to be applied was set out in Stech v.

⁵⁴⁹Brant, supra endnote 461 at 248.

⁵⁵⁰(1989) 53 Sask. L. Rev. 209 at 215.

Davies⁵⁵¹as unjustly or without cause, in the context of Section 234(2), paying no attention to,

ignoring or treating as of no importance the interests of security holders, creditors, directors or

officers of a corporation.

[1535] The “interests” must be valid corporate interests.

[1536] In Westfair Foods Ltd. v. Watt⁵⁵², Moore C.J. stated:

[T]he Court may have regard to the following factors in determining whether conduct is

unfair: the history and nature of the corporation, the type of interests affected, general

commercial practice, the nature of the relationship between the complainant and the

alleged oppressor, the extent to which the impugned acts or conduct were foreseeable,

the expectations of the complainant, the size, structure and nature of the corporation

and the detriment to the interests of the complainant. See: First Edmonton Place Ltd. v.

31588 Alberta Ltd, (supra) at 144-146.

[1537] In Fulmer,⁵⁵³McDermid J. described the purchasing shareholder as having taken

“unfair advantage” of the vendor. The facts of that case illustrate the intersection of personal

and business factors possible in s.248 actions:

I do not find that Fulmer was incapable of understanding what he was doing when he

transferred his shares to Richardson at the hospital. In fact, I believe the reverse is true.

Notwithstanding the fact that Fulmer had been involuntarily committed to the psychiatric

wing for observation, Dr. Robinson states in the discharge summary that Fulmer settled

into the ward quickly and “did not, in any way, seem certifiable.” Dr. Robinson described

Fulmer as “an intelligent, capable and motivated man” and noted that Fulmer

demonstrated “a renewed interest in getting on with making plans for his future.” I find

however that Fulmer was, quite naturally, emotionally distressed and preoccupied due to

the combination of his dismissal from Misteelco and the breakdown of his marriage. As

Dr. Robinson stated in his report dated January 2, 1995, “I would think that the added

stress of being involuntarily committed and having to be lodged with people that he

would not otherwise have had contact with would be a further distraction for him, and

serve to preoccupy him from giving his full attention to other pressing matters”. As noted

⁵⁵¹(1987), 53 Alta. L.R. (2d) 373, 80 A.R. 298 (Alta. Q.B.)

⁵⁵²(1990), 48 B.L.R. 43 (Alta. Q.B.) at 57, aff’d (1991), 79 D.L.R. (4th) 48 (Alta. C.A.), leave to appeal ref’d (1991), 85 D.L.R. (4th) viii

(S.C.C.).

⁵⁵³Supra endnote 502 at pp. 285-286.

above, it was Dr. Robinson’s opinion, which I accept, that “it was clearly not the best

time to make important business deals”. I make these findings after considering the fact

that Fulmer was discharged from hospital within a couple of hours after he signed the

documents transferring his shares to Richardson.

Richardson knew of Fulmer’s marital separation. The day before Fulmer transferred his

shares to Richardson, Fulmer’s brother, Paul, and his wife, Janice, had attended a

meeting called by Richardson at the Misteelco offices to discuss in detail his purchase of

Fulmer’s shares. Both questioned Richardson about the appropriateness of his having

Fulmer transfer his shares while still in hospital. Richardson told them it was not a matter

for concern. Paul Fulmer also testified that Richardson told them he was concerned that

Fulmer might flee the country or that he might be admitted to a rehabilitation clinic for

alcoholics, where he would not be available to complete the transaction, and therefore

he “wanted to have this wrapped up as soon as possible”. Paul Fulmer was not close to

his brother. Janice Fulmer was and is still very angry about Fulmer’s infidelity and their

marriage breakdown. Neither had a reason to favour Fulmer and I accept their testimony

and find that Richardson was in a hurry to conclude the share transfer. Boniferro also

advised Richardson to exercise caution in conducting the transaction at the hospital

because of the manner in which it might be perceived. Richardson testified that he

completed the transaction at the hospital in response to Fulmer’s request that

Richardson buy his shares and that he was trying to accommodate Fulmer. I do not

believe this for a minute. Richardson’s actions in going to the hospital with Milliken, the

other director of the corporation, to secure the transfer of Fulmer’s shares are indicative

of how anxious he was to oust

Fulmer from control of the day to day management of the business and from the

business itself. I find that in doing so, he took unfair advantage of Fulmer’s vulnerability,

of which he was well aware.

[1538] Conduct which disregards the interests of any shareholder and not simply a

shareholder’s legal rights will infringe s.248 of the OBCA. This is because the oppression

remedy is basically an equitable remedy and if an action is wrongful, even if it not actually

unlawful the Court has jurisdiction to find it oppressive, unfairly prejudicial, or unfairly taken in

disregard of the interests of a security holder.

[1539] In Arthur v. Signum Communications Ltd.⁵⁵⁴, Austin J. wrote:

…I can only conclude that this transaction was structured as it was so that Macdonald

could use Signum to finance what was essentially his purchase of Hunter’s shares and

so that Arthur’s interest could be maintained at 4.772%. In doing so, company funds

were used to deliberately discriminate between two holders of the same class of

shares…

In my view, using $400,0000 of the credit of the company to double the holding of

another shareholder of the same class did unfairly disregard his interests. Arthur had,

proportionately, the same interest in that credit as Macdonald. The company received no

appreciable benefit from its use. Nor did Arthur. That constituted an unfair disregard of

his interest.

Application to the Case at Bar

[1540] If I had not found the conduct enumerated to be oppressive under (a), I would have

found that the requirements of (b) and (c) are met. Morris’ interests were unfairly disregarded

and prejudiced by Chester’s, IWS’s and Robert’s conduct.

(f) The Oppression Remedy and Wrongful Dismissal

[1541] Morris was terminated from his position as President of IWS on October 26, 1988. On

that day, Linton came to his office and handed him a letter of termination, JB 4247, which

indicated, inter alia, that ail of his health benefits were being terminated immediately. Morris

was surprised that a controller would be firing a president, and that Chester did not come to

speak to him. He was shocked by the termination, particularly given that Shirley had been

diagnosed with bladder cancer and was undergoing treatment.⁵⁵⁵

[1542] Morris told Linton he wanted all of his documents pertaining to Morris, Morriston and

his personal affairs. Linton refused, saying, “Oh, I can’t do that.

[1543] That will screw everything up”. Neither Linton nor anyone else advised him about any

specific reasons for his termination.⁵⁵⁶

⁵⁵⁴[1991] O.J. No. 86 (Ont. Gen. Div.) at pp. 96-97 online: QL, aff’d [1993] O.J. No. 1928 (Ont. Div. Ct.) [hereinafter Arthur].

⁵⁵⁵Morris, January 29, 1999, pp. 799-801

⁵⁵⁶Morris, January 29, 1999, pp. 802-803

[1544] Chester said he did not deliver the letter of termination personally because he didn’t

want to take a chance with that loose cannon [Michael.] He did not attempt to contact or to

speak with Morris on the day he was terminated, or in the days that followed.⁵⁵⁷

[1545] IWS subsequently refused to cover costs in connection with Shirley’s cancer treatment.

Morris said of his treatment at the time of termination, “I wouldn’t have done that to a dog, sir.

Not to a dog.”⁵⁵⁸

The Nature of Cause Alleged

[1546] Chester gave evidence that Morris was terminated for breach of fiduciary duty, theft of

accounts, lying, cheating and permitting acts of violence on the property, “overall

harassment… day in and day out. Michael was unable to conduct himself properly and would

glare at Gary with those murderous eyes of his.”

Findings

For the reasons detailed in the section of these Reasons pertaining to the Counterclaims, I

have not accepted Chester’s evidence that Morris, without Chester’s/IWS’s knowledge or

consent, orchestrated the transfer of the shares of SWRI from IWS and all of the children to

his own sons, Michael and Douglas. Nor have I accepted that Morris improperly diverted IWS

business to SWRI. Rather, I have found that Chester/IWS expressly consented to the transfer

of IWS accounts to SWRI because: (a) he knew Morris was unhappy about the Share Sale

and he wanted to mollify him, (b) Chester/IWS had no interest in the waste business, (c) IWS

was precluded from handling many of them under the Laidlaw agreements; and (d) Chester

wanted to keep Michael as far away from IWS as possible.

[1547] I do not accept the Defendants’ submission that Morris gave no evidence of his

expending any effort or providing any benefit to IWS after 1983. He was out in the plant every

day. He was involved in certain discrete matters for IWS and to a lesser extent IWS Ferrous,

and he so testified. He would have liked more responsibilities. All indications in the evidence

were that Morris is very capable in operational matters.

[1548] I have found that no complaint was made to Morris about his job performance prior to

the termination. Given the above and my findings set out elsewhere in these Reasons,

⁵⁵⁷Morris, January 29, 1999, pp. 801-802

including my findings about Chester’s/IWS’s consent to Morris/SWRI’s activities, I find that

Morris was dismissed without cause.

Morris’ “Employment” at IWS

[1549] At the time of his termination, Morris was a director and officer of the company. Given

my finding about the Share Sale that Morris continued to be a 50% shareholder in IWS, I have

some doubt that Morris could be terminated at all. However, that submission was not made.

[1550] In Naneff, the complainant was one of two sons who were 50% owners, directors and

officers of a closely held family corporation founded by their father. The complainant son,

Alex, had been ousted from the family company after he refused to end a romantic

relationship with an employee.

[1551] At trial, Blair J. noted that where the interests of a complainant, as employee, are

intertwined with his interests as a shareholder, officer and director, and where the dismissal is

part of a pattern of conduct designed to exclude the person from an active role in the

company, the dismissal may properly be considered an “act of oppression” as per s.248 of the

OBCA. A refusal to pay severance pay is also part of this pattern.⁵⁵⁹

[1552] Morris’ employment at IWS was inextricably linked to his position as shareholder,

officer and director. He was removed from the company as soon as he began to assert his

rights as such. His dismissal had nothing to do with his job performance and everything to do

with Chester’s quest for complete control of IWS.

[1553] I find Morris’ dismissal was part of the ongoing pattern of oppression exercised by

Chester/IWS against him.

What were Morris’ Expectations as a Shareholder and Employee of IWS?

[1554] The oppression remedy emphasizes the protection of the shareholder’s reasonable

expectations in the context of the corporate relationship.⁵⁶⁰These expectations cannot be

viewed as an indefinite “wish list”. They must be expectations that can reasonably be said to

have been part of the compact of shareholders.⁵⁶¹

⁵⁵⁸Morris, January 29, 1999, p. 803

⁵⁵⁹Naneff, supra endnote 504 at para. 113.

⁵⁶⁰Ibid. at para. 99.

⁵⁶¹Ballard, supra endnote 535 at 185-86 (Gen.Div.).

[1555] Indeed, in Naneff, the Court of Appeal found Blair J. had been incorrect in his

assessment of Alex’s reasonable expectations as a shareholder. In terms of his employment,

it was not reasonable to believe Alex would have had control over the corporation during his

father’s lifetime. The entire family knew Mr. Naneff intended to “exercise ultimate control” of

the family business until he died or retired.⁵⁶²

[1556] Morris had worked for the family company since the 1940’s, throughout its evolution

from proprietorship to corporation. His father, Isaac, had worked for the company until shortly

before his death, and there was no reason to presume that Morris would not enjoy the same

lifelong employment relationship in the family-held company where he served not only as an

employee, but as a director and officer as well. Morris had no intention of ever working

outside the family group of companies.

[1557] I find continued employment at IWS to have been a reasonable expectation of Morris’.

His employment was entwined with his other responsibilities and obligations as a director,

officer and shareholder.

Quantum of Damages

[1558] The Defendants submit that damages for wrongful dismissal should be calculated

having regard only to Morris’ salary and without regard to his historical drawings from IWS.

They further suggest that as his tax returns do not reflect amounts now said to have been

drawn by Morris from IWS, they should not be reflected in the calculation [despite Linton’s

evidence about Morris’ drawings during the relevant period]

[1559] During his employment with IWS, the method of remunerating Morris varied. Prior to

Linton’s arrival, it appears that he received a modest pay cheque and then took “draws” from

his drawings account (another indication of the partnership-like structure) to cover his family’s

needs. These two elements taken together were treated as salary for tax purposes. According

to his tax returns available for this period, his total remuneration from the company was $

100,000 (1968), $107,774 (1970), $70,772 (1971), $129,548 (1973), $404,601 (1974),

$254,776 (1975), $169,798 (1976) and $169,961 (1977).⁵⁶³

⁵⁶²Naneff, supra endnote 504 at para. 34 (C.A.)

⁵⁶³Income Tax Returns of Morris Waxman

[1560] After Linton joined as controller in 1979, the procedure, but not the substance,

changed. A modest base salary of approximately $30,000 - $32,000 was paid, and

shareholder draws were off-set against bonuses, dividends or (in 1979) a dividend from the

holding companies. Morris’ “draws” from the company remained similar to those in the 1970s,

i.e., in the range of $100,000 - $170,000. After 1983, Linton began to offset Morris’ draws

against the “loan account”.

Finding

[1561] Where the circumstances warrant, the courts have awarded compensation akin to

damages for wrongful dismissal where such dismissal is part of a pattern of oppressive

conduct.⁵⁶⁴

[1562] Vettese in his loss analysis report (Exhibit 100) calculated the losses suffered by

Morris as a result of his wrongful termination by IWS. On the assumption that Morris’ annual

income from IWS averaged $133,185 (based on the premise of his limited salary plus typical

annual “draws” from the company), Vettese calculated the October 1988 present value of

Morris’ loss to be $384,554, assuming a 36-month period of reasonable notice. On the

assumption that Morris’ salary for the purpose of determining of his damages was limited to

$33,185 (excluding any amount for “draws”), Vettese calculated the October 1988 present

value of 36 months of salary to be $95,817.⁵⁶⁵

[1563] Given my disposition with respect to the Share Sale and my finding that Morris is

entitled to 50% of IWS profits (with adjustments) after 1983, given my desire not to allow him

double compensation, and given that amounts taken out of IWS over and above his salary will

be covered in that calculation, I award Morris the present value of salary only under this head,

calculated on a two-year notice period.

[1564] If I am incorrect in considering the wrongful dismissal as part of an ongoing pattern of

oppression, I have also examined the wrongful dismissal as a matter of contract law in my

reasons in Action #36583/89.

(g) Are the Events Too Ancient to be the Subject of an Enforceable Complaint?

⁵⁶⁴Naneff, supra endnote 504 at para. 125 (Gen.Div.).

⁵⁶⁵Exhibit 100, p. 18

[1565] The Defendants submit that the oppression remedy cannot be applied to events five

years and more before the claim was made. They cite as authority certain obiter passages in

Jaska v. Jaska⁵⁶⁶, in which the Manitoba Court of Appeal was considering whether Manitoba’s

basket limitation period applied. As Ontario has no such basket clause, I have found that case

to be of little assistance.

[1566] The considerations which I have outlined later in this section with respect to the

equitable defences are in my view also relevant to this submission.

[1567] Further, while I recognize that s.248 is often invoked in urgent situations to stop

harmful conduct, I note that the OBCA contains wording capable of conveying a temporal

intention as broad as the remedial legislative intention. First, the Act gives standing to former

shareholders. Second, the remedies available include an accounting and an investigation,

which are by their nature must be related to past events. Third, s.248(2)(b) refers to instances

where the business or affairs of the corporation “have been carried out or conducted in a

manner…”.

[1568] I therefore conclude that the Plaintiffs are not barred from asserting claims for an

oppression remedy by reason of their delay in seeking an oppression remedy.

(h) Summary of Liability Findings Under S.248

[1569] Morris is entitled to relief under s.248 against Chester and IWS in relation to the Share

Sale, against Chester and IWS in relation to the December 1983 lease and the 1979, 1981

and 1982 bonuses, and the wrongful termination of his employment, against Chester, IWS

and Robert and Robert’s companies in relation to the profit diversions to Greycliffe and other

related companies and against Chester, Robert, Gary and Warren in relation to the 1984-

1988 bonuses and dividends; and Morriston is also entitled to relief against Chester and IWS

in respect of the December 1983 lease.

[1570] Chester conducted the business of IWS in a manner oppressive to Morris and

benefited personally from the Share Sale and bonus declarations. Robert was actively

involved in diverting revenue from IWS to Greycliffe and benefited personally therefrom.

Similarly, Robert’s Companies received large sums resulting from the Greycliffe profit

⁵⁶⁶(1996), 141 D.L.R. (4th) 385 (Man. C.A.).

diversion. I find that orders under s.248 may be made against Chester, IWS, Robert and

Robert’s companies with respect to those activities.

[1571] Although their counsel asserted in argument that Chester’s sons relied on the validity

and enforceability of the bonus declarations as evidenced by Morris’ signature on the

Minutes, Chester’s sons gave no evidence to support that contention. They clearly benefited

from the receipt of the bonuses. I find that orders under s.248 may be made against Chester

and his sons in respect of the receipt of the 1981 and 1982 bonuses.

(i) The Intersection/Overlap of/between the Oppression Remedy/Remedies for Breach of

Fiduciary Duty/Knowing Assistance and Knowing Receipt

[1572] In the section of these reasons on liability for breach of fiduciary duty, I have alluded to

the disinclination of the Ontario Court of Appeal articulated in Brant to broaden the scope of

fiduciary duties of directors and officers in a corporate context.

[1573] I have found a number of facts regarding the nature of the fiduciary duties owed,

discussed earlier in these reasons; I will not repeat myself here. Suffice to say that in this

case, the oppression remedy is not being used to broaden the application of fiduciary

principles to extend them beyond their usual scope. As Peterson has explained, “fiduciary

duties are only one subset of guidelines and principles in a broader framework of codes and

standards developed under the oppression remedy.⁵⁶⁷” The oppression remedy may be used

to enforce fiduciary duties.⁵⁶⁸

F. Breach of Contract - the Ancaster Claim

[1574] I accept Morris’ evidence that he initially paid for the Ancaster property out of his

personal drawings and that he paid taxes on it in a similar fashion. Morris’ evidence was

corroborated by the contemporaneous documentation including tax notices, and Shirley’s and

Taylor’s evidence on the point, which I also accept.

⁵⁶⁷Peterson, supra endnote 542 at §18.101.3, rel. 44.

[1575] I note that in JB383, a letter from Taylor to Chester dated November 2, 1958, Taylor

was seeking to know:

The cost of the real estate held by Morris on the Ancaster Highway, at cost. Any further

investments that Morris may have made. I am not aware of any …other than the land

aforementioned.

[1576] I also accept Morris’ evidence that he transferred the property to Warren relying upon

Chester’s promise that if he did so, Chester would “straighten out”.

[1577] The Defendants contend, inter alia, that even if Chester did make such a promise, that

there was no valid contract because of uncertainty of terms.

[1578] However, I find that Morris understood, and that Chester intended him to understand,

that Chester was promising to return the parties to their shareholdings prior to December 22,

1983, if Morris would transfer the Ancaster property to Warren, to undo the Share Sale.

[1579] Chester breached his promise and Morris is entitled to receive the value of the property

at the time it was transferred to Warren on January 2, 1986 which I have found elsewhere to

be $98,000 as of January 1, 1986.

Defences

Contractual Defences

[1580] Consistent with their primary argument that Morris is bound by the contract, counsel for

the Defendants rely heavily on a submission that after the Share Sale, Morris ratified and

affirmed the contract and thereby disentitled himself from any right that he might otherwise

have had to rescind it.

[1581] I have noted that in The Law of Contract in Canada, Professor Fridman has written at

p. 864:

The plaintiffs positive conduct may reveal that he has chosen to affirm, or may indicate

that it would be inequitable to grant the remedy of rescission. This again is a question of

fact… Even using a chattel for a period of time with knowledge of the conduct which

could entitle a party to rescind may not amount to affirmation or election… In deciding

⁵⁶⁸Ibid. §18.101.4).

whether the conduct of the plaintiff bars him from obtaining rescission, the court must

look at the realities of the situation as opposed to the mere technicalities relating to the

application of the principles of equity. Moreover conduct that might otherwise amount to

affirmation will not have such effect if the plaintiff’s behaviour was the result of the

defendant’s behaviour, such as his failure to disclose material facts (when the defendant

will be estopped from relying on affirmation as an answer to rescission).

One thing is clear. It is immaterial that the plaintiff has been guilty of carelessness in

contracting, or in asserting his rights after discovery of the truth. A negligent or neglectful

plaintiff does not lose his equitable remedies, unless his neglect amounts to laches or

affirmation… [emphasis added]⁵⁶⁹

[1582] I shall discuss the application of the doctrine of laches later in these Reasons under

Equitable Defences.

[1583] In Kupchak v. Dayson Holdings Ltd.⁵⁷⁰, Davey, Sheppard and Norris JJ.A. discussed

the defence of contractual affirmation:

In 26 Hals., 3rd. ed., pp. 884-885, para. 1643, the learned author states:

1643. Affirmation of Contract. A fourth defense is that the representee has

elected to affirm the contract. It follows, from what has already been stated, that if,

after discovery of the whole of the material facts giving him a right to avoid the

contract, the representee has, by word or act, definitely elected to adhere to it, the

representor has a complete defense to any proceedings for rescission. The acts

and conduct relied upon as evincing the representee’s affirmance must be such as

are more consistent, on a reasonable view of them, with that than with any other

theory. It is not sufficient to point to acts of a neutral character, or acts which are

equally consistent with a possible ultimate intention to disaffirm, or with a mere

suspension of judgment.

[1584] They later quoted the language of Melior J. in Clough v. London & North Western

Railway⁵⁷¹:

⁵⁶⁹4^thed. (Scarborough: Carswell 1999) [footnotes omitted]

⁵⁷⁰(1965), 53 D.L.R. (2d) 482 (B.C. C.A.) at 490

⁵⁷¹(1871), L.R. 7 Exch. 26 (Eng. Exch.) at 35-6.

In such cases the question is, has the person on whom the fraud was practised, having

notice of the fraud, elected not to avoid the contract, or has he elected to avoid it, or has

he made no election?

We think that so long as he has made no election he retains the right to determine it

either way, subject to this, that if in the interval whilst he is deliberating, an innocent third

party has acquired an interest in the property, or if in consequence of his delay the

position even of the wrong-doer is affected, it will preclude him from exercising his riq1t

to rescind.

And lapse of time without rescinding will furnish evidence that he has determined to

affirm the contract; and when the lapse of time is great, it probably would in practice be

treated as conclusive evidence to shew that he has so determined…

Neither can we see the principle or discover the authority for saying that it is necessary

that there should be a declaration of his intention to rescind prior to the plea.

Circumstances Alleged by the Defendants to Constitute Ratification/Affirmation

Ratification of the Share Sale

[1585] There are a number of events and documents upon which the Defendants base their

defence.

[1586] The Defendants allege that Morris received a dividend cheque for $500,000 on

December 30, 1983, which he endorsed. I have found that Morris signed a dividend cheque

on December 22 without asking questions about it, because Chester asked him to sign. He

was not told and did not understand that he was transferring it to Chester in the context of a

sale of his shares. In all of the circumstances, signing the cheque was not an act of

affirmation of the contract.

[1587] The Defendants allege that Morris received $1 million on January 4, 1984, and that he

in turn loaned $500,000 back to IWS. I have found that Morris did not receive a million dollar

cheque from Chester in January 1984. Morris did receive a $500,000 cheque from IWS which

he deposited at the Continental Bank on January 4, 1984. At that time, he had not received or

reviewed copies of the Share Sale documents, and I have found he was still unaware of the

nature of the documents which he had signed on December 22, 1983. Morris said he was told

that the $500,000 cheque was a dividend cheque. A $500,000 cheque from IWS was

consistent with a dividend and inconsistent with a Share Sale payment. I reject the

submission of the Defendants that Morris’ investment of the $500,000 is a “shining example of

his satisfaction with and ratification of the Share Sale transaction.”

[1588] I have found that Morris never wrote a cheque for $500,000 to IWS in January 1984.

Chester and Linton simply credited Morris as if he had lent $500,000 to IWS, without

discussing it with Morris. The $500,000 loan to IWS was not a ratification of the Share Sale.

[1589] I have found that Morris did not really begin to understand what had happened on

December 22, 1983, until January 5, 1984, when he sat down with Taylor and Wiseman.

Wiseman had a copy of the Share Sale Agreement, and he explained its broad outlines to

Morris on that day.

[1590] I have found that Morris was very upset about the Share Sale from the moment he

learned about it and immediately wanted it undone. He repeatedly asked Chester to tear up

the papers. Chester promised to do so in February 1984 before Morris’ heart surgery but he

later reneged on that promise. Chester made it appear to most outsiders that Morris was still

an owner of IWS.

[1591] I do not accept the Defendants’ submission that his discussion with Chester in April

1984 about putting $500,000 back into IWS constituted an affirmation of the Share Sale. By

then Morris had learned about it. By then Morris understood the Defendants were alleging

that the $500,000, which he had received in January, was a Share Sale payment. In April,

Morris was reiterating that he wanted the deal undone. He was not ratifying or affirming it.

[1592] The Defendants submit that Morris’ acceptance of a $250,000 Share Sale payment in

December 1984 was an affirmation of the Share Sale.

[1593] Linton deposited a Share Sale payment of $250,000 into Morris’ account at the end of

December 1984.⁵⁷²Morris said he did not want to use that money because he was still trying

to undo the deal. He turned the money over to Michael for safekeeping.

Morris, January 28, 1999

⁵⁷²Linton June 15, 2000, June 16, 2000

A. I didn’t know whether it could go back at that time. I’m not a banking expert. It just

didn’t—I was afraid to do anything. I still hadn’t had legal advice and I thought if I turned

the money over to Michael for safekeeping, I still didn’t use it.

Q. Okay. Let’s look now at—when you say “I still didn’t use it” what do you mean by

that?

A. I meant that I didn’t want to use it. It was no deal as far as I was concerned and any

monies I got, I wasn’t going to use.

[1594] Given my other findings about Morris’ lack of financial sophistication, I find that Morris’

receipt of $250,000 in December 1984 did not constitute an affirmation or a ratification of the

Share Sale. Morris was continuing to ask Chester to undo the deal, and Chester knew it.

[1595] Taylor and Wiseman arranged a meeting with Morris and Chester, during the spring of

1985 ostensibly to discuss a corporate reorganisation but really to provide an opportunity to

discuss the Share Sale. The Defendants submit that Morris’ failure to complain about the

Share Sale at that meeting is “another glaring example of post-execution affirmation of the

Share Sale.” I do not agree. At the time of the meeting, I have found that Chester was well

aware of Morris’ unhappiness, which he had often expressed in private. If Morris was unable

to bring himself to break with his longstanding habit of never disagreeing with Chester in

public and if he was unable to challenge Chester publicly, that did not amount to an

unequivocal acceptance of the Share Sale. Rather, it was consistent with past practice and

with Chester’s domination of Morris. Taylor’s and Wiseman’s failure to speak up at that

meeting is also consistent with Chester’s continuing domination of all three.

[1596] The Defendants submit that in signing his 1985 tax return, which reported the Share

Sale as a single completed sale, and in paying his 1985 taxes, Morris ratified and approved

the Share Sale. I do not accept that submission. Morris protested to Wiseman. He was still

talking to Chester about ripping up the deal. Wiseman told him that if he did not pay his taxes,

he would have to pay a penalty. On Wiseman’s advice, Morris’ taxes were paid but he did not

file his return. I do not accept the Defendants’ submission that by paying capital gains tax on

the Share Sale, Morris was unequivocally ratifying the Share Sale. Morris delayed filing his

return as long as possible and subsequently advised Revenue Canada that the Share Sale

was in dispute in an attempt to keep the matter open to a future reassessment.

[1597] In the section of these Reasons specifically dealing with the “Loan Account,” I have

found that before October 26, 1988, the date on which his employment at IWS was

terminated, Morris was unaware of the existence of the promissory note and the loan account.

I have not accepted Wiseman’s evidence that in 1985 in the context of a discussion about tax

payable, he discussed the loan account with Morris. I have accepted Morris’ evidence that he

had no discussion with Wiseman about the loan account prior to the commencement of the

litigation.⁵⁷³I reject the Defendants’ submissions that withdrawals from the loan account

constituted an affirmation of the Share Sale. Morris thought he was simply accessing his

drawings account as he had always done, and as Chester had promised he could continue to

do pending the “straightening out”.

[1598] In April 1986, Morris owed Revenue Canada $48,844 for his 1984 taxes. Linton did not

simply prepare an IWS cheque for Morris’ taxes and then charge the amount of the cheque to

Morris’ drawings. Rather, on Chester’s direction, Linton prepared Chester’s personal cheque

in the amount of $60,000 payable to Morris and wrote “Payment for 5 Shares” on the back

and deposited the cheque into Morris’ account. I have found that Chester wanted to generate

evidence of Morris’ ratification of the Share Sale. Linton also prepared Morris’ cheque to

Revenue Canada in the amount of $48,844, had Morris sign it and forwarded it on Morris’

behalf to Revenue Canada. Morris did not appreciate what Chester and Linton were doing.

These circumstances did not constitute an affirmation of the Share Sale.

[1599] The Defendants submit that by accepting further Share Sale payments of $440,000,

$250,000 and $1,000,000, Morris affirmed the Share Sale. I disagree. Morris refused to

accept Share Sale payments of $440,000, $250,000 and $1,000,000. Chester paid them into

a trust account he set up in Morris’ name.

[1600] Counsel for the Defendants submit that Morris affirmed the Share Sale b> directing

certain payments out of the trust account, including payment of his 1986 and 1987 income tax

in the Spring of 1987 and 1988. The covering letters to Revenue Canada were signed by

Chester, not Morris. Linton and Chester had access to Morris’ tax returns. Bearing in mind

Chester’s cross-examination on the point, I have found those payments were made by

Chester out of the trust account without Morris’ knowledge or involvement. They do not

constitute affirmation or ratification of the Share Sale.

⁵⁷³Morris, September 18, 2000

[1601] In summary, I find that Morris did not by his conduct unequivocally ratify or affirm the

Share Sale, such that rescission would be inequitable. To the contrary, he repeatedly and

consistently complained to Chester about the Share Sale from the time he learned about it in

January 1984 until he finally launched the litigation.

Ratification/Affirmation of the Bonuses

[1602] The Defendants allege that Morris knew about and approved of the bonuses and he

affirmed them by signing bonus minutes around the time the bonuses were declared. He

could not resile from his earlier approval of the bonuses many years later.

[1603] I have found Morris did not know he was approving the bonuses when he signed the

bonus minutes. He did not learn about the 1979 bonuses until the examinations for discovery

of the Defendants in 1997. He amended his claim in 1998 to claim his share of the 1979

bonuses, one year after learning about them.

[1604] I find that Morris did not affirm or ratify the bonuses in a manner which now disentitles

him to challenge their validity.

[1605] Chester/IWS knew Morris did not know anything about the 1981-1982 bonuses prior to

1985 and the 1979 bonuses prior to 1997. Payments were made to recipients with that

knowledge. I have found Chester’s sons liable for knowing receipt of the 1981-1982 bonuses

for reasons given elsewhere.

Affirmation/Ratification of Profit Diversions

[1606] Morris gave evidence that he became aware Greycliffe was doing some trucking

business six or seven months after the Lasco closing. However, I have accepted his evidence

that he was not aware Greycliffe was grossly overcharging IWS and was, in effect, diverting

IWS’ profits to itself. In my Reasons in the Taylor Leibow action, I have set out the bases for

my finding that Morris did not know the extent of the related-party transactions. I accept the

evidence that Morris knew few details of the related companies. Morris did not approve or

ratify the profit diversions to related companies. Chester/IWS/Robert knew that Morris was in

the dark at all material times.

Equitable Defences/Laches and Acquiescence

[1607] Equitable claims such as breach of fiduciary duty, undue influence or unconscionability

are not subject to limitation defences but are subject to equitable defences. The Defendants

have raised the related equitable defences of laches and acquiescence. They complain that

Morris failed to seek rescission promptly upon learning of the Share Sale and lease, and he

unacceptably delayed filing suit. The bonuses were paid out long ago, the money spent and

the taxes paid. Further, they assert Morris knew about the bonuses and Greycliffe

transactions, and either approved of or acquiesced in them.

[1608] I have found Morris first learned of the 1981-82 bonuses when Wiseman informed him

about them in 1985. When Morris asked Chester about them, Chester allayed his concerns

and misled him. I have accepted Morris’ evidence that Chester left him with the impression

that they were not real bonuses, that the money had not left IWS. A claim with respect to the

1981-82 bonuses was included in the original statement of claim issued in November 1988.

The Plaintiffs did not learn about the 1979 bonuses until 1997, shortly before the amendment

to the pleadings in 1998.

[1609] I accept Michael’s evidence that in the fall of 1988, Wiseman gave him and Morris a list

of the related companies and suggested they might “bring them to the party.” The Plaintiffs

did not see Greycliffe financial statements until they were first produced in the litigation in

1996. In 1996, incomplete financial information was produced in respect of the Greycliffe

profits. It was not until discovery in 1997 and 1998 that complete financial statements for

Greycliffe and the other related parties were produced. Greycliffe was a named a party in the

original 1988 statement of claim. Icarus and the other related parties were identified in 1998

amendments to the claim, made within one year of the first disclosure of information about

these companies.

Clean Hands

[1610] It is a maxim of equity that “He who comes into equity must come with clean hands.⁵⁷⁴”

While the maxim is most frequently applied against the plaintiff, it applies equally to those who

would raise an equitable defence.

⁵⁷⁴J. McGhee, Snell’s Principles of Equity (30th ed., London: Sweet & Maxwell 2000) at 31.

[1611] In Ling Chi Medicine Co. (H.K.) Ltd. v. Persaud⁵⁷⁵, a unanimous panel of the Federal

Court of Appeal reversed a trial judge who had failed to apply the doctrine of clean hands

against a respondent who had raised the defence of laches. Strayer J.A. held that the

respondents had “clearly acted in bad faith and had continued to assert a trade-mark to which

they were not entitled. Having done so as a matter of equity they could not rely on the

defence of laches because he who invokes an equitable defence must have done equity in

respect of the same matter.”⁵⁷⁶

[1612] MacFarland J. reached a similar conclusion in Lyons Estate v. Whitworth⁵⁷⁷:

Whitworth’s hands are anything but clean, and I reject his defence of laches on this

ground.

[1613] Whitworth had “deliberately persisted in a falsehood… in a wilful attempt to mislead the

court.”⁵⁷⁸

[1614] Given all my findings about the conduct of the Defendants, I am of the view that they

have not come to this court with clean hands and cannot invoke equitable defences.

[1615] However, in case I am wrong about the applicability of the clean hands doctrine, I shall

briefly discuss the equitable defences upon which the Defendants rely.

Laches

[1616] The applicable principles respecting the applicability of the doctrine of laches were

discussed by LaForest J. in M. (K.) v. M. (H.)⁵⁷⁹:

The leading authority on laches would appear to be Lindsay Petroleum Co. v. Hurd

(1874), L.R. 5 P.C. 221, in which the doctrine is explained as follows, at pp. 239-40:

…the doctrine of laches in Courts of Equity is not an arbitrary or a technical

doctrine. Where it would be practically unjust to give a remedy, either because the

party has, by his conduct, done that which might fairly be regarded as equivalent to

a waiver of it, or where by his conduct and neglect he has, though perhaps not

waiving that remedy, yet put the other party in a situation in which it would not be

⁵⁷⁵(1998), 232 N.R. 61, 81 C.P.R. (3d) 369, [1998] F.C.J. No. 861 (Fed. C.A.).

⁵⁷⁶Ibid. at para. 3.

⁵⁷⁷(1987), 62 O.R. (2d) 602 (Ont. H.C.) at 610.

⁵⁷⁸Ibid, at 612-13.

⁵⁷⁹[1992] 3 S.C.R. 6 (S.C.C.) at 76-78 [hereinafter M.(K.).].

reasonable to place him if the remedy were afterwards to be asserted, in either of

these cases, lapse of time and delay are most material. But in every case, if an

argument against relief, which otherwise would be just, is founded upon mere

delay, that delay of course not amounting to a bar by any statute of limitations, the

validity of that defence must be tried upon principles substantially equitable. Two

circumstances, always important in such cases, are, the length of the delay and the

nature of the acts done during the interval, which might affect either party [p.77]

and cause a balance of justice or injustice in taking the one course or the other, so

far as relates to the remedy.

This explanation was approved by Lord Blackburn in Erlanger v. New Sombrero

Phosphate Co. (1878), 3 App. Cas. 1218 (H.L.), where, after quoting the above

passage, he comments, at pp. 1279-80:

I have looked in vain for any authority which gives a more distinct and definite rule

than this; and I think, from the nature of the inquiry, it must always be a question of

more or less, depending on the degree of diligence which might reasonably be

required, and the degree of change which has occurred, whether the balance of

justice or injustice is in favour of granting the remedy or withholding it. The

determination of such a question must largely depend on the turn of mind of those

who have to decide, and must therefore be subject to uncertainty; but that, I think,

is inherent in the nature of the inquiry.

In turn, this formulation has been applied by this Court; see Canada Trust Co. v. Lloyd,

[1968] S.C.R. 300; Blundon v. Storm, [1972] S.C.R. 135.

The rule developed in Lindsay is certainly amorphous, perhaps admirably so. However,

some structure can be derived from the cases. A good discussion of the rule and of

laches in general is found in Meagher, Gummow and Lehane, supra, at pp. 755-65,

where the authors distill the doctrine in this manner, at p. 755:

It is a defence which requires that a defendant can successfully resist an equitable

(although not a legal) claim made against him if he can demonstrate that the

plaintiff, by delaying the institution or prosecution of his case, has either (a)

acquiesced in the defendant’s conduct or (b) caused the defendant to alter his

position in reasonable reliance on the plaintiffs acceptance of the status quo, or

otherwise permitted a situation to arise which it would be unjust to disturb… Thus

there are two distinct branches to the laches doctrine [acquiescence and change of

position], and either will suffice as a defence to a claim in equity. What is

immediately obvious from all of the authorities is that mere delay is insufficient to

trigger laches under either of its two branches. Rather, the doctrine considers

whether the delay of the plaintiff constitutes acquiescence or results in

circumstances that make the prosecution of the action unreasonable. Ultimately,

laches must be resolved as a matter of justice as between the parties, as is the

case with any equitable doctrine…

(a) Acquiescence/Waiver

[1617] Acquiescence was also discussed in M. (K.) where LaForest J. said at 78-79:

Acquiescence is a fluid term, susceptible to various meanings depending upon the

context in which it is used. Meagher, Gummow, and Lehane, supra, at pp. 765-66,

identify three different senses, the first being a synonym for estoppel, wherein the

plaintiff stands by and watches the deprivation of her rights and yet does nothing. This

has been referred to as the primary meaning of acquiescence. Us secondary sense is as

an element of laches—after the deprivation of her rights and in the full knowledge of

their existence, the plaintiff delays. This leads to an inference that her rights have been

waived… The final usage is a confusing one, as it is sometimes associated with the

second branch of the laches rule in the context of an alteration of the defendant’s

position in reliance on the plaintiff’s inaction… It is not enough that the plaintiff knows of

the facts that support a claim in equity; she must also know that the facts give rise to that

claim… measured by an objective standard… [T]he question is whether it is reasonable

for a plaintiff to be ignorant of her legal rights given her knowledge of the underlying

facts relevant to a possible legal claim…

[1618] I turn first to acquiescence as an element of laches. Halsbury explains that

acquiescence in this sense depends on knowledge, capacity and freedom. Time begins to run

when the plaintiff discovers the facts entitling him to relief or ought reasonably to have done

so.

[A] person does not acquiesce while he is subject to such circumstances of undue

influence or other pressure as to deprive him of the ability to give a true consent, and

laches is not imputed until he is released from the position in which he is placed by

these circumstances.⁵⁸⁰

[1619] In M. (K.) LaForest J. wrote of acquiescence at pp. 78-80:

…an important aspect of the concept is the plaintiff’s knowledge of her rights. It is not

enough that the plaintiff knows of the facts that support a claim in equity; she must also

know that the facts give rise to that claim: Re Howlett, [1949] Ch. 767. However, this

Court has held that knowledge of one’s claim is to be measured by an objective

standard; see Taylor v. Wallbridge (1879), 2 S.C.R. 616, at p. 670. In other words, the

question is whether it is reasonable for a plaintiff to be ignorant of her legal rights given

her knowledge of the underlying facts relevant to a possible legal claim

It is interesting to observe that in practical terms the inquiry under the heading of

acquiescence comes very close to the approach one takes to the reasonable

discoverability rule in tort. As we have seen, the latter focuses on more than mere

knowledge of the tortious acts—the plaintiff must also know of the wrongfulness of

those acts. This is essentially the same as knowing that a legal claim is possible.

That the considerations under law and equity are similar is hardly surprising, and is

a laudable development given the similar policy imperatives that drive both

inquiries…

As is now apparent, the considerations outlined in detail under the common law

discoverability doctrine must now also be considered under the rubric of acquiescence.

However, I would not wish to be taken as suggesting that an inquiry under the common

law will reach the same result as in equity in every case. Rather, there is an important

distinction… In equity… there is a residual inquiry: in light of the plaintiff’s knowledge,

can it reasonably he inferred that the plaintiff has acquiesced in the defendant’s

conduct? That question depends on the circumstances of each case… [Emphasis

added.]

Application to the Case at Bar

[1620] In the present case, numerous factors are relevant to a consideration of the doctrine of

laches.

⁵⁸⁰Halsbury’s Laws of England, vol. 16, 4th ed. (London: Butterworth’s, 1992) at 831, para 927

[1621] I have found that as soon as Morris learned from Taylor and Wiseman in January 1984

what he had signed, he immediately objected to the Share Sale and sought to set it aside.

Chester and Ennis knew from early 1984 that Morris objected to the Share Sale and wanted it

scrapped. This is not a case where Chester did not realize for four or five years that Morris

wanted the deal undone.

[1622] I have found that Chester led Morris on, causing him to hope and to believe that the

matter could be resolved without litigation. I have earlier mentioned many examples of

Chester’s conduct. For example, in October 1987, Chester gave an interview in “Business

and Finance” in which he mentioned both Morris and himself passing IWS on to their sons.

[1623] There is no evidence that Chester suffered prejudice as a result of Morris’ delaying

commencing proceedings in an effort to resolve the problem privately. On the contrary, the

delay “complained of” extended the period during which the Defendants had free use of funds

that I have found were properly Morris’. The undeniable efforts Chester expended on behalf of

IWS during that time were no more vigorous than they had been during the decades of 50%

ownership.

[1624] I have found that Morris was unduly influenced by Chester and was not free of that

influence until approximately the time he filed suit. He did not seek legal advice because

Chester led him on and because he mistakenly believed that Chester would voluntarily

“straighten out.” Chester’s conduct caused the delay.

[1625] Delay will not prevent rescission where it has resulted from the defendant’s conduct⁵⁸¹.

[1626] In my view, Morris’ ineffectual attempts to resolve matters privately with Chester do not

amount to acquiescence. As noted earlier, the culture of the Waxman family was to resolve

their problems internally. Morris never publicly disagreed with Chester. Morris was

embarrassed for his brother and embarrassed for himself about the circumstances of the

Share Sale, and about the fact that Chester had “hoodwinked” him. Morris wanted to solve his

problem with Chester behind closed doors.

[1627] Moreover, as a matter of public policy, the courts should not invoke laches to penalise

a party for seeking to resolve a family dispute privately outside the courts. This position is

reflected in the “residual inquiry” recognized by the Supreme Court of Canada in M.(K.) at

p. 79. No defendant could infer from an attempt to resolve a family matter without litigation

that the eventual plaintiff had intended to altogether waive the right to assert the claim.

[1628] Nor can it be said that by his conduct Morris represented that he was waiving his

rights.

[1629] Given those facts, I find no acquiescence on Morris’ or Morriston’s part that would

provide an equitable defence to the Defendants.

(b) Change of Position

[1630] In recent decades, change of position has been discussed at the highest levels, both

here and in England, in the context of restitution, particularly in connection with cases of

mistaken payments and receipt of unrequested benefits. In such cases, it has been said to

require “evidence of any special projects being undertaken or special financial commitments

made because of the receipt of the money.⁵⁸²”

[1631] In Gorman v. Karpnale Ltd., Lord Goff wrote:.

I am most anxious that, in recognising this defence to actions of restitution, nothing

should be said at this stage to inhibit the development of the defence on a case by case

basis, in the usual way. It is, of course, plain that the defence is not open to one who

has changed his position in bad faith, as where the defendant has paid away the money

with knowledge of the facts entitling the plaintiff to restitution: and it is commonly

accepted that the defence should not be open to a wrongdoer… At present I do not want

to state the principle any less broadly than this: that the defence is available to a person

whose position has so changed that it would be inequitable in all the circumstances to

require him to make restitution, or alternatively to make restitution in full. I wish to stress

however that the mere fact that the defendant has spent the money, in whole or in part,

does not of itself render it inequitable that he should be called upon to repay, because

the expenditure might in any event have been incurred by him in the ordinary course of

things. I fear that the mistaken assumption that mere expenditure of money may be

regarded as amounting to a change of position for present purposes has led in the past

⁵⁸¹Fridman, supra endnote 567 at 317.

⁵⁸²Storthoaks (Rural Municipality) v Mobil Oil Canada Ltd. (1975), [1976] 2 S.C.R. 147 (S.C.C.), Martland J. at p. 164.

to opposition by some to recognition of a defence which in fact is likely to be available

only on comparatively rare occasions. [emphasis added]⁵⁸³

[1632] The principles to be applied to a change of position defence were recently summarised

in Phillip Collins Ltd. v. Davis⁵⁸⁴:

In the first place, the evidential burden is on the defendant to make good the defence of

change of position. However, in applying this principle it seems to me that the court

should beware of applying too strict a standard. Depending on the circumstances, it may

well be unrealistic to expect a defendant to produce conclusive evidence of change of

position, given that when he changed his position he can have had no expectation that

he might thereafter have to prove that he did so, and the reason why he did so, in a

court of law (see the observations of Slade LJ in Avon County Council v. Howlett

(above) at pp 621-2, and Goff & Jones (above) at p 827). In the second place, as Lord

Goff stressed in the passage from his speech in Lipkin Gorman quoted above, to

amount to a change of position there must be something more than mere expenditure of

the money sought to be recovered, “because the expenditure might in any event have

been incurred… in the ordinary course of things”. In the third place, there must be a

causal link between the change of position and the overpayment. In South Tyneside

Metropolitan BC v. Svenska International plc, [1995] 1 All E.R. 545, Clarke J, following

Hobhouse J in Kleinwort Benson Ltd v. South Tyneside MBC, [1994] 4 All E.R. 972, held

that, as a general principle, the change of position must have occurred after receipt of

the overpayment, although in Goff & Jones the correctness of this decision is doubted

(see ibid, pp 822-3). But whether or not a change of position may be anticipatory, it must

(as I see it) have been made as a consequence of the receipt of, or (it may be) the

prospect of receiving, the money sought to be recovered: in other words it must, on the

evidence, be referable in some way to the payment of that money. In the fourth place, as

Lord Goff also made clear in his speech in Lipkin Gorman, in contrast to the defence of

estoppel the defence of change of position is not an “all or nothing” defence: it is

available only to the extent that the change of position renders recovery unjust.

⁵⁸³[1991] 2 A.C. 548 (U.K. H.L.) at 580.

Application to the Case at Bar

[1633] I find that Chester/IWS cannot rely successfully upon change of position with respect to

the Share Sale and lease.

[1634] Several facts are relevant here. I have found that in January 1984, Morris immediately

objected to the Share Sale upon learning from Taylor and Wiseman about what he had

signed on December 22, 1983. He complained repeatedly to Chester from that time forward,

saying he wanted the Share Sale documents ripped up. Chester and Ennis met about Morris’

unhappiness from early 1984. Chester led Morris on, causing him to believe the matter would

be resolved without litigation, meanwhile taking steps to create a ratification argument on

paper. Chester could not assume there would never be litigation. As he had participated in the

actions giving rise to liability, he was acquainted with the facts. He knew Morris was very

unhappy and remained so. Given the personalities involved, he must have known that at the

latest, when Michael found out about the deal, legal action was likely. Chester had knowledge

of the facts entitling Morris and Morriston to restitution. There was no prejudice. On the

contrary, his position afforded him untrammelled opportunity to remove large sums from IWS,

activities that accelerated dramatically upon formal notice of the claim. In the meantime, he

continued to run IWS in the same way as he had prior to December 1983 and to reap the

benefits of the December 1983 lease as the owner of IWS.

[1635] Chester cannot succeed on a change of position in respect of the bonuses as he paid

them out in bad faith with knowledge of the facts entitling Morris to restitution. Similarly, I have

found that in all of the circumstances, Chester’s sons knowingly received the amounts of

1981-82 bonuses, which they actually retained. They had actual or constructive knowledge

that those amounts were being received in breach of Chester’s fiduciary duty to Morris.

Therefore I find that the equitable defences of laches and acquiescence are of no assistance

to the defendants.

Summary of Liability Findings re Share Sale/Bonuses/Profit Diversions/Ancaster

[1636] Re Share Sale:

(a) Chester is liable to Morris for breach of fiduciary duty, undue influence and

unconscionability and under s.248 of the OBCA.

⁵⁸⁴[2000] 3 All E.R. 808 (Eng. Ch.) at 827.

(b) IWS is liable to Morris under s.248 of the OBCA.

[1637] Re December 1983 Lease

(a) Chester is liable to Morris/Morriston for breach of fiduciary duty, undue influence,

unconscionability and under s.248 of the OBCA in connection with the December 1983

lease.

(b) IWS is liable to Morris/Morriston under s.248 of the OBCA.

[1638] Re 1979 Bonuses

(a) Chester is liable to Morris for breach of fiduciary duty and under s.248 of the OBCA.

[1639] Re: 1981 - 1982 Bonuses

(a) Chester is liable to Morris for breach of fiduciary duty and under s.248 of the OBCA.

(b) IWS is liable to Morris under s.248 of the OBCA.

(c) Robert, Gary and Warren are liable to Morris for knowing receipt.

[1640] Re: Profit Diversions

(a) Chester is liable to Morris for breach of fiduciary duty, knowing assistance and under

s.248 of the OBCA.

(b) IWS is liable to Morris under s.248 of the OBCA.

(c) Robert and Robert’s Companies are liable under s.248 of the OBCA. Robert’s

companies and Gary are liable for knowing receipt and knowing assistance.

[1641] Re Ancaster:

(a) Chester is liable to Morris for breach of contract.

Part IV - Valuation/Quantification in the Main Action

Evidence on the Value of IWS/December 1983

[1642] An important component of the value of the IWS shares at December 1983 was the

value of the Centennial property [the Front 13.3 Acres]

[1643] I have noted earlier that the property was purchased under power of sale in September

1980 for $1.2125 million. A tax assessment by the City of Hamilton of $1.63 million was later

reduced on appeal to $1,332,000.

[1644] Expert Evidence re Fair Market Value of the Front 13 Acres of Centennial Parkway as

at December 1983

[1645] As noted earlier, two expert witnesses were called to give evidence on the value of

Centennial. The Plaintiffs called Mr. Steven Pocrnic (“Pocrnic”) and the Defendants called

Mr. William Losier (“Losier”) to give evidence on its value. Vettese used Pocrnic’s value and

Losier criticized it. Pocrnic opined that it had a value of between $1.4 million and $1.45 million

(Exhibit 81); Losier, that it had a value of $1.05 million (Exhibit 332.)

Pocrnic’s Evidence

[1646] Pocrnic conducted a complete valuation and prepared a report in accordance with the

Uniform Standards of Professional Appraisal Practice (“USPAP”), using two different valuation

methods: (1) a cost approach [based on the estimated value of the land, together with the

depreciated cost of improvements]; (2) a direct comparison approach [having regard to

comparable sale transactions.] He placed greater weight on the direct comparison

approach.⁵⁸⁵

[1647] The Cost Approach. Under the cost approach, he concluded the market value of the

land, if vacant, would have been approximately $70,000 per acre [resulting in a total land

value of approximately $930,000]. To the $930,000 he added the depreciated value of the

buildings and site improvements, which he estimated at $576,030, for a total estimated value

of $1,500,000.⁵⁸⁶

[1648] The Direct Comparison Approach. He identified five comparable properties, noted their

sale prices, made adjustments based on the particular characteristics, the time of sale and

other factors, including coverage ratios. His rationale for his coverage ratio is set out at pp.

51-52 of his report.⁵⁸⁷On this approach, Pocrnic valued the property at $1.35 million.

⁵⁸⁵Pocrnic, June 1, 1999

⁵⁸⁶Pocrnic, June 1, 1999

⁵⁸⁷Pocrnic, June 1, 1999

[1649] Final Value Conclusion. He concluded that in December 1983, the front 13 acres of the

Centennial property had a market value between $1.4 million and $1.45 million.⁵⁸⁸

Losier’s Evidence

[1650] Losier criticized Pocrnic’s coverage ratio adjustment. He made no similar adjustment,

although he conceded the open land was valuable for storing and processing scrap and none

of the other comparables could have accommodated a scrap operation. He paid little attention

to a comparable which was a scrap yard. He assumed that all of the square footage of the

comparable properties was main-floor square footage and made no specific inquiries to

determine whether that assumption was correct.

Finding re Value of Centennial

[1651] I accept Pocrnic’s evidence that the value of the Centennial property in December

1983 was $1.4 - $1.45 million. I note that that value conclusion was consistent with the

purchase price of the property (even on a power of sale proceeding) multiplied by the average

increase in sale prices in the Hamilton region between 1980 and 1983.I find that Vettese was

justified in using that figure as a component in his calculation of the value of the IWS shares

at that date.

The Value of the IWS Shares

[1652] Three expert witnesses gave evidence about the value of IWS as of December 1983.

Mr. Frank Vettese (“Vettese”) and Mr. Stephen Cole (“Cole”) were called by counsel for the

Plaintiffs, and Mr. Robert Low (“Low”) was called by counsel for the Defendants. Vettese gave

a formal opinion on the value of the IWS shares, which would be recognised by the Canadian

Institute of Chartered Business Valuators. Low did not express an independent opinion on the

fair market value of IWS at the time of the Share Sale. He was engaged to conduct a review

and critique of the Plaintiffs’ expert’s report.⁵⁸⁹

Vettese used two valuation scenarios.

[1653] On Scenario 1 based on net asset value, he concluded that the fair market value of

100% of the shares of IWS in December 1983 was $6,940,000.

⁵⁸⁸Pocrnic, June 1, 1999; Exhibit 81

⁵⁸⁹Low, July 5, 2000; Exhibit 300

[1654] On Scenario 2 [at p. 119 of Ex 100], based on a capitalisation of maintainable

earnings, assuming that a buyer would keep the profits earned by Greycliffe and Icarus in

IWS but making no adjustments for any of Robert’s other companies, adding net redundant

assets of $3.22 million to capitalized maintainable earnings ($5,515 million-$5.743 million), he

determined that the fair market value of 100% of the shares of IWS in December 1983 was in

the range of $8,735 million-$8.963 million.⁵⁹⁰[Exclusive of the $1 million dividend declared in

December 1983 and the stripping of $6.6 million in bonuses in 1981-1982]

[1655] He set out the factors that he took into account in estimating future maintainable

earnings at pages 64-72 and 113-114 of Exhibit 100 and in his evidence at trial.⁵⁹¹

[1656] In my view, Vettese was conservative in estimating average maintainable earnings at

$717,000 to $826,000, and in assuming an average annual tonnage fee based only on the

average of 1982 tonnage fees of $603,524 and 1983 tonnage fees of $730,848. I have noted

Chester’s evidence that prior to the Lasco sale, IWS was shipping about 250,000 tons of

scrap annually and that using captive steel from IWS Lasco intended to smelt more than

900,000 tons of scrap steel annually, Warren’s evidence that in 1981 IWS was shipping

300,000 tons, and Branch’s evidence that the IWS Ferrous volume should have been at least

500,000 tons annually. As IWS received $4.00 per ton under the IWS Ferrous agreement

dated September 1981, 500,000 tons would have produced annual tonnage fee revenues to

IWS of $2,000,000. [In 1984, IWS earned tonnage fees of $938,260; in 1985, $1,020,832; in

1986, $1,071,523; in 1987, $1,084,326]

[1657] In my view, Vettese was also conservative in making no upward adjustment for the

value of the equipment which was recorded at cost less accumulated depreciation on the IWS

financial statements. IWS was taking maximum depreciation rates. There were clear

indications at the time that it was worth substantially more than book value. In the 1979

Campbell report the author noted that the equipment was likely worth more than net book

value and placed the value of the equipment between net book value and cost. In 1981, at the

time that IWS sold its ferrous assets for $6.4 million, their book value was $700,000. Linton

said that JB 2184-B reflects a gain (price received over book value) on the sale to Lasco of

$5,649,357. The sale price of the equipment of the refuse division in 1981 exceeded book

value by $987,000. In addition, IWS received a goodwill payment from Superior of $350,000.

⁵⁹⁰Vettese, June 14, 1999; June 15, 1999; June 16, 1999 and June 18, 1999; Exhibit 100, p. 119

Some equipment sold for more than its original cost. [In 1993, equipment that cost $7,323

million new, with a book value of $2,477 million, was sold to Philip for $7.2 million. Further,

$11,341 million was allocated to goodwill.]⁵⁹²Therefore, the sales to Laidlaw, Lasco [and

subsequently Philip] demonstrate that Vettese was very conservative in making no upward

adjustment in the value of the equipment.⁵⁹³

[1658] Low criticized Vettese’s failure to take account of a lost tax shield of $332,000. Given

that he had left the equipment at book value, Vettese resisted the suggestion on cross-

examination that his valuation was too high because he had not made any deduction for the

loss in tax shield which would have resulted from a purchase of shares as opposed to assets.

Low agreed during cross-examination that the loss tax shield should not be considered in

isolation from the value of the equipment.

[1659] In cross-examination, Low estimated the average annual tonnage fees over a full cycle

at between $800,000 and $1.2 million, with a mid-point of $1 million. The $300,000 per year

after-tax difference between Vettese’s estimate of tonnage fee income of $700,000 and Low’s

estimate of $1,000,000 would drop to the bottom line. If Vettese’s multiples were applied to

that $300,000 difference in maintainable earnings, Low said a $1.1 million increase in value

would result.⁵⁹⁴

[1660] Low also criticized Vettese’s (a) failure to use a capital asset pricing model; (b)

elimination of the cost of hedge trading; (c) elimination of the cost of bad debts; and (d)

adjustment for petty cash.

(a) I accept Vettese’s evidence that it would have been inappropriate to use the so-

called capital asset pricing model to derive a capitalisation rate. I note that on cross-

examination, Low was taken to a statement on p. 316 of a text of which he was a co-

author, The Valuation and Pricing of Privately Held Business Interests⁵⁹⁵, that the capital

asset pricing model is inappropriate in the valuation of private companies.

(b) I accept Vettese’s elimination of any cost of hedge-trading from maintainable

earnings for the reasons articulated by Vettese and also having regard to Linton’s

⁵⁹¹Vettese, June 15, 1999

⁵⁹²Exhibit 134; JB4599A; Linton, June 15, 2000

⁵⁹³JB1478 (Schedule 7)

⁵⁹⁴Low, July 6, 2000

⁵⁹⁵I.R. Campbell, R. Low & N.V. Murrant (1990) [hereinafter Valuation and Pricing].

evidence about the nature of the hedge trading carried on by Chester and Robert and

having regard to the contents of the Taylor Leibow working papers.

(c) Vettese said he eliminated bad debts from maintainable earnings because he

understood from Chester and Linton that they were so low that they would not materially

affect value. It is noteworthy that Low’s position on bad debts in his counterclaim report

differed from that which he took in criticising Vettese’s approach in Exhibit 100.⁵⁹⁶While

in my view, Vettese should not have eliminated bad debts to the extent that he did, any

effect of adding the bad debts back into the calculation would be less than the effect of

his underestimation of maintainable earnings and of asset value.

(d) I do not accept Low’s assumptions or his suggested adjustment regarding petty

cash, because I do not accept the explanation the Defendants provided to him with

respect thereto. I accept Vettese’s approach.

[1661] Low criticized Vettese’s valuation of redundant assets, but he did not perform his own

calculations.⁵⁹⁷I accept Vettese’s assumptions, evidence and calculation in that regard.

[1662] Vettese properly reduced maintainable earnings by the difference between fair market

rental value of the lands covered by the December 1983 lease and the amount shown in that

lease. Low did not make this deduction.⁵⁹⁸

[1663] Low criticized the range of Greycliffe’s excess profits ($806,487 to $856,487) used by

Vettese. Given my findings elsewhere in these reasons, I agree with Vettese’s comments that

the range he used was conservative. Vettese’s estimate of future maintainable earnings

included no future earnings for any companies other than Greycliffe and Icarus and was

therefore also conservative in that regard.⁵⁹⁹

[1664] Low opined that the profits of Greycliffe and Icarus should not have been included in

Vettese’s estimate of maintainable earnings. He was referred in cross-examination to the

book he co-authored, Valuation and Pricing, mentioned above, which reads at p. 297 as

follows:

Where a business deals on a non-arm’s length basis with others, it is often difficult to

ascertain whether costs and revenues equivalent to arm’s length costs and revenues

⁵⁹⁶Vettese, June 15, 1999 and June 16, 1999

⁵⁹⁷Low, July 6, 2000

⁵⁹⁸Low, July 6, 2000

are being received. Where non-arm’s length transactions are being consummated at

non-commercial rates, appropriate earnings (and possibly asset) adjustments will be

necessary. These adjustments are particularly crucial in situations where the business

interest on only one side of the transaction is being valued [as with IWS], or where the

two business interests are at materially different risk. A skewing of the income to one or

the other would result in erroneous values/price conclusions.

[1665] As I have found that IWS was dealing on a non-arm’s length basis with Greycliffe,

consummating transactions with it at non-commercial rates and that IWS was absorbing costs

that should have been charged to Greycliffe and that the businesses of the related companies

could and should have been conducted within IWS with a consequent increase in IWS’

maintainable earnings, I reject Low’s criticism about the inclusion of Greycliffe and Icarus

profits in Vettese’s calculation of maintainable earnings.

[1666] Low criticized Vettese’s use of 1983 Icarus income in his maintainable earnings

calculation. However, I accept the evidence of Vettese, that in estimating maintainable

earnings, the most recent earnings figures may be used, and I find that it was appropriate

under the circumstances to use Icarus 1983 income.

[1667] In his calculations, Vettese assumed the small business rate of 20.25% would be

available to a purchaser on the first $200,000 of IWS income. Low assumed no small

business rate would be available and tax would be payable at 44.75% on all income. While I

have some concerns about Vettese’s assumptions with respect to the small business

deduction, given the conservative nature of his other assumptions, I am not concerned that he

has over-valued IWS in Scenario 2.

[1668] Goodwill. The goodwill implicit in Vettese’s scenario 2 valuation is in the range of $1.79

to $2.02 million as reflected at p. 120 of his report. I accept his evidence that there was

significant goodwill in IWS not reflected in his Scenario 1 calculation.⁶⁰⁰He said that if one

were to conclude that there were no commercial goodwill in IWS, then one would have to also

conclude that a potential purchaser would be entirely indifferent between starting a new

company on the one hand or buying IWS on the other. IWS came with many positive

⁵⁹⁹Vettese, June 15, 1999; June 17, 1999 and June 18, 1999

⁶⁰⁰Vettese, June 15, 1999

attributes, including its name, locations, historic relationship with its customers, competitors

and suppliers and its established management.⁶⁰¹

[1669] In valuing IWS, Low assumed that at the end of 1983, the non-ferrous business was

relatively new with no history of operating results and was facing significant risks in respect of

its customers, suppliers and competition. I do not accept his assumptions about those risks in

1983, given Robert’s evidence that he was optimistic about the future of the non-ferrous

business in December 1983. Low ignored the profits diverted to Greycliffe and Icarus. If

significant profits had not been diverted to Greycliffe, the non-Ferrous division would have

earned significant profits instead of suffering losses.⁶⁰²

[1670] I note that in his draft report, Exhibit 303, under the heading “Price vs. Fair Market

Value”, Low used language to the effect that if the present value cash equivalent of the price

were less than fair market value by more than 10%, then the price would be outside the realm

of reasonableness. When cross-examined about this commentary, he said the plus or minus

10% was his confidence limit. The more the negotiated price exceeded the 10% range, then

the more it would exceed his confidence limit. He abandoned that test in his final report,

saying instead, “In our opinion, it is not reasonable to conclude that the transaction price and

terms were improvident. He said that he chose the word “improvident” because he was “trying

to assess whether this transaction was improvident or so wildly outside of reasonable to

require some adjustment.”⁶⁰³

[1671] I note that the discrepancy between the fair market value of IWS and the negotiated

price greatly exceeded 10%, Low’s “confidence limit.”

Cole’s Evidence

[1672] While Cole did not prepare a formal valuation opinion, he said that he was comfortable

expressing his view that the shares of IWS were worth at least $8.8 million. This total

consisted of redundant assets or surplus cash worth $3.2 million, hard assets worth $3.7

million (tangible-asset backing) and goodwill worth at least $1.9 million.⁶⁰⁴Given IWS’ history,

reputation, network of suppliers and customers, staff, base volume in the non-ferrous

⁶⁰¹Vettese, June 15, 1999

⁶⁰²Low, July 6, 2000

⁶⁰³Low, July 5, 2000

⁶⁰⁴Cole, June 21, 1999

business, real estate, strong balance sheet and surplus cash, and fixed assets including two

copper chopping lines, the cost of entry would be at least $2 million.⁶⁰⁵

[1673] I have referred to Cole’s evidence in Part II under “Fairness of the Deal” with the

events of December 22. I note that he also said that basing a valuation on Vettese’s Scenario

1 would be rather like buying a car for the cost of its components or its scrap metal value:

Cole, June 21, 1999 and June 22, 1999

A …[S]ellers would be very reluctant to sell a going concern for the cost of the

component parts. It’s dramatically less than any reasonable price a seller would

consider. Why would you sell a vibrant going concern for the cost of the desks - the

depreciated costs of the desks and the other sundry assets, in particular in this case, a

third of them were liquid assets, working capital, cash or cash equivalents or accounts

receivable. It’s a very advantageous or low price. Transactions don’t typically take place

in that range. (Emphasis added)

[1674] Of Low’s suggestion that IWS’ value might be below its hard asset value (tangible

asset backing,) he said:

Cole, June 21, 1999

A. Discreetly put, it seems preposterous. It doesn’t make any sense. Why would such a

platform, having provided so many years of successful profits, why would someone sell

it for less than its hard asset value? It doesn’t make any sense to me, so I don’t see how

value could be less than that.

[1675] Cole said he considered Vettese’s $8.8 million figure to be conservative and thought

IWS was worth considerably more (given Vettese’s conservative estimate of future

maintainable earnings.)

Share Value Conclusion

[1676] Vettese’s valuation excluded not only the $1 million dividend declared at the end of

December 1983, but also the $6.6 million in bonuses declared for 1981 and 1982. If he had

added the $1 million dividend back into value, it would have been added to the redundant

assets and would have increased the value for 100% of the company under Scenario 2 by a

⁶⁰⁵Cole, June 21, 1999

net amount of approximately $750,000, to a range of $9.485 million to $9.713 million

[exclusive of the 1981-1982 bonuses.] (The refundable dividend tax credit of approximately

$250,000, received in August of 1984, was already on the balance sheet.)⁶⁰⁶

[1677] After analyzing and comparing the evidence of these three expert witnesses, I accept

the evidence of Vettese, and the assumptions that he used in his Scenario 2. Overall,

although as noted earlier, I have some minor concerns about his inclusion in his assumptions

about the inapplicability of the small business rate on the first $200,000 of IWS income and

about his assumptions about bad debts, given my conclusion that his maintainable earnings

estimate was very conservative as was his valuation of assets at net book value and my

finding that the profits earned by Greycliffe and Icarus could have been enjoyed by IWS,

either directly or through a subsidiary. [There was no need for IWS to have a separate

trucking company. No arm’s length purchaser would contemplate continuing such an

arrangement.] Therefore, Vettese properly included those amounts in estimating maintainable

earnings, and I find that the fair market value of 100% of the shares of IWS as at December

1983 was at least $8,735 to $8,963 million, even after 1981-82 bonuses of $6.6 million had

been paid out and a $1 million dividend had been declared at the end of 1983 to fund the

Share Sale. I note that Vettese conservatively made no adjustment for other companies

owned and operated by Robert, such as Servtross, Robix, Circuital, Bryhill, Gawix or Big

Rig.⁶⁰⁷

[1678] In summary, I prefer the opinion of Vettese to that of Low, and find that the fair market

value of the shares of IWS at December 1983 was at least $8,735 to $8,963 million [apart

from the $1 million dividend purportedly used to pay for the shares and ignoring bonuses of

$6.6 million declared for 1981 and 1982]. The fair market value of Morris’ 50% interest in IWS

as at December 1983, if the $1 million dividend had not been declared, apart from the

bonuses, would have been about $5 million.

How Much Did Morris Actually Receive?

Payment and Time Value Deficiency

[1679] Although the price shown on the face of the Share Sale Agreement was $3 million,

Morris did not actually receive $3 million for his shares.

⁶⁰⁶Vettese, June 14, 1999 and June 15, 1999

[1680] Vettese made a number of assumptions in attempting to calculate the real value of the

payments that Morris received for his shares at pp. 122-123 of Exhibit 100. He eliminated the

$1,000,000 transfer allegedly made by Chester by first debiting the dividend payment of

$500,000 to Morris and Morris’ loan to IWS of $500,000.

[1681] I have found that Chester never paid Morris $1 million in January 1984, as the Share

Sale Agreement required. In January 1984, Morris did receive a $500,000 cheque from IWS,

which was deposited at the Continental Bank on January 4, 1984. However, given that Morris

was a 50% shareholder of IWS, he would have been entitled to $500,000 of the $1 million

dividend from IWS, whether or not a Share Sale had taken place. If the dividend had not been

declared, Morris’ 50% of IWS would have been worth $500,000 more: $375,000 plus half of

the $250,000 tax-free dividend ($125,000.) The Plaintiffs submit that Morris never received

repayment of the $500,000 deemed to have been lent to IWS in January 1984. If the Share

Sale had not occurred, Morris would have continued to take draws from IWS as before in the

same manner as he continued to do until October 1988. The $500,000 deducted from Morris’

account and the payment of $500,000 to Morris between 1984 and 1988 did not adversely

affect the profit of IWS because Morris was in effect being paid with his own money. Chester

promised him in January that he would be paid as he always had been paid prior to

December 1983 pending straightening out. On that basis, the $500,000 should not have been

deducted from Morris’ loan account.

[1682] Assuming a payment deficiency of $1 million, Vettese calculated a time value

deficiency in the range of $405,000 to $633,000, depending upon the discount rate used

(6.33% and 11%) (see Exhibit 100 p. 2 and pp 121-126). In other words, Morris only received

$1,367,070-$1,594,721. He assumed that Morris received $250,000 on December 31, 1984;

$60,000 on April 30, 1986; $440,000 on December 31, 1986; $250,000 on December 31,

1987; and, $1,000,000 on December 29, 1988.

[1683] I accept Vettese’s assumption that on the $3 million share price Morris actually

received only $2 million.

[1684] He did not receive the $2 million immediately; he received it over time without interest.

[1685] I find that Morris received the equivalent of $1,594,721.

⁶⁰⁷Vettese, June 14, 1999; June 15, 1999; June 16, 1999 and June 18, 1999

Lease

Rental

Deficiency/Fair

Market

Rental

of

Properties

owned by

Morriston/Chesterton

[1686] In 1978, IWS and Morriston/Chesterton entered into a lease covering all of

Windermere and Glow for $240,000 per year.

Previous Appraisals of Windermere

[1687] JB 1734 is an appraisal of all of Windermere by Mr. Milne of Chambers & Company,

commissioned by Lasco in January 1981 at the time of the negotiation of the IWS Ferrous

lease, in which he concluded the land was worth $100,000 per acre, the yard improvements

and the buildings on the property, $875,000, and the total value was $1,495 million.

[1688] JB 1741 is an appraisal of all of Windermere by Albert Takefman commissioned by

IWS dated January 1981, valuing the land at $125,000 per acre and the improvements at

$1,555,400 for a total of $2,330400.

Expert Evidence re Market Rental of Windermere

[1689] Bryon Robertson (“Robertson”), an expert called by counsel for the Plaintiffs, gave

evidence in respect of the market rental of the properties at Glow, Windermere (front and

rear) and the back 7.7 acres at Centennial. Exhibit 82 A was his report; Exhibit 82B the

appendices thereto.

[1690] J. William Losier was called to give expert evidence by counsel for the defendants. He

did not independently undertake a market rental study, but criticized Robertson’s approach

and conclusions, and suggested alternative values. (Ex. 333)

[1691] Robertson described his methodology at pages 47-48 of Ex. 82 and in his oral

evidence. He said Windermere, Centennial and Glow, to some extent, were unusual, in that

the structures on them cover only a very limited portion of the lands. Ordinarily, industrial

properties are developed much closer to their maximum coverage potential because land is

expensive. Having regard to that fact and to the fact that scrap yard properties derive

considerable economic value from the open land area, he valued the land and the buildings

and the surplus lands.⁶⁰⁸

⁶⁰⁸Robertson, June 3, 1999 [no transcript]; Exhibit 82A

Surplus Land Component

[1692] He considered six sales of comparable industrial land between May 1982 and July

1984 (pages 49-53 of Exhibit 82A) and using the direct comparison approach concluded that

the market value of the “surplus” land (the land considered to be excess to that required to

service the buildings), was as follows: (a) Windermere - $100,000 per acre [i.e., the same per

acreage value used by Milne and $25,000 less per acre than the value used by Takefman in

1981]; (b) Glow -$80,000 per acre; and (c) rear of the Centennial property - $60,000 per

acre.⁶⁰⁹To calculate the market rent of the surplus land component of the properties, he used

an annual rate of return of 8%.⁶¹⁰

Improvement Component

[1693] He then considered the market rent for the improved portion of the subject properties,

using a direct comparison approach and referring to nine industrial leases. He opined that the

market rent per square foot for the buildings and the land required to service the buildings and

on the rear Windermere properties was $2.25 per square foot and on the front portion of

Windermere and the back 7.7 acres at Centennial was $2 per square foot.⁶¹¹

[1694]Summary of Robertson’s conclusions re Market Rent

[1695] He concluded that the December 1983 market rent:

(a) for Glow should have been $41,352/annum or $3,446/month;

(b) for the front of Windermere should have been $63,401/annum or $5,283/month;

(c) for the rear of the Windermere should have been $62,412/annum or $5,20l/month;

and

(d) for the back 7.7 acres of Centennial, should have been $75,020/annum or

$6,252/month.⁶¹²

[I note that Robertson’s market rent as of 1983 for all of Windermere and Glow totalled

$167,165, substantially less than the amounts actually paid under the 1978 lease.]

⁶⁰⁹Robertson, June 3, 1999; Exhibit 82A, pp. 53-56

⁶¹⁰Robertson, June 3, 1999 [no transcript]; Losier, September 15, 2000 [no transcript]

⁶¹¹Robertson, June 3, 1999 [no transcript] Exhibit 82A, p. 62

⁶¹²Robertson, June 3, 1999 [no transcript]; Exhibit 82A, p. 63

[1696] Robertson estimated the market rent for the two properties covered by the December

1983 lease [the back 7.7 acres at Centennial plus the front of Windermere] so long as the

IWS Ferrous lease remained in effect at $11,535, the total monthly market rent for the rear of

the Centennial, the Glow property, plus the front and rear of Windermere (the lands that

would be covered by the lease after the IWS Ferrous lease expired) at $20,182 per month. He

said that given the long duration of the lease, an escalation clause based on the consumer

price index would have been appropriate.⁶¹³

[1697] As mentioned earlier, Losier, who was called as an expert witness by the Defendants,

applied a different approach to the information in the Robertson report. He allowed no value

for the land component, basing his market rents only on the square footage of the buildings

on the properties.⁶¹⁴He arrived at his rental rate by multiplying the square footage of the

buildings by $2 per square foot. He said it would not have mattered to him in setting rents

whether the buildings were surrounded by an acre and a half or twenty acres of land,

notwithstanding that the Windermere and Centennial properties were used as scrap yards

and the open land was very important for the storage and processing of scrap.⁶¹⁵

Conclusion re Market Rents

[1698] I have found that while the approach adopted by Losier might be appropriate under

some circumstances, it was inappropriate to value the market rent of the properties under

consideration here. I note that Losier wrote in Ex. 334 that the building at the rear of the

Centennial property was “in poor condition, no washrooms, no hydro, service, gas, water or

office space”. In fact, at the effective date of the appraisal, December 1983, that building had

all of those amenities, services and facilities. I also question Losier’s statement that in 1983

the value of the land at the rear of the Centennial property was $180,000, the 1981 purchase

price from the City of Hamilton and from the CNR. I accept Robertson’s market rental rates

set out above.

[1699] I prefer Robertson’s evidence to Losier’s and find that fair market rent for the properties

covered by the December 1983 lease prior to September 2001 was $11,535 per month, plus

escalators and $20,182 thereafter plus escalators.

⁶¹³Robertson, June 3, 1999 [no transcript]; Exhibit 82A, pp. 63, 64

⁶¹⁴Losier, September 14, 2000; Exhibit 334

⁶¹⁵Losier, September 14-15, 2000

Calculation of Lease Rental Deficiency Over the Term of the Lease

[1700] Using the market rental values provided by Robertson, the witness Vettese assumed

that the front of the Windermere and the rear of the Centennial properties would be subject to

the December 1983 lease between December 1983 and the expiry of the IWS Ferrous lease

in September 2001, and that thereafter the Glow Avenue property and the rear of the

Windermere property would also be covered by it until its expiry in 2033.

[1701] Vettese calculated the difference between the rentals under the lease and market

rentals between December 1983 and December 2003, at $1,025,341 (present valued to

December, 1983) and the total losses (present valued to December, 1983)⁶¹⁶based on the

difference between the actual rent payable under the lease and the market rent over fifty

years from December 1983 to December 2033, at $2,529,607.

[1702] Despite changes in circumstances now making that calculation inapplicable [i.e.,

between the date of preparation of the Vettese report and the date of his evidence at trial, the

Glow Avenue property was sold and the IWS Ferrous lease is no longer in force,] I am of the

view that Vettese’s calculations are relevant in considering the fairness of the lease at the

time that it was signed in December 1983.I accept Vettese’s evidence that the lease

deficiency over the term of the lease, if calculated as of December 1983 (present valued to

December 1983) would have been $2,529,607.

1981-1982 Bonus Deficiency Claims

[1703] I have found that the 1981-82 bonuses were paid out of the proceeds of sales of

assets that Morris and Chester had built over 40 years. I find, therefore, that Morris is entitled

to 50% of the $6.6 million, minus $988,000 which he received or $2,312,000.

Quantification of Profits Diverted to Greycliffe, Icarus & Other Related Companies

[1704] Earlier in these Reasons I have outlined the evidence of Haney and Martin relevant to

quantification of profit diversions from IWS to the related companies. I have accepted the

evidence of Martin and of Haney generally, but where they differ, I prefer the evidence of

Martin. Martin said (see also Exhibit 212 and 212A) that in 1983, Greycliffe earned profits

from trucking of $856,000 (on revenues of $1.624 million), and Icarus earned profits of

⁶¹⁶Vettese, June 15, 1999; Exhibit 100, pp. 128-132

$272,000; IWS had an operating loss of $1.2 million. After tonnage fees and other matters

were factored in, IWS had a net income of $82,000. Had IWS done its own trucking, its net

pre-tax income in 1983 would have been at least $1,212 million.

[1705] Vettese calculated Greycliffe’s profits in Exhibit 100 and in his viva voce evidence.

Using the Greycliffe financial statements, allowing no amounts for the management of

Greycliffe, he calculated IWS lost profits to the end of 1983 at $2,199,747. Alternatively,

allowing a $50,000 per year management salary to the manager of the trucking operation, he

calculated IWS’ lost profits at $1,930,806.⁶¹⁷I find IWS lost profits of $1,930,806 to Greycliffe,

which could have been earned in IWS. Morris’ share of the profits diverted to Greycliffe is

$965,403.00.

[1706] Vettese calculated the Icarus profits which could have been earned in IWS on the

same basis. No management fee was considered, given that Icarus required no additional

manager. I accept his conclusion that prior to the end of 1983 they totalled $272,842. Morris’

50% share is $136,421.⁶¹⁸

[1707] The Defendants produced limited financial information in relation to the other related

parties. Vettese described his calculation of net income and management fees in Robix,

Servtross, Circuital and Big Rig and summarized them at page 135 of Exhibit 100. In the

period prior to the end of December 1983, based on the information available, Vettese

estimated that Servtross earned net income from business with IWS of $26,951, and in

addition paid a management fee of $35,000 to Robix out of its revenues. I accept that

Servtross earned profit of $61,951 from its business with IWS. Morris’ 50% share is

$30,975.⁶¹⁹I note that Robix is the legal successor to Servtross.

[1708] I accept that Big Rig earned net income of $30,281 for services provided directly or

indirectly to IWS prior to December 1983, and paid management fees of $17,363. These

profits total $47,644. Morris’ 50% is $23,822.

[1709] I accept that Circuital’s net income in the period prior to the end of December 1983

was $46,905. Fifty percent is $23,452.⁶²⁰

⁶¹⁷Exhibit 100, pp 137-140

⁶¹⁸Exhibit 100, p. 135

⁶¹⁹Exhibit 100, p. 135

⁶²⁰Exhibit 100, p. 135

[1710] Robix is Robert’s personal holding company. Its profits referable to IWS are difficult to

identify because at least some of them were derived from management fees paid by other

related companies and have already been taken into account. For example, for the year-

ended May 31, 1983, Robix had net income of $122,472. $70,000 of this was from

management fees from Icarus and Servtross, which have already been noted. Also, part of

Robix’s income for the year-ended May 31, 1982 was earned in the form of dividends, likely

from other related parties and as such included within the net income calculations of the other

related parties. I have attributed no specific amount to Robix in respect of profits derived from

business with IWS.

Quantification of Morris’ Share of Profits from 1984-88 if Share Sale is Valid and the Sale a

Staged Sale

[1711] If I had found the Share Sale valid, I would also have found for reasons covered in

action #44142/89 that the Share Sale Agreement clearly and unambiguously provides for a

sale in stages with a number of closings. Cole quantified Morris’ share of IWS profits [based

on his declining shareholdings] between December 1983 and the end of 1988 when the last

payment was made in his evidence at trial and in Exhibit 121.I accept his evidence and find

that bonuses declared between 1984-1988 bear no rational relationship to a compensatory

bonus plan and represented a distribution of IWS equity.

[1712] Cole calculated Morris’ entitlement at $2.58 million. I accept his calculation subject to

one qualification. Cole assumed that none of the bonuses paid by IWS to Chester’s sons in

that time frame were warranted. I assume but I do not find that Warren and Gary, who were

working solely or primarily for IWS Ferrous but were also paid IWS salaries and bonuses,,

deserved no bonuses from IWS. Robert is a different matter. He may have deserved some

additional compensation. If it were necessary to decide the issue, I would direct a reference to

determine what amounts, if any, Chester’s sons should have received from IWS over and

above the salaries received based on market comparators during that period for work

performed for IWS, and I would adjust the $2.58 million to reflect the payment of Morris’ share

of such amounts.

Lost Profits

(1) 50% of the bonuses and dividends after 1984

[1713] To quantify that loss, Vettese totalled bonuses and dividends declared from December

22, 1983 to the date of the sale to Philip and added the proceeds of the sale. For the ten-year

period prior to the sale to Philip, Vettese focussed on the distributions out of IWS by bonuses

and dividends to Chester and his family. Between January of 1984 and the end of 1993 (as

detailed in Exhibit 100, p. 155), bonuses formally accrued totalled $23,258,000. In addition,

Robert received at least $1 million of bonuses expensed directly. During the same period,

Chester received dividends totalling $3,026,000. I accept that between the date of the Share

Sale and the asset sale to Phillip, Chester and his family received $27,284,000 out of IWS in

addition to regular salaries.

(2) 50% of the Philip Sale Proceeds

[1714] In September 1993, IWS transferred substantially all of its operating assets to Waxman

Resources Inc., in exchange for 12000 Class A pref shares and 15,000 Class B common

shares. Philip Environmental Inc. purchased the Class A preference shares and the Class B

common shares for consideration of $12,000,000 plus Philip shares which by 1997 had all

been sold for a total of $18,420,031.24. Therefore, the total received from the Philip sale was

$30,420,031.24. [Chester retained ownership of 100% of the shares of IWS and IWS

continued to own the Centennial property, retaining the right to use the I. Waxman & Sons

name]

(3) The Total

[1715] To the extent that Chester or his family received these funds totalling $57,704,031.24

($27,284,000 + $30,420,031.24), Morris is entitled to receive $28,852,015.62, being 50%

subject to the adjustments set out below in Part V, the Remedies section.

The Value of the Ancaster Property

[1716] At trial, Morris abandoned his claim for a remedy in specie, seeking only compensation

for the value of the property as of December 1983.

[1717] Counsel for the Plaintiffs called D’Arcy Rousseau to give expert evidence about the

value of the Ancaster property as at the date of the transfer to Warren. Exhibit 80 is his report.

[1718] Using a comparative sales approach, he considered six other estate properties sold

between April, 1984 and April 1987, and made adjustments for time, location and size,

concluding that the adjusted value of the Ancaster property was $8,459 to $9,976 per acre x

10.63 (acres) = $89,919 to $106,045. He selected the mid-point of this range, or $98,000, as

the likely market value of the Ancaster property as at January 2, 1986.⁶²¹

[1719] On cross-examination, Rousseau was challenged with respect to some of his

adjustments. He was also challenged on the basis that Warren had spent $30,000 in grading,

environmental studies and tree preservation after purchasing the property in order to develop

it.

[1720] I have considered the challenges to his evidence during cross-examination but

nevertheless I accept his approach, comparables and adjustments, as well as his evidence

about his discussions with representatives of the Niagara Escarpment Commission. I find that

the market value of the Ancaster property on January 2, 1986 was $98,000.

Part V - Remedies

[1721] In the Amended Statement of Claim, the Plaintiffs seek rescission of the Share Sale,

including the Share Sale Agreement, the lease and other documents executed in December

1983, plus further orders, including such restitutionary orders as may be appropriate. With

respect to pre-sale bonuses and the profit diversions to related parties, the Plaintiffs seek a

constructive trust on Morris’s share, and orders for tracing and an accounting if appropriate.

There is a general claim for an accounting, vesting orders and other ancillary relief where

necessary or desirable. Oppression remedies are sought in connection with the Share Sale,

dividends and bonuses through 1988 and for the profit diversions.

[1722] Given my findings of liability for breach of fiduciary duty, undue influence and

unconscionability and oppression, it is necessary to fashion a suitable remedy.

[1723] I shall first canvass the range of remedies available, including a number of specific

remedies and then shall indicate my reasons for my choice of remedies.

Remedy for Breach of Fiduciary Duty

[1724] Ellis summarizes the range of remedies available for breach of fiduciary duty:

at §20-6.1

⁶²¹Rousseau, June 1, 1999

It is clear that the remedy is exercised to attempt to restore the status quo, where

possible. The means to this end is the arsenal of equitable relief available to a

Canadian court, which includes the powers:

• to enjoin wrongful activity or compel obligatory activity (injunction)

• make a finding of ownership, right or obligation (declaration of trust)

• redress loss or improper gain occasioned through fiduciary breach

(rescission; restitution; accounting; constructive trust; damages).

[1725] and as follows:

at § 20-6.1 (January 2000):

• where the deprivation to the wronged party can be remedied by return of that

property improperly attained or exploited, the law will consider the defaulting party

to have held the property “in trust” for its lawful owner (the wronged party)

• where the property cannot be returned in specie, the defaulting party must

account to the wronged party for the gain derived from the breach

in either event, the fiduciary cannot utilize an increase in value of the property either to

avoid its return or, alternatively, in its responsibility to account for the monetary

equivalent.⁶²²

[1726] The intervention of equity is grounded on the general principle that the faithless

fiduciary will not be permitted by the courts of equity to profit from his wrongdoing.⁶²³

[1727] Punitive damages may be awarded for breach of fiduciary duty where the actions of

the fiduciary are purposefully repugnant to the beneficiary’s best interests, particularly where

the impugned activity is motivated by the fiduciary’s self-interest.⁶²⁴

The Remedy for Knowing Receipt

[1728] There is some debate about the appropriate remedy for knowing receipt.

[1729] Professor Lionel Smith has written in “Whither Knowing Receipt?”:

⁶²²Ellis, supra endnote 459.

⁶²³See Dusik, supra endnote 456 at 42,46-47; Lavigne v. Robern (1984), 51 O.R. (2d) 60 (Ont. C.A.) at 63.

⁶²⁴See Ellis, supra endnote 459 at §20-32 (2001 - Rel. 1); Peppiatt v. Nicol (1998), 71 O.T.C. 321 (Ont. Gen. Div.) at para. 219; dissent of

McLachlin J. in Norberg supra endnote 441 at p. 299. Whiten v. Pilot Insurance Co. (2002), 209 D.L.R. (4th) 257 (S.C.C.) [hereinafter

Whiten].

It should be said first, to clear the ground, that the claim in knowing receipt is a personal

one; even though the more conservative practitioners may choose to plead that the

defendant is “liable to account as a constructive trustee”, the claim is that the defendant

must pay money, not that the defendant now holds property in trust. The Supreme Court

of Canada still seems unclear on this⁶²⁵…ting conflicting indicators in Gold and Citadel,

supra.]… [Emphasis added.]

[1730] Bryan has written:

The imposition of a receipt-based constructive trust presupposes that at some point the

defendant has received legally recognized property. But even though the defendant has

received property she will not have title to it at the time of action. The constructive trust

does not attach to specific property belonging to the defendant. It is a formula for the

award of a personal restitutionary remedy for the value of the plaintiff’s property received

(“value received”) by the defendant and subsequently dissipated or transferred to some

other party. If the defendant has title to the property, or to some substitute for the

property, at the time of action, recourse to the receipt-based constructive trust is

unnecessary, since the plaintiff can follow or trace the property, and obtain proprietary

restitution by way of an equitable lien, or some form of the remedial trust… [footnotes

omitted]… [Emphasis added.]⁶²⁶

…

It is simply a formula for the award of personal, and not proprietary, restitution. In this

respect it is no different from a constructive trust imposed on someone who assists the

commission of a breach of fiduciary obligation, which is a formula for the award of the

personal remedy of equitable compensation… A beneficiary who wants to vindicate title

to property in fact has no need of a proprietary receipt-based constructive trust. The

property can be followed or traced… Once the tracing rules have established the

evidentiary link between the plaintiff’s title and the defendant’s receipt proprietary, orders

such as an equitable lien or a resulting or constructive trust can be imposed… Personal

recipient liability in equity fills an important gap in the scheme of Private law remedies

where it is impossible or impracticable to trace… [Emphasis added.]⁶²⁷

⁶²⁵(1998) 114 Law Q.Rev. 394.

⁶²⁶supra endnote 471 at 81.

⁶²⁷Ibid. at 89-90.

The Remedy for Knowing Assistance

[1731] Perell has stated that the stranger who is liable for knowing assistance “is exposed to

the same liability as a trustee or fiduciary who breaches his or her equitable obligations. This

liability may extend beyond the disgorgement of any property… a stranger under the doctrine

of knowing assistance may not have received any personal benefit or property⁶²⁸.”

Remedy for Undue Influence

[1732] The normal remedy is voiding the transaction, with appropriate compensation if it is not

possible to make restitutio in integrum:

Where the doctrine of undue influence applies, it is normally sufficient for the courts

simply to set aside the transaction. If property has actually been transferred to the

person who exerted the undue influence, the court will order its return… It is clear that

the right to have a transaction set aside on the grounds of undue influence is capable of

being assigned both inter vivos and upon death and so may be enforced by the

successors of the person upon whom the undue influence was exerted. It also seems

clear that, in the event of the death or insolvency of the person who exerted the undue

influence, the interest of the person whom he influenced is regarded as analogous to an

interest arising under a trust; thus in effect the person who exerted the undue influence

holds any property transferred to him as a result of that undue influence on constructive

trust. His personal representatives or trustee in bankruptcy will therefore obviously be

bound by this constructive trust so that the person who transferred the property will be

able to trace it in equity into their hands and, if necessary, claim priority over the general

creditors of the transferee. Thus far it seems entirely appropriate to contend that a

person who obtains property from another through undue influence is a constructive

trustee of that property for the person from whom he has obtained it… [Emphasis

added.]⁶²⁹

Remedy for Unconscionability

⁶²⁸Supra endnote 469 at 116.

⁶²⁹Prof. A.J. Oakley, in Constructive Trusts, 3d ed (London: Sweet & Maxwell, 1997) at 39 [footnotes omitted].

[1733] The primary remedy for a plaintiff who is successful in attacking an unconscionable

bargain is rescission of the transaction, together with any necessary ancillary awards such as

disgorgement of profits.⁶³⁰

[1734] Where rescission of an unconscionable transaction is not possible or appropriate,

courts of equity will attempt to restore the injured party to his original position by an award of

monetary compensation.

[1735] In McCarthy v. Kenny⁶³¹, the plaintiffs’ sister, who had a power of attorney, purchased

shares from the defendant which were worthless, giving the defendant the plaintiff’s valuable

shares in exchange. The Court ordered rescission, and, since the defendant was unable to

deliver up all of the securities or shares in question, the defendant was held liable for the

present value of the shares plus all earnings on the shares from the date of the transaction,

so that the plaintiff could be placed in the position she would have occupied had the

transaction not been entered into.

Remedies For Oppression

[1736] Section 248(3) of the OBCA provides as follows:

(3) In connection with an application under this section, the court may make any interim

or final order it thinks fit including, without limiting the generality of the foregoing,

(a) an order restraining the conduct complained of;

(b) an order appointing a receiver or receiver-manager;

(c) an order to regulate a corporations affairs by amending the articles or by-Jaws

or creating or amending a unanimous shareholder agreement;

(d) an order directing an issue or exchange of securities;

(e) an order appointing directors in place of or in addition to all or any of the

directors then in office;

(f) an order directing a corporation, subject to subsection (6), or any other person,

to purchase securities of a security holder;

⁶³⁰See Morrison v. Coast Finance Ltd. (1965), 55 D.L.R. (2d) 710 (B.C. C.A.); Knupp v. Bell (1968), 67 D.L.R. (2d) 256 (Sask. C.A.)

⁶³¹[1939] 3 D.L.R. 556 (Ont. H.C.) at 566-7, 571-2.

(g) an order directing a corporation, subject to subsection (6), or any other person,

to pay to a security holder any part of the money paid by the security holder for

securities;

(h) an order varying or setting aside a transaction or contract to which a

corporation is a party and compensating the corporation or any other party to the

transaction or contract;

(i) an order requiring a corporation, within a time specified by the court, to

produce to the court or an interested person financial statements in the form

required by section 154 or an accounting in such other form as the court may

determine;

(j) an order compensating an aggrieved person;

(k) an order directing rectification of the registers or other records of a

corporation under section 250:

(l) an order winding up the corporation under section 207;

(m) an order directing an investigation under Part XIII be made; and

(n) an order requiring the trial of any issue. [Emphasis added.]

[1737] Just as the oppression remedy has been interpreted broadly to settle intra-corporate

disputes equitably, an equitable orientation has been said to apply as well when determining

the appropriate remedy.⁶³²

[1738] Under s.248, this court has broad powers, including powers to make any interim or

final order it sees fit, including an order setting aside a transaction or contract. The only

limitation on the power is that it must be used to rectify the conduct complained of. The order

should, as much as possible, permit the complainant to maintain his or her original position.⁶³³

[1739] While paragraph 248(3)(h) specifically permits a court to set aside a contract or

transaction to which the corporation is a party, it is clear that the court under s.248(3) can also

set aside other transactions to which the corporation is not itself a party. Hence, in Fulmer,

the court set aside a transfer of shares⁶³⁴.

⁶³²Tilley v. Hails (1992), 7 O.R. (3d) 257 (Ont. Gen. Div.) at 271; varied (1992), 8 O.R. (3d) 169 (Ont. Div. Ct.); leave to appeal refused

(1992), 9 O.R. (3d) 255 (note) (Ont. C.A.).

⁶³³Naneff, supra endnote 504, Ballard supra endnote 535.

⁶³⁴Supra endnote 502; See also Ballard, ibid, at 221.

[1740] Section 248(3)(j) of the OBCA provides for an order compensating an aggrieved

person. An award under s.248 may be made to compensate a shareholder for amounts, such

as bonuses, that he would have received but for the oppression.⁶³⁵

[1741] A court on an oppression application may order a return of funds improperly removed

from a corporation and can deem such amounts to be assets of the corporation for the

purpose of valuing the complainant’s shares.⁶³⁶

[1742] A court may order the payment of compensation to a shareholder of a corporation

where a director has wrongfully diverted business or profits from that corporation to a related

company.⁶³⁷

[1743] A court may award compensation to supplement a fair market valuation of shares

when their holder has exercised a dissent remedy. In Arthur⁶³⁸the plaintiff, in addition to the

fair market value of his shares, was held to be entitled to an amount to compensate him for

the fact that, if he had stayed in the company, he would have later received a higher price for

his shares. The Divisional Court explicitly affirmed this finding. The award of compensation

reflected “the loss actually suffered by Arthur by reason of being wrongfully deprived of the

right to participate in the corporation’s fortunes as they actually unfolded”.

[1744] A reference to the Master to determine the extent to which funds have been improperly

removed from a corporation is an appropriate oppression remedy.⁶³⁹

[1745] Where the oppressive conduct has been particularly high-handed, the court may award

solicitor and client costs to the complainant. The Divisional Court has held that a finding of

oppression can be a foundation for solicitor-client costs.⁶⁴⁰

Against Whom Can An Order Under S.248 Be Made?

[1746] A s.248 order can clearly be made against Chester. Orders against directors are

squarely within the remedial scope of the oppression remedy.

⁶³⁵Main v. Delcan Group Inc. (1999), 47 B.L.R. (2d) 200 (Ont. S.C.J. [Commercial List]) at 211.

⁶³⁶Re Abraham, supra endnote 541 at 472.

⁶³⁷Franko’s Heating, supra endnote 544 at 567.

⁶³⁸Supra endnote 552.

⁶³⁹Re Abraham, supra endnote 541 at 473.

⁶⁴⁰Fulmer, supra endnote 502; Naneff, supra endnote 504 at 298; Arthur, supra endnote 552 at 32

[1747] Section 248(2)(a) and (b) of the OBCA refer to acts or omissions of the corporation and

the carrying on of the business of the corporation. This wording clearly suggests that all who

are involved in causing the corporation’s affairs to be carried out in an oppressive manner are

appropriate respondents, including senior officers and members of management of the

corporation.⁶⁴¹Chester clearly falls within this category, as does Robert, with respect to IWS

in its dealings with Greycliffe.

[1748] The Defendants submit that no order under s.248 should be made against the

recipients of the bonuses and in respect of the Greycliffe profit diversions.

[1749] While the OBCA is silent as to whether an order under s.248 may be made against

third-party recipients of funds improperly diverted from a corporation, the remedies available

to the Court are virtually unlimited, provided that they have the effect of rectifying the

offending behaviour.

[1750] It has been held in a number of recent cases that both a corporation and a personal

defendant may be liable under the oppression remedy.

[1751] In Franko’s Heating⁶⁴², Hart J. ordered a shareholder and director of a corporation to

account for profits generated by clandestinely incorporating a new company and by siphoning

off some of the corporation’s business and profits to it. He also directed the new company to

account for those profits.

[1752] In Westmore v. Old MacDonald’s Farms Ltd.⁶⁴³, where oppression was found and the

company had no assets, the court made orders against the respondents who had received

the personal benefit of the malfeasance.

[1753] In Sidaplex⁶⁴⁴, where a company had transferred substantial assets to other

respondents before a promissory note fell due, Blair J. held a shareholder who had benefited

to be personally liable.

[1754] In SCI Systems Inc. v. Gornitzki Thompson & Little Co.⁶⁴⁵, Epstein J. held that the

controlling minds of a closely held corporation who had personally benefited from the acts

complained of were personally liable.

⁶⁴¹Fulmer, ibid, at 270, GATX, supra endnote 501 at 294-5.

⁶⁴²Supra endnote 544.

⁶⁴³[1986] B.C.J. No. 3009 (B.C. S.C.).

[1755] In Flatley v. Algy Corp.⁶⁴⁶, Flatley was a minority shareholder in a restaurant venture in

respect of which the cash control and the bookkeeping had been inadequate. She had not

received dividends commensurate with her shareholding. Swinton J. found oppression. She

held the defendant corporation and the majority shareholder to be jointly and severally liable

to pay $5,000.00 for dividends owing and to purchase her shares.

Specific Remedies

Account of Profits or Compensation?

[1756] Given that an overriding principle behind equitable relief is that equity will not allow a

wrongdoer to profit from a wrong, the remedy of an accounting for profits received by a

defaulting fiduciary is often invoked. At other limes the remedy of compensation is used:

The distinction between compensation in Equity and the remedy by which Equity can

give an account of profits is relatively straightforward. An account of profits is designed

to prevent the wrongdoer, who has breached an equitable obligation owed to the

plaintiff, from retaining any advantage derived from his default. It is immaterial whether

or not the plaintiff has suffered loss. Compensation is designed to indemnify the plaintiff

for his loss. It is immaterial whether the wrongdoer has made any gain. There will no

doubt be occasions when the wrongdoer’s gains equal the innocent party’s losses but

this need not be so.⁶⁴⁷[Emphasis added.]

[1757] In O’Sullivan v. Management Agency⁶⁴⁸, the court directed the defendants to account

for profits earned but allowed them a reasonable rate of remuneration to compensate them for

the benefit received by the Plaintiff during the life of the voided contract.

The Constructive Trust

[1758] In Canada and the U.S., a constructive trust is available where there has been unjust

enrichment or wrongful conduct or both⁶⁴⁹. Wrongful conduct has been found to include

breach of fiduciary duty and breach of confidence or duty of loyalty (conflict of interest). In

⁶⁴⁴Supra endnote 500.

⁶⁴⁵(1997), 147 D.L.R. (4th) 300 (Ont. Gen. Div.), varied [1998] O.J. No. 2299 (Ont. Gen. Div.).

⁶⁴⁶[2000] O.J. No. 3787 (Ont. S.C.J. [Commercial List]).

⁶⁴⁷I.E. Davidson, “The Equitable Remedy of Compensation” (1982) 13 Melbourne University L. Rev. 349 at 354.

⁶⁴⁸[1985] 1 Q.B. 428 (Eng. C.A.) at 459.

⁶⁴⁹Soutes v. Korkontzilas (1997), 146 D.L.R. (4th) 214 (S.C.C.) [hereinafter Soulos].

Soulos, McLachlin J. (as she was then) listed four conditions which should generally be

satisfied before granting a constructive trust based on wrongful conduct:

(1) The defendant must have been under an equitable obligation, that is, an obligation of

the type that courts of equity have enforced, in relation to the activities giving rise to the

assets in his hands;

(2) The assets in the hands of the defendant must be shown to have resulted from

deemed or actual agency activities of the defendant in breach of his equitable obligation

to the plaintiff;

(3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either

personal or related to the need to ensure that others like the defendant remain faithful to

their duties; and

(4) There must be no factors which would render imposition of a constructive trust unjust

in all the circumstances of the case; e.g. the interests of intervening creditors must be

protected.⁶⁵⁰

[1759] Chester was in a fiduciary relationship with both IWS and Morris. He was also an

agent, as an officer of the company. His actions breached his statutory, fiduciary and other

equitable duties. Chester lined his own pockets as a result. There is a need to ensure that

those in positions of trust in corporations do not abuse their positions.

Tracing

[1760] Where a constructive trust is imposed on the wrongdoer, the proceeds may be traced

in equity into the hands of anyone except a bona fide purchaser for value without notice of the

trust.⁶⁵¹

[1761] Ellis cites Kolari, Re⁶⁵²for its categorization of the law respecting tracing in the

fiduciary context:

I have reviewed the jurisprudence cited to me by counsel, and the general principles or

rules distilled from the jurisprudence may be set out as follows:

⁶⁵⁰Ibid. at 230.

⁶⁵¹Chase Manhattan Bank N.A. v. Israel-British Bank (London) Ltd. (1979), [1981] Ch. 105 (Eng. Ch. Div.).

⁶⁵²(1981), 36 O.R. (2d) 473 (Ont. Dist. Ct.).

…2. Assets held by a person in a fiduciary relationship can be traced by the

beneficiary who has an equitable proprietary interest or charge on the assets.

• Hamilton Provident and Loan Society v. Gilbert [(1884), 6 O.R. 434].

• Sandberg et al v. Meurer et al. and M.N.R. [[1949] 1 D.L.R. 422].

• Re Diplock [[1948] Ch. 465].

• Re Blackhawk Downs, Inc. and Arnold et al. [(1973), 38 D.L.R. (3d) 75].

…4. If the beneficiary’s money is mixed with the fiduciary’s own funds and

afterwards withdrawals are made, the fiduciary must be taken to have drawn out

his own money first.

• Re Hallet’s Estate (1880), 13 Ch. D. 696.

5. Where a fiduciary has mixed trust money with his own, the beneficiary is entitled

to a charge on the property purchased for the amount of the trust money used in

the purchase.

• Re Hallet’s Estate

• Goodbody et al. v. Bank of Montreal et al. [(1974), 47 D.L.R. (3d) 335].

6. If there is confusion in the tracing, the onus is on the fiduciary to identify his own

funds.

• Re Hallet’s Estate

Sinclair v. Brougham, [1914] A.C. 398

McTaggart v. Boffo et al. (1975), 10 O.R. (2d) 733, 63 D.L.R. (3d) 604.

Re Norman Estate, [1951] O.R. 752, [1952] 1 D.L.R. 174 (pp. 478-479).⁶⁵³

[1762] More recently, the law on tracing in Canada was set out in Citadel⁶⁵⁴. La-Forest J. held

that there was no justification for maintaining different tracing rules at law and equity,⁶⁵⁵and

the tracing exercise, once complete, may be applied to personal or proprietary rights:

This does not mean, however, that a restitutionary remedy and a tracing order are

mutually exclusive. Where more than one remedy is available on the facts, the plaintiff

should be able to choose the one that is most advantageous.

⁶⁵³Ellis, supra endnote 459 at §20-14.2 (Dec. 1988).

⁶⁵⁴Supra endnote 464 at 419.

In England, it has been widely accepted since Boscawen v. Bajawa, [1995] 4 E.R. 769

(C.A.), per Millet LJ that tracing is neither a remedy nor a claim but rather an evidential

process used to identify assets in the hands of a third party and justify the plaintiff’s

claim for a remedy in respect of those assets or their identifiable product. Having

identified the assets, the plaintiff may be entitled to a remedy in connection with a

personal or proprietary claim, to enforce a legal or equitable right.

In the recent case of Foskett v. McKeown, [2000] H.L.J. No. 31, the House of Lords

considered the rights to a death benefit on a whole life policy where the policy owner

had used misappropriated trust funds to pay 40% of the premiums. Lord Millett stated

the rule as follows:

Where a trustee wrongfully uses trust money to provide part of the cost of acquiring

an asset, the beneficiary is entitled at his option either to claim a proportionate

share of the asset or to enforce a lien upon it to secure his personal claim against

the trustee for the amount of the misapplied money. It does not matter whether the

trustee mixed the trust money with his own in a single fund before using it to

acquire the asset, or made separate payments (whether simultaneously or

sequentially) out of the differently owned funds to acquire a single asset.

…Where one asset is exchanged for another, a claimant can elect whether to follow the

original asset into the hands of the new owner or to trace its value into the new asset in

the hands of the same owner…

…the beneficiary’s right to elect to have a proportionate share of a mixed substitution

necessarily follows once one accepts… i) that a claimant can trace in equity in to a

mixed fund and (ii) that he can trace unmixed money into its proceeds and assert

ownership of the proceeds.

Accordingly, I would state the basic rule as follows. Where a trustee wrongfully uses

trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at

his option either to claim a proportionate share of the asset or to enforce a lien upon it to

secure his personal claim against the trustee for the amount of the misapplied money. It

does not matter whether the trustee mixed the trust money with his own in a single fund

before using it to acquire the asset, or made separate payments (whether

⁶⁵⁵Citing, inter alia, L. Smith, “Tracing in Taylor v. Plumer: Equity in the Court of King’s Bench “, [1995] L.M.C.L.Q. 240.

simultaneously or sequentially) out of the differently owned funds to acquire a single

asset… [T]he beneficiary’s right to claim a lien is available only against a wrongdoer and

those deriving title under him otherwise than for value. It is not available against

competing contributors who are innocent of any wrongdoing.

[1763] In A.J. Oakley, Constructive Trusts, the learned author said:

Where the property upon which the constructive trustee is imposed is still identifiable in

the hands of the constructive trustee, the beneficiary will be able to choose either to

exercise his proprietary rights in the subject-matter of the constructive trust, or to rely on

the personal liability of the constructive trustee to account, or, in rare circumstances, to

exercise both of these remedies⁶⁵⁶.

[1764] Punitive or Exemplary Damages

[1765] Punitive damages are awarded not to compensate a plaintiff but to punish a defendant

and to deter not only the defendant but others from acting in an outrageous or reprehensible

manner.

[1766] Punitive damages are awarded in exceptional cases for “malicious, oppressive and

high-handed” misconduct that “offends the court’s sense of decency.”⁶⁵⁷Their aim is to punish

the defendant, not to compensate the plaintiff for losses or suffering flowing from the actions

perpetrated by the defendant.

[1767] The Supreme Court in M.(K.) held that punitive damages are available for a breach of

fiduciary duty⁶⁵⁸. Awards of exemplary damages have been made where a defendant

breaches a duty of trust and confidence owed to a vulnerable plaintiff. When the actions of the

fiduciary are purposefully repugnant to the best interests of the beneficiary, punitive damages

are a logical award to be made by the Court. Where the impugned activity is motivated by the

fiduciary’s self-interest this award will be particularly applicable⁶⁵⁹.

⁶⁵⁶Supra endnoe 627 at 9.

⁶⁵⁷Hill v Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, 126 D.L.R. (4th) 129 (S.C.C.) at para 196 p. 185 [hereinafter Hill], cited with

approval in Whiten, supra endnote 622 at para. 36, p. 665.

⁶⁵⁸Supra endnote 577 at para. 106. See also Norberg, supra endnote 441 at para. 106.

⁶⁵⁹Ellis, supra endnote 459 at p.20-31; Norberg, ibid, at 507 per McLachlin J.

[1768] Awards of punitive damages have been made where the conduct in question relates to

an abuse of a position of trust and confidence or some abuse of power⁶⁶⁰.

[1769] In Clairborne⁶⁶¹, the Ontario Court of Appeal recognized that a very substantial award

of punitive damages may be appropriate if that is the only effective method of disgorging the

defendant’s profits obtained from a lack of probity connected with the transaction.

[1770] The Supreme Court recently canvassed the law of punitive damages in Whiten.

Speaking for the majority of the Court, Binnie J. said the damages awarded should be

proportionate to the blameworthiness of the defendants’ conduct. He outlined several factors

to be considered when assessing the rational limits of an award:

1. whether the misconduct was planned and deliberate.

2. the intent and motive of the defendant.

3. whether the defendant persisted in the outrageous conduct over a lengthy period of

time.

4. whether the defendant concealed or attempted to cover up its misconduct.

5. the defendant’s awareness that what he or she was doing was wrong.

6. whether the defendant profited from its misconduct.

7. whether the interest violated by the misconduct was known to be deeply personal to

the plaintiff (e.g. professional reputation) or was a thing that was irreplaceable⁶⁶².

[1771] The vulnerability of the defendant, whether financial or otherwise, and the consequent

abuse of power by the defendant are “highly relevant” where there is an imbalance of power.

Binnie J. cautioned that the vulnerability factor will usually militate against an award for

punitive damages in a commercial context. It is assumed in those circumstances that

contracting parties enter the marketplace fuelled by aggressive self-interest. He further

cautioned that emotional distress is only relevant in assessing the oppressive character of the

defendant’s conduct. Punitive damages are not compensatory and should not be awarded

where it is appropriate to award aggravated damages.⁶⁶³

⁶⁶⁰Whiten, supra endnote 622; Claiborne Industries Ltd. v. National Bank of Canada (1989), 69 O.R. (2d) 65 (Ont. C.A.) [hereinafter

Clairborne]; MacDonald Estate supra endnote 453 at para 51 f.

⁶⁶¹Clairborne, ibid.

⁶⁶²Whiten, supra endnote 622 at paras. 112-114 p. 300.

⁶⁶³Ibid, paras. 114-117 p. 301.

[1772] When one considers Chester’s conduct against the factors enunciated by Binnie J., it is

apparent that this is an appropriate case for substantial punitive damages. I have found his

misconduct in relation to the Share Sale was egregious, planned and deliberate over a

lengthy period of time, for his own personal benefit. Chester was the one who was secretive

before December 22, 1983, excluding Taylor Leibow and objective professional advisors. I

have found Chester didn’t even disclose to Morris the fact that he was being asked to sign

away his shares of IWS, let alone all the other information Chester had a duty to disclose. He

knew Morris didn’t want to sell, didn’t know what he was signing, hadn’t had any advice. He

abused the trust of a loving brother and faithful partner.

[1773] On the facts before me, I find Chester’s conduct meets, indeed, surpasses, the bar set

in Hill for malicious, oppressive and high-handed conduct deserving of public censure by the

court. He declared unjustifiable bonuses to his sons, hid them from Morris and after Morris

found out about them, misled him about them. Punitive damages may also be awarded under

the oppression remedy in all the circumstances here. They are also clearly warranted here

against IWS.

Choice of Remedies

The Share Sale

[1774] The Plaintiffs have claimed, inter alia, a declaration that the Share Sale Agreement,

lease and ancillary documents are null and void together with “such further orders or

directions, including restitutionary orders as are necessary to reinstate the plaintiffs to the

legal and financial positions they would have occupied had the Share Sale Agreement, lease

and related documents never been executed including if necessary an order directing a

reference for among other necessary purposes, an accounting or “such restitutionary orders

as may be appropriate in respect of the allegations particularized in paragraph 11. They also

seek orders pursuant to s.248 of the OBCA and a “declaration that Morris’ 50% share of all

monies, benefits… diverted by some or all of the defendants… and all subsequent growth and

profits earned therefrom, in whatever form they exist are held by way of constructive trust for

Morris …and if appropriate an order directing a reference for an accounting and tracing in

respect of such amount.” Furthermore, the plaintiffs seek an accounting and vesting orders or

other ancillary relief.

[1775] The “basket” request for restitutionary orders with respect to the Share Sale in the

Statement of Claim leaves me with the fundamental choice between personal and proprietary

remedies. In Lac LaForest J. differentiated between personal and proprietary remedies as

follows: “giving back to someone something that has been taken from them (a restitutionary

proprietary award), or its equivalent value (a personal restitutionary award.)⁶⁶⁴”

[1776] A personal remedy imposes an obligation on the defendant to pay the plaintiff a sum of

money. The defendant becomes a judgment debtor, ranking behind secured creditors in the

event of bankruptcy or insolvency proceedings. A proprietary remedy awards the plaintiff a

property interest in specific identifiable property, or in property which has been substituted for

it.

[1777] Although personal remedies are the norm, as noted earlier, proprietary remedies may

be awarded at the Court’s discretion where, for example, monetary compensation is

inadequate, or where there has been wrongdoing, such as breach of fiduciary duty.⁶⁶⁵

[1778] I have found there are no factors rendering the imposition of a constructive trust unjust

in relation to Morris’ 50% of the shares of IWS. Chester was in a fiduciary position with Morris.

He breached his fiduciary obligation to Morris by orchestrating the Share Sale without Morris’

knowledge and by obtaining his signature without appropriate disclosure or advice. Chester

now claims Morris’ shares as the result of his breach of his equitable and statutory duties.

There is a need to ensure that defendants such as Chester remain faithful to their duties.

There are no factors rendering the imposition of a constructive trust unjust.

[1779] A constructive trust requires the defendant to convey specific property or its traceable

product to the plaintiff. The constructive beneficiary is entitled to any income or other fruits

produced by the shares effective from the time of the Share Sale, which I have set at

December 22, 1983.⁶⁶⁶

[1780] In Lac, Wilson J. wrote at pp. 631-32:

It seems to me that when the same conduct gives rise to alternative causes of action,

one at common law and the other in equity, and the available remedies are different, the

court should consider which will provide the more appropriate remedy to the innocent

⁶⁶⁴Supra endnote 443 at 668.

⁶⁶⁵P.D. Maddaugh and J.D. McCamus, The Law of Restitution (Aurora: Canada Law Book Inc., 1990) at pp. 35-38.

party and give the innocent party the benefit of that remedy… [l]t seems to me that the

only sure way in which Corona can be fully compensated for the breach in this case is

by the imposition of a constructive trust on Lac in favour of Corona with respect to the

property. Full compensation may or may not be achieved through an award of common

law damages depending upon the accuracy of valuation techniques. It can most surely

be achieved in this case through the award of an in rem remedy… The imposition of a

constructive trust also ensures, of course, that the wrongdoer does not benefit from his

wrongdoing, an important consideration in equity which may not be achieved by a

damage award⁶⁶⁷.

[1781] Cardozo C.J. enunciated the principle in two famous dicta. In Meinhard v. Salmon⁶⁶⁸,

he said, “A constructive trust is then the remedial device through which preference of self is

made subordinate to loyalty to others.” And in Beatty v. Guggenheim Exploration Co.⁶⁶⁹, he

wrote:

[a] constructive trust is the formula through which the conscience of equity finds

expression. When property has been acquired in such circumstances that the holder of

the legal title may not in good conscience retain the beneficial interest, equity converts

him into a trustee.

[1782] I order and declare that Chester has held 50% of the shares of IWS on constructive

trust for Morris since December 22, 1983. [Had Shirley been named as a plaintiff in this case,

as a shareholder in IWS, I would have found her to be entitled to the same relief as Morris in

connection with 56¼ IWS shares.] I make this order despite my finding that the Share Sale

was a staged sale and despite the January 4, 1984 date on the Share Sale Agreement.

Chester conducted himself as a 100% owner of IWS after December 22, 1983 and took all

IWS profits for himself and his family. I order Chester to transfer Morris’ shares [50% of the

shares of IWS] from his name to Morris’ as of today’s date.

[1783] Mere transfer of Morris’ shares will not adequately compensate him for his lost profits

in the interim. While it is possible to restore 50% of the shares of IWS to Morris, to put Morris

in the same position as he would have been in but for the Share Sale and to prevent Chester

from benefiting from his breach of fiduciary duty, oppression, his undue influence and the

⁶⁶⁶A.J. Oakley, supra endnote 627 at 5.

⁶⁶⁷Supra endnote 443.

⁶⁶⁸249 N.Y. 458 (U.S. N.Y. Ct. App., 1928) at p. 467.

unconscionable transaction, I have attempted to quantify Morris’ lost profits and Chester’s

undeserved profits in the interim.

[1784] What is the amount of the lost profits? How can that amount best be determined?

Alternative One

[1785] One obvious option is a reference to determine with precision 50% of IWS profits since

December 22, 1983 during the period of the constructive trust. Morris is entitled to such a

reference, and if he so elects, I shall so order.

[1786] However I am cognizant that a reference to determine the profits of IWS in the interim

with precision would be very expensive, acrimonious and time-consuming.

Alternative Two

[1787] I therefore give Morris the alternative of electing to accept my best estimate of profits

on the shares held in trust between December 22, 1983 and the date of this judgment,

calculated with reference to the documentary evidence, the evidence of Chester, Linton and

Wiseman and the evidence of Vettese as follows:

(1) 50% of $27,284,000 as adjusted & explained below

plus

(2) 50% of $30,420,031 as adjusted & explained below

minus

(3) $2,094,721, as explained below

Adjustments & Explanations

[1788] (1) The $27,284,000 is the total of bonuses and dividends declared by IWS between

January 4, 1984 and the sale to Philip in 1993.I have dealt with the 1993 dividend to Chester

in (2) below. I would reduce the $27,284,000 by any amounts that Warren, Robert and Gary

would be under-compensated by way of salaries received [for services provided to IWS in the

same period 1984-1993] in the absence of any bonuses measured against market rates of

remuneration of employees for comparable services in similar-sized companies in the scrap

⁶⁶⁹225 N.Y. 380 (U.S. N.Y., 1919) at p. 386.

industry in the same period. A reference is needed to determine what, if any, bonuses to

Chester’ sons were warranted between 1984 and 1993 measured against market rates in

addition to the salaries and other remuneration actually received.

[1789] Chester and his sons operated IWS in Morris’ absence between 1988 and 1993. To

compensate for the disparity of participation of the owners during that period, an adjustment

should also be made to reflect the fair market value of their services, including Chester’s

services, to IWS October 26, 1988 - September 1993.

[1790] I have been troubled by the fact that Chester has directed the fortunes of IWS for a

lengthy period of time. I have considered that the restoration of Morris’ shares may seem to

be an extreme remedy. However, in the particular circumstances here, I am strongly of the

view that the restoration to Morris of his shares is appropriate. Chester cannot be allowed to

profit from his dishonourable actions. If he were right about uneven “contribution” he could

have acted openly and decently to obtain all of the shares of IWS.

[1791] The true value of the services provided by Chester and his sons to IWS can be

objectively determined by reference to market compensation paid to employees in the scrap

industry during the relevant period for similar services. After fair compensation for services is

determined, and the appropriate adjustments made, then the balance of the $27,284,000 will

be divided 50/50 [subject to further adjustment in respect of 1993 dividend amount as set out

below]

[1792] (2) The $30,420,031 is the proceeds of the sale to Philip in 1993. It is unclear on the

evidence before me whether any or all of the proceeds of the Philip sale remain in IWS. As

Morris is receiving 50% of IWS’ shares, any amounts still in IWS should not be double-

counted. A reference is needed to determine the amounts, if any, of the proceeds of sale to

Philip in 1993 still in IWS. [Further, I have included in the $27,284,000 a 1993 dividend to

Chester in the amount of $2,250,000. To the extent that that dividend was paid out of the

proceeds of the Philip sale, it should not be double-counted.] To the extent that Philip sale

proceeds are still in IWS, those amounts should be deducted from the $30,420,031.24.

[1793] (3) The $2,094,721 is comprised of $1,594,721 plus $500,000, calculated as follows.

$1,594,721 is the amount I have found to be that which Morris actually received under the

Share Sale. In arriving at that conclusion, I have noted in the Quantification section, under the

heading “How Much Did Morris Actually Receive?” that $500,000 deducted from Morris’ loan

account did not affect the profits of IWS because Morris was in effect being paid with his own

money. However, on the assumption that loss of profits should be calculated as if the share

sale never occurred, the $551,058.02 of drawings that Morris took from IWS between 1984

and the end of 1988 would have to be factored into the equation. I have ordered Morris to pay

the overdraft of the loan account [$51,058.02] in the Counterclaims, so I would factor into the

formula to be applied the $500,000 that Morris did take by way of drawings between 1984 and

1988.

[1794] [Morris’ share of the 1983 IWS dividend is included in that sum, but his $412,000 that

was reallocated to Chester is not. The $412,000 is included under the heading Pre Sale

Bonuses, below.]

[1795] Therefore, if Morris elects a determination of profits in this manner, I would order a

reference confined to the following three issues:

(1) was any remuneration to Chester’ sons warranted for services provided to IWS over

and above salaries paid between 1984 and 1993 measured against market rates paid in

the scrap industry during that period for similar services? Was any remuneration to

Chester calculated on the same basis warranted between October 26, 1988 and the

sale to Philip?

(2) what amounts of the 1993 sale proceeds to Philip are still in IWS? In order to avoid a

double-counting, is an adjustment required by reason of the 1993 dividend paid to

Chester?

(3) the precise calculation of amounts owing under the formula, including interest.

[1796] If Morris elects to accept this approach, the calculation of Morris’ lost profits would be

as follows:

[$27,284,000 less adjustments] ÷ 2

plus

[$30,420,031 less adjustments] ÷ 2

minus $2,094,721

= Morris’ share of lost profits [plus interest if appropriate]

[1797] The Plaintiffs are entitled either to a determination of amounts owing as set out above,

or a reference to determine with precision Morris’ share of the profits December 22, 1983 to

the present.

[1798] If Morris elects a reference to precisely determine the amounts of the profits owing, I

am prepared to accept further written submissions on the terms of the reference.

[1799] In the interim, while Morris’ lost profits are being determined, I am satisfied that Morris’

share of profits from 1983 to the present will not be less than $12 million, even after the

adjustments to which I have referred are made.

[1800] I make an order against Chester/IWS for immediate partial payment of $12 million.

Morris is entitled to receive this amount immediately and to pursue collection thereof. After it

is paid, IWS/Chester are entitled to a credit of $12,000,000 against the amount of Morris’

share of the profits ultimately found to be owing.

[1801] A constructive trust normally lies against both the original product and its traceable

product. In the case at bar, it is not yet known whether the product is identifiable. This

information is crucial in order to return Morris to the status quo ante, as IWS has been largely

denuded of value over a course of nearly 20 years. Therefore with respect to the product

there will be a two-phase remedy. Morris is entitled to a tracing order. The profits can be

traced by Morris. On the authority of Citadel⁶⁷⁰, where more than one remedy is available on

the facts, Morris should be able to choose the remedy most advantageous. A restitutionary

remedy and a tracing order are not mutually exclusive. Morris may trace in equity into a mixed

fund and he may trace unmixed money into its proceeds and assert ownership of the

proceeds.

[1802] Morris may use the tracing order to determine whether any profits remain in the hands

of persons other than bona fide purchasers for value without notice [I find that Warren, Robert

and Gary are not bona fide purchasers for value without notice.] If so, on the authority of

Citadel, Morris may elect a constructive trust as an alternative to a personal remedy.

[1803] Upon execution of the tracing order, he may elect between (a) a proprietary remedy [a

constructive trust on his share of the profits earned on the shares since the Share Sale. He

may exercise his proprietary rights over the subject matter of the constructive trust and its

product claiming a share of the original asset in the hands of the recipients other than bona

fide purchasers for value without notice or claim a share of assets and replacement assets

purchased using the funds; and (b) a personal remedy [judgment against Chester personally.]

[1804] As I have also found Share Sale liability against IWS under s.248, Morris may also

seek to recover to the extent of that liability against the assets of IWS.

[1805] After all that has transpired, it may prove impossible for Morris and Chester to operate

IWS as partners, or for their sons to work together in IWS. The Statement of Claim seeks a

winding-up order, and I find that the preconditions set out in cases such as Ebrahimi⁶⁷¹have

been met. However, it was also apparent at trial (notwithstanding the pleading) that the

continuation of IWS as a going concern is important to both brothers. I would prefer to see the

parties work out the future of IWS on their own, this time one hopes with professional advice,

whether by effecting a buy-sell arrangement or some other approach. A winding-up order is

an extreme remedy and should be one of last resort. The claim is refused, without prejudice

to the right to renew the application. I note that under s.248(3)(c) of the OBCA, this Court has

the power to create a unanimous shareholder agreement, and without so ordering at this time,

the parties might consider entering into a simple shareholder agreement containing a

standard “shotgun” buy-sell.

[1806] Since I have found that the Share Sale Agreement provided for a staged sale, and

based in part on s.248 of the OBCA, if my disposition with respect to the Share Sale had been

different, I would have found Morris to be entitled to his share of a pro-rated portion of

dividends and bonuses paid by IWS from 1984-88, which I have quantified at $2.58 million.

However, I would have ordered a reference to determine whether IWS bonuses were

warranted for work done for IWS by non-owners based on market rates over and above

compensation received. I would adjust the $2.58 million by the appropriate deduction for

those bonuses.

December 1983 Lease

[1807] I have held that the terms of the December 1983 lease were oppressive vis-à-vis

Morris and Morriston. The lease deficiency determined prospectively was $2,529,607.I have

found that the December 1983 lease was unconscionable and oppressive within the meaning

⁶⁷⁰Supra endnote 464

of s.248 OBCA. But for my Share Sale disposition I would have declared the lease null and

void. If I had not ordered the return of Morris’ shares and payment of profits generated on

those shares since December 22, 1983, I would have held that IWS owes Morriston 50% of

the difference between fair market rent from December 1983 to the date of judgment, less any

amounts actually received by Morriston for rent under the December 1983 lease. I have found

that the contra scheme was improper and have quantified damages at $21,169. If it were

necessary to do so, in light of the developments since 1998, I would have ordered a reference

to determine the amount of the lease deficiency using the market rents used by the witness

Robertson, which I have accepted. However, given that I have found that Morris was entitled

to 50% of the profits of IWS throughout and given that the benefits lost by Morriston accrued

to IWS, any loss to Morris/Morriston should be caught in the profits owing to Morris in that

connection.

Pre-Sale Bonuses

1979 Bonuses

[1808] Chester and IWS are liable to Morris for $125,000 in respect of the 1979 bonuses.

Upon execution of my tracing order, Morris may elect an order that Chester has held Morris’

$125,000 on constructive trust for Morris since December 17, 1979, or a personal remedy

against Chester. I also order IWS to pay $125,000 to Morris.

1981-1982 Bonuses

[1809] Morris seeks an order that Chester has held Morris’ 1981-1982 bonuses as a

constructive trustee for Morris since they were declared. Such an order is appropriate.

Chester was in a fiduciary position with Morris. He breached his fiduciary obligation to Morris

by orchestrating the bonuses without Morris’ knowledge and by obtaining his signature

without appropriate disclosure or advice. Chester now seeks to keep Morris’ share of the

bonuses as the result of his breach of his equitable and statutory duties. There is a need to

ensure that defendants such as Chester remain faithful to their duties. There are no factors

rendering the imposition of a constructive trust unjust.

[1810] As I have found that the bonuses were paid out of the proceeds of the Laidlaw and

Lasco sales for assets that Morris and Chester had built over 40 years, and since I have

⁶⁷¹Supra endnote 536.

found that Chester’s sons were adequately compensated by way of salary, were at the

beginning of their careers and did nothing to warrant a share of the equity of IWS, I find that

Morris is entitled to 50% of the $6.6 million declared, $33 million minus the $988,000

received, or $2,312,000. I order that Morris may trace those bonuses and elect between a

constructive trust [on $950,000 since December 23, 1981 and $1.362 million since February

22, 1982] or a personal remedy against Chester.

[1811] The claim for $2,312,000 is also allowed against IWS.

[1812] Chester’s sons are liable for knowing receipt in the following amounts:

Robert

Warren

Gary

$622,000

$936,000

$500,000

[1813] With respect to the 1979, 1981-82 bonuses, if any remain in IWS or have been loaned

back to it, they are impressed with a constructive trust to the extent of Morris’ interest.

[1814] Profit Diversions

[1815] I have quantified the amounts of the pre sale profit diversions from IWS as follows:

100%

Morris’ 50% Share

$965,403

136,421

Greycliffe

Icarus

$1,930,806

272,842

61,951

Servtross

Big Rig

30,975

47,644

23,822

Circuitel

46,905

23,452

[1816] I order Chester, IWS, Robert to pay Morris $1,180,073. I order Greycliffe, Icarus,

Servtross, Big Rig and Circuitel to pay Morris the following amounts: Greycliffe, $965,403;

Icarus, $136,421, Servtross, $30,975; Big Rig, $23,822; Circuitel, $23,452. A tracing order will

issue. If tracing uncovers identifiable assets, such as but not limited to racehorses, Morris

may elect a constructive trust or equitable lien or personal orders as appropriate for this

portion of the award.

[1817] Robix as successor of Icarus is liable to pay Morris $136,421 and I order it to do so.

[1818] Greycliffe as successor of Big Rig is liable to pay Morris $23,822 and I order it to do so.

[1819] Robert was in a fiduciary relationship to IWS as an officer of the corporation. The profit

diversions took place through self dealing as an agent of the corporation. Such behaviour

must be discouraged. The third-party companies, as the alter egos of Robert, must be

deemed to have notice of the breach of fiduciary relationship, his knowledge being imputed to

them.

[1820] Greycliffe, Icarus, Servtross, Big Rig and Circuitel are deemed to be holding profits

diverted from IWS to those companies on behalf of IWS. As assets available to IWS those

assets can be made available to Morris in recovering amounts owed by IWS.

[1821] While I recognise that this claim would ordinarily have been brought by IWS, in the

particular circumstances of this case, where Chester would not direct IWS to bring a

derivative claim and where I have found that Chester held 50% of the shares on constructive

trust for Morris from December 1983 to the date of their transfer, and where derivative actions

are not required under the oppression remedy, I am prepared to allow the Plaintiffs to pursue

their remedy against Chester/IWS.

Ancaster

[1822] Chester is ordered to pay Morris $98,000 for breach of contract in relation to the

Ancaster property.

Punitive Damages

[1823] For reasons given earlier, I order Chester to pay punitive damages in connection with

the Share Sale, bonuses and profit diversions of $350,000.

[1824] Interest

[1825] In argument, counsel volunteered to provide assistance in the calculation of interest.

Given the alternative remedies available to the Plaintiffs and their effect on the calculation of

interest, I am of the view that the submissions on interest should be deferred except on the

elements of this award where I have not given the Plaintiffs an election as to remedy. I would

be grateful to receive immediate submissions on interest, for example in respect of damages

for Ancaster, in the Inducing Breach and Wrongful Dismissal actions and in the

Counterclaims.

[1826] If counsel disagree, they may make submissions on the point.

Costs

[1827] Counsel have requested the opportunity to make separate submissions on costs.

[1828] Further submissions on the scale and the procedures to be used in quantifying costs

may be made in writing on or before September 16, 2002.

Part VI - Inducing Breach of Contract Action

Facts

Introduction

[1829] In Action # 37616/89, the Plaintiffs, Morris, Michael and SWRI allege that Robert,

Chester, Gary and IWS induced Philip Enterprises (“Philip”) to breach its contract with SWRI,

causing it damage. They allege, inter alia, that Robert tampered with certain documents (the

“Lasco documents”) and then furnished them to Philip to induce it to stop doing business with

SWRI. Chester, Robert and IWS also refused to release Philip from the counterclaim that IWS

had brought against Philip in the Main Action until Philip agreed to cease doing business with

SWRI.

[1830] The Defendants deny the Plaintiffs’ allegations and allege that Michael and/or Michael

and Morris tampered with the Lasco documents and then provided them to Philip in order to

cheat Philip. Once Philip learned that SWRI had done so, Philip ceased doing business with

SWRI⁶⁷². The dismissal of IWS’ counterclaim against Philip and Philip’s cessation of its

business with SWRI were unrelated.

[1831] In determining whether Robert, Chester and IWS induced the breach of SWRI’s

contract with Philip by, inter alia, altering the Lasco documents. I have considered (1) the

nature of the relationship between SWRI and Philip; (2) the events preceding and following

the alleged breach; and (3) the content of the Lasco documents, including a letter agreement

between Lasco and SWRI dated October 24, 1986, in its original (JB 3835) and its altered

form (JB 3830) amended by a letter dated November 17, 1986 (JB 4291;) and the settlement

letters from SWRI to Lasco, the first dated February 24, 1987, in its original (JB 3982A) and in

its altered (JB 3981) form and the second dated November 7, 1988 in its original and its

altered form (both at JB 4270.)

1. The Nature of the Relationship Between SWRI and Philip

[1832] Much of the evidence relevant to this Action has already been reviewed in Part II, the

section of these Reasons relating to the Main Action and will be reviewed in Part VII, the

section of these Reasons pertaining to the Counterclaims. Those portions of the Reasons

should be considered as if they were a part of this Part.

[1833] The evolution of SWRI’s business relationship with Philip will be described at length in

the Reasons pertaining to the Counterclaim. By 1989, the contractual relationship was well

established and mutually beneficial.

[1834] I have accepted Michael’s evidence that SWRI’s business relationship with Philip

began in 1982, with a project involving kiln dust for St. Lawrence Cement, described in

greater detail in Part VII. It evolved over time. Philip performed the physical work, including

transportation, processing and disposal in every major SWRI project. SWRI and Philip

developed and jointly paid for a foundry sand reclaimer and for an oxide stabilisation batch

mixing [flue dust] plant. They agreed that Philip’s environmental licenses would be used for

their mutual benefit. I have accepted Michael’s evidence that they agreed on profit sharing or

sub-contract arrangements on a project-by-project basis.⁶⁷³

[1835] In addition to providing Morris’ side of the family with resources, the relationship with

the principals of Philip also provided valued personal friendships. I have accepted Morris’

evidence about the closeness of his relationship with the Fracassis.

[1836] Five days after October 26, 1988, when IWS terminated Morris, Morris drafted [and

Fracassi signed] JB 4262, an agreement between SWRI and Philip in his own handwriting,

containing the following:

⁶⁷²Fracassi, June 5, 2000

⁶⁷³Michael, May 10, 1999

We protect each other for life and we do not sell that portion of the business we do

unless we both sell or to each other, no outs, no ins, no penaltys, just do the business

so that we respect each other and ourselves.

[1837] Fracassi gave evidence that he/Philip and Morris/SWRI enjoyed a close relationship,

even after he learned IWS had fired Morris in October 1988. Even after the Plaintiffs by

Counterclaim had named Philip as a defendant to its counterclaim in the Main Action in

January 1989, Philip continued to do business with SWRI⁶⁷⁴.

2. The Lasco Documents: Who Altered Them and Why?

(a) The Contract Between SWRI and Lasco dated October 24, 1986

[1838] In determining who altered the Lasco documents, my first task was to determine

whether SWRI and Philip were joint-venturers [who would both have received copies of

documents] as Fracassi contended, or whether they were in a contractor/sub-contractor

relationship as Michael contended.

[1839] Michael said as Philip and SWRI were not joint venturers, Philip was not a party to

SWRI’s contract with Lasco dated October 1986. SWRI sub-contracted with Philip and he

never provided Philip with copies of the SWRI/Lasco contract or advised Philip of its terms.

SWRI’s contract with Lasco was none of Philip’s business⁶⁷⁵. SWRI made one deal with

Lasco and another with Philip

[1840] Fracassi said in about October 1986, Michael gave him JB 3830 (a doctored version of

SWRI’s October 24, 1986, contract with Lasco) that Michael represented and he understood

to be the real contract between SWRI and Lasco⁶⁷⁶.

The Lasco Contract - Comparison of JB 3835 and JB 3830

[1841] JB 3835 is the real contract between Lasco & SWRI. Paragraph 3 includes the

following:

A rate for transportation of $350 per trip can be fixed at this time for both your new

generation and your stockpile. With one caveat, should our trucks require more than one

hour in LASCO’s plant, an additional $70 per hour—an additional charge of $70 per hour

⁶⁷⁴Fracassi, June 5, 2000 and June 6, 2000

⁶⁷⁵Michael, May 11, 1999

or part thereof, will apply. This additional charge, however, will not apply to our

immediate start-up situation or approximately one week for the new generation and one

day for the stockpile.

In the alternative may we suggest that three weeks into the operation, we sit down and

fix one fair rate for transportation based on the above-mentioned guidelines and our

experience to date… [emphasis added]

[1842] Michael said about three weeks into the operation, as contemplated in JB 3835, SWRI

and Lasco did indeed sit down to fix one fair rate for transportation, including an amount for

demurrage. In a letter dated November 17, 1986 (JB 4291), they agreed upon a rate of $450

per trip.

[1843] SWRI separately agreed with Philip to pay it $440 per trip.⁶⁷⁷When SWRI billed Lasco

$450 per trip, SWRI made a profit of $10 per trip.

[1844] In the “doctored” Lasco contract, JB 3830, the rate per trip was shown as $350. In

cross-examination Fracassi was taken to Philip invoices to SWRI reflecting increases in

charges per trip from $350 to $440.

(b) SWRI Dispute with Lasco and the Letter of Settlement

[1845] Michael said that in late 1986 a dispute arose between Lasco and SWRI about the

contract. Lasco took the position that JB 3835 did not apply to stockpiled material. SWRI took

the position that it did. Dermot Nolan, a solicitor for Philip, wrote JB 3960, a letter to SWRI

dated January 26, 1987, intended for inclusion with JB 3962, a letter that SWRI’s lawyer was

sending to Lasco.

[1846] Fracassi said in chief that he provided Nolan with a copy of JB 3830 before Nolan

wrote JB 3960. In JB 3960, Nolan described the waste product as “iron oxides,” not “bag

house dust” as in the altered contract JB 3830. In cross-examination, Fracassi said Nolan did

not ask him for JB 3830. He later said, “he may have had the letter.”⁶⁷⁸

⁶⁷⁶Fracassi, June 5, 2000

⁶⁷⁷A. …I would have gotten this letter shortly after Michael would have had it signed by Lasco. This is a joint development. We worked

together in developing this project. We put prices together. We under stood what the pricing was supposed to be. We understood what the

revenue-sharing component was going to be. And I would have gotten this shortly after Mr. Waxman had it signed by Lasco and he was

dealing with them.

⁶⁷⁸Michael, May 11, 1999; JB 4291

[1847] Michael said Fracassi could not have given Nolan a copy of the Lasco contract

because, as mentioned earlier, he had not given a copy to Fracassi.⁶⁷⁹

[1848] Michael, May 20, 1999

Q. And you say under oath Mr. Nolan didn’t have a copy of the document at tab four

when he wrote the letter?

A. Mr. Nolan couldn’t have had a copy of the agreement because his clients

[1849] didn’t have a copy of the agreement so I didn’t give a copy to his clients

The SWRI/Lasco Settlement Letter—Comparison of JB 3982A and JB 3981

[1850] JB 3982A is the real letter from Michael to Lasco dated February 24, 1987, setting out

the terms of SWRI’s settlement with Lasco. JB 3982A contains rates of $100 per ton for

disposal of dust and $500 per trip for transportation for the year commencing October 1988.

The doctored version of the settlement letter is JB 3981 and reflects a disposal rate of $90 per

⁶⁷⁹Fracassi, June 6, 2000

Q. Let’s turn up Exhibit 69, and we’ll look at these Lasco contracts a little more carefully… First of all, there isn’t any question that the parties

to this contract were Lake Ontario Steel, on the one hand, and Solid Waste Reclamation Inc. on the other?A. Yes.

Q. Philip isn’t a party to this contract with Lasco, is it?

A. We may not be legally a part of this contract…

Q. Turn to tab 7 of this brief. Do you recognize this as Mr. Nolan’s letter to Michael Waxman of January 26th, 1987?

A. Yes.

Q. And Mr. Nolan was Philip’s lawyer?

A. Yes.

Q. The party your lawyer is threatening to sue in this letter isn’t LASCO, it’s Solid Waste?… And I’m going to suggest that if you went to your

lawyer and asked him for advice on this matter, the first thing he would have asked you for is the contract?

A. He didn’t. And as I already indicated to you, Michael Waxman asked me to get this letter, so that’s what happened.

Q. Mm-hmm. You see, sir, you just said that your lawyer didn’t ask you for the letter. Do you remember you told Mr. Lenczner in chief that

your lawyer in fact had the letter. You forgot that, didn’t you?

A. Forgot what?

Q. That you told Mr. Lenczner that?

A. He may have had the letter. Look, I don’t understand what you’re trying to do. Michael Waxman asked me to get a letter from my lawyer

with respect to this. And now, you know, I don’t know whether I gave him the letter or not. This is the letter that came out. Just because he

didn’t refer to it, what does that mean?

Q. So now we have got three different answers from you. You told Mr. Lenczner your lawyer had the letter. You told me a minute ago that

you didn’t give your lawyer the letter. Now you just said you don’t know?

A. I didn’t say I didn’t give it to him. You asked me that he had not referred to it in this letter and I agreed with you and his clients couldn’t

have given it to him I think it’s abundantly clear by his letter.

Q. Let’s just look at the first paragraph of Mr. Nolan’s letter again. Do you have it?

A. Yes, sir.

Q. We are the solicitors for Philip Enterprises Inc. It says we have been consulted in connection with our client’s agreement with you?

A. Right.

Q. That’s Philip’s agreement with Solid Waste?

A. Right.

Q. For the supply of certain services summarized in your contract with Lake Ontario Steel. Right. They knew I had a contract with Lake

Ontario Steel. You can read this from now until next week and it isn’t going to change…. The point is that Mr. Nolan couldn’t write a letter to

you indicating what summarized in your contract with Lake Ontario Steel unless he had it?

A. Oh, come on, Mr. Silver. We cannot provide services to Lake Ontario Steel unless I had it. Of course I had an agreement with Lake

Ontario Steel. Everyone knew it and Philips knew it and I had an agreement with Philips. It’s called a subcontract. This is not going on much

of a limb here. If he had it he would have said the date of the letter and he would have referred to the terms properly. Nowhere in the letter it

says daily iron production it says new generation. He didn’t have the letter.

ton and a transportation rate of $475. Paragraphs 3, 4 and 5 do not appear in the doctored

version.

[1851] Fracassi said Michael gave him a copy of JB 3981 (the altered settlement letter) shortly

after he settled with Lasco. At the time he believed it set out the terms of the settlement and

Philip relied on it and set its rates accordingly. He said that as Michael had given him JB 3981

and as Philip was relying on it, he would have expected Philip to charge $475 per trip. Yet

Philip actually charged SWRI $450 per trip [not $475] until it terminated the relationship with

SWRI on March 7, 1989.⁶⁸⁰

⁶⁸⁰Fracassi, June 6, 2000

Q. Let’s talk about this letter [JB3981]. You have already agreed with me that the rate indicated here should kick-in in October, 1988?

A. That was the third year of the contract.

Q. And the rate indicated in this letter that you say you got was $475 a trip?

A. Correct.

Q. So I guess we should see you charging Michael Waxman $475 a trip from October, 1988 forward, shouldn’t we?

A. I don’t know what we’re going to see.

Q. If you had that letter that’s what you would have been charging him?

A. That’s the expectation.

Q. Let’s go to the invoices you rendered Michael Waxman under the 1988 tab. We can begin with the invoice at October 31, 1988, invoice

14266, and—

A. Sorry, where are you?

Q. In the 1988 invoice tab, invoice 14266. What is the transportation rate you see there?

…A. $450

Q. Not $475?

A. Correct.

…Q. You have no answer for why you are charging less?

A. There is probably a number of different reasons. I don’t know which one it is.

Q. So let’s have a look at how much you were actually charging Solid Waste under this provision of the contract… Invoice 7196 dated

October 31st, 1986 … keep in mind that you say you had this altered contract that has a flat rate of $350 and nothing else, and if we look at

your first invoice, how much is the transportation rate?

A. $350 per trip.

Q. Okay. Let’s look at the next invoice, November 10, 1986. How much is the transportation rate?

A. $350.

Q. Let’s look at the next invoice, November 12, 1986 and how much is the transportation rate?… Invoice effective November 8th, 1986,

transportation charge of iron oxide has increased, this is the charge from Philip to Solid Waste, to $440?

A. Mm-hmm.

…Q. Let me finish the next invoice, November 24, 1986. What’s the transportation rate?

A. Four hundred forty.

Q. And you can look from that invoice up until the fall of 1987 and you will see Philip charges $440 a trip, not $350 that’s in the altered letter.

A. Mr. Swan, I don’t know where this is leading. This could be out of context… if you’re going to give somebody a picture, it’s got to be

matched with what the invoice was to Lasco… But that doesn’t mean that there weren’t changes in the middle because we recognized

additional costs. I don’t remember all the details of this.

Q. Solid Waste was charging 450 to Lasco, and in the second year of the contract Solid Waste was charging 475, and you were charging

450. The problem, sir, is you say you were operating under this altered letter of October 24, 1986 that has a flat transportation rate of $350.

Now, answer this. Why would Michael Waxman go to all of the trouble of altering this contract to take out the very thing that led to this price

increase, the demurrage charge?

A. Mr. Swan, you’re trying to create a situation that simply doesn’t exist. Your client was basically stealing from his partner and that’s what

happened and although there may have been changes in the middle of this contract, and there were different rates as you have just told me,

again he was charging more than what I thought he was charging.

…Q. I’m proving you never had this contract.

A. That is not true…

Q. …there isn’t a chance in a million that Michael Waxman would have altered this contract to take out all the terms—

A. That’s not true.

Q. Let me finish—and then turn around two weeks later and tell you to increase your price by $90. If he wanted to cheat you, there’s not a

chance in a million he would have done that?

A. How do you make that statement? Do you think I’m totally stupid? Do you think if it’s costing me a lot more to do this trip and I don’t tell

Michael what it’s costing and to get more money from Lasco which is what happened.

Q. Sir, you have been caught red-handed, haven’t you?

A. I don’t think so. Quite frankly I don’t think you know what you’re talking about.

…Q. Suddenly there’s a $100 increase in the transportation rate?… This would have been from October 1988 forward?

[1852] Michael said he never provided Fracassi with a copy of the SWRI/Lasco settlement

letter in either of its forms. He also denied making the alterations on JB 3981. He never saw

JB 3981 at any time before it was produced in the litigation.

(c) November 1988 Proposal

[1853] In November 1988, Michael said he was negotiating with Lasco on behalf of SWRI.

Philip did not participate. Michael prepared and sent a proposal to Lasco on November 7,

1988. He did not send a copy of the proposal to Philip in its original or altered form. The

existence of the third “doctored” or altered letter, suggested to Michael that whoever altered

the documents did not understand that the November 7 letter was not a contract at all but

merely an unsigned proposal.

A. This would have been for the third year, which is what I was told after all of this stockpile issue, we had negotiated a wonderful one year

extension at these rates.

Q. So from the second year at $375 you thought the transportation rate shot up to $475?

A. No. You just told me earlier we were charging $440…

Q. From the face amount for the October contract the transport rate was suddenly $475…

A. Look, I told you I had a copy of an altered letter. I didn’t tell you the prices had not changed after that. Obviously they had… this merely

reflects what the established platforms already were. In any event, this letter I got, the altered letter, was a settlement amount for what was a

non-movement of a stockpile which had been part of the original agreement. So I was told by Michael Waxman I think the best we can do is

get this extra year at these rates…

…Q. …You have already agreed with me that the rate indicated here should kick in in October 1988?

A. That was the third year of the contract.

Q. And the rate indicated in this letter that you say you got is $475 a trip?

A. Correct.

Q. So I guess we should see you charging Michael Waxman $475 a trip from October 1988 forward, shouldn’t we?

A. I don’t know what we are going to see.

Q. If you had that letter, that’s what you would have been charging him?

A. That’s the expectation.

…Q. Page 176. The first tab of the 1989 year, and the contract you say you had said you should charge 475 and how much were you

charging?

A. Four hundred fifty.

Q. And let’s go to the very last invoice that you rendered in relation to this contract, some five months into the third year of the contract, dated

February 28th, 1989, the last document in this brief, and your contract that you say you had said you could charge 475, how much are you

charging per trip?

A. Four hundred fifty.

Q. Right. You say you had a contract that entitled you to charge $475 a trip, but for some reason you’re only charging $450. There’s a simple

explanation for that, isn’t there?… The simple explanation is that was the price you had agreed on with Michael Waxman, $450 for the third

year?

A. I can’t comment on what that price was.

Q. You can’t comment on it?

A. No.

A. As I testified earlier, when it came to LASCO or other joint-venture format agreement, we generally discussed the format. We talked about

this. We agreed what the pricing to be submitted was, and he gave me a letter he said he sent on to LASCO. Consistent with what he had

done in the past, he again altered the agreement.

Q. Is there any chance when Bob Waxman went into Michael Waxman’s office and was rooting through his different contracts, a lot of them

were sent letters and he wouldn’t have a signed copy and he got confused. You knew that?

A. If you’re suggesting that Bob Waxman gave me two copies of contracts, one different than the other and said: Let’s call this one the one in

your file and the other one altered, that’s ridiculous.

Q. You said in terms of the other two copies you got a copy when the contract was finalised. Why do you suppose you got this one when it

was just a draft?

A. It was a proposal we put in.

NOTE: The brief of invoices to SWRI re the Lasco contract is Exhibit 280.

[1854] Robert said it was possible he could not tell the difference between actual contracts

and proposals because all of the material in the SWRI correspondence file that he reviewed

during his investigation was unsigned.⁶⁸¹

[1855] JB 4270 contains the November 7, 1988 proposal to Lasco in both its real and altered

form. The real proposal reflects higher on-site processing fees than those in the altered one.

3, Events Leading to Philip’s Termination of SWRI’s Contract

[1856] IWS’ counterclaim against Philip is dated January 9, 1989.

[1857] Exhibit 274, tab 1, contains a letter dated January 17, 1989, from Philip’s lawyer

Scarfone to IWS/Chester’s lawyer Cancellera and JB 4362 a letter from Scarfone to

Cancellera dated January 23, 1989, seeking a meeting with Chester and Robert.

[1858] Fracassi said at that time, he wanted Philip to be able to continue doing business with

SWRI, but also to extricate itself from IWS’ counterclaim. Philip was “very tight for money - a

young, highly leveraged company”⁶⁸².

[1859] Cancellera wrote JB 4372, a letter to Scarfone dated January 27, 1989, enclosing a

copy of a Statutory Declaration that he was asking Fracassi to sign and seeking Fracassi’s

confirmation that he would undertake not to copy the document. That Statutory Declaration

has not been produced by the Defendants in this litigation.

[1860] When Scarfone questioned the reason for Cancellera’s insistence on confidentiality,

Cancellera wrote another letter, JB 4374, to Scarfone on January 30, 1989:

…our concern about the confidentiality of the Statutory Declaration is simple

…if we are unable to reach a consensus on the form of the Statutory Declaration, we will

not be prepared to release your clients from this action…

…with respect to your clients and their continuing relationship with Solid Waste

Reclamation Inc., we would refer you to our claims for a full accounting of all revenues,

accounts and customers respecting your clients and their dealings with the plaintiffs in

paragraph 50 of our Counterclaim. We would suggest that your clients conduct

themselves as they see most appropriate at this time. However, our client would not be

⁶⁸¹Robert, May 1, 2000; JB 4270

adverse to any resumption of the servicing of accounts on behalf of 1. Waxman & Sons

Limited by your clients. This will obviously be a business decision to be made by both

our clients.

[1861] When Fracassi was asked whether IWS was pressuring him to stop doing business

with SWRI, he replied:

Fracassi, June 6, 2000

A. I don’t think there was any love lost between this group. If they could have got

everybody to stop doing business with Solid Waste, that’s what their intent was.

Q. That included you, they wanted you to stop doing business with Solid Waste?

A. They at no point came out and explicitly or sort of pressured me to stop doing

business with them, so I can’t tell you that that’s what happened. Was there an

undertone to, you know, if you didn’t do business with them, we would feel a lot better,

absolutely. That’s the nature of a lawsuit.

[1862] When asked whether Robert was taking the position that IWS would not let Philip out

of the counterclaim unless Philip ceased doing business with SWRI, he said:

Fracassi, June 6, 2000

A. …this fight was acrimonious, vindictive and vicious. It’s probably best illustrated by

Michael Waxman after destroying offices and beating up his family. To suggest that Bob

Waxman and his family wanted anything good to happen to the Morris and Michael side

is crazy.

So did they—would they have loved for me not to do business with them? Absolutely. Is

there anything I recall that they said? Unless you stop doing business with them we

won’t let you out? Absolutely not.

[1863] JB 4384 is a letter dated February 10, 1989, from Scarfone to Cassels Brock enclosing

a draft amended statutory declaration in a form that Fracassi was prepared to sign. Fracassi

had added the following paragraph 14:

14. It has always been my understanding and belief that Morris and Michael were

representing the interests of the Waxman families. I was not in a position, nor did I

⁶⁸²Fracassi June 6, 2000

challenge Morris or Michael’s instructions, believing the above. Nor did it matter how

revenues from work being performed together were being channeled through the

Waxman family’s companies. I was never interested or aware of the detailed corporate

structures in regard to the directors and officers as they would apply specifically to Solid

Waste or IWS or any other of their companies. My knowledge of these structures was

peripheral at best, and I had no reason to delve further into the structures since I was

dealing from a position of trust. I performed my obligations under our business

relationship diligently and honestly, took instructions from Morris and Michael as it

applied to the Waxman families as their representatives, never suspecting or having

been made aware of any rift or difference in the ownership that would adversely affect

the relationship of the members of the Waxman family.

[1864] An associate of Cancellera’s then wrote JB 4386, a letter to Scarfone dated February

15, 1989, urging the removal of that paragraph:

With respect to your paragraph 14, now 15, this paragraph is essentially self-serving and

not, in our view, necessary. Your client is a sophisticated businessman and surely knew

which companies he was dealing with.

[1865] Scarfone replied by JB 4387, a letter dated February 16, 1989, containing the

following:

…you forwarded to us a lengthy statutory declaration setting out precisely the evidence

that you wish to lead in support of your claim against Morris Waxman. This was not done

in good faith.

Your recent letter was received with disappointment and shock, to say the least. This is

to advise you that your counterproposal is completely unacceptable and we will sign the

original affidavit produced by you and amended by us, which is the truth. Your client has

every right to subpoena our clients as a witness to this trial, as does Morris.

Our client has given us instructions to take every action necessary to secure a dismissal

of this action as against him and make such claims as are reasonable against all of the

Waxman companies and individuals for intentional interference with its economic

relationship with Solid Waste and other significant clientele.

[1866] JB 4390, a letter dated February 20, 1989, from Cassels Brock to Scarfone, contains

the following:

Please find enclosed a statutory declaration which we would ask that your client

execute. The declaration has been revised pursuant to discussions between you, your

client and our clients on Friday February 17th, 1989…

Once the Statutory Declaration has been executed by your client and returned to us and

we have received your client’s undertaking to provide us with full disclosure of its

financial records, statements and other documentation pertaining to its business

relationship with Solid Waste Reclamation Inc., we will be in a position to dismiss our

clients’ claim against your client.

Kindly attend to the foregoing as soon as possible. Your assistance and cooperation are

greatly appreciated.

[1867] After JB 4390 was written, representatives of IWS did not sign any documents

releasing Philip from its counterclaim throughout the rest of February. Instead, IWS’ lawyers

contacted Scarfone and Scarfone wrote JB 4405 to IWS’ lawyers on March 3, 1989, as

follows:

Further to our recent discussions wherein you advised that you were in possession of

documents which are important and necessary in regard to this litigation, I respectfully

request that you provide these documents to me immediately (hopefully today) in order

that we can use all of our exposures in this matter.

[1868] Fracassi said the documents mentioned in that letter were the Lasco documents, which

Robert’s lawyers had brought to his attention⁶⁸³. Prior to seeing them, he had not specifically

discussed them with Robert⁶⁸⁴.He stopped doing business with SWRI after Robert’s lawyers

brought the “doctored” Lasco documents to his attention and upon learning that SWRI had

cheated Philip.

I’m in possession of a falsified document wherein my partner is stealing from me and I

want to do business with them? Absolutely not…

⁶⁸³Fracassi, June 5, 2000; JB 4405

⁶⁸⁴Fracassi, June 6, 2000

[1869] Robert denied at trial that he refused to release Philip in respect of IWS’ counterclaim

unless Philip agreed to stop doing business with SWRI. He gave evidence that he did not

make Philip’s cessation of business with SWRI a condition of IWS’ agreement to a dismissal

of its counterclaim against Philip. His credibility suffered when he was confronted with the

following answer he had given on discovery: “That was a position we took and it was finally

complied with.” He said at trial that he met with Fracassi alone between January and March

1989 after he had conducted his investigation of SWRI⁶⁸⁵. When asked what new information

he expected Fracassi to be able to provide, he said he would not know until Fracassi brought

him documents⁶⁸⁶. When they started comparing them, they uncovered the “doctored” Lasco

documents. Fracassi wrote “Received by Philips” on every page in Robert’s presence. He did

not date his signature.

[1870] On cross-examination, Robert could not remember which document they reviewed

first. Contrary to his evidence in chief that they reviewed JB 3835 and JB 3830, the real and

the altered October 1986 Lasco contract, in cross-examination he said the first Lasco

documents that they reviewed were JB 3982A and JB 3981, the real and the altered

settlement letter dated February 24, 1987⁶⁸⁷. In chief, he could not remember whether

Fracassi left any copies of the doctored documents with him⁶⁸⁸. In cross-examination, he said

there was no exchange of documentation⁶⁸⁹.

[1871] Fracassi said that he never met with Robert alone to review the Lasco documents. In

cross-examination, the following exchange occurred:

Fracassi, June 6, 2000

Q. Here’s the problem I have, sir. You just told me you never talked to Bob Waxman

about these Lasco contracts and suddenly, Bob Waxman through his lawyer sends you

copies of the original Lasco contracts. Now why on earth would he have done that?

A. Should ask Bob Waxman that.

Q. You don’t know why he sent them to you?

⁶⁸⁵Robert, April 18, 2000

⁶⁸⁶Robert, April 11, 2000; May 1, 2000

⁶⁸⁷Robert, May 1, 2000; JB 3831 and JB 3830

⁶⁸⁸Robert, April 11, 2000

⁶⁸⁹Robert, April 18, 2000

A. As I indicated to you earlier, there was no love lost between this group and Bob

Waxman was trying to undermine the other group’s position, so he had rifled through the

files or gotten the files, I don’t know how he had them, and he wanted to produce

documents to show what the transactions were, whether there was discussions between

his lawyers and mine, again you would have to ask them.

…Mr. Swan, don’t try and corner me into a position. I don’t remember how we got the

documents. I know Chester Waxman and Bob Waxman side were behind it in terms of

generating them. They produced them to their lawyers through our lawyers and I got

them.

[1872] He also volunteered it was ridiculous to suggest that Bob Waxman gave him two

copies of the contract and said “Let’s call one the one in your file and the other altered”.

[1873] On March 7, 1989, four days after JB 4405 Scarfone’s letter of March 3, 1989 was

written, Philip wrote JB 4415 to SWRI to advise that it was terminating the relationship. The

same day, IWS discontinued its counterclaim against Philip. Fracassi said:⁶⁹⁰

Fracassi, June 6, 2000

A. …Bob Waxman was trying to do everything he possibly could, I’m sure, to undermine

the business of the other side. But did he specifically pressure me to stop doing

business with them? No. Did he suggest it will be nice if I didn’t do business with them?

Absolutely. That’s the whole nature.

Q. He was strongly encouraging you?

A. Those are your words.

Q. Was he strongly encouraging you not to do business—

A. Bob Waxman was working very, very hard to find evidence against the other side,

and I think that’s all he was doing. We were going our own way. We wanted out of this

lawsuit and try to distance ourselves from both these parties… in January… we were

trying to do business with Solid Waste… we were more than willing to continue doing

business because I believed this fight was between the group. Whoever came out, it

didn’t matter to me, I was trying to work and make a living.

⁶⁹⁰Fracassi, June 6, 2000

Now you jump to March 7th and I’m in possession of a falsified document and where my

partner is stealing from me and I want to do business with them? Absolutely not… I’ve

already testified that if the question is would Bob Waxman have preferred that I didn’t do

business with them, that’s a categoric “absolutely” they didn’t want me to do business.

But if you’re implying he kept up intense pressure, that’s silly. Did he produce a

document that led to me ceasing my relationship with them? Absolutely.

[1874] Robert said he was surprised to learn about the termination from Fracassi,⁶⁹¹yet

Fracassi said Robert knew that he was going to terminate Philip’s relationship with SWRI⁶⁹².

Findings

[1875] Philip was not a party to the Lasco Contract dated October 24, 1986. It was not listed

as a party on the purchase orders, nor was it carbon copied on JB 3835 or subsequent

correspondence. I accept Michael’s evidence, and I find SWRI sub-contracted the physical

work under the Lasco contract to Philip and Philip received no copies of the original Lasco

Contract between Lasco and SWRI, the Settlement Letter or the November 1988 proposal⁶⁹³.

[1876] The Philip invoices are consistent with Michael’s version of events and inconsistent

with Fracassi’s. I reject Fracassi’s evidence that Michael provided him with copies of the

altered documents and that Philip based its invoice charges to SWRI on them.

[1877] Philip did not charge SWRI pursuant to and in reliance upon the doctored contracts as

Fracassi alleged. Its charges to SWRI were consistent with JB 3835, the real contract

between SWRI and Lasco as clarified by the November 17, 1986, letter, and inconsistent with

the so-called “doctored” letter, JB 3830⁶⁹⁴. Under JB 3830, the per trip transportation rate that

Philip was to charge to SWRI was $350. Yet the Philip invoices examined during Fracassi’s

cross-examination reflect that Philip actually charged SWRI $440 per trip.

[1878] I find that whoever altered the Lasco documents in early 1989 was unaware or did not

understand the import of JB 4291, the November 17, 1986 letter in which Michael, on behalf

of SWRI, had negotiated a trip rate including demurrage of $450 per trip.

⁶⁹¹Robert, April 11, 2000

⁶⁹²Fracassi, June 6, 2000

⁶⁹³Michael, May 11, 1999; JB 3831

⁶⁹⁴Fracassi, June 6, 2000

[1879] In early 1989, the principals of Philip intended to continue to do business with SWRI

despite urging by Robert to stop. Just prior to March 3, Robert’s, Chester’s and IWS’ lawyers

provided copies of the Lasco documents, both real and altered, to Fracassi’s lawyer.

[1880] I reject the confusing, inconsistent and unpersuasive evidence of Robert and Fracassi

about the manner in which they discovered that the Lasco documents had been altered. I find

that Robert tampered with the documents, then presented them to Fracassi through his

lawyer in both real and altered form in order to induce Phillip to terminate its contract with

SWRI. On March 3, or shortly thereafter, Robert, on Chester’s instructions, also made

Fracassi understand that if Philip stopped doing business with SWRI, it would be able to

dramatically increase its revenues because it would be able to keep 100% of the profits it had

been sharing with SWRI. I accept Robert’s evidence (cited in the endnotes) that Chester

decided in effect that if Philip stopped doing business with SWRI, IWS would not compete

with Philip, i.e. try to retrieve any of the business that Philip had previously shared with

SWRI⁶⁹⁵.

[1881] I Find when Fracassi volunteered that it was ridiculous to suggest that Bob Waxman

gave him two copies of the contract and said “Let’s call one the one in your file and the other

altered,” he was suggesting then denying exactly what actually occurred.

[1882] After February 20, 1989, IWS did not release Philip from its counterclaim until Philip

agreed to stop doing business with SWRI. I find that Robert insisted that Philip cease doing

business with SWRI as a condition of the dismissal of IWS’ counterclaim against it. Philip at

first refused to do so, eventually relenting only after Robert provided them with forged

documents, which suggested SWRI had defrauded Philip and when Chester/IWS offered

other financial incentives.

⁶⁹⁵Robert, May 1, 2000

Q. …Even though you said that all these accounts that SWRI had were stolen from I. Waxman & Sons, you let Fracassi keep them all and

you dropped the lawsuit without an accounting, isn’t that so?

A. That’s not true.

Q. Yes, it is.

A. How did we let them keep them all.

Q. You did not require him to do anything other than to continue in business as long as he didn’t deal with SWRI Isn’t that so?

A. That was a decision made by counsel and my father.

Q. Sir, the view you took with respect to the accounts and now I’m talking about individual customers, that SWRI and Philip had, the view you

took was that those customers rightfully belonged to IWS. Correct?

A. Correct.

Q. And that I. Waxman & Sons should benefit from the work that Philip was doing with them. Right?

A. Correct.

Q. Isn’t it a fact as part of this settlement with Philip, you did not require Philip to switch these customers to I. Waxman & Sons. Right?

A. That’s right. They wouldn’t do that.

Q. And you did not require it?

A. That’s correct.

[1883] Philip had not previously seen the Lasco documents, in either their original or altered

form. Using those documents, and knowing that it would profit greatly thereby, Philip agreed

to immediately cease doing business with SWRI.

[1884] Chester/IWS was actively involved in the inducement of the breach. He provided

economic incentives to Philip to breach its contract with SWRI. I reject Chester’s evidence

that there was “not a scintilla of truth” to the suggestion that IWS would not settle its

counterclaim with Philip, i.e., agree to a dismissal of IWS’ counterclaim with Philip unless

Philip stopped doing business with SWRI⁶⁹⁶.

[1885] But for Robert’s/IWS’/Chester’s actions, Philip would have continued to honour its

contract with SWRI.

The Law

[1886] In Posluns v. Toronto Stock Exchange⁶⁹⁷, Gale J. (as he then was) wrote:

While a contract cannot impose the burden of an obligation on one who is not a party to

it, a duty is undoubtedly cast upon any person, although extraneous to the obligation, to

refrain from interfering with its due performance unless he has a duty or a right in law to

so act. Thus, if a person without lawful justification knowingly and intentionally procures

the breach by a party to a contract which is valid and enforceable and thereby causes

damage to another party to the contract, the person who has induced the breach

commits an actionable wrong.

[1887] He set out five elements of the tort⁶⁹⁸:

• a valid and enforceable contract

• an awareness by the defendant of the existence of the contract

• a breach of the contract procured [intentionally] by the defendant

• such breach being effected by wrongful interference on the part of the defendant

• damages suffered by the plaintiff as a result thereof.

[1888] These elements were re-affirmed in Truckers Garage Inc. v. Krell⁶⁹⁹.

⁶⁹⁶Chester, September 30, 1999 and November 9, 1999

⁶⁹⁷(1964), 46 D.L.R. (2d) 210 (Ont. H.C.) at 261, aff’d (1965), 53 D.L.R. (2d) 193 (Ont. C.A.), aff’d (1968), 67 D.L.R. (2d) 165 (S.C.C.).

⁶⁹⁸Ibid. at 262.

Application to the Case at Bar

Valid and Enforceable Contract

[1889] In this case, that there was a valid and enforceable contract is not in dispute.

Beginning with a project involving kiln dust for St. Lawrence Cement, Philip performed the

actual physical work on every major SWRI contract, including transportation, processing and

disposal, if required. Philip held the necessary licenses from the Ministry of the Environment

for the benefit of both. Each project was individually negotiated between them. Sometimes the

two companies were joint venturers. On other occasions, as in the case with Lasco, SWRI

obtained the head contract and subcontracted the work to Philip.

[1890] The business relationship continued even after Fracassi learned that Morris had been

fired from IWS in October 1988, and after IWS sued Philip in the counterclaim on January 9,

1989.

Awareness of the Existence of the Contract

[1891] In J.T. Stratford & Son Ltd. v. Lindley⁷⁰⁰it was held that the defendants need not know

with precision of all the terms of the contract. The test is whether they had “sufficient

knowledge of the terms to realize that they were inducing a breach⁷⁰¹.

[1892] The Defendants have admitted awareness of the existence of a contractual

relationship between SWRI and Philip. In any event, Robert’s improper entry into the SWRI

premises, with Chester’s approval, gave him the means of knowledge, which is sufficient⁷⁰².

A Breach of Contract Procured Intentionally by the Defendant

(a) Breach of Contract. On March 7, 1989, Philip terminated its relationship with SWRI, and

wrote to customers of SWRI to advise them of that action. That was the same day IWS

discontinued its litigation against Philip. I have not accepted Fracassi’s evidence that that was

“just a coincidence.”⁷⁰³

⁶⁹⁹(1993), 68 O.A.C. 106 (Ont. C.A.) at 114-15.

⁷⁰⁰(1964), [1965] A.C. 269, [1964] 2 All E.R. 209 (Eng. C.A.).

⁷⁰¹See also 131843 Canada Inc. v. Double “R“ (Toronto) Ltd., [1991] O.J. No. 2015 (Ont. Gen. Div.) at para. 20, Blair J.

⁷⁰²Royal Bank v. Wilton (1995), 123 D.L.R. (4th) 266 (Alta. C.A.) at 272; leave to appeal ref’d [1995] S.C.C.A. No. 145 (S.C.C) (a wrongful

interference case but applicable).

⁷⁰³Fracassi, June 6, 2000

(b) Procured. Procurement refers to causation of the breach, as opposed to the means used,

which is discussed under wrongful interference. Lord Evershed M.R. said in D.C. Thomson &

Co. v. Deakin⁷⁰⁴, that the breach must be “fairly attributable to any such pressure, persuasion

or procuration on the part of the defendants.” He also said that the fact that the party

breaching was willing to be induced provides no defence⁷⁰⁵.

[1893] I have found that Robert created the tampered documents after his unauthorized entry

into the SWRI offices, and he supplied them to Fracassi to induce Philip to breach the SWRI

contracts. Robert/Chester/IWS refused to settle with Philip unless Philip agreed to stop doing

business with SWRI. Chester agreed and Robert advised Philip that if it stopped doing

business with SWRI, IWS would not seek back the SWRI business. The potential financial

benefit to Philip was obvious. It stood to benefit dramatically from such an arrangement: to

receive 100% of the profit on those contracts, rather than 50% or 25% or as a subcontractor

as before. As a result of these direct pressures and inducements Philip agreed to stop doing

business with SWRI.

[1894] I have accepted Fracassi’s evidence that before early March 1989, he had no

independent desire to breach the contract. Indeed, his lawyer stated in a letter to the

defendants’ counsel dated February 10, 1989, that Philip wished to continue working with

SWRI. The breach of contract was procured by the Defendants. The contract was not

independently terminated for cause.

(c) Intentionally. In Fabbi v. Jones⁷⁰⁶, a defendant dairy was held liable for threatening to

cease dealing with certain producers unless they breached their contract with the plaintiff.

Laskin J. wrote:

This is not a case where the defendants merely caused a breach of contract, although

knowing of its existence, in pursuit of a different object of their own, but one where there

was an intentional and knowing procurement of the breach through pressure on the

contracting producers in pursuance of the same object as that realized by [the plaintiff]

in consummating his contracts with the producers: see D.C. Thompson & Co. Ltd. v.

Deakin, [1952] Ch. 646.

⁷⁰⁴[1952] Ch. 646 (Eng. C.A.) at p. 686.

⁷⁰⁵Ibid. at 694.

⁷⁰⁶(1972), 28 D.L.R. (3d) 224 (S.C.C.) at 231-2.

[1895] In the recent case of Potechin v. Yashin⁷⁰⁷, inducing breach of contract was pleaded.

Charbonneau J., dealing with a Rule 21 motion, wrote at para. 12:

Professor Klar in his text Tort Law (Calgary: Carswell 1991) states:

In order to succeed, a plaintiff must prove that the defendant intended to procure a

breach of contract. In this respect, intention is proven by showing that the

defendant acted with the desire to cause a breach of contract, or with the

substantial certainty that a breach of contract would result from the defendant’s

conduct…

See also Greig v. Insole, [supra] Dirassar & James v. Kelly, Douglas & Co. (1966), 59

D.L.R. (2d) 452 (B.C.C.A.), Thermo King Corp. v. Provincial Bank of Canada (1981)

D.L.R. (3d) 256 (Ont. C.A.), Emerald Construction Co. Ltd. v. Lowthian, [1966] 1 W.L.R.

691 at 704 (C.A.); Jones Bros. (Hunstanton) Ltd. v. Stevens, [1955] 1 Q.B. 275 at 280.

[1896] The Alberta Court of Appeal recently reviewed the case law on intention in 369413

Alberta Ltd. v. Pocklington⁷⁰⁸:

40 However, courts soon recognized that intent can also be inferred when the

consequences of the conduct were a necessary or reasonably foreseeable result,

because “people are presumed to intend the reasonable consequences of their acts”:

South Wales Miners’ Federation v. Glamorgan Coal Company, [1905] A.C. 239

(H.L.(E.)) at 244. In Posluns v. Toronto Stock Exchange and Gardiner (1965). 46 D.L.R.

(2d) 210 (Ont. H.C.) at 267; affirmed (1966), 53 D.L.R. (2d) 193 (C.A.); affirmed [1968]

S.C.R. 330,67 D.L.R. (2d) 165, the court held that liability would attach if the defendant’s

conduct resulted in the breach of a contract “of which it was or ought to have been

aware”. The intention to bring about a breach of contract need not be the primary object;

it is sufficient if the interference is necessarily incidental to attaining the defendant’s

primary objective: Fraser v. Board of Trustees of Central United Church (1983) 38 O.R.

(2d) 97 (H.C.J.) at 103; and Bank of Nova Scotia v. Gaudreau (1985) 38 O.R. (2d) 478

(H.C.J.)…

45 …Therefore, if the breach was a reasonable or foreseeable consequence of that

transfer, or alternatively, if Pocklington completed the transfer recklessly, was wilfully

⁷⁰⁷[2000] O.J. No. 2 (Ont. S.C.J.).

⁷⁰⁸(2000), 194 D.L.R. (4th) 109 (Alta. C.A.) at 125, 127 [hereinafter Gainers].

blind to [page 127] its consequences, or was indifferent as to whether or not it caused a

breach, the necessary intent element for the tort will be met.

[1897] The termination of Philip’s contractual relationship with SWRI was precisely what

Chester and Robert intended. They knew SWRI would be severely damaged as a result.

[1898] In this case, the Defendants agreed that Philip could keep all of the profits hitherto

flowing to SWRI on SWRI/Philip projects, provided that Philip would breach its contract with

SWRI, i.e., it would not go after any of the business, even business which had originated with

IWS. Therefore, the agreement with Philip cannot be construed as defending IWS’ corporate

opportunities. Causing the breach was not incidental to any valid corporate pursuit or interest.

The Defendants intended to cause the breach. Chester was actively involved.

[1899] The Plaintiffs have proved all the elements and are entitled to succeed on this claim.

Damages

The Effect of the Termination on SWRI

[1900] Michael described the termination of SWRI’s relationship with Philip as devastating. As

Philip held the licenses required to operate the business, and performed the physical work

including transportation, processing and disposal, SWRI was unable to provide services to

many of its customers, including Lasco and Slater with respect to EAF dust. He had no choice

but to notify them to deal with Philip⁷⁰⁹.

[1901] The actions of Robert/Chester/IWS in inducing the breach of contract caused

immediate and substantial damages to SWRI. Fracassi was unable to name any other firm in

Ontario licensed to process hazardous EAF dust. Without Philip, SWRI could not operate. In

1988, the first full year before the breach, SWRI’s revenues from operations were $2,985,249.

In 1990, the first full year after the breach, its revenues from operations were $266,947.

The Effect of the Termination on Philip

[1902] Unlike SWRI, Philip benefited greatly from the termination of its relationship with SWRI,

as it was able to obtain most of the business previously serviced by both SWRI and Philip for

its sole benefit⁷¹⁰. This included almost all of the business that SWRI and Philip had handled

⁷⁰⁹Michael, May 13, 1999

⁷¹⁰Fracassi, June 6, 2000

together and was not limited to business which had earlier been handled by IWS. In 1989, it

began to service the Lasco, Slater Steel, Dayton-Walther and Courtice Steel accounts and to

keep all the profits for itself. It also handled the waste contracts of Proctor & Gamble (except

diatomaceous earth), of Stelco, Domtar, Monroe and Redpath Sugars. It kept both the

foundry sand reclaimer and the oxide stabilization plant, which had been developed and

funded by both SWRI and Philip.

[1903] For the year ending July 31, 1989, which included the first five months after the breach

with SWRI, Philip revenues rose from $8.5 million to $14.6 million. Philip’s 1990 financial

statements were not produced.

[1904] Fracassi confirmed that Philip took over the Slater Steel, Courtice, Proctor and

Gamble, Stelco, Dayton Walther, Monroe and Redpath Suger accounts, and maintained the

business for several years⁷¹¹.

Quantification of SWRI’s Damages

[1905] Exhibit 57 is a brief of SWRI invoices for 1987, 1988 and the first two months of 1989,

which stand behind the total that appears in Exhibit 58. It contains amounts billed to

customers in 1987, 1988 and the first two months of 1989, amounts paid to Philip, and

SWRI’s profits.

[1906] Michael gave evidence about management expectations immediately before the

breach on a going-forward basis with respect to the Lasco contract as at March 6, 1989.

Lasco was scheduled to install a third bag house during the calendar year 1989, which would

have increased the tonnage of EAF dust generated by Lasco from 12,000 to approximately

15,000 tons per year. In addition, he expected that this contract would have been renewed for

a minimum of 2 years. Philips handled the Lasco account for 10 or 11 years after March of

1989 and kept all the profits.

[1907] In the section pertaining to the Counterclaims, I have referred to Michael’s evidence

with respect to the Redpath Sugar business. Fracassi confirmed that Philip handled the

Redpath Sugar account after the termination.

⁷¹¹Fracassi, June 6, 2000, Both Ivaco and Dofasco became Philip customers.

[1908] Michael gave evidence about other customers of SWRI/Philip documented in Exhibit

58:

Michael, May 13, 1999

A. They are listed and provided in every instance for the months I think of—from ’87, 88

and 89 but as you can see on the first, Dayton Walther, for example was another electric

arc furnace steel mill and we provided services to Dayton Walther to dispose of their

electric arc furnace dust. This was a five year contract that had run about three years at

the time of breach so it would have continued for a period of two years but this was a

contract that Philips billed and we shared margin on. We spoke earlier of the Domtar

and the Monroe account that were turned over to S.W.R. by I. Waxman & Sons and

were in turn turned over by S.W.R. to Philips. We shared in the margin there and so you

will see in every month Domtar and Monroe listed on this statement. St. Lawrence

Cement is another example. We delivered our electric arc furnace flue dust to

St. Lawrence Cement after processing as an iron supplement and were paid by

St. Lawrence Cement. We delivered about 3200 ton a month of E A F dust processed to

St. Lawrence Cement. This was to continue for a number of years. Things of that nature.

I should also point out that the very last—the very last statement that we see at tab two

indicates that we had just started to share the Canada metal account with Philips and

the Dofasco account with Philips. These were two new accounts of E A F dust. We did

not include these in Mr. Vettese’s report because I didn’t have enough information on

these accounts. These were accounts that were just starting to be shared and so I didn’t

have the volumes, I didn’t know what the volumes were. And so I think we’ve been

extremely conservative in what we’ve done here. Another example is Ivaco which we

spoke about earlier, that S.W.R. dealt with in attempting to get that account. Subsequent

to termination, Philips did get the Ivaco account. Ivaco was probability second largest

producer, second only to LASCO of electric arc furnace dust in the Province of Ontario

generating 10,000 ton a year.

The Evidence of Frank Vettese

[1909] Vettese prepared Exhibit 105, a report in which he calculated the losses flowing

directly from lost customer contracts as a result of breach of the contract between SWRI and

Philip⁷¹².

[1910] He made four alternative loss calculations. Alternative A was based on the assumption

that the SWRI customer contracts which existed at the date of breach would continue to their

expiry date, but not beyond. No potential growth in revenues was included. Vettese calculated

the losses under this alternative at $1,010,000. Vettese calculated the March 7, 1989 present

value of the losses under this alternative to be between $950,000 and $960,000 depending

on the interest rate used in the present value calculation.

[1911] Alternative B was based on the assumption that the contracts would have continued to

their expiry date, plus an additional renewal term. No potential for growth was included.

Vettese calculated losses present valued to March 7, 1989, at $2,170,000-$2,220,000,

depending on the interest rate employed in the present value calculation⁷¹³.

[1912] Alternative C was based upon anticipated profits from the identified customers for a

period of twelve months following March 7, 1989. On this scenario, Vettese calculated the

losses when present valued to March 7, 1989, at $1,070,000-$1,080,000, again depending on

the interest rate used⁷¹⁴.

[1913] Alternative D was based on the assumption that the customer contracts existing at the

date of breach would have continued to the expiry of the term, plus an additional renewal

term. He factored in growth in revenues from those contracts anticipated by SWRI

management immediately prior to the breach. Under Alternative D, Vettese calculated the

losses to SWRI at $3,230,000. Present valued to March 7, 1989, these losses were in the

range of $2,770,000-$2,840,000, depending on the interest rate used⁷¹⁵.

[1914] Vettese’s estimated losses included $172,905, owed by Lasco to SWRI in March of

1989, which Lasco refused to pay as SWRI was unable to service the contract. Vettese’s loss

calculation did not include any amount for SWRI’s loss of use of the foundry sand reclaimer,

nor the oxide stabilization batch mixing plant, which were retained by Philip after March 7,

1989. SWRI owned 50% of each.

⁷¹²Vettese, June 15, 1999; Exhibit 105

⁷¹³Exhibit 105

⁷¹⁴Exhibit 105

The Evidence of Robert Low

[1915] Low prepared Exhibit 294 in response to the Vettese report concerning losses related

to breach inducement. He suggested that an appropriate management remuneration would

be in the order of $200,000, instead of the $100,000 that Vettese had identified. Low also

suggested that three SWRI payables should be included and deducted from the loss claim,

$346,954, $17,450, and $26,691.

Finding

[1916] The Plaintiffs submit that the losses identified in Vettese’s Alternative D were

reasonably foreseeable at the date of the breach, and that coupled with other losses more

difficult to quantify, an appropriate award of damages at large would be $4 million⁷¹⁶.

[1917] Based on Michael’s evidence, I find that of the four sets of assumptions used by

Vettese, the assumptions in Alternative D and damages of $2,770,000-$2,840,000 are the

most appropriate. However I find that those assumptions are conservative given the evidence

of Michael, which I accept about expectations of growth in the business. Vettese’s

calculations do not include all of SWRI’s customers.

[1918] Given that at the time there was only one full-time salaried management employee of

the company, I prefer Vettese’s use of $100,000 for management remuneration to Low’s

$200,000⁷¹⁷.

[1919] After March 7, 1989, SWRI refused to pay $346,954 that it owed to Philip on that day.

Philip agreed to forego collection of this amount as part of a settlement of litigation with SWRI

in 1997. The Plaintiffs acknowledge that as SWRI did not have to pay those invoices, that

amount should be considered in assessing damages for inducing breach of contract. The

Plaintiffs have conceded that as they have also sued Philip in connection with the breach,

money received in settlement of that action must be credited. They seek to credit only the net

amount received after deduction of legal fees referable to the action against Philip.

[1920] The Plaintiffs submit that two other payables, one in the amount of $17,450 Bee Barber

Carriers, and a second in the amount of $26,691 to Beeline Carriers Limited, are completely

⁷¹⁵Exhibit 105

⁷¹⁶Vettese, June 17, 1999

⁷¹⁷Low, July 6, 2000; Exhibit 294

unrelated to the breach of the SWRI—Philip waste management agreement. SWRI did not

pay those payables for other reasons, and this would have been the case whether or not the

waste management agreement with Philip was breached⁷¹⁸.

[1921] I note that damages may be assessed at large⁷¹⁹.

Pocklington contends that damages must be confined to losses which existed on the

date of the breach. In fact, damages are to be assessed “at large”: Exchange Telegraph

Co. v. Gregory & Co., [1896] 1 Q.B. 147 (C.A.) at 153. A court can award the damages it

deems appropriate, which are a matter of impression, not addition, and can be inferred

from the circumstances: Goldsoll v. Goldman, [1914] 2 Ch. 603 (Ch.D.); affirmed [1915]

1 Ch. 292 (C.A.); and Vale v. International Longshoremen’s & Warehousemen’s Union,

Local 508 (1979), 9 C.C.L.T. 262 (B.C.C.A.) at 271. The court must assess a global

figure approximating the harm it thinks the plaintiff has suffered: Simpson v. Consumers’

Assn. of Canada (1999), 41 C.C.E.L. (2d) 179 (Ont. Gen. Div.) at 260.

75 Given this broad latitude, it is not surprising that the date for establishing damages

remains flexible. While a court may choose to assess damages that existed on the date

of the breach, it instead may elect to compensate the plaintiff for losses that occurred in

the years following the breach: Unilux Manufacturing Co. v. Prime Boilers Inc. (990), 74

O.R. (2d) 270 (H.C.J.); and Clarke v. Rossburger (2000), 50 B.L.R. (2d) 73 (Alta. Q.B.).

[1922] I assess damages at large for inducing breach of contract and after all adjustments

have been made at $2.5 million. In addition, applying the principles with respect to punitive

damages mentioned elsewhere in these Reasons, I assess punitive damages at $100,000

against Chester and Robert.

Who is Liable to Pay Damages for Inducing Breach?

[1923] In ADGA Systems International Ltd. v. Valcom Ltd.,⁷²⁰Carthy J.A. for the Court held:

It is my conclusion that there is no principled basis for protecting the director and

employees of Valcom from liability for their alleged conduct on the basis that such

conduct was in pursuance of the interests of the corporation.

⁷¹⁸Low, July 6, 2000; Exhibit 29

⁷¹⁹See Gainers, supra endnote 706 at 134.

⁷²⁰(1999), 168 D.L.R. (4th) 351 (Ont. C.A.) at 365, leave to appeal to S.C.C. dismissed [1999] S.C.C.A. No. 124 (S.C.C).

[1924] In any event, I have found that at the time of the inducement of the breach, Chester

made a deliberate decision that IWS would not compete with Philip or seek for IWS the

business previously handled by SWRI. Therefore, he could not have been acting in

pursuance of the interests of IWS⁷²¹.

[1925] In 369413 Alberta Ltd, the defendant director and shareholder was ordered to pay

damages personally for inducing Gainers to breach the contract with Pocklington. The Court

held:

But where… it is readily apparent that the conduct could only be intended for the

director’s own benefit and not the company’s, the court need not address the director’s

dominating concern. In such direct interference cases, proof of intent as it has

developed through the case law, and proof that the director was not acting in the best

interests of the corporation, will be sufficient to ground liability⁷²².

[1926] IWS was a party to the breach and failed to properly supervise Robert. IWS dismissed

its counterclaim in return for Philip’s promise to cease doing business with SWRI.

Disposition

[1927] Robert and Chester and IWS are liable to SWRI for inducing breach of contract. I

assess damages against them at large at $2.5 million plus punitive damages of $100,000. For

reasons given in the section of these Reasons on the Counterclaims, I find the counterclaim

in this action to be without merit.

[1928] Submissions on interest and costs may be made as directed in the Main Reasons.

Part VII - The Counterclaims

[1929] The Defendants/Plaintiffs by Counterclaim (hereinafter “Plaintiffs by Counterclaim”)

have brought two separate counterclaims in relation to SWRI—one for $50,000,000 in the

Main Action #33224/88 and the other in the Inducing Breach of Contract Action, #37616/89.

[1930] At issue in Action #33224/88 is whether SWRI stole waste accounts and corporate

opportunities from IWS. At issue in Action #37616/89 is whether SWRI was transferred to

Michael and Douglas with the consent of IWS [the original preference shareholder] and

⁷²¹Gainers, supra endnote 706 at 130.

⁷²²Supra endnote 706, at 132.

Chester’s children [the original shareholders of 50% of the common shares.] As the

allegations of theft of the shares and theft of accounts are interrelated, I have considered

them together here.

[1931] The Plaintiffs by Counterclaim have made very serious allegations of fraud and theft.

For example, the Counterclaim in the Main Action refers to a “calculated, devious and

deliberate plot;” to Morris, Michael, Shirley and Douglas “callously, maliciously, furtively and

avariciously appropriating… waste processing… procedures: conspiring… concealing…” and

“engaging in other fraudulent, malicious and secretive activities.”

[1932] In the counterclaim in the Inducing Breach Action, the Plaintiffs by Counterclaim allege

that the directors and shareholders of SWRI were secretly and surreptitiously changed by

Morris, Michael and/or Douglas.

[1933] IWS also counterclaims in the Main Action:

(a) against Michael for damage to 500 Centennial Parkway North on December 22,

1988 (“the Office Destruction Counterclaim”).

(b) against SWRI, Morris and/or Michael for removal of furniture and furnishings (“the

Furniture and Furnishings Counterclaim”).

(c) against Morris for reimbursement of $51,058.02 overdrawn from his IWS drawings

account (“the Overdrawn P/N Counterclaim”).

(d) against Morris and/or Morriston for reimbursement of half of the difference between

amounts received by Morriston and Chesterton in respect the expropriation of the

Caroline Street property (“the Caroline Street Expropriation Counterclaim”).

(e) against Morris, Michael and SWRI for pre-judgment interest, punitive and exemplary

damages and solicitor and client costs (“the Punitive and Exemplary Damages and

Solicitor Client Costs Counterclaim”).

The Allegations of Theft of SWRI Shares

Initial Ownership of SWRI Shares

[1934] I mentioned earlier that SWRI was incorporated in 1977 as the entity to make a tender

bid to the Region of Hamilton-Wentworth for the handling of its refuse⁷²³.

Preference Shares

[1935] It is clear that as at February 24, 1977, IWS held 2000 preference shares of SWRI. JB

1083, Evans Husband notes and JB 1238 (correspondence subsequent to incorporation) refer

to IWS’ ownership of 2000 SWRI preference shares.

[1936] The Plaintiffs by Counterclaim allege that Morris and/or Michael tampered with the

SWRI corporate documents before Ennis received them, surreptitiously destroying Special

Share Certificate #1, defacing the share stub, altering the share register and whiting out a

portion of the minutes to obliterate reference to IWS’ preference shareholding.

[1937] The SWRI corporate records in their present form make no reference to IWS’

ownership of preference shares.

[1938] The Plaintiffs by Counterclaim submit that Ennis was duped. He never saw Special

Share #1, the preference share. They refer to “telling documentary evidence,” as follows:

[1939] (a) whiteout has been applied in the minute book to cover up the language of the

corporate resolution reflecting the issuance and allocation of the preference shares; and

[1940] (b) a number of “hand-made” alterations have been made to the stub of Special Share

Certificate #1, which do not succeed at obliterating the information laying beneath them. The

figure “2000” can be discerned beneath the scratch-out marks in the space for the number of

shares and the name “I. Waxman & Sons’ can clearly be seen beneath scratch-out marks in

the space for ‘issued to’. The stub is dated Feb. 24, 1977. The word “Sample” has been

written across the stub.

[1941] Special Share Certificate #1 is missing from the Special Share Register.

[1942] I have had to determine who removed Special Share Certificate #1 from the SWRI

corporate records, wrote “Sample” on its stub and whited out a portion of the minutes.

Common Shares

⁷²³Morris, January 25, 1999

[1943] The Plaintiffs by Counterclaim allege that Morris and/or Michael surreptitiously altered

the share register and the minutes so they would no longer reflect the common shareholding

of Chester’s children.

[1944] The SWRI minute book in its present form does not reflect that the common shares of

SWRI were ever owned by Chester’s and Morris’ children and held in trust for them. Ennis

said he knew nothing about 100 common shares being held in trust for the seven of them.

[1945] It is clear that one hundred common shares of SWRI were originally issued and

allocated for the benefit of Morris’ and Chester’s seven children. Pursuant to a Trust

Declaration dated February 24, 1977 (at JB 1083), Messrs Hayman and Evans, lawyers at the

firm of Evans Husband, were appointed trustees to hold 50 common shares in trust for the

three children of Morris and 50 common shares in trust for the four children of Chester⁷²⁴.

[1946] I have had to determine the circumstances surrounding the transfer of the common

shares to Michael and Douglas.

[1947] Both Michael and Morris said that they had nothing to do with the alteration of the

SWRI minute book, shares, share registry or share stubs.

The Original Directors of SWRI

[1948] The SWRI corporate documents contain nothing to suggest that Morris and Chester

were ever directors of SWRI.

[1949] Chester said he did not recall he and Morris were ever directors.

[1950] However, it is clear Morris and Chester were SWRI directors. Correspondence

between Hayman and Wiseman and Hayman and Morris reflects that Morris and Chester

became directors on February 24, 1977: see JBs 1238, 1251 and 1336⁷²⁵. JB 1245, a letter

dated March 3, 1978 from Hayman to Wiseman, contains the following:

I’m enclosing herewith a photocopy of the trust agreement with respect to the common

shares of Solid Waste Reclamation Inc. I would advise that effective February 24, 1977

the directors of the company were and are Morris Waxman. Chester Waxman and

⁷²⁴Hayman, September 8, 1999

⁷²⁵Morris, January 25, 1999

Ramsay A. Evans, and the officers were and are Morris Waxman President, Ramsay

Evans Vice-President, Chester Waxman Secretary-Treasurer. [Emphasis added.]

[1951] Morris signed as director on SWRI’s 1977-1979 tax returns.

[1952] Given its relevance to the allegations of document tampering and to Ennis’ assertion

that he never saw documents reflecting that Morris and Chester were directors of SWRI, I

have had to determine who deleted that information from the SWRI minute books and why.

Activity of SWRI 1977-1982

[1953] SWRI was inactive for several years following the rejection of the tender bid. It was

shown on the IWS books for the year ended Dec. 31, 1979 as having no value. Nil tax returns

were filed for 1977 through 1981.

[1954] Chester said he assumed SWRI was a shelf company. (See JB 1393, a letter from

Mr. Hayman) and that its corporate records were at Evans Husband.

[1955] Transfer of Sheppard’s Quarry Business from IWS to SWRI

[1956] Before October 1980, Morris pursued a business opportunity on behalf of IWS

involving the possible dumping of waste at Sheppard’s Quarry in the Township of East

Flamborough (“Sheppard’s Quarry.”)

[1957] JB 1542 is an Ennis note dated August 12, 1980 recording a call from Chester to Ennis

re “possible sale of refuse company.”

[1958] Morris gave evidence that he and Chester decided that SWRI would pursue

Sheppard’s Quarry during the negotiations for the sale of the refuse division.

[1959] Ennis’ notes reflect that in September 1980, Morris, Chester and Ennis discussed a

draft agreement with Laidlaw that included a non-competition agreement.

[1960] Chester agreed it was logical to assume in 1980 that if the negotiations with Laidlaw

ever came to fruition, non-competition clauses would be an issue.

[1961] In JB1684, a Linton working paper contained in the IWS 1980 audit file entitled

Disposal Sales of Windermere, Linton recorded that between September and December

1980, $8,564 in IWS revenue from Stelco and Procter and Gamble was allocated to

Windermere Investments. Revenues from waste disposal for Firestone of $11,159 continued

to be allocated to IWS.

[1962] I mentioned in the Main Reasons that when Ennis prepared a Letter of Intent JB 1631

regarding Sheppard’s Quarry on October 21, 1980, he named SWRI, not IWS, on the

contract. Ennis gave evidence, from which he later attempted to resile, that it was obvious

that SWRI was being used to circumvent non-competition agreements that IWS was

expecting to sign⁷²⁶.

[1963] Ennis said Chester never provided any instructions in respect of Sheppard’s Quarry.

However, JB 1660 is an Ennis note of a meeting dated November 17, 1980, at which Chester

was present when Sheppard’s Quarry was discussed.

[1964] From JB 2442, JB 1639 and JB 1664A, it is evident, and I find, that Chester was

present at a further meeting on November 18, 1980 at which the pursuit of Sheppard’s Quarry

in the name of SWRI was discussed.

When Did Ennis Receive the SWRI Minute Books?

[1965] JB 1629 reads as follows:

Received from Evans Husband the minute book for SWRI and share cert, book

containing following share certificates: #1 for one common share to Hayman; #2, one

common share to Evans & Hayman, trustees, #3, 99 common shares to Evans &

Hayman, trustees and [special share] #1, 2000 pref. shares to IWS.

Signed by H. Leibowitz, Dated Oct. 21, 1980 [Emphasis added.]

[1966] Morris said Leibowitz was instructed to deliver the SWRI records to Ennis. Ennis said

he did not receive them until July 1982. He said he drafted the Sheppard’s Quarry Letter of

Intent on the same day, October 21, 1981, in the name of SWRI without having the SWRI

minute books in hand.

The Laidlaw Non-Competition Agreements/Exclusion Clauses June 1981

[1967] At a meeting about the sale of the refuse division, Morris said Chester was bragging

about his children, so Morris mentioned Michael. Chester gave him a real hard kick. Later he

⁷²⁶Ennis, December 7, 1999

privately said, ‘Are you nuts? We don’t want Michael and Douglas to sign [non-]comp clauses.

If we want to go back into that business again they can do it for us or they can do it.”

[1968] In cross-examination, Chester said that in a conversation in the presence of the

Laidlaw people, Morris mentioned Michael several times in a complimentary way. Chester did

not think Morris should be mentioning Michael “because we’ve already got all three of the

others on there” [i.e., signing non-competition agreements.] However, he would not agree that

his discovery evidence in this endnote⁷²⁷was consistent with the concept as stated by Morris.

Chester maintained that all he was doing was “thinking” and would not agree that he

managed to convey to Morris, by a kick or otherwise, the nature of his thoughts.)

[1969] The Laidlaw/Superior non competition clauses/exclusions (JB 1930, JB 1931) signed

June 1, 1981 by IWS/Morris/Chester/Chester’s sons, but not Michael and Douglas, are

relevant to Chester’s/IWS’s consent to the restructuring of SWRI and to its business activities.

IWS/Morris/Chester/Chester’s sons agreed as follows:

Paragraph 1—not to carry on or engage in any business identical with or similar to the

solid waste disposal business heretofore carried on within a 100 mile radius of

Hamilton… London as principal, agent… adviser or otherwise own, operate, engage in

the operation of or have any financial interest in, or provide, directly or indirectly,

financial assistance… to any business operating… carrying on or engaged in any

business identical with or similar to the solid waste business heretobefore carried on by

IWS for a period of 5 years. [Exclusions]

Paragraph 3—Nothing contained herein shall be so construed as to prevent the

covenantor having or dealing in recyclable goods of every kind, nature and description

that are normally handled or dealt in by the scrap materials and recyclable goods

industry or from handling or dealing in liquid waste, sludge and chemicals.

⁷²⁷Chester, November 5, 1999

Q. Your examination for discovery, page 1300, dated April 20, 1998:

Question: In the course of negotiations with Laidlaw did Morris ever

mention Michael’s or Douglas’ name?

Answer. Yes. He mentioned Michael’s name several times.

Answer: He was complimentary of Michael.

Question: What did you think about that?

Answer: Well, I really didn’t think he should be mentioning his name,

because we’ve already got all three of the others on there, and I didn’t

even want that to happen…

Paragraph 6—…Nothing contained herein shall be construed as to in any way restrict

the Covenantor in conduct of the scrap metals and recyclable goods business…

[Emphasis added.]

[1970] Morris gave evidence quoted in this end note⁷²⁸that the main reason for excluding

liquid waste sludge and chemicals from the non-competition covenant was Firestone Steel in

London, a very important scrap account. IWS wanted to be a one-service company, to

eliminate competitors in the scrap field from bidding on the waste and getting their feet in the

door to bid on the scrap.

[1971] Chester was asked about paragraph 3:

Chester, October 14, 2000

Q. …it says nothing contained herein shall be so construed as to prevent the covenantor

having or dealing in recyclable goods of every kind nature and description that are

normally handled or dealt in by the scrap materials and recyclable goods industry… I

suggest to you that in plain English and what you understood, this provision meant that

you were entitled to carry on a scrap business?

A. We weren’t prepared to go out of the ferrous or non-ferrous metals business… that

we had been in and wanted to continue to stay in and compete in.

Q. And you wanted to make sure there was language in this non-compete that made

that clear?

A. Yes.

[1972] I have earlier mentioned Chester’s statement in JB 1900 that the Laidlaw sale was

consistent with the continuing expansion of the metals division of IWS.

⁷²⁸Morris, March 3, 1999

Q. What was the purpose of excluding liquid waste, sludge and chemical waste from the non-competition convenant in the LASCO [sic]

deal?

A. Specifically the main one, as far as I remembered, was, and it was one of the largest scrap accounts we had at the time, was Firestone

Steel in London. And we were looking at the liquid waste of Firestone Steel and by that I mean we were just brokers. I had hired a company

that would haul the material out because we didn’t have that type of equipment and I made arrangements that it go to a site where … it was

government approved to be handled. So from that stand point, we were handling the liquid that came out of Firestone Steel. It was

insignificant, by the way.

Q. What was insignificant, the liquid waste?

A. The liquid waste, compared to the account. What we were—

Q. Was Firestone an insignificant account or an important—

A. No, no, no, the liquid coming out of Firestone was insignificant. What we were interested—

Q. Was Firestone itself on the scrap side an insignificant or an important account?

A. No, a very important account. Big account. Very important. We were very concerned, and the reason we were concerned is other people

in the scrap business were going into the environmental field, were picking up garbage from accounts, and we are trying to be a one-service

company to Firestone Steel and eliminating anybody else from going in, and bidding on the liquid and then getting their foot in the door to bid

on the scrap. So our main concern was the scrap out of Firestone Steel, not the liquid. (Emphasis added)

Activities of IWS after Laidlaw Sale to the Time of Restructuring (Summer 1982)

[1973] Chester said Morris should not have been handling anything on behalf of IWS or the

Waxman family that contravened the Laidlaw/Superior Agreements⁷²⁹.

[1974] After June 1981, Chester and his sons continued to look after waste accounts of their

scrap customers [JB 2355.]

[1975] On August 7, 1981 (JB 2033) Chester wrote a letter to Firestone Steel, which includes

the following:

Our service to your firm has always included the handling and disposing of oils, sludges,

liquids and hazardous wastes of all kinds. Your company has never had a problem in

disposing of environmentally sensitive wastes because these matters have received the

personal attention of Morris Waxman, who is very knowledgeable and expert in this field.

He has studied this aspect of service and is well connected in this area and has been for

well over thirty years…

…I have informed you of the current negotiations between our company and a larger

steel mill which will probably be the largest buyer of scrap steel in Canada. The

completion of these negotiations will result in and provide a firm long term market for

ourselves as well as our customers…

Keeping this in mind, I would like to have the opportunity in the near future of discussing

with you the possible benefits of a long term arrangement for your total tonnage to one

of the mills on a direct basis.

[1976] Activities of SWRI after Laidlaw Sale to the Time of Restructuring (Summer 1982)

[1977] After the Laidlaw closing, SWRI continued to pursue Sheppard’s Quarry, ultimately

without success.

[1978] Morris gave evidence that in mid-1982, Alan Fracassi (“Fracassi”), a principal of Philip

Enterprises Inc. (“Philip”), brought an opportunity⁷³⁰to share a contract with Philip for the

transport and disposal of 100,000 containers of cement kiln dust (a waste by-product from the

production of cement) (JB 2376 and JB 2400.) Had IWS done the work it would have

⁷²⁹Chester, October 14, 1999

⁷³⁰Michael, May 18, 1999

contravened the Laidlaw agreements, as it was not a liquid, sludge or a chemical waste⁷³¹. It

was a solid waste ultimately disposed of at a landfill site. Morris and Michael said Chester

encouraged SWRI to pursue that contract and told Morris to advise Michael not to spend all of

the money, as tax would be payable.

[1979] JB 2376 is a letter from Fracassi to St. Lawrence Cement dated June 24, 1982. JB

2400 is a letter from St. Lawrence Cement to Fracassi dated July 28, 1982.

Findings to Time of Restructuring

[1980] In September 1980 and until the restructuring I find SWRI was being used to

circumvent the non-competition agreements that Morris and Chester anticipated they/IWS

would be required to sign on any sale of the IWS refuse division.

[1981] 1 Sheppard’s Quarry, a dump site, would clearly be covered by any non-competition

agreements that IWS/Chester/Morris might be asked to sign on the sale of the refuse division.

Chester knew this and agreed that the Letter of Intent with respect to Sheppard’s Quarry

would be in the name of SWRI in order to prevent the future application of any such non-

competition agreements.

[1982] 2 Since Chesterton was a 50% partner in Windermere Investments, I find that in

September 1980 Chester the “money man” at IWS, approved and directed the reallocation of

waste disposal revenue for Procter & Gamble and Stelco from IWS to Windermere

Investments. It is unclear on the documents before me whether that arrangement continued

after December 1980.

[1983] I accept Morris’ evidence and find the SWRI minute book was delivered to Ennis by

Leibowitz on October 21, 1980. At that time, the SWRI corporate documents contained

Special Share Certificate #1, showing that IWS owned 2000 preference shares of SWRI.

They showed Morris and Chester as directors of SWRI and that 100 common shares were

being held in trust for Morris’ and Chester’s seven children “50/50” [i.e., Morris’ three children

A. …This project… emanated from Mr. Fracassi… His initial idea when he approached us was to move the cement kiln dust across the

road…. He wanted to lease property across the road and move the waste from St. Lawrence just across the road

⁷³¹Michael, May 10, 1999

A. This material, this cement kiln dust is neither a liquid nor is it a sludge nor is it a chemical waste. It was a granular powdery waste that was

ultimately disposed of at the Bear Road landfill in the City of Toronto and pursuant to the non-competition agreements 1. Wax-man & Sons

couldn’t engage in this activity.

Q. Which non-competition agreement?

A. The specific non-competition agreement signed with Laidlaw.

owned 50% and Chester’s four children owned 50%.] Ennis drafted the Sheppard’s Quarry

Letter of Intent the same day, October 21, 1980.

[1984] The SWRI corporate documents were not surreptitiously transferred to Morris or

Michael, but were delivered to Ennis so he would have them when he drafted the Sheppard’s

Quarry Letter of Intent (JB 1631) in the name of SWRI⁷³².

[1985] After that date, Morris pursued the Sheppard’s Quarry business opportunity on behalf

of SWRI with Chester’s knowledge and approval.

[1986] I accept Morris’ evidence that around the time of the Laidlaw closing, Chester said he

did not want Michael and Douglas to be required to sign noncompetition agreements and that

Morris understood the exclusions in the Laidlaw/Superior agreements were designed to allow

IWS to continue to service the waste needs of a limited number of its scrap metal customers,

especially Firestone Steel.

[1987] After the sale to Laidlaw, Chester’s interest in the waste business was limited to

servicing the waste needs of certain scrap accounts where necessary to prevent competition.

Chester was interested in metals not garbage. During his evidence his disdain for the waste

business was obvious⁷³³. When he was asked about that business relative to IWS’ overall

revenues, he said it was “not deserving of my focus⁷³⁴.” When he was asked about

participants in the Laidlaw negotiations, he said: “It seems we are overloading the team just to

sell the garbage division.”

[1988] He dismissively said he did not direct his mind to the operation of the Laidlaw non

competition clauses but left that to Morris.

The Re-Structuring of SWRI - Mid-to-Late 1982 Backdated to August 1979

[1989] Morris gave evidence that in 1982, Chester decided that SWRI would be transferred to

Michael and Douglas. In June 1982, Chester was encouraging SWRI to handle a business

opportunity in conjunction with Allan Fracassi, involving disposal of cement kiln dust for

St. Lawrence Cement, as IWS was precluded under the Laidlaw agreements from handling

the cement dust, a solid waste to be dumped in a disposal site. Chester didn’t want Michael

⁷³²Ennis, December 13, 1999

⁷³³Chester, October 14, 1999

⁷³⁴Chester, November 2, 1999

involved in IWS. Chester and his sons did not like the garbage business, hadn’t been

successful in it and did not want to have any more to do with it than was necessary to keep

their scrap customers happy⁷³⁵.

[1990] SWRI was a worthless dormant company. Chester knew Michael and Douglas needed

a vehicle to conduct and receive the revenue from the St. Lawrence cement business. Morris

liked the SWRI name. If Chester had not favoured the use of SWRI for that purpose, a new

company would have been incorporated⁷³⁶.

[1991] Morris said he believed Chester directed the transfer of SWRI to Michael and

Douglas⁷³⁷He denied instructing Ennis to alter the share structure of SWRI. When it was

suggested in cross-examination that he had earlier testified that SWRI would be placed in the

name of Michael and Douglas for the “family,” he agreed but said, “that’s not what he

[Chester] wanted to do later on⁷³⁸.” He adopted as true the following portion of his discovery:

Morris, February 9, 1999

Question: To your knowledge, did Chester’s intention with respect to Solid Waste, as he

evidenced in the discussion that you described here, ever change?

Answer: Yes.

Question: When?

Answer: When Michael was going to come into the business, and he didn’t accept him,

and I tried to steer Michael into something other than the scrap business, and I go back

to the first deal I had with the kiln dust at St. Lawrence Cement when Chester thought it

was a good idea, but he said to warn Michael not to spend all the money because he

would need 50 percent of it for taxes.

[1992] Chester said he did not give Ennis instructions to restructure SWRI. He never

consented to IWS divesting itself of the 2000 preference shares. When asked why he would

have objected to a transfer of ownership, Chester said:

Chester, November 4, 1999

⁷³⁵Morris, February 18, 1999

⁷³⁶Morris, February 9, 1999

A. If it wasn’t for Chester saying to use it, my sons could have used “X” Company, and done the same amount of work.

⁷³⁷Morris, January 28, 1999

⁷³⁸Morris, February 9, 1999

A. How do you know I would have objected?

Q. That’s what—

A. We never got the chance to object, did we?

Q. So you wouldn’t have objected?

A. I wouldn’t say that.

Q. So you would have objected?

A. I’m not saying that either.

Q. What are you saying?

A. How would I know?

[1993] In support of their allegation that Morris secretly instructed Ennis to transfer the shares

of SWRI without Chester’s knowledge, the Plaintiffs by Counterclaim rely on the evidence of

Wiseman that Morris spoke to him about reactivating SWRI⁷³⁹. Wiseman said Morris told him

Chester and his sons were not interested in the environmental refuse business. He would like

to pursue it. The “rejuvenation” of SWRI was not to be discussed. He asked Wiseman to do

the accounting work at his house because he did not want Sam Taylor to know⁷⁴⁰.

[1994] Counsel for the Plaintiffs by Counterclaim did not refer to Wiseman’s evidence that (a)

“Morris never operated in the shadows” - he operated openly⁷⁴¹, (b) he did not interpret

anything Morris said to be a request to keep secret the fact that SWRI was carrying on

business; (c) he did not know how he could⁷⁴², (d) he assumed that Morris had not kept it a

secret from Chester; (e) SWRI financial statements were typed at Taylor Leibow by the same

person who typed IWS’ statements, (f) Morris just didn’t want everybody to know what his

profits and/or failures were⁷⁴³.

⁷³⁹Wiseman, February 24, 2000

⁷⁴⁰Wiseman, February 8, 2000

⁷⁴¹Wiseman February 28, 2000

⁷⁴²Wiseman, February 24, 2000

⁷⁴³Wiseman, February 24, 2000

A. …Mr. Morris Waxman, never implied to me, that he was hiding any-

thing from anybody. He just does not want anybody to know how much—what his profits were, if they were failures were, what his failures

were. That was his business…

Q. …from your own perspective, if Morris Waxman and Michael Waxman were going to carry on an active business they couldn’t keep it a

secret from Chester. That was your own state of mind?

…A. Yes.

Q. And in fact you assumed from the beginning that they hadn’t kept it secret from Chester, Is that so?

A. Yeah. …All …I interpreted that to mean he doesn’t want me to say anything about Solid Waste to Chester that geez, Morris is making a lot

of money this year, didn’t want me to say to Sam Taylor geez, Solid Waste has a real collection problem on the Ambler Courtney deal. That

Morris Waxman didn’t want me to—that was my interpretation of that and again, and I said this earlier, that’s his prerogative, but I never

assumed that he, at that time, was doing anything illegal or unethical and that’s my position. [Emphasis added]

Who Made the Changes to the SWRI Corporate Documents?

[1995] Ennis said at the time of the restructuring, Morris told him he owned SWRI and he

wanted its shares transferred to Michael and Douglas. He did not know that 100 common

shares were being held in trust for Morris’ and Chester’s children. He did not learn of the trust

for the common shares until 1988. He did not know that IWS owned 2000 preference shares

or that Morris and Chester were directors. He did not remove preference Special Share

Certificate #1 from the Special Share Register and/or alter the stub. He did not remove the

records indicating that Morris and Chester were directors⁷⁴⁴. There was nothing in the share

certificate book to indicate that Morris owned any shares. He assumed the common shares

being held in trust were being held in trust for Morris. He saw no declaration of trust. [It] “could

be in trust for anybody, could be in trust for his two children⁷⁴⁵.”

Ennis, December 10, 1999

Q. The company was already incorporated when it came?

A. It was a shell company…. All he [Morris] has to tell me is he’s the owner. That’s good

enough.

⁷⁴⁴Ennis, December 10, 1999

Q. Then she could have gone to Mr. Hayman to have him sign off on minutes at the same time.

A. We don’t know if the other girls were there, the other shareholders. We

know Ramsay Evans was dead. He died July 16, 1979. What’s the purpose of producing a multitude of minutes?

Q. And she could have gone to the existing directors, Chester and Morris?

A. She didn’t know Chester and Morris were existing directors. There was nothing in there to indicate Chester and Morris were directors. You

show me in this minute book where Chester and Morris are directors.

Q. It’s not there now?

A. Are you suggesting Mrs. Cook removed it. that I removed a trust document? That I in fact removed the 100 shares in the name of I.

Waxman & Sons held in trust? I assure you, sir, that did not happen.

…

Q. Did you ask?

A. I didn’t have to ask…. He said this is my company, transfer the shares

over to my boys. That’s as far as it goes. I don’t have to cross-examine him about it. I followed his instructions.

Q. Mrs. Cook in dealing with this reorganization had to go to Ralph

Hay man and get him to sign the shares?

A. I believe so. l think there’s a notation when Ramsay Evans died. I think he signed off because he was the executor of the estate of

Ramsay Evans.

Q. He was one of the trustees?

A. Who?

Q. Ralph Hayman?

A. Yes.

Q. He would know whether or not there was a declaration of trust wouldn’t he?

A. He never told me and he never told Mrs. Cook as far as I’m aware.

Q. So what l guess what you’re saying is the trustee signed over these shares just because Morris asked him?

A. Let me pose a question to you… These books went back to Husband’s office and he had them. If there was a trust agreement, I believe

with the greatest of respect to yourself and Your Honour, then he should have at that time noted that in fact the trust agreement was deleted.

I don’t recall receiving a phone call from him or any advice that there’s something wrong with the minute books of Solid Waste Reclamation

Inc.

Q. So in any event when you gave the minute book to Mrs. Cook, what did you tell her?

A. I just told her to complete it, transfer the shares over to Douglas and to Michael and she did.

⁷⁴⁵Ennis, December 10, 1999 and December 13, 1999; Exhibit 36

Q. I see. So how long did it take Mrs. Cook to come back to you and say: Gee, not only

doesn’t Morris own it, but I. Waxman & Sons has preference shares in it?

A. There’s no indication of preference shares in that minute book anywhere and there’s

no reference with respect to share certificates either… Why would he come and tell me

it’s his company, transfer it over to Michael and Douglas and produce evidence to me

that there was, now it turns out to be a trust agreement.

Q. Why on earth would Morris Waxman come to you knowing that you worked for

Chester, that all of you are friends according to you, mat IWS has an interest in this

company, that Chester sons and daughters have an interest in this company through a

trust agreement, why on earth would Morris come to you and say I own this company

move it to Michael and Douglas…

…What I’m suggesting to you, sir, that your evidence that Morris Waxman came and

said this is my company. Change it to Michael and Douglas is not plausible?… Because

you or Mrs. Cook would have seen in a nanosecond that that wasn’t true?

A. The company is a shell company… I am not going to suggest to you that there’s

minutes in there and shareholder registers which show Morris Waxman being a

shareholder and/or director. That was almost a blank book. All that happened there is

what came into the office. The minutes had not been done for about four years.

Q. So you did review the minute book before you gave it to Mrs. Cook?…

A. I glanced over it quickly. I just flipped the pages over.

Q. And could you see any reference in there to Morris Waxman owning this company at

all?

A. No. Just what he told me, that it’s his company. [Emphasis added]

[1996] Part of the minute dated February 4, 1977 in JB 1069, which is in the minute book,

appears to have been whited out. Ennis said he did not know how it came to be altered. He

said that the handwriting of the word “sample” on the stub for Special Share Certificate # 1,

JB 1082, “looks like Mrs. Cook’s handwriting.” When it was suggested to him that she would

not have written the word “sample” on that stub without consulting him, Ennis said that she

might have⁷⁴⁶.

⁷⁴⁶Ennis, December 10, 1999

[1997] Ennis’ evidence⁷⁴⁷about how SWRI came to be restructured varied so dramatically

from his evidence at discovery that I have found it to be unreliable.

[1998] The Defendants by Counterclaim have filed a handwriting expert’s report, Ex. 99, in

which a forensic document examiner, Mr. Dan C. Purdy, opines that there is a strong

probability that Irene Cook wrote the word “sample” on the special share certificate stub.

[1999] JB 2442, an Ennis account dated September 29, 1982, prepared by Cook and initialled

by Ennis, mentions the preparation of minutes for SWRI from August 1, 1979 to August 3,

1982, and makes specific reference to the transfer on August 1, 1979 of common shares from

Hayman and Evans “as Trustees” to Michael and to Irene Cook in trust [for Douglas⁷⁴⁸.]

The Backdating of the Restructuring - Resignation of Directors

[2000] On JB 2401 A, Mrs. Cook wrote “sign off and “Mr. Evans died July 16, 1979.” She

brought the documents up to date from the date of incorporation to August 3, 1982. Ennis

said Mrs. Cook did not go to Chester and Morris because she did not know they were

directors.

[2001] Mrs. Cook prepared a minute of directors’ meeting dated August 1, 1979, reflecting

Hayman’s resignation as director and her appointment as director. She transferred the shares

that Hayman had previously held as trustee for the common shareholders to Michael and

herself as trustee for Douglas as of August 1, 1979. She prepared a declaration of trust.

Michael was appointed a director of SWRI replacing Ramsey Evans as of August 11,1979.

When he reached the age of majority on May 4, 1981, Mrs. Cook transferred the shares that

she had been holding in trust to Douglas. Mrs. Cook resigned as director and Douglas was

appointed a director of SWRI effective May 4, 1981. Mrs. Cook also prepared minutes to

reflect these events.

[2002] Ennis said that the instructions to backdate did not come from Morris⁷⁴⁹. Cook likely

spoke to him about backdating the documents and about the preparation of a declaration of

trust on behalf of Douglas⁷⁵⁰.

⁷⁴⁷Ennis, December 7, 10 and 13, 1999; Exhibit 36

⁷⁴⁸Ennis, December 7, 1999

⁷⁴⁹Ennis, December 13, 1999 and December 14, 1999

⁷⁵⁰Ennis, December 10, 1999

Q. And so just starting there, we’re clearly involved here in backdating

these documents?

[2003] Findings - SWRI Restructuring

[2004] In 1982 SWRI was worthless.

[2005] I have found that Chester and Robert did not want Michael involved in IWS.

Morris, February 18,1999

A. He didn’t want him there. Why didn’t he want him there? He was very productive… as

productive as all three of [Chester’s sons] put together, in Solid Waste… He didn’t want

him there because Michael would have seen what they were doing to me, in all the

years they were taking out bonuses, which I knew after the fact.

[2006] I have rejected Chester’s evidence that before the Laidlaw sale was consummated, he

suggested Morris and Michael keep the IWS garbage business and operate it out of

Centennial. Rather, I have found that Chester’s interest in the waste business was limited to

servicing the waste needs of certain scrap customers in order to protect IWS’ scrap accounts.

Chester knew that IWS/Chester/Morris/Chester’s sons had all signed non-competition

agreements and Michael and Douglas had not. He knew that SWRI was being offered an

opportunity that IWS could not handle under those agreements.

[2007] I accept Morris’ evidence that by 1982, Chester wanted SWRI to be used by Michael

[and Douglas] as a vehicle to pursue a waste business apart from IWS, to keep Michael

occupied elsewhere and to forestall Morris’ attempts to bring him into IWS. I accept Morris’

evidence as follows:

Morris, February 9, 1999

A. …It was Chester’s intention in the beginning to have that company if something…

that we may use if something went wrong with Lasco. It was Chester’s intention, after

things got going very well, that Michael not be allowed into the business, and his way

out was to turn that company over to Michael and to Douglas so that they would have a

vehicle.

A. Yes

Q. Back to August 1, 1979?

A. That’s correct.

Q. And that would have been done in accordance with your instructions?

A. That was the way—yes. I’ll certainly accept that. It would be in accordance with my instructions.

[2008] [1] I find that Chester/IWS actively encouraged Michael/SWRI to pursue the St

Lawrence Cement opportunity in 1982. Chester/IWS had no expectation at the time of the

restructuring that SWRI would be run for the benefit of IWS. It was understood that

SWRI/Michael and Douglas would retain the profits from the St. Lawrence cement deal and

all other future business.

[2009] I have already found that the SWRI corporate records were delivered to Ennis on

October 21, 1980 to facilitate the preparation of the Sheppard’s Quarry Letter of Intent dated

October 21, 1980 and that from February 1977 to the time of the restructuring, Chester and

Morris were directors of SWRI.

[2010] I reject Ennis’ evidence that (a) he did not know IWS initially held 2000 SWRI

preference shares; (b) he did not know the common shares were held in trust for Morris’ and

Chester’s children; (c) he first became aware in 1988 that the common shares had previously

been held in trust for the children; (d) he knew nothing about the “so-called trust agreement;”

(e) he did not know Morris and Chester were directors of SWRI. Rather, I find the documents

that clearly revealed all of (a) to (e) were in the SWRI documents in Ennis’ possession at all

times after October 1980. I find that Ennis knew all of (a) to (e).

[2011] I find that after speaking with Chester, Ennis gave Mrs. Cook instructions to remove

the trust agreement from the SWRI corporate file, to remove [Preference] Special Share

Certificate number 1, to write “sample” on the stub, to delete reference to Morris and Chester

being directors, to remove reference to ownership by Chester’s sons of common shares, to

back-date the documents, all with the intention of making it appear that the non-competition

agreements could have no possible application to SWRI, Michael or Douglas.

[2012] Why else would all mention that Morris and Chester were directors of SWRI 1977-1982

have been removed from the SWRI documentation? Why else would the 1982 share transfer

have been backdated to 1979? Why else, after Douglas had already reached the age of

majority, would Mrs. Cook have gone to the trouble in 1982 of preparing documents including

a declaration of trust, a transfer of Douglas’ shares to herself as trustee, a transfer of shares

from herself to Douglas in May 1981, her appointment as director in 1979, Douglas’

appointment as director in 1981? Why else would Ennis have ordered letterhead for SWRI

showing an address different from IWS? Why else would all reference to Chester’s sons have

been removed from the SWRI documentation?

[2013] I find that Chester was actively involved in directing the complicated restructuring, with

the consent of the preference shareholder, IWS.

[2014] I accept Morris’ evidence that he did not provide instructions to Ennis to prepare the

minutes by which Michael and Douglas became directors and shareholders of SWRI and that

he did not know why they were backdated to 1979. I also accept his evidence that he did not

direct Ennis to obtain letterhead showing Ennis’ office address as SWRI’s address.

[2015] I accept Ennis’ evidence that Morris did not instruct him to backdate the documents. I

find that Ennis would not have backdated the share transfer or altered documents or removed

them from the files without express instructions from Chester. I reject Ennis’ evidence that he

did not speak to Chester.

[2016] Even if I had found that it was Morris who gave Ennis the instructions for the

restructuring, I would still have found that Ennis also sought and received instructions from

Chester. It was evident from the documentation in the file at the time of the restructuring [and

subsequently removed] that IWS and Chester’s children had an interest in SWRI. Ennis’

evidence about seeking Chester’s instructions on “major matters” is in the endnote to this

paragraph⁷⁵¹. I find this would have qualified as a “major matter” in Ennis’ mind and that he

would not have proceeded with the restructuring in the manner in which he did without first

getting instructions from Chester.

[2017] I accept the evidence of Dan Purdy, the handwriting expert in Exhibit 99, that the word

“sample” was most likely written by Mrs. Cook on the stub of Special Share Certificate #1.

Having received instructions from Ennis, and Hayman having signed off as trustee, I find that

Mrs. Cook whited out the words relating to preference shares on the SWRI documents,

removed Special certificate No. 1 from the Special Share Register and wrote the word

“sample” on the stub. Cook did not receive her instructions from Morris or Michael.

⁷⁵¹Ennis said the following evidence on discovery was correct, but not in every situation:

Ennis, December 10, 1999

Question: Well, for example, if Morris Waxman called and said with respect to the estate freeze, we would like to change the effective date of

the freeze, would you assume he was speaking for both he and his brother?

Answer: No. I would not assume that with respect to the estate freeze. That involved both of them. I would no doubt contact Chester, and

said. Morris has called me. Something has to be done, or Morris has spoken with me, and I would get confirmation before I would do

anything.

…Q. In any event, you’ve given us this that if it was a major matter, you for sure would contact Chester before proceeding?

A. Major matters, yes.

Q. Including, for example, changing the ownership of a company that IWS had a piece of, I suggest to you?

A. I don’t understand that question.

[2018] If the restructuring had been done with the intent of stealing SWRI from IWS/Chester

and his sons, there would have been no reason to remove all reference to Morris and Chester

as directors or to backdate the restructuring. Those actions suggest, and I find, that the

Laidlaw non-competition agreement was the reason for the manner in which SWRI was

reorganized.

[2019] Morris understood that Ennis had properly documented the transfer of shares and that

Michael and Douglas were the sole owners of SWRI. He thereafter encouraged Michael to

build SWRI into an active and profitable business.

Did Chester’s Children Consent to the Restructuring of SWRI?

[2020] Warren, Robert and Gary gave evidence that their consent to the transfer of their

SWRI common shares to Michael and Douglas was never sought or obtained.

[2021] The lawyer Hayman gave evidence he signed a release with respect to the common

shares of SWRI in his capacity as trustee of the common shareholders. He identified his

signature above the words “surviving trustee” on common share certificates no. 2 and 3,

dated August 1, 1979. He said it is unlikely he would have signed off on behalf of the

beneficiaries of the trust (the common shareholders) unless he had received appropriate

authorisation. As his signature on the share certificates was backdated to August 1, 1979, he

must have had instructions to sign a backdated document. He would sign a backdated

transfer only if the beneficiaries instructed him to do so for a valid reason⁷⁵². His normal

practice was to obtain authorisation from the beneficiaries and to prepare a memorandum for

his file in relation to the transfer. He had no reason here to depart from his normal procedure.

If he had followed his normal practice, there would have been a memorandum in his file.

When asked why no such memorandum has been produced, he said he could surmise that

someone had removed it from his file⁷⁵³.

[2022] Husband, a lawyer, said in 1988 or 1989, Chester and/or Robert asked to see original

files. Robert reviewed them for about an hour. Husband could not remember whether he

showed Chester and Robert the original SWRI file. On re-examination, he said Chester and

Robert might have reviewed it⁷⁵⁴.

⁷⁵²Hayman, September 8, 1999; JB 1391, JB 1393

⁷⁵³Hayman, September 8, 1999

⁷⁵⁴Husband, September 13, 1999

[2023] Chester said after the litigation was started, he and Robert went to Evans Husband to

look at the files. He didn’t look at an SWRI file, but Robert did. Robert may have been there

more than once.

[2024] Robert did not deny he was given access to Evans Husband’s original SWRI file. He

said he was not certain he did not take documents out of that file:

Robert, May 2, 2000

A. There may have been a file there one day I was there with Ross Husband.

Q. Right. And I suggest to you you were allowed to look through it?

A. I don’t know if I looked through it or not.

Q. Is it reasonably possible that you did?

A. Not necessarily.

Q. Do you deny looking through it?

A. No, I don’t.

Q. And in fact, did you take documents out of that file?

A. No.

Q. Are you sure?

A. No. [Emphasis added.]

[2025] The Defendants by Counterclaim, in effect, submit that I should decline to find that

Chester’s children did not consent to the transfer in writing, given Robert’s access to SWRI’s

corporate files. They urge me to find that Robert removed written consents from those files.

Findings re Consent of Chester’s Children to the Restructuring

[2026] It is troubling that the original Evans Husband SWRI file has gone missing, particularly

given (1) the evidence of Hayman and Husband that they thought it contained more

documents than have been produced in this litigation; (2) Hayman’s statement that he would

normally have sought consents from the beneficiaries before signing off on their behalf or

agreeing to a backdating and (3) that he would normally have prepared a memorandum

confirming his instructions and kept it in this file.

[2027] It is troubling that Robert was given access to Evans Husband’s original SWRI file after

litigation was commenced, and could not be sure he did not take documents out of it.

[2028] Given those concerns, the assertion that there is no proof that IWS and Chester’s

children gave written consents to the transfer of the common shares to Michael and Douglas

lacks force.

[2029] I accept Hayman’s evidence he would not have signed off as trustee on behalf of

Chester’s and Morris’ children, the beneficiaries of the trust, the common shareholders of

SWRI, or signed a backdated document, unless he was properly authorised to do so.

[2030] When Ennis asked Cook to proceed with the restructuring in 1982, I find that she

contacted Hayman, the trustee, who sought and obtained the appropriate consents from the

common shareholders. The consents and a memo confirming Hayman’s instructions have

since disappeared from Evans Husband’s file. I find that Robert removed them.

Summary Finding - Restructuring

[2031] In summary, Morris, Michael and Douglas did not steal the shares of SWRI. Rather,

Chester/IWS/Chester’s children agreed that SWRI was to be used as the corporate vehicle for

Michael’s and Douglas’ business. At the time of the restructuring, they thought that SWRI

shares had no value. I do not accept the evidence of Ennis, Chester and Chester’s sons to

the contrary and I prefer the evidence of Morris.

The Nature of SWRI’s Business After the Restructuring

[2032] Given the allegations that Morris breached his fiduciary duty to IWS in diverting profits

from IWS to SWRI, I shall cover the evidence about SWRI’s business after 1982 in some

detail. I shall first outline the evolution of the SWRI business between 1982 and 1989 so that

the allegations of theft and misappropriation of business opportunities by Morris may be

considered in context.

[2033] SWRI’s financial statements are at Vol. 81 of the Joint Briefs. For the year ended

December 31 revenues are shown as follows: for 1982: $39,025; for 1983: $31,121; for 1984:

$835,541; for 1985: $405,895; for 1986: $1,392,193; for 1987: $3,172,409; for 1988:

$2,985,249; for 1989: $746,098; for 1990: $266,947.

[2034] Morris said that with Chester’s blessing, at the beginning SWRI tried to develop the

business that Morris believed IWS was precluded by the Laidlaw non-competition agreements

from handling - e.g., solid waste (soap, flue dust, wood, garbage, Sheppard’s Quarry⁷⁵⁵.)

[2035] As time passed, the SWRI business was decreasingly related to old IWS accounts that

IWS was precluded from handling and increasingly unrelated to anything IWS had ever done

and developed independently by Michael and Fracassi.

1982

[2036] I have already mentioned the St. Lawrence Cement opportunity that was originally

presented to Fracassi. I have found that Chester encouraged SWRI to pursue that business.

It was the impetus for Chester to instruct Ennis to backdate the SWRI corporate documents

and to remove all reference to Morris, Chester/IWS/Chester’s sons, so that Michael and

Douglas would be able to pursue this and other opportunities in the future.

[2037] SWRI’s 1982 revenue of $39,025 came from the St. Lawrence disposal contract, which

was completed by the end of 1982.

1983

[2038] Exhibit 66 contains SWRI’s invoices 1983-1986. Almost all of SWRI’s 1983 invoices

are directed either to Stelco or Philip.

Stelco

[2039] SWRI’s 1983 gross revenues of $31,121 were largely derived from disposal of Stelco

wood. JB 2413 is a letter dated August 16, 1982 from Morris to William Myronuk at Stelco on

SWRI letterhead, submitting a proposal for the disposal of waste wood on a daily basis. JB

2411 contains Stelco purchase orders. JB 2434 is an Ennis note dated September 14, 1982

which contains the following, “Look over Laidlaw non-comp clauses re lumber/Stelco.” In

1982, Morris said Chester consented to SWRI’s handling of Stelco wood because he had no

interest in the business and IWS was precluded at any rate under the Laidlaw agreements

from handling a contract for the disposal of solid waste.

⁷⁵⁵Morris, January 28, 1999

[2040] In 1983, SWRI also started handling another solid waste, Stelco soap, Morris said with

Chester’s/IWS’ knowledge and consent. Michael gave evidence, with the assistance of Exhibit

51, that as the soap was not hazardous, any hauler could perform the transportation service.

SWRI subcontracted the haulage to IWS. IWS gave SWRI customer number 10199. An IWS

clerk wrote “Solid Waste” on the shipping advices. The IWS accounting department prepared

invoices and sent statements to SWRI. Exhibit 159 contains numerous invoices dated

1983-1986 from IWS to SWRI for haulage. SWRI cheques signed by Michael were delivered

to IWS. Chester and others were aware of these arrangements. In about 1986, Linton told

Michael that IWS’ profit margin on the haulage work was insufficient to justify all the

paperwork involved. Thereafter, Michael arranged for Philip to do the haulage⁷⁵⁶.

Philip

[2041] Michael said SWRI’s 1983 invoices involving Philip were for a deal involving foundry

sand core butts screened out of General Motors. This was for disposal of a solid waste

material. It was not a liquid sludge or a chemical waste. IWS/Chester/Chester’s sons were not

interested in handling this type of contract and were precluded in any event from doing so by

the Laidlaw agreements. Fracassi, not Morris, was the expert in foundry sands. Morris said he

asked Chester whether he/IWS were interested in participating in the foundry sand reclaimer

and Chester declined.

Ambler Courtney

[2042] Michael gave evidence that in 1983, SWRI and Philip became involved in the Lake

Clear/Ambler Courtney PCB remediation project in Clear Lake, Ontario. It was the first project

approved by the Ontario Ministry of Environment for the handling of PCB waste and for that

reason was reported in the Globe & Mail. Michael was very proud and spoke freely to Chester

about it. Morris never went to Clear Lake.

Slater Steel

[2043] Michael said that in October 1983, SWRI started discussions with its first electric arc

furnace flue dust (“EAF dust”) customer, Slater Steel [Burlington Steel] (“Slater.”) JB 2790 is

an outline of an agreement between Slater and SWRI dated October 4, 1983. Michael said he

made the contract on behalf of SWRI. It was significant because it led to others. EAF dust

⁷⁵⁶Michael, May 11, 1999; JB3957, Exhibit 50, Exhibit 51

eventually formed the bulk of SWRI’s business. The initial concept was simply for disposal but

Michael and Fracassi had a better idea. When they were at a cement plant, they heard a

manager say he needed iron. It occurred to them that EAF dust could be used as an iron

supplement⁷⁵⁷. By blending dust with mill scale, the iron content could be increased and the

hazardous components could be decreased. The blended substance could then be sold to

St. Lawrence Cement to be used as an iron supplement in the manufacture of cement. SWRI

was later able to develop other uses for cement kiln dust, EAF dust and other solid wastes⁷⁵⁸,

making SWRI profitable by 1986 or 1987⁷⁵⁹. IWS had never been involved in such activities. I

accept Morris’ evidence on the point.

[2044] Chester was asked whether he thought IWS could handle EAF dust without violating

the Laidlaw non-competition clauses. He said he didn’t know:

Chester, October 14, 1999

A. Morris would make that call… I have a view that if Morris said it would fall under those

exceptions I would have to accept it because he’s recognised as the closest thing to an

expert you would ever get in waste.

1984

[2045] By 1984, SWRI’s revenues had increased to $835,541. Most came from Philip, Stelco,

Slater and Procter & Gamble.

⁷⁵⁷Michael, May 20, 1999

A. …It was researched for quite a period of time, longer than a year or

so, and the initial concept, sir, was to fixate this material with kiln dust. In other words attempt to render it non-hazardous and dispose of it.

That never happened. What ultimately happened is that Allan and I were at a cement plant… Heard the plant manager say that he needed

iron and sort of a light bulb went on, we looked at each other and thought this would fit in as an iron supplement. So all of that research done

prior to did not come to fruition, another use was made.

⁷⁵⁸Michael, May 18, 1999

Q. Was kiln dust ever used other than to put in a landfill site?

A. Yes.

Q. So these other uses for kiln dust materialized as the years progressed?

A. About did yeah, as the years ’84, probably closer to ’85, kiln dust is used for stabilizing waste solidifying waste.

Q. To make it non-hazardous?

A. No, not necessarily. You would have to deal with the specifics either to

solidify it because it’s too wet or to fixate it because cement kiln dust is akin to cement there’s a heat reaction in the waste that’s required, but

we’re getting into complicated things.

⁷⁵⁹Michael, May 27, 1999

A. …we have to go to the financial statements. In 1987 and 1988 were the two best years certainly in all the time period we’ve discussed for

S.W.R. and S.W.R. profited by about a million dollars a year in those two years. ‘86 would be dramatically less than that. ‘85 we were

probably in debt at the bank because of the reclaimer and we’ve seen the guarantees so I’m saying to you that this, the fall and end of 1986

and I said this to you a long time ago, was a turning point as the company did become, in my mind quite profitable in ‘86, ‘87.

Q. Approximately a million dollars in profit. ’87 and ’88?

A. Right.

[2046] By 1984, SWRI and Philip were developing an oxide stabilization plant [a flue dust

plant.] to further the concept of using EAF dust as an iron supplement. Morris said he asked

Chester whether IWS would like to participate and Chester declined.

[2047] Michael reviewed SWRI’s 1984 invoices in Exhibit 66 in explaining the evolving nature

of the SWRI business.

Connell Transportation

[2048] He said SWRI invoice # 68 to Connell Transportation for $16,625 re oil stabilization

was work that Chester referred to SWRI through Leon Moffatt at IWS Ferrous.

Procter & Gamble

[2049] Morris said in June 1984, certain Procter & Gamble accounts were transferred from

IWS to SWRI with Chester’s consent. Chester appeared to be encouraging the Procter &

Gamble activity. IWS was often subcontracted to provide haulage, and invoiced by SWRI. For

example, JB 2836 is a shipping advice recording that IWS did haulage on behalf of SWRI,

picking up sealed containers from Procter & Gamble.

[2050] Chester and his sons denied knowing that SWRI was dealing with Procter & Gamble.

Kumer said he was aware that IWS was doing subcontracted work for SWRI in relation to

business with Procter & Gamble. He said that Verbaas, an IWS employee, might have spoken

to him about it⁷⁶⁰. Verbaas was not called to give evidence.

[2051] Early waste handled included cake mix, a solid waste. JB 4053 and JB 4054 are

illustrative of the type of wastes handled by SWRI for Procter & Gamble. Often SWRI would

obtain chemical analyses to ensure that its handling was appropriate.

[2052] Michael was cross-examined about whether IWS had previously handled the same

Procter & Gamble waste streams that SWRI was handling after June 1984. He generally

answered in the negative but said that to properly answer that question, it would be necessary

to consider every invoice individually. He invited counsel for the Plaintiffs by Counterclaim to

⁷⁶⁰Kumer, April 3, 2000

Q. And were you aware that IWS was doing work for Solid Waste Reclamation Inc. in relation to Procter & Gamble container: is that

something Mr. Verbaas might have spoken to you about?

A. He could have. I could have been aware of that.

Q. And if you had seen that, that wouldn’t have surprised you at all if this came across your desk?

A. It would not surprise me.

Q. And you told me you were never asked during this period of time by Morris or Michael to keep Solid Waste activities a secret?

examine each one with him. He was not cross-examined on an invoice-by-invoice, waste-by-

waste basis.

Butler Mfg

[2053] Unlike IWS, SWRI was able to sell scrap to IWS Ferrous and to make a profit on it. The

September 1981 IWS/Lasco/IWS Ferrous agreements (JB 1805) provided that all ferrous

scrap that IWS sold to IWS Ferrous must be sold at IWS’ cost. Morris said that he, Chester

and the IWS Ferrous comptroller Branch discussed whether SWRI was also bound to sell

ferrous scrap to IWS Ferrous at cost. They agreed that SWRI was not and that Kumer, an

IWS Ferrous employee, would price the ferrous scrap that SWRI was selling to IWS

Ferrous⁷⁶¹.

[2054] In chief, Kumer said that he did price scrap sold by SWRI to IWS Ferrous⁷⁶². On

re-examination, he contradicted his earlier evidence, saying that he treated IWS and SWRI as

the same company for pricing purposes.

[2055] Branch said when SWRI sold ferrous scrap to IWS Ferrous, IWS Ferrous issued credit

notes to SWRI, not to IWS (see JB 3817).

[2056] In 1984, SWRI bought steel drums from Butler Manufacturing, cleaned them of

hazardous paint pursuant to Ministry of Environment regulations, then sold them as scrap to

IWS Ferrous at a profit⁷⁶³. Between June 15, 1984 and December 3, 1984, SWRI’s business

with Butler totalled $2129 (JB 3178.) After December 31, 1984, SWRI’s business with Butler

totalled $585. IWS transported the Butler drums for SWRI and sent invoices to SWRI (JB

2351, JB 2382.)

1985

[2057] In 1985, SWRI had gross revenues of $405,895.

[2058] Michael gave evidence about SWRI’s 1985 invoices [in Exhibit 66.] There were

numerous invoices to Stelco, mostly for wood and soap. IWS continued to do haulage for

A. I was never asked. (Emphasis added)

⁷⁶¹Morris, January 29, 1999

⁷⁶²Kumer, April 3, 2000

⁷⁶³Knight, June 22, 2000

SWRI in connection therewith. SWRI continued to do business with Procter & Gamble. IWS

continued to do some haulage of Procter & Gamble waste for SWRI.

[2059] Exhibit 336 shows amounts paid to SWRI by Philip in 1985.

[2060] In mid 1985, a number of IWS accounts were transferred to Philip under

circumstances that the Plaintiffs by Counterclaim allege amounted to theft by SWRI of IWS

accounts.

[2061] Chester said Morris forcefully told him about new, rigorous environmental regulations

[JB 3430 - Regulation 309 re Transportation of Dangerous Goods Act - scheduled to come

into force July 1985.] Morris wanted certain waste accounts transferred to Philip to prevent

“…get[ting] ourselves into a lot of trouble.” Chester said, “There was no discussion as to the

involvement of SWRI. It was merely Philip… He [Morris] was going to keep us out of jail. He

was going to cause us no problem with the Ministry investigators who carried guns… That’s

facetious of course, but that’s what he was about⁷⁶⁴.” Chester said he would not agree to the

transfer of any IWS accounts.

[2062] Robert said that when he was at a meeting in Chester’s office in 1985, Morris was

telling everyone that new regulation 309 was coming into force. IWS should not remain in the

waste business, but should give its accounts away. Chester said, ‘This company doesn’t give

up accounts. We’re not giving away any accounts to anyone⁷⁶⁵.”

[2063] Gary said that in the spring of 1985, he harboured suspicions about Morris’ activities.

He spoke to Chester, who told him to go back to work and not to put his mind to it. Gary

denied they spoke specifically about SWRI. Although he knew that certain IWS accounts had

been transferred to Philip, he said he did not know SWRI was involved⁷⁶⁶.

[2064] Chester said in the summer of 1985, Gary said something “funny” was going on. Philip

was taking out spare containers for Frankel Steel and Monroe and he might have mentioned

SWRI.

⁷⁶⁴Chester, September 27, 1999

⁷⁶⁵Robert, April 10, 2000

A. Gary made a comment. He said that he understood that there were new regulations coming in. He didn’t understand why we could not

continue to handle waste. We were as clever as anyone else. We had the wherewithal that anyone else did and he said as a matter of fact in

his opinion, if there were going to be more stringent regulations perhaps we could charge more for the waste. Morris said that you don’t want

to deal in this area any longer. Somebody will end up going to jail. It was at that point that my father said we’re not giving up any accounts.

This company doesn’t give up accounts and we’re not giving away any accounts to anyone.

⁷⁶⁶Gary, May 9, 2000

[2065] Linton said Gary expressed concerns about the activities of SWRI⁷⁶⁷. In cross-

examination, he said he concluded from speaking to Gary that Gary knew that SWRI was

doing business with other customers at other companies⁷⁶⁸.

[2066] Warren said he remembered Gary suggesting there was a problem with the way SWRI

was operating⁷⁶⁹.

[2067] Chester said he called Morris to find out what was happening, and Morris said he had

done what he had threatened to do. He had moved the Monroe, Rockwell International and

Domtar accounts to Philip. Chester said that was a rotten thing to do. Morris said his time was

going to be better spent to make “us” far more money than could be made from these few

accounts. He did not want an environmental problem. Chester said he was not aware that

Philip would pay SWRI 75% of the profits on those accounts.

[2068] Morris said Chester turned the accounts over to SWRI. Morris made an arrangement

with Philip because of liability concerns⁷⁷⁰⁷⁷¹. Morris was pressed on cross-examination

about the transfer of the accounts to SWRI:

Morris, February 18, 1999

Q. In coming back to this, you are suggesting that Chester encouraged Michael but your

case here is that you say, you have to say, that Chester Waxman, on behalf of IWS,

definitively told you that you could take all of the IWS’ waste accounts?

A. No,… there were certain of them… that IWS had trouble with. Let me reiterate. One

of them was Domtar. One of the drivers nearly lost his life. The containers wouldn’t pour

⁷⁶⁷Linton, May 29, 2000

⁷⁶⁸Linton, June 2, 2000

⁷⁶⁹Warren, May 5, 2000

Q. So Gary told you that Solid Waste was handling waste accounts that should have been or were I. Waxman & Sons?

A. That was Gary’s belief.

Q. And he told that to you?

A. He mentioned something to that effect to me.

…Q. …You also say that your brother Gary specifically told you that certain IWS waste accounts were being transferred to either Solid

Waste Inc. or a combination of Solid Waste Inc. and Philip, Right?

A. Yes.

Q. That was in about 1986?

A. That’s right.

Q. And you just told Gary to mention it to your father. That’s all you did?

A. That’s right.

⁷⁷⁰Morris, January 28, 1999

⁷⁷¹Morris, February 18, 1999

Q. I suggest to you that you stole the accounts, the waste accounts, of IWS and did it in a gradual fashion.

A. The accounts were turned over by Chester Waxman. They couldn’t have been stolen. If he wanted them back, he had the power of an

elephant compared to a flea, which Solid Waste was. All he had do was walk to Stelco or any customer and tell them the accounts were his.

He didn’t need me to do that. He didn’t need Michael to do. Sir, that is a lie. That’s a lie. (Emphasis added)

the material out and when he went to Tricil to dump it, he nearly lost the truck and all.

After that particular load, Shelly … wouldn’t dispatch any trucks to pick up anymore

material from Domtar… They wanted the scrap. Chester said: Go ahead, look after it. I

told him it was the new law and new regulations. It also became a hazardous waste after

a while.

Q. Okay. I see your point now. It was specific accounts you were allowed to take.

Domtar being one?

A. Domtar was one. He turned it over to me.

…Q. What other accounts did he turn over to you?

A. Monroe. The Provincial Police called Monroe because our containers were leaking on

the highways. He [Chester] sent me there with Philip to see if I could handle it.

(Emphasis added)

[2069] On re-examination, Morris was asked about Chester’s knowledge and consent to

transfer IWS waste accounts to SWRI:

Morris, September 18, 2000

Q. Sir, were there any accounts that Solid Waste Reclamation Inc. handled that had

been clients or were clients … of I. Waxman & Sons, were there any such accounts that

Solid Waste Reclamation Inc. handled… without Chester Waxman’s knowledge or

consent?

A. No, sir. Solid Waste had accounts that belong to Waxmans but they were given… to

Solid Waste. Chester knew everything that Solid Waste did, including the things he had

no business knowing. We had no secrets.

[2070] Fracassi said in chief that Morris directed the transfer of certain accounts to Philip in

1985, including Frankel Steel, Armco, Monroe, Domtar and Euclid⁷⁷².

[2071] During his cross-examination, he was shown JB 3367-A, a letter dated February 25,

1985, from Robert and Linton to Fracassi re insurance coverage, produced by Philip but not

⁷⁷²Fracassi, June 5, 2000

Q. And Chester Waxman certainly knew this was happening, didn’t he?

A. I would assume so.

Q. And Bob Waxman knew?

A.

by IWS. He could not remember seeing it, but assumed it was referring to an arrangement

whereby Philip would take over certain IWS accounts⁷⁷³.

[2072] Linton said Robert asked him to draft and sign JB 3367-A.

Evidence Relating to the Transfer of Specific Accounts in 1985

Domtar

[2073] Chester said the Domtar account was transferred without his consent⁷⁷⁴. I have already

quoted part of Morris’ evidence about the reason why SWRI took over the Domtar account

with Chester’s full knowledge and consent. Domtar produced a hazardous pitch containing

naptha, which had to be dumped at Tricil in Sarnia, the only hazardous waste dump site in

Ontario. After the pitch stuck to the container during an attempt to dump it, the driver told

Kumer he did not want to go back to Sarnia⁷⁷⁵.

[2074] Kumer said he told Morris he did not want IWS Ferrous containers used to handle

Domtar material any longer. Chester did not complain to Kumer when the account was

transferred from IWS⁷⁷⁶.

Monroe

[2075] Morris said that Monroe Shock (“Monroe”) was an IWS scrap and waste account The

waste in question was an oily mill scale containing little chips of steel. One of Monroe’s

principals called to say that the OPP had complained about a leak onto the highway. Morris

told Chester IWS should either buy new containers or get someone else to handle the waste.

As Chester wanted to protect the Monroe scrap account, Morris arranged for Philip to haul its

waste. IWS sold its containers to Philip. Chester knew SWRI would earn revenue from the

account even though it would be in Philip’s name⁷⁷⁷.

⁷⁷³Fracassi, June 5, 2000

⁷⁷⁴Chester, May 11,2000

⁷⁷⁵Morris, January 28, 1999

Q. Did your brother know that this account had been transferred from IWS to Philip and/or Solid Waste?

A. Yes, he did.

Q. Did he know specifically that Solid Waste was involved?

A. Yes, he did.

Q. How do you know that?

A. I told him. There were no secrets.

⁷⁷⁶Kumer, April 3, 2000

⁷⁷⁷Morris, January 28, 1999

[2076] Chester denied he and Morris discussed SWRI taking over the account and that he

was content to have SWRI service it. He did admit knowledge of a slight spill involving

Monroe⁷⁷⁸.

[2077] Kumer said it was no secret the Monroe account had been moved. Chester did not

seem bothered about it⁷⁷⁹.

[2078] Warren said Monroe was his scrap account. Morris told him there had been a spill

involving Monroe’s waste. They spoke about Philip taking it over. However, he understood

Philip was going to pay IWS a substantial commission. He said he phoned Monroe to try to

get the account back for IWS⁷⁸⁰.

[2079] Fracassi said Monroe could have cancelled its arrangement with Philip. He had no

memory of Chester, Robert, Gary or Warren saying he/they wanted the Monroe account

back⁷⁸¹.

Frankel Steel

[2080] Frankel Steel (“Frankel”) was a relatively important scrap customer of IWS, a small

waste customer.

[2081] JB 3440 is a letter dated June 27, 1985 from Warren [on behalf of IWS Ferrous], to

Frankel, containing the following:

Effective July 1, 1985 I Waxman & Sons Ltd has sold its liquid waste division to Philip

Enterprises of Hamilton. They will handle dust and sludge directly with the same fine

service to which you are accustomed.

[2082] JB 3441 is a draft of the same letter in Warren’s handwriting.

[2083] Warren said in June 1985, Morris told him that material coming out of Frankel could

cause IWS problems and asked him to send a letter to Frankel mentioning that IWS had sold

its accounts to Philip. Morris said he would have Philip “pay us a good commission.” Chester

⁷⁷⁸Chester, November 2, 1999 and November 8, 1999

⁷⁷⁹Kumer, April 3, 2000

⁷⁸⁰Warren, May 4, 2000, May 5, 2000

⁷⁸¹Fracassi, June 5, 2000; JB3433A

was very disturbed when he found out about the letter. At Chester’s request, Warren

contacted Frankel and IWS continued to handle the Frankel account⁷⁸².

[2084] Chester said when Warren brought him JB 3440, telling him Morris had asked him to

write it, he was unhappy. However, Warren was able to get the account back⁷⁸³.

[2085] Morris said he told Warren if IWS Ferrous could not handle Frankel’s waste, he could

arrange for Philip to handle it. He denied asking Warren to write JB 3440⁷⁸⁴.

[2086] On JB 3184(A), a document produced by Philip, Frankel Steel is shown after July 31,

1985 as a Philip account. Philip was charging Frankel $195 per month, the same monthly

amount IWS had been charging it prior to July 1985 (see JB 3494A.)

EAF Dust Business in 1985

[2087] JB 3482 dated August 6, 1985 reflects that in 1985 SWRI’s EAF dust business was

starting to bear fruit. Slater agreed to pay SWRI for the disposal of 220 tons of EAF dust per

month at a rate of $80 net per ton.

1986

⁷⁸²Warren, May 4, 2000; May 5, 2000

⁷⁸³Chester, November 2, 1999

Q. Was Gary suspicious about S.W.R.?

A. He probably was.

Q. Did he tell you he was suspicious about S.W.R.?

A. Yes.

Q. He did?

A. Yes.

Q. When did he tell you that?

A. I think in 1985.

Q. And he told you. didn’t he. that he thought S.W.R. was taking accounts away from IWS?

A. No. he thought that Philip was doing it.

Q. And did he tell you that S.W.R. was involved?

A. He probably thought that—

Q. And he—

A.—but he’ll tell you.

Q. He told you that he thought S.W.R. was involved in accounts being taken away from IWS. Isn’t that so?

A. No. He told me that something funny’s going on, and this was on the phone while I was still on holidays with my wife, and that containers

are moving out, spare containers for accounts we did have and Morris’s excuse in those days was that one of the Waxmans is going to get

into trouble, and he doesn’t want to be one of them.

Q. And you told me that your son Gary mentioned S.W.R. when he articulated his suspicions?

A. Morris and Michael is what he mentioned.

Q. He didn’t mention S.W.R.

A. He may not have. I don’t recall the conversation verbatim. It’s just that Philip was in doing things and he doesn’t know what’s going on.

Q. And you now don’t remember him mentioning S.W.R.?

A. I don’t remember the conversation exactly, but Philip was certainly mentioned.

Q. And so as of this morning, you can’t remember whether he mentioned the name S.W.R.?

A. No.

⁷⁸⁴Morris, January 29, 1999

[2088] In 1986, SWRI’s gross revenues increased to $1,312,193. SWRI was by then buying

EAF dust from Courtice Steel, Dayton Walther and Slater, processing it and reselling it for an

iron supplement in the manufacture of cement. It was also developing other uses.

[2089] Morris said in 1986, with Chester’s knowledge and approval, SWRI was handling

Stelco lime slurry previously handled by IWS⁷⁸⁵:

Morris, September 18, 2000

Q. Let’s look at JB3720-A [JB 3720A, SWRI invoice 369, a shipping advice and Ministry

of Environment manifest dated July 8, 1986⁷⁸⁶] These invoices… relate to a lime slurry

spill at Stelco in 1986. Did you have any discussions with your brother Chester Waxman

about a lime spill at Stelco?

A. Yes. There was more than one. If my records were around, we would be able to

produce for you the documents that came from the Ministry of the Environment telling us

about this, which were in—the documents that were in my office at Windermere.

Chester, after discussing it him, I told him that—[interjection by counsel]…

A. This invoice shows there was pumping done by GronDyne, which was a vacuum

truck. There was a spill. To get it up, that’s what you used. And because of the previous

spills, we had to use GronDyne to even take the material out of the containers they were

in because they made a spill. Chester wanted to know if Michael could look after this

because it was a problem for him. And he said if he could, he would. And that’s what

happened with this.

[2090] Chester denied that he knew SWRI was servicing Stelco lime slurry starting in 1986⁷⁸⁷.

⁷⁸⁵Morris, February 18, 1999

⁷⁸⁶Morris, February 18, 1999

Q. And now there’s no question that Solid Waste is picking up waste from Stelco?

A. Solid Waste is picking up those wastes that it can properly handle from Stelco.

Q. And I’m going to show you in a short little while that it’s exactly same waste, sir?

A. It probably is. Maybe. But nothing moved without Chester knowing and you can’t keep this account for eight or nine years without them

knowing what was going on.

⁷⁸⁷Chester, November 2, 1999

Q. So, did you or did you not tell Gary and Linton; Don’t worry about it. There’s no reason to be suspicious, we own both companies?…

Having received this correspondence in 1986, did you say Morris: Why are accounts being moved from IWS to Solid Waste Reclamation

Inc.?

A. I don’t think this would have twigged a problem, even if I saw the letter.

Q. Even though your son left it with you because he was very suspicious and you said you would deal with?

A. That’s correct.

Q. So he gives you the letter because he’s suspicious, and you don’t twig?

A. Well, you know, this didn’t deserve a great amount of time because we were from zero to one percent of the company’s business right

there that Morris was looking after, and hopefully it would have gotten bigger, but it took him some time. Either it’s too small for me to

concern myself about, or it isn’t. You have to make up your mind…. I didn’t dismiss it. I dealt with it to the best of my ability. Gave it the time

(thought it deserved and went on to other things.

[2091] On October 7, 1986, IWS Ferrous purchased scrap ex Stelco from SWRI [JB 3817.]

Michael said at some point in 1986, SWRI also contracted once with Dow/Ciba-Geigy for the

clean-up and delivery of empty drums to IWS Ferrous for scrap. IWS had had a similar

contract once in the early 80’s, but as it would have been required after September 1981 to

sell the scrap at cost, IWS could not have profited from that business⁷⁸⁸.

[2092] When SWRI and Philip contracted with the City of Hamilton in 1986 to clean up

property on Hamilton Harbour (“the Lax property”), the SWRI name and logo were plainly

visible on a large sign posted on the property.

[2093] On October 24, 1986, SWRI entered into a very large and profitable EAF dust contract

with Lasco, which is covered in detail in the section of these reasons pertaining to Action

#37616/89 the Inducing Breach of Contract Action.

[2094] Michael said when SWRI and Lasco disagreed about the meaning of the October 24,

1986 contract, knowing Chester had a close and important business relationship with Lasco,

he told him about the problem. Michael asked Chester to review a letter he had written to

Lasco, JB 3963, before he sent it. Michael said Chester called Mr. Hutchison, the president of

Lasco, on SWRI’s behalf.

[2095] Chester denied that Michael showed him the letter:

Chester, November 5, 1999

A: He did not tell me about this letter. In fact, if I had seen it, it’s got a quarter inch of

grease all over it. It’s so greasy, it’s profound, a sage of 85 years old would write a letter

like this.

[2096] When SCA Chemicals supplied chlorinated solvents to St. Lawrence Cement and

received kiln dust in return from St. Lawrence Cement, SWRI/Philip profited from both sides

of the transaction.

[2097] In 1986, the Laidlaw non-competition agreements expired. Chester/IWS showed no

interest in getting back into the garbage business.

1987

⁷⁸⁸Michael, May 27, 1999

[2098] By 1987 SWRI was thriving. It had gross revenues of $3,172,409 and profits of

approximately $1,000,000, including about $600,000 from the EAF dust business. Exhibit 58,

a brief of documents in respect of SWRI’s damages in the Inducing Breach action, contains

details of SWRI’s business in 1987, 1988 and to March 7, 1989.

[2099] In 1987 much of SWRI’s business was with Lasco (total revenues of $1,308,520.)

[2100] Exhibit 336, a brief containing a summary of Philip/SWRI joint business, shows the

sources of revenue 1985-1989. The Philip contracts included the Monroe and Domtar

contracts mentioned earlier and some flue dust contracts.

[2101] In 1987, SWRI was continuing to expand its EAF dust business.

[2102] Michael said that in 1987 Chester continued to actively assist SWRI in building its EAF

dust business. Chester mentioned SWRI’s services with respect to EAF dust to Ivaco, a scrap

customer of IWS Ferrous and he suggested that Michael write a letter to Ivaco. Michael wrote

JB 3967 dated January 30, 1987, containing the following:

Further to your telephone conversation with my uncle, Mr. Chester Waxman, on January

26, 1987, allow me to introduce myself and my company. My name is Michael Waxman

and I am President of Solid Waste Reclamation Inc., a wholly owned subsidiary of The

Waxman Holding Corporation Inc.

[2103] Michael said when Messrs Silverman and Perlis of Ivaco came to Hamilton in the

summer of 1987 to discuss EAF dust disposal, Michael invited Chester to join them for lunch.

On the way to lunch, they stopped by the Philip yard to show Silverman and Perlis where the

flue dust would be treated and at lunch, in Chester’s presence, there was a discussion of

SWRI’s EAF dust business with Lasco, Slater, Dayton-Walther, and Courtice⁷⁸⁹.

[2104] Chester said that there was no mention of SWRI at that lunch. Chester said he would

have to call Perlis and Silverman to give evidence⁷⁹⁰. They were not called.

⁷⁸⁹Michael, May 11, 1999

Q. Who is ‘our services’?

A. S.W.R. services. So I was telling them about the success we had with this material at Slater Steels, at Courtice Steel, at Dayton Walther

and at Lasco. Chester asked at that lunch whether or not scrap could be delivered down to Ivaco on the same trucks that we would be

sending down to pick up the waste material. I advised Chester at that meeting that pneumatic tankers, which is a specific closed type of truck

tanker, would be used because it’s very dusty material, the bag house dust, and that we could not haul scrap on the front haul for him. This is

what I specifically remember about that lunch.

Q. And was there any discussion at that lunch about business that S.W.R. was carrying on or might be carrying on?

A. Yes. As I mentioned the business that we were already doing in this market for Lasco, Courtice, Dayton Walther and Slater Steels.

⁷⁹⁰Chester, November 5, 1999

[2105] Mr. Ross Tweedle of Grief Containers gave evidence that in 1987 SWRI handled a

single job at a total cost of $1,840⁷⁹¹. Michael said that the Grief containers were steel drums.

As IWS was not allowed to profit from the sale of

[2106] incidental scrap to IWS Ferrous, and as SWRI was under no such restriction, SWRI

handled the contract. IWS Ferrous issued a credit note to SWRI⁷⁹².

1988

[2107] In 1988, SWRI had total revenue of $2,985,249. Its major accounts were as follows:

Contract

Revenue

$1,482,340

Profits

$520,249

{*}Lasco

{♦}Slater

264,162

132,391

31,714

99,445

51,592

{♦}Courtice

{*}Cecos

Redpath

10,075

64,295

19,288

Procter & Gamble

Stelco

324,306

246,858

101,388

$2,647,454

105,056

61,815

{**} Philip

[TOTAL

101,388

$968,908

* Lasco, Slater, Courtice and Cecos are all Flue Dust customers.

** Philip’s revenue includes Domtar, Monroe, Dayton Walther, Carbochem

[2108] A historical breakdown of SWRI revenue for 1987-1989, which I accept as accurate, is

at Exhibit 105, Exh. II.

[2109] Redpath Sugars was a new SWRI contract in 1988:

Michael, May 28, 1999

A. …Redpath Sugar was a, prospectively, extremely large contract… There was

supposed to be 15,000 ton a year of mud that they called it but it was calcium sugar

⁷⁹¹Ross Tweedle, July 13, 2000

⁷⁹²Michael, May 27, 1999

food waste and it was to be an extremely profitable new piece of business and… with

the benefit of hind sight it was for Philips… I know it was a five year agreement which

Philips continued to handle for… 15,000 ton a year… it’s grown to I think 20,000 ton a

year. Very, very profitable contract.

Q. Exhibit 58 I’d like to look at with you, which is the inducing breach losses brief you

have put in. At tab one there’s a Redpath section right at the end of the book?

A. At Redpath tab. Tab one is the contract.

…Q. And then the job costing sheet lists the invoices that you sent to Redpath Sugar in

1988. Correct?

A. For a partial year 88,

Q. The contract is dated July. So is the partial year after the contract?

A. Yes, sir.

Q. And so you invoiced Redpath Sugar a total of $64,294?

A. Correct.

1989 - Breach of Contract

[2110] At the time of the termination of Philip’s contract with SWRI in March 1989,

SWRI/Philip were handling approximately 1019 net tons of Lasco EAF dust per month.

Michael anticipated that that volume would increase due to the installation of a third

baghouse. Lost revenues also include container charges and pneumatic rentals.

[2111] SWRI/Philip were handling approximately 237 net tons of EAF dust from Slater and

approximately 116 net tons per month of EAF dust for Courtice Steel. St. Lawrence Cement

was purchasing iron/supplement/pyrite approx 1600 net tons per month with 2:1 mix design

3200 net tons per month.

Was SWRI Secretive or Open in the Conduct of Its Business?

[2112] Chester claimed that SWRI was covert in its business activities. He said Morris

somehow was able to persuade all of the people with whom SWRI was doing business to

keep it a secret from Chester/IWS:

Chester, November 2, 1999

Q. And so I’m suggesting to you, sir, there were a lot of people that

[2113] knew about Solid Waste Reclamation Inc. Isn’t that so?

A. I didn’t say there wasn’t.

Q. Mm-hmm. And I’m suggesting to you, sir, there was an awful lot of sunlight, isn’t that

so?

A. No, I don’t think so. Lot of darkness.

Q. And are we to take it from your evidence that somehow your brother Morris was able

to get all of these people sworn to secrecy. Is that it?

A. He did a pretty good job.

Q. Is that what you want us to accept?

A. I’m just giving you my evidence.

Q. Is that your explanation for how what all these people knew didn’t get to you?

A. That’s correct.

Q. That your brother somehow persuaded them to keep it a secret?

A. That’s correct⁷⁹³.

[2114] Ennis found the suggestion that Chester didn’t know SWRI was carrying on business

to be humorous. He said in the spring of 1983, he knew that SWRI was “exceptionally active:”

⁷⁹³Chester, November 8, 1999

Q: And so throughout, starting 1983-84, right through 1988, all of this activity with Mr. Fracassi and Morris and Michael occurred, and you

had no idea, on your evidence, at any time, first of all you had no idea they were making any money, is that so?

A: I didn’t know, no.

Q: And you had no idea that SWRI was taking any money in, is that so?

A: No.

Q: You had no idea they had contracts with Philip, is that so?

A: I knew Philip had contracts. I found that out in maybe 1986, but as busy as they were I can tell you I was far more busy.

Q: You had no idea Philip had contracts with SWRI.

A: No, no idea…

Q: You had no idea for example in 1985 or 1986, SWRI started to become profitable?

A: No I did not.

Q: And you had no idea throughout this period until 1988 that Mr. Linton specifically knew that SWRI was doing business with certain

customers, just didn’t know?

A: That’s correct.

Q: And you had no idea that Mr. Linton included SWRI as a customer of I. Waxman & Sons?

A: No.

Q: You had no idea that Mr. Linton carried receivables for the company, in respect of Solid Waste Reclamation.

A: No.

Q: And you had no idea that Gary had received a letter in 1986 from Philip specifically mentioning Solid Waste Reclamation?

A: No.

Q: And you had no idea that Gary and Warren both thought that SWRI was taking customers away from IWS?

A: There was some suspicion in 1985…

Q: Yeah, but you didn’t know it involved Solid Waste Reclamation Inc.

A: No. that’s correct.

Ennis, December 10, 1999

Q. …And you knew it was carrying on business, didn’t you?

A. So did Chester. Where were their offices? Their offices were in Centennial, weren’t

they?

Q. You knew Solid Waste was an active company carrying on business?

A. Of course I knew that, and of course Chester knew that. Of course he knew they were

carrying on business. Why would he not? They had offices at Centennial.

Q. It would be preposterous to suggest he didn’t know, wouldn’t it?

A. I didn’t suggest he doesn’t know…

…Q. …the fact is everybody knew, you knew and you’ve just told us you knew Chester

knew that Solid Waste Reclamation Inc. was carrying on an active business. Right?

What’s so funny about that?

A. Because their offices are at Centennial Parkway.

Q. How could you not know?

A. You’re right. How could you not know? [Emphasis added.]

[2115] Michael gave evidence that calls to SWRI were routed through the IWS Ferrous

switchboard to him or Morris. Mail for SWRI arrived with the IWS mail, was sorted and

delivered to him or Morris⁷⁹⁴. Morris gave evidence that Chester told him that trunking of

phones should be done, to allow SWRI to take advantage of IWS Ferrous’ WATS line. SWRI

paid IWS Ferrous for its use⁷⁹⁵. Members of the IWS office staff, primarily Evadne Shirton,

typed some of SWRI’s invoices [Exhibit 48⁷⁹⁶.]

[2116] Counsel for the Plaintiffs by Counterclaim called a number of witnesses in an attempt

to prove that Morris/Michael/SWRI were secretive in their activities.

(1) Brian Landman

[2117] Brian Landman (“Landman”) worked in the scale house at Windermere 1964 - 1997.

September 1981 - 1993, Landman worked for IWS Ferrous, and from 1993 - 1997 for Philip.

…Q: I see. And you had no idea that I. Waxman & Sons had received invoices from SWRI and cheques had been paid to it?

A: No.

⁷⁹⁴Michael, May 10, 1999

⁷⁹⁵Morris, January 29, 1999

When he gave evidence, he was the IWS dispatcher. He said in the early 1980’s, Morris

asked him to personally hand him bills for specialty waste accounts like Rockwell, Monroe,

Procter & Gamble, Stelco and Domtar. It was common knowledge in and around Windermere

that SWRI was carrying on business. He knew, for example, that SWRI was doing business

with IWS Ferrous. He signed shipping advices upon which the following was written: “SWRI, a

subsidiary of the Waxman Holding Company.”

[2118] Chester’s cross-examination included the following:

Chester, November 8, 1999

Q: So, again, if this was all supposed to be a clever secret, do you think this kind of

shipping advice with this explicit description would ever have been issued?

A: Yes.

Q: And I guess he just had ways with Brian, too?

A: He certainly did.

(2) George Bugiardini

[2119] George Bugiardini (“Bugiardini,”) a Slater employee, said the Philip/SWRI/Slater

contract was out in the open. Michael never asked him to keep the SWRI/Slater business

relationship secret. Bugiardini had a close professional relationship with Warren for 12 years,

as they served together on the executive of a Purchasing Managers’ Association. In re-

examination, counsel suggested to Bugiardini that he had no specific recollection of

discussing the flue dust contract with Warren. He disagreed and said he recalled a

conversation with Warren about Slater spending “megabucks” on that contract⁷⁹⁷.

(3) Tim Worron

[2120] Tim Worron (“Worron”), a retired employee of Procter & Gamble, said Morris told him

SWRI was owned by IWS. He also said Morris wrote him a letter confirming the information

provided orally. That letter, JB 3181 dated June 28, 1984, mentions that SWRI was owned by

the Waxman Holding Corporation and makes no reference to IWS. Worron said when he read

“Waxman Holding Corporation,” he absorbed “I. Waxman & Sons.”

⁷⁹⁶Michael, May 11, 1999; (JB 2563)

⁷⁹⁷Bugiardini, June 23, 2000

[2121] All the other independent witnesses called by counsel for the Plaintiffs by Counterclaim

who said they assumed a connection between IWS and SWRI, also said that neither Morris

nor Michael ever told them (a) IWS owned SWRI or (b) SWRI was part of IWS.

SWRI Business with IWS Ferrous

[2122] Chester was President of IWS Ferrous. Branch said like everyone else at IWS Ferrous,

he knew Michael and Morris were operating SWRI. It was obvious. He thought some SWRI

invoices were typed at IWS Ferrous. It was common knowledge at the Windermere office that

SWRI had a major contract with Lasco to handle flue dust. IWS Ferrous regularly invoiced

SWRI for telephone services [i.e., SWRI’s use of IWS Ferrous telephone operators and trunk

lines from Windermere to Centennial. He spoke to Chester about trunking the telephone lines

over to Centennial⁷⁹⁸.]

[2123] IWS Ferrous regularly billed SWRI for haulage that IWS Ferrous was doing for SWRI

(JB 3101 and JB 3593.) SWRI paid IWS Ferrous by cheque [JB 3746.]

[2124] Kumer said he knew that SWRI was carrying on business in the mid-1980s. That fact

was well known at Windermere, where Chester and Warren worked⁷⁹⁹.

[2125] Chester said he did not see cheques from SWRI in payment of IWS Ferrous

invoices⁸⁰⁰.

SWRI Business with IWS

[2126] IWS’ documents recording transactions with SWRI include:

[2127] Accounts receivable lists kept by IWS, for example JB2984A and Exhibit 232C, Tab

92;

[2128] SWRI invoices to IWS which were kept in a folder marked SWRI invoices with a

customer account number assigned of 10199, Exhibit 159;

[2129] Cheques drawn on the account of SWRI and deposited by IWS, Exhibit 76;

⁷⁹⁸Branch, June 29, 2000

⁷⁹⁹Kumer, April 3, 2000

Q. And the fact that Solid Waste Reclamation Inc. was carrying on business, as you have just said, that wasn’t any secret as far as you

knew?

A. It was not a secret, no.

Q. In fact, it was well known. You knew, Mr. Landman knew, everyone around you seem to know, didn’t they?

[2130] Invoices from IWS to SWRI, JB 2836, JB3353 and JB4120 (an IWS invoice to SWRI

dated August 30, 1988 with regard to the services of an electrician provided by IWS to SWRI);

[2131] Invoices from SWRI to IWS, JB3766;

[2132] Linton’s working papers, JB3307 and 3543A.

[2133] Linton said he thought SWRI was in the family group, but he gave it a separate IWS

customer number and kept a separate customer folder for it. Amounts owed by SWRI to IWS

were reflected on IWS’ monthly accounts receivable report. In JB 3494, for instance, he wrote

“IWS bills SWRI 47 for haulage 54/mo. per container.” He said as far as he was concerned,

SWRI was openly carrying on business. There was no secret about it⁸⁰¹. On JB 2594 Morris’

Visa statement, where Morris wrote “Fracassi” and “Monroe,” Linton charged the expenses to

Morris personally, i.e., he did not charge them as IWS expenses⁸⁰².

[2134] Michael gave evidence that when IWS rendered services to SWRI, principally for

haulage, it invoiced SWRI and SWRI paid IWS by SWRI cheques signed by Michael⁸⁰³.

[2135] Chester said that he knew nothing about these transactions. He was cross-examined:

Chester, November 2, 1999

Q. …Do you accept all of these are legitimate invoices by IWS, delivered to Solid Waste

Reclamation?

A. They are copies of invoices, far from legitimate; however, these are real IWS Limited

invoice copies. Q. They are bona fide invoices issued by your company. Are they not?

A. I would not give them that classification because I think they’ve been created as a

result of some skullduggery.

[2136] Robert said he knew Morris and Michael were running a waste business out of

Centennial. If he wanted to speak to his uncle about the waste business, he would find him in

offices marked “Waxman Holdings⁸⁰⁴.” In cross-examination, he said in the mid-1980s:

A. We knew about it.

⁸⁰⁰Chester, November 4, 1999

⁸⁰¹Linton, May 29, 2000, June 2, 2000, June 9, 2000; Exhibit 159

⁸⁰²Linton, June 2, 2000

⁸⁰³Michael, May 11, 1999; Exhibit 49, JB 2836, JB 3353

⁸⁰⁴Robert, April 13, 2000

(1) He knew mail was coming to Centennial addressed to SWRI. He may have seen

some of it.

(2) He knew Morris and Michael were asking the accounting staff on the second floor of

Centennial to prepare invoices for SWRI and that Evadne Shirton was one of the

persons who typed SWRI invoices.

(3) He saw some of the SWRI invoices of the type included in Exhibit 48.

(4) He saw the accounts receivable statements of IWS that included SWRI as a

customer⁸⁰⁵.

[2137] Gary said in chief at trial that prior to 1988, he did not know SWRI was carrying on any

active business. He did not know SWRI was transacting business with IWS. He was taken on

cross-examination to JB 3766, an invoice for $1,117.00 from SWRI to IWS dated September

5, 1986 regarding the sale to IWS of non-ferrous scrap. He said it did not alert him to anything

at the time. He acknowledged that he had (a) seen the invoice; (b) seen the reference to

SWRI; (c) seen the reference to 500 Centennial Parkway; and (d) approved payment to

SWRI. He eventually said that he would have known from that invoice that SWRI was

transacting business with IWS⁸⁰⁶.

⁸⁰⁵Robert, April 17, 2000; Exhibit 48

⁸⁰⁶Gary, May 9, 2000

Q. So obviously you must have looked to see if this was from Solid Waste Reclamation Inc.?

A. I would have at that time.

Q. And that’s your writing that says: Okay, GW?

A. That looks like my writing. I haven’t denied that. Okay?

Q. Not only did you see this invoice and okayed it, you approved payment on it, didn’t you?

A. I approved that for payment, yes.

Q. And you were approving payment from IWS Limited to Solid Waste Reclamation Inc.

A. Yes, That’s what it would be.

Q. This was the company you say you didn’t know was operating.

A. When you asked me the question before, whether or not I knew that Solid Waste Reclamation Inc. was an operating company, and we are

slicing it here, but this was one invoice that I approved and it wasn’t a moment in history for me that I recall…

Q. So you didn’t think SWR was carrying on business activity when you got this invoice. Is that your answer?

A. When I got this invoice, it was one invoice that I approved and I do not have a recollection of any activity as an active on-going company

to do with Solid Waste.

Q. Let’s not pass over that too quickly. How is it that a company renders an invoice to another company for a product it has sold to that

company, and just stopping there, you knew that happened, didn’t you?

A. Yes, I would have known it at the time.

Q. How is it that a company does that and isn’t carrying on any activity?

A. Again, it was one invoice, I didn’t know anything else in regards to any other activity they were doing. It was one invoice. It is a moment in

time when I did that or approved that and gone on. I didn’t recall it. When you asked me the question whether or not my recollection of Solid

Waste being an active company, I don’t. I saw one invoice. I don’t have any recollection of anymore.

…Q. In 1986 you knew there was business activity being carried on by Solid Waste Reclamation Inc.

A. Based on that, and that is business I knew that that was happening. I got that invoice for that particular movement.

Q. To be even more precise, you knew that Solid Waste Reclamation Inc. was transacting business with IWS. You knew that in 1986, didn’t

you?

A. I would have known that from that invoice.

…Q. And you were approving payment from IWS to SWRI?

A. Yes. That’s what it would be.

…Q. And we see a reference on the invoice to cheque 6209 is that what C K 6209 means?

A. That seems to be what it refers to. (Emphasis added)

Meetings with Chester at which the Topic of SWRI Was Raised

[2138] I mentioned in the Main Reasons that when Michael met with Chester in early 1983, he

mentioned SWRI.

[2139] I also referred to Morris’ meetings with Chester and his sons in 1985 and 1987, when

Morris mentioned SWRI and his good relationship with the Fracassis/Philip.

The Lax Property Clean-Up

[2140] When SWRI and Philip contracted with the City of Hamilton in 1986 to clean up the Lax

property on Hamilton Harbour, the SWRI name and logo were plainly visible on a large sign

posted on the property. JB 3829, a newspaper article in the Hamilton Spectator dated

October 1986, headed “Lax Cleanup Starts This Week,” contains a photograph of that sign

and quotes a statement of Michael Waxman, “President of Solid Waste Reclamation Inc.”

[2141] Chester said he may have read the October 1986 article but it did not alert him to the

fact that SWRI was operating separately from IWS⁸⁰⁷. When the Lax contract was awarded,

Morris told Chester it would be a great education for Michael. Phillip would be doing the work

and a tremendous amount of capital outlay “for us.”

[2142] Chester said he saw Michael being interviewed on television “acting like a redneck⁸⁰⁸.”

He was asked if he would have been concerned that Michael was calling himself the

President of SWRI. He said if Morris had not told him that they just wanted to help Philip get

the deal using the name Solid Waste Reclamation Inc., he would have questioned Morris

about that⁸⁰⁹.

⁸⁰⁷Chester, September 30, 1999

⁸⁰⁸Chester, October 8, 1999

⁸⁰⁹Chester, November 2, 1999

Q, Is it your evidence that even if you knew that Michael Waxman was going around calling himself the President of Solid Waste

Reclamation Inc., that wouldn’t have made any difference to you at all in terms of what you thought?

A. No. If his father thought he should be President, that would have been great, Moved it along and made money for the entire group, that

would have been wonderful, As long as it was done out in the sunlight.

Q. If Michael Waxman is out in the sunlight publicly calling himself the President of Solid Waste Reclamation Inc., what could be more public

than that?… Doesn’t it suggest to you if Michael Waxman is publicly identifying himself as the President of Solid Waste Reclamation Inc.,

that Solid Waste Reclamation Inc. is carrying on its own business?

A. Not if Morris preempted it by telling me they just wanted to help Philip get the deal from the city using the name Solid Waste Reclamation

Inc. which had a great reputation with the region and the city.

Q. There’s that preempted?

A. No, it’s there and it happened.

Q. When you say preempted, what you mean by that, I gather, is you would have assumed that Solid Waste Reclamation Inc. was being run

as a separate business, except Morris preempted that suspicion by telling you what you’ve just said. Is that it?

A. No, that’s quite a long question. What I can tell you is that had he not told me, I would have certainly questioned him on it.

Q. Yes.

A. But he preempted me doing that.

Q. All right. You would have questioned him. Why?

[2143] Chester said he also read some articles in the Hamilton Spectator in June 1988, which

reported allegations made by Alderman Cowell about the Lax cleanup and quoted Michael

Waxman, President of Solid Waste Reclamation Inc., “The allegations made by Mr. Cowell

are fallacious, irresponsible and completely without foundation. Furthermore they are

defamatory to our good corporate name”. An article on Saturday June 11th reported that

Michael Waxman, President of Solid Waste Reclamation Inc., was livid that Mr. Cowell did not

name his company in his apology.

SWRI was Separate from IWS

[2144] The Defendants by Counterclaim point to a number of other facts to illustrate that the

Plaintiffs by Counterclaim knew SWRI was separate from and independent of IWS:

(1) Statements by Chester and Robert,

(2) Linton’s treatment of SWRI as a company separate from IWS

(3) Linton’s/Chester’s failure to inquire about SWRI revenues,

(4) The sale of Intercelco assets,

(5) Price paid to SWRI by IWS Ferrous for scrap,

(6) Ennis’ SWRI account not approved for payment by IWS.

(1) Statements by Chester and Robert

[2145] In his examination in chief, Chester said the following, which suggests he thought

SWRI was “other people’s business:”

Chester, September 27, 1999

Q. One of the Plaintiff’s positions advanced in this lawsuit is in the nature of whatever

Paul Ennis knew, you knew. What do you say about that in respect of this change of

shareholding of Solid Waste Reclamation Inc.?

A. I don’t think that’s sensible. It’s not true and I never asked Paul Ennis, ever, about

other people’s personal business, even in our own family, I think everybody’s entitled to

their own privacy, their own personal legal file, so to speak. That’s just not true.

[emphasis added]

A. Because I would have wanted to know exactly what was happening and if he would have told me generally the same story he preempted

[2146] In 1987, after Robert found out that Culig [an IWS employee] had gone to Philip with

Morris to look at a piece of equipment, he asked him not to leave the IWS plant in the future

without letting him know⁸¹⁰.

(2) Linton’s treatment of SWRI as a company separate from IWS

[2147] Linton gave SWRI a separate customer number. After 1981 he did not list SWRI as a

company associated with IWS [to the extent companies are associated, they may collectively

claim only one small business deduction in any fiscal year.] Two of the pertinent sections of

Linton’s evidence are in the endnotes to this paragraph. [endnote⁸¹¹]⁸¹²

(3) Linton’s failure to inquire about SWRI revenues

[2148] Linton never inquired about SWRI’s revenues so they could be included on IWS’ tax

return. He said he was the controller, not the detective of IWS. Some of the evidence on this

point is in these endnotes⁸¹³.⁸¹⁴

me with, it probably would have been something that would have been okay. (Emphasis added)

⁸¹⁰Robert, April 10, 2000

⁸¹¹Linton, June 1, 2000

⁸¹²Linton, June 2, 2000

Q. And, sir, looking at this last page, the form T-2013, this form referable to associated companies, it looks like it got revised in 1985. and on

this form you had to put your mind to the income of the associated company for the previous year, Right?

A. That’s correct.

Q. A new list needing your input?

A. Yes. I had to pick up those figures.

Q. And it didn’t occur to you to say: Whoops. I made a mistake inadvertently here with the typist. Better find out what’s going on with Solid

Waste Reclamation Inc. did it?

A. It occurred to me because of the allocation, as I said, of the small business deduction and I didn’t put it in there because I had no

information on that company.

Q. I beg your pardon?

A. I had no information on the Solid Waste Reclamation operations.

Q. What astounds me, and I say respectfully, is why you didn’t ask? Everything you did is consistent with your knowing that it was none of

your business. Isn’t it?

A. It was a shortcoming of mine. I should have been on top of that company as controller, and I lost track of it.

…Q. With respect to this last page on the tax return for 1986, you specifically allocated income to the associated companies for purposes of

small business deduction. Didn’t you?

A. Yes.

Q. And that’s why we have at the bottom in column four, total allocation of 200,000?

A. That’s right.

…Q. And according to you, throughout this time, you thought Solid Waste Reclamation Inc. was associated with IWS?

A. Yes.

Q. Did it ever occur to you to speak to Morris and Michael and say; Are you taking the small business deduction too? Because if you are. you

are going to get dinged?

A. No. as I say, I thought about it, but I never followed un and talked to them directly about it. I knew it may have an impact in the returns I

was filing.

Q. You actually did think about it?

A. Yes.

Q. You thought about the question whether Solid Waste Reclamation Inc. was taking the small business deduction?

A. Yes. I did.

Q. And you consciously chose not to speak to Morris and Michael about it?

A. Yes. I consciously did that. (Emphasis added)

⁸¹³Linton, June 2, 2000

Q. You could tell by looking at the article, the second page of joint brief 3829, that this was a significant contract. … looking at the second

column in the article. There’s reference to a $215,000 contract. Do you see that?

A. Yes.

Q. And right up on the top of the page, the picture says it’s a joint project. Right?

(4) The Sale of Intercelco Assets to SWRI at Arm’s Length

[2149] The Defendants to Counterclaim submit that the circumstances surrounding the sale of

Intercelco assets to SWRI and their subsequent resale to IWS are indicative that Chester

knew in 1983 SWRI was at arm’s length to IWS/Chester/Morris/Taylor.

A. Well, the way I read the article it says Philip Enterprises received a $215,000 contract. I didn’t know the agreement Solid Waste had with

Philip’s or sharing of revenues on that. I had no idea.

Q. You didn’t know, but if you read the article, which you said you did, if you looked at the second last paragraph, you would have read that

Michael Waxman was quoted as being the president of Solid Waste Reclamation Inc., which was working along side Philip Enterprises on

this project. Right?

A. Sure.

Q. And you’re the controller of IWS. of course?

A. I’m the controller. I’m not the detective of IWS.

Q. Indeed you’re not. And you know that IWS is an owner of Solid Waste Reclamation Inc.

A. Well, the common shares weren’t owned by IWS. IWS had voting control over that company, yes.

Q. They had voting control over that company. Something you had known since 1979?

A. Yes.

Q. So not only did you know it had preference shares, you know it had voting control?

A. Yes, Morris and Chester had control of that company.

Q. Through IWS’ preference shares?

A. Yes.

Q. And you knew that since 1979?

A. I did.

Q. All right, And so now that you see that Solid Waste is involved in a Project of this magnitude, and YOU know that IWS has preference

shares. as controller, did YOU not ask; Where is the income—how is the income for this being accounted for?

A. I never did that, sir.

Q. Never did it.

A. No.

Q. And since you knew that IWS was a shareholder, did it occur to you to, say to anybody, because we are a shareholder, a controlling

shareholder, and I’m the controller of IWS: Can I please see the financial statements of Solid Waste Reclamation Inc. That ever occur to

you?

A. No. (Emphasis added)

⁸¹⁴Linton, June 2, 2000

Q. Did you discern from reading the bank statement that Solid Waste was doing significant business?

A. I think there were a few large cheques in there as I recall, but they didn’t twig on me.

Q. Didn’t twig. Even large cheques?

A. No.

Q. How large were the cheques?

A. I have no idea.

…Q. Did you ever tell Chester that Michael was making a lot of money at Solid Waste Reclamation Inc.?

A. No. I think I told him once I had seen a cheque made payable to Michael Waxman for $10.000. as I recall.

Q. You did. Tell me when that was?

A. I think it was after I saw that one bank statement we just talked about.

…Q. What did Chester say: ‘Oh, that’s interesting,’ or did he say anything?

A. I don’t recall him saying anything to me.

Q. You don’t recall any reaction one way or the other?

A. Not an adverse reaction. I don’t recall a reaction. Just mentioned I saw that one cheque.

Q. He didn’t ask you to do any investigation. He didn’t get flustered, He didn’t get on the phone. He just had no reaction that you recall?

A. That’s correct. He didn’t.

…Q. And did you know that.,. Morris Waxman has testified that Chester Waxman fold Morris that you. Wayne. had told Chester that Michael

was making $10,000 a month at Solid Waste Reclamation Inc.? Did you know that?

A. I didn’t know that, and I wouldn’t have any access to the payroll records of Solid Waste anyway.

Q. And that Morris has given that evidence long before we heard from you in this trial, about looking at this bank statement. Did you know

that?

A. No.

Q. And, indeed, it is true that you did tell Chester Waxman about one cheque to Michael for 10,000. That’s for sure?

A. Yes.

Q. A cheque from Solid Waste to Michael Waxman?

A. Yes. (emphasis added)

[2150] Exhibit 172 is the Intercelco file.

[2151] Taylor, Chester and Morris owned the shares of Intercelco. The business did not do

well. In 1982, Mr. Henry Vine (“Vine”) was formally appointed receiver. Exhibit 216 is Vine’s

ad in the Hamilton Spectator dated March 30, 1983 re the sale of Intercelco assets.

[2152] Michael gave evidence that IWS wanted an Intercelco forklift. Taylor and/or Ennis were

looking for an arm’s length party to purchase Intercelco’s assets so that IWS could get the

forklift. They used SWRI to purchase Intercelco assets [including the forklift] for resale to IWS,

because SWRI was at arm’s length to Intercelco and IWS. Chester/Morris/Taylor/IWS had no

ownership interest in it. SWRI was known to be owned by Douglas and Michael.

[2153] JB 2629A, a note in Ennis’ blue book for May 10, 1983, records a conversation with

Taylor⁸¹⁵:

Sam Taylor—

Solid Waste—to make bid—20—25,000—

Solid Waste will sell to Waxman—

[2154] Taylor denied instructing Ennis that SWRI was to make a $20,000-$25,000 offer to

purchase assets from Intercelco to be resold to IWS.

[2155] In chief, Chester said Morris spoke to him about buying Intercelco assets but he was

not interested. He denied being present when an SWRI bid for Intercelco assets and a resale

to IWS was discussed with Ennis. On cross-examination, he was shown Ennis’ entry in his

Services Performed Today for May 31, 1983 (JB 2557). When asked if he and Ennis talked

about Intercelco and SWR1, he said they may have done⁸¹⁶.

[2156] Ennis denied that Chester was involved in the Intercelco sale of assets to SWRI and

their resale to IWS⁸¹⁷. However, his services performed diary dated May 31, 1983 contains

⁸¹⁵Ennis, December 9, 1999

⁸¹⁶Chester, October 22, 1999 and November 4, 1999

⁸¹⁷Ennis, December 10, 1999

Q. And I’m going to suggest to you, sir in fact the simple truth is that Mr. Taylor, Chester Waxman, and Morris Waxman were involved in the

sale by the receiver to Solid Waste Reclamation Inc. and to your knowledge, this note of May 31st, 1983, is consistent with that?

A. I disagree with you.

Q. And I’m going to suggest to you that this note could very well be in reference to the Intercelco, Solid Waste transaction?

A. That’s not my evidence, sir.

Q. I’m going to suggest to you that there’s no doubt in your own mind that Chester was involved in this Intercelco transaction involving Solid

Waste?

A. I didn’t have any conversation with him with respect to it. I don’t know what conversation he had with Morris or with Sam Taylor.

Q. Do you accept in your own mind there isn’t any doubt that Chester Waxman was involved in this transaction?

the following: “meeting CW re estate situation—Intercelco” and underneath that “Solid

Waste.” Ennis said he and Chester were reviewing various companies in the context of an

estate freeze:

Ennis, December 10, 1999

A. I just marked down Intercelco, Solid Waste. I could have put down IW&S Services. I

could have put down Morriston Investments Limited. I could have put down Chesterton

Investments Limited, I could have listed all the companies. I just made a very, very brief

note.

[2157] His credibility on the point was severely undermined during cross-examination:

Ennis, December 10, 1999

Q. …we know on May 31st, 1983 you spoke to Chester Waxman and you’ve got a note

in there that says Intercelco and Solid Waste. Let’s look at your examination for

discovery, March 19, 1998, page 581 through 583.

[Question 2421:] …Question: But in terms of Chester, he was involved? Answer: I’ve got

Morris, Chester, Sam Taylor. I think all three of them were involved. Question 2425: Do

you see May 31, 1983, you have a meeting with Chester Waxman re estate situation,

Intercelco, Solid Waste, one hour…. Would that have been a meeting where you

discussed with Chester Waxman this purchase by Solid Waste of the Intercelco assets?

Answer: It could very well be⁸¹⁸.

A. I don’t believe he was involved in this transaction.

⁸¹⁸Ennis, December 10, 1999

Q. What else would you be talking about with Intercelco?

A. Because we’re talking about a share purchase. As we talked back on May 31st, we’re talking about all of the companies. We’re talking

about an entire situation here. We’re not just talking about share purchase. We’re talking about a lot of things. Chester is concerned about

his will. Chester is concerned about buying I tell you, we did not discuss the Intercelco purchase or sale at that particular time. If that’s what

you’re suggesting, I say no, because I’ve got, “et cetera” following it and that’s my answer to you.

Q. Just so I understand your evidence, how does, “et cetera” tell us that it’s not in relation to the sale of the assets?

A. Because I’m telling that you, sir.

Q. Can you tell us the logic of your answer so we all understand?

A. We discussed Intercelco, et cetera. A lot of other things. I’m telling you we went through all of the other companies.

Q. Are you saying that Intercelco came up again in the context of an estate freeze?

A. The share purchase, why not? It’s always involved.

Q. What has Intercelco got to do with an estate freeze, by the way?

A. Intercelco is around, is it not?

…Q. All you know is you did discuss Intercelco with him because it’s written down in your note?

A. I recall discussing Intercelco. I recall discussing the—that company and I recall discussing all the other companies. That’s what the et

cetera…

Q. I’m just going to suggest to you that the only thing going on with Intercelco at that time related to the sale of assets by the receiver. Do

you agree?

A. That’s obvious, isn’t it?

Q. So that if you were speaking to Chester Waxman about Intercelco on June 16th as recorded here, you would have been speaking to him

about the sale of assets by the receiver, right?

A. If that’s what I was speaking to him about. Intercelco, but I suggest to you I was not speaking to him about Intercelco. He wasn’t

concerned about it.

[2158] Ennis made the following note at page 91 of JB 2664, his blue book, around July 11,

1983:

Sam Taylor—30,000—offer—

Morris Chester—

Offer Solid Waste—20,000 offer—

Appraisal 20,000 40,000 Gross—

30,000—

Henry Vine—Receiver—

[2159] JB 2833 is an agreement dated November 8, 1983, drafted by Ennis in which the

address of SWRI is shown as 108 John Street [Ennis’ office address.] SWRI bought

Intercelco’s assets from Vine, then transferred the forklift to IWS.

[2160] Chester denied knowing Ennis had drafted an agreement between Vine as vendor and

SWRI as purchaser, saying Morris should have told Ennis IWS did not want to buy any

assets.

[2161] Ennis was cross-examined about differences between his draft Intercelco account (JB

2790B) and his final account dated October 7, 1983 (Exhibit 173/JB2442A.) Ennis’ draft

account, which I ordered to be produced during the trial, and which I have quoted in the

endnote to this paragraph, contains a number of entries recording Chester’s and Morris’ and

IWS’ involvement in the Intercelco transaction⁸¹⁹. Ennis’ final account contains no references

to Chester/Morris/IWS.

Q. That’s why I have to keep pressing you. Can you tell me why you have a note referring to Intercelco if you weren’t talking about it?

A. I have the name Intercelco and I have et cetera, and I’ll put in all the other names for you if you wish, beyond Intercelco. Do you want me

to repeat again the names that should go in there?

Q. You’re saying when it says, “et cetera” we should assume from that you were speaking to him about all the other companies that Chester

and his brother owned?

A. We were talking about a share purchase from Morris Waxman. We were talking about the share purchase. We’re not talking about

Intercelco. And we’re not talking about the sale of the assets. That’s my evidence and again, Mr. Harrison, you can ask me again and again

and again. You will get the same answer each time. (Emphasis added)

⁸¹⁹JB2442A:

(a) June 1, 1983; “To telephone conversation with Mr. Chester Waxman, and reviewing in thorough detail the background of this file and

actions taken to this date.”

(b) June 6, 1983: “To lengthy telephone conversation with Mr. Chester Waxman, at which time details were given indicating the Equipment

(as outlined on Schedule ”A) and annexed to the Agreement of Sale, will go to Solid Waste Reclamation Inc.”

(c) September 15, 1983: “To telephone conversation with Mr. Chester Waxman, reviewing documentation and background details and

advising certain amendments must be made to the sale price arranging for a meeting to take place at the offices of IWS Limited”

(d) September 16, 1983: ‘To attending at the offices of IWS Limited, reviewing all documents in thorough detail and in particular the revised

selling price set out in the Agreement between Solid Waste Reclamation Inc. and Henry Vine, as Receiver and Manager of the undertaking

and property and assets of INTERCELCO (1981) LIMITED.”

[2162] Ennis said when he reviewed the draft account that had been prepared by his

assistant, he directed that references to Chester be deleted, as Chester had not been

involved. When it was suggested in cross-examination that he made the revisions to make the

sale appear to be at arms’ length from Chester/Morris/Taylor/IWS, he did not agree⁸²⁰.

(5) Price paid to SWRI by IWS Ferrous for Scrap

[2163] As mentioned earlier, Morris said it was recognised that SWRI could sell scrap to IWS

Ferrous and make a profit, but IWS could not⁸²¹. The various transactions involving sale of

scrap by SWRI to IWS Ferrous - Butler, Ciba-Geigy, Stelco, Greif Containers - were

discussed earlier.

(6) Payment of Ennis’ Accounts

[2164] JB 3184/3184A is a letter from Ennis to Chester dated June 28, 1984 listing amounts

outstanding on various accounts. IWS did not pay an account with respect to SWRI. Linton

spoke to Morris about paying Ennis’ account to SWRI for $755.

Findings - Secretiveness of SWRI

[2165] In my view, there is ample, even overwhelming, evidence that the Plaintiffs by

Counterclaim were aware SWRI was carrying on an active business.

[2166] I do not think that Landman’s evidence that Morris asked him to direct certain bills to

him personally rather than to the IWS main office is probative of either secrecy or an attempt

to hide the activities of SWRI from IWS. It is equally consistent with SWRI’s open conduct of

business separate from IWS.

⁸²⁰Ennis, December 10, 1999

Q. I’m going to suggest this to you, sir, that on all of the evidence we’ve reviewed, including the fact you took the time and trouble to

specifically ask to have Chester Waxman’s name removed even though you have notes twice showing you spoke to him about Intercelco

and given the fact that Ms Waller, acting on your instructions, has no reference to Morris Waxman in the account at all, and Ms Waller, acting

on your instructions, eliminates any reference to I. Waxman & Sons, that there’s only one conclusion that fairly can be made from that and

it’s this: That you didn’t want this account to Solid Waste Reclamation Inc. to suggest anything other than that this is a sale by the receiver to

an arm’s length company, at arm’s length to I. Waxman & Sons. Isn’t that so?

A. I think your philosophy is incorrect because the money that was advanced was advanced by way of a debenture and that’s Sam Taylor’s,

Morris’ and Chester’s money. It doesn’t matter where it goes. If it goes to Solid Waste Reclamation Inc., Morris Waxman, through his two

sons, is in fact a shareholder of that particular company, is he not?. I suggest to you that he owns it… And if IWS Limited owned 100 shares

by way of a trust in SWRI, what happens then?

Q. Then this would have been a really stupid exercise, wouldn’t it?… And the reason it wasn’t stupid was because everybody, sir, everybody,

knew that Solid Waste Reclamation Inc. was owned by Michael and Douglas. Isn’t that so?

A. As far as I was concerned that was so.

⁸²¹Morris, January 29, 1999

[2167] In view of the wording of the SWRI letter to Procter & Gamble immediately after Morris

spoke to Worron, I find that Worron failed to distinguish between IWS and the Waxman

Holding Corporation. I accept Morris’ evidence that he never represented to Worron or

anyone else that SWRI was owned by IWS or was part of IWS. I also accept Michael’s

evidence that he never represented that SWRI was owned by IWS.

Findings - Knowledge that SWRI was Separate from IWS

[2168] I have found that Chester directed the change in the ownership of SWRI from

IWS/Morris and Chester’s children to Michael and Douglas.

[2169] I find that Chester/Chester’s sons/Linton/Ennis/IWS all knew from the time of the

restructuring that SWRI was owned by Michael and Douglas and was being operated for their

benefit. That is why Chester referred to “other people’s business” when referring to the

business of SWRI. That is why SWRI was used to buy Intercelco assets.

[2170] If Chester had thought IWS owned SWRI preference shares, SWRI would not have

been used as an arm’s length purchaser to resell to IWS. If Chester knew Michael and

Douglas owned SWRI, that IWS/Morris/Chester had no interest in it, it would make sense for

SWRI to buy assets from Intercelco and resell them to IWS. Ennis cleansed his Intercelco

account to remove any reference to the involvement of IWS/Morris/Chester in the transaction.

[2171] That is why Linton stopped referring to SWRI as a company associated with IWS and

Chesterton, gave it a separate customer number and made no inquiries about its revenues for

inclusion in IWS’ revenues. That is why Robert objected to the preparation of its invoices by

IWS staff and to its use of Culig. That is why Gary was “suspicious” of its activities.

[2172] Again, the evidence is overwhelming on this issue.

Did Chester/IWS Consent to Transfer of Accounts from IWS to SWRI?

[2173] I have found that in 1980 Chester/IWS consented to the transfer of the Sheppard’s

Quarry business from IWS to SWRI in anticipation of agreeing to limitations on business

activities on the sale of the IWS refuse division. After the Lasco/Laidlaw sales, IWS/Chester

expressly consented to Michael/Douglas/SWRI’s involvement in any business which

Morris/Chester/Chester’s sons/IWS had agreed not to do under the contracts with

Laidlaw/Superior. Chester gave evidence that IWS could not and should not have profited

from any such business.

[2174] After September of 1981,I have found that there was no way Chester would allow

Michael to become involved in IWS. At the same time, Chester was uninterested in the waste

business. He understood that he/IWS were precluded from dealing with St. Lawrence kiln

dust and Stelco wood. Chester/IWS consented and actively encouraged Michael to handle

and profit from that business independent of IWS.

[2175] I have rejected Chester’s and Ennis’ attempts to tie the timing of the Share Sale to the

timing of the restructuring of SWRI. It is noteworthy that in 1982 and 1983, SWRI’s revenues

were only $39,025 and $31,121 respectively. At the time, Morris would not have perceived

SWRI to be a business to replace his 50% interest in IWS. SWRI was Michael and Douglas’

business. Morris was precluded under the Laidlaw agreement from benefiting from it.

[2176] I find that at the beginning, Chester/IWS were aware of and consented generally to

SWRI’s doing any business which IWS was precluded from doing under the non-competition

agreements. Chester left it to Morris to decide what activities contravened the Laidlaw

agreements and what did not. Later he broadened his consent.

[2177] I reject Chester’s evidence that in his mind IWS would not have contravened the

non-competition agreement with Laidlaw/Superior if it handled the St. Lawrence Cement

project. I find that it was pursued by SWRI with Chester’s/IWS’ consent, because both Morris

and Chester were of the view that if IWS handled kiln dust that would constitute a breach of

the Laidlaw/Superior non-competition agreements. Dust is not an excluded substance [a

liquid, a sludge or a chemical waste] but a substance which IWS was precluded from handling

[a solid waste.]

[2178] Similarly, Chester/IWS had no interest or right to handle the General Motors core butts.

When Morris discussed participating in the foundry sand reclaimer, Chester was not

interested. Chester/IWS consented to SWRI handling that business and actively encouraged

it. Fracassi not Morris was the expert in foundry sands. I accept Morris’ evidence that the

revenue earned by SWRI/Philip involving core butts in 1983 was revenue from a solid waste

material that historically had been taken to landfill sites and that Chester/IWS consented to

this activity.

[2179] I find Chester/IWS was aware of all of SWRI’s activities with Stelco and consented to

them. Stelco wood was clearly a solid waste that IWS could not have handled under the

Laidlaw agreements. SWRI regularly contracted with IWS to haul Stelco soap for SWRI. I find

that Chester/IWS expressly consented to SWRI’s handling of Stelco wood and soap. IWS

trucks were used to haul the soap over a three-year period 1983-1986. IWS frequently and

repeatedly invoiced SWRI and received payments from SWRI. IWS billed SWRI for the

services and accepted payment from SWRI. I accept Morris’ evidence that Chester was

prepared to give up the account so Michael could make a living away from IWS.

Morris, January 28, 1999

Q. How do you know your brother knew about [Stelco]?

A. Well, he is a pretty tough businessman when it comes to money, anything that

produces money. And he doesn’t lose accounts very easily. He fights like heck for them.

He always has. I have to give him that. And Solid Waste was just an ant beside an

elephant. It was IWS that had the clout, not Solid Waste.

Q. Why was your brother then prepared to give up these few accounts to Solid Waste?

A. As I said before, he wanted Michael to make living. He wanted him out of the way. He

wanted him not near IWS.

[2180] Lake Clear/Ambler Courtney was never an IWS account. It was never an IWS business

opportunity that Morris could appropriate for SWRI. It was handled by Michael and Fracassi,

not Morris. In any event, Chester on behalf of IWS was fully aware of it and had no interest in

it. IWS was precluded from handling it under the Laidlaw agreements.

[2181] I accept Michael’s evidence about the Connell transportation business.

[2182] I accept Michael’s evidence that he made the deal with Slater. Morris did not

misappropriate an IWS corporate opportunity. I accept Michael’s evidence that he and

Fracassi, not Morris, had the idea to use flue dust as an iron supplement in the making of

cement. That idea formed the basis for most of SWRI’s future development and profitability. In

any event, IWS had never handled flue dust, which was a solid waste not a liquid sludge or

chemical. It could not have done so because of the Laidlaw agreements. Chester had no

interest in flue dust, no idea that it might be developed into a lucrative business. Morris told

him all about it and asked him to participate in developing an oxide stabilisation [flue dust]

plant. Chester refused. He was fully advised about what SWRI was doing. I accept Morris’

evidence that although Chester/IWS knew about SWRI’s flue dust business and encouraged

it, he was not prepared to allow SWRI to put the flue dust plant into Centennial⁸²².

[2183] I find that the cement kiln dust and the EAF dust business, which later included Lasco,

Courtice Steel, Dayton-Walther and Cecos business, was conducted by SWRI with

Chester’s/IWS’ approval and consent. That business was never IWS’ to steal. At no time after

the Laidlaw closing was it ever a maturing business opportunity which was or could have

been pursued by IWS⁸²³. The profits made from the EAF dust business could not form the

basis for any successful counterclaim against Morris or SWRI.

[2184] Chester was aware that SWRI’s flue dust business was lucrative, substantial and

growing. I accept Morris7 evidence that Chester suggested SWRI approach Lasco about

Lasco’s flue dust⁸²⁴. After Lasco and SWRI signed a contract in October 1986 and a dispute

arose in late 1986, Chester called the President of Lasco on SWRI’s behalf. In Michael’s

presence, he said that he understood Lasco had a problem with his nephew’s company⁸²⁵.

[2185] I find that Chester attempted to assist SWRI to obtain the Ivaco EAF dust business in

1987. Where it differs from the evidence of Michael, I do not accept Chester’s evidence about

discussions with Ivaco representatives⁸²⁶.

[2186] Chester/IWS also specifically consented to SWRI’s handling of accounts previously

handled by IWS and their transfer to Philip.

[2187] I accept Morris’ evidence that Chester/IWS consented to SWRI’s handling of Procter &

Gamble waste streams. IWS did haulage for SWRI for some of those wastes (JB 2836.) That

Chester/IWS knew of SWRI’s business with Procter & Gamble and approved of it is also

illustrated by IWS’ conduct in 1985 with respect to a Procter & Gamble cheque payable to

SWRI mistakenly deposited into IWS’ account. When the error was detected, IWS issued a

⁸²²Morris, February 18, 1999

A. I wanted to put the… flue dust plant… into Centennial. Chester wouldn’t allow me to do it. If he would have done it then, I still wasn’t

anywhere, he could have kicked me out and he could have had a two million dollar a year operation for nothing.

⁸²³Morris, September 18, 2000

Q. And whose idea was it in the 1980’s to pursue flue dust disposal?

A. By who.

Q. In terms of Solid Waste Reclamation Inc. and Philip pursuing flue dust disposal project, which individuals came up with that idea?

A. Both Michael and Allen, I believe coming back from one of the cement plants, came up with the idea.

⁸²⁴Morris, January 28, 1999

⁸²⁵Michael, May 11, 1999

⁸²⁶Chester, September 30, 1999

cheque to SWRI [which IWS did not produce.] This was a complex technical business far

removed from the metals business that was the focus of IWS, Chester and his sons.

[2188] With respect to Butler, Greif, Ciba-Geigy and Stelco, I find that Chester/IWS

specifically consented to SWRI’s activities in cleaning and selling scrap steel drums to IWS

Ferrous. SWRI could profit from such activities whereas IWS could not. I have rejected

Kumer’s evidence in re-examination that he treated IWS and SWRI as the same company for

pricing purposes and have accepted his evidence in cross-examination that SWRI received

market prices from IWS Ferrous for incidental scrap, while IWS was only entitled to receive

reimbursement of its costs. There was no downside for Chester/IWS in allowing SWRI to

handle those ferrous materials. I reject Chester’s evidence that he would not purposefully

circumvent or breach the contract with Lasco “for a few drums to satisfy Morris’ greed.”

[2189] During the summer of 1985, Chester knew and consented to the transfer of certain

accounts to SWRI/Philip, including Domtar and Monroe. That is why he did not attempt to get

them back even though Fracassi said that IWS could have done so. The Frankel Steel

account was transferred to Philip in July 1985. I reject Warren’s and Chester’s evidence that

IWS retained that account.

[2190] I note Gary’s handwriting on the back of JB 3673 noting that IWS containers used re

Domtar and Frankel had been “sold.”)

[2191] I accept Morris’ evidence that the accounts were transferred to SWRI with Chester’s

express consent and with no strings attached.

[2192] I accept Morris’ evidence that Chester asked SWRI to handle Stelco lime slurry after a

spill at Stelco.

[2193] Morris gave evidence about a discussion in Chester’s office with Chester and Robert

regarding one-time IWS’ waste accounts being handled by SWRI with Chester’s/IWS’

consent:

Morris, January 29, 1999

A. …I have a difficult time putting time to that particular incident. I believe it could have

been 1985, 1986. I’m not sure. I was talking to Chester, amongst other things, trying to

solve my problem between he and I, Bobby walked in, saw me, and said I want the

accounts back. I need the revenue. I don’t take orders from Bobby. While he was there I

said to him: Bobby, your father is sitting there. If your father wants the accounts back, let

him say so. He can take them anytime he wants. Doesn’t even have to ask me. Tell him.

At that point, Bobby turned around and walked out. Chester never said a thing to me.

yNever said a thing.

Q. Did Chester at some subsequent point in the year or two following that ask you for

the accounts back?

A. Never did…

[2194] I find that when in 1985 Gary expressed concerns to Chester about SWRI business

activities related to accounts that IWS had previously handled, Chester told him not to worry

about it. Chester had consented to the transfer of the accounts and did not want to further

upset Morris at a time when he was expressing grave concerns about the Share Sale. Again,

Chester viewed the waste business as unimportant.

[2195] In summary, I accept Morris’ evidence that Chester/IWS were aware of and consented

to SWRI’s handling of all of the business that IWS had handled.

Linton’s Waste Business Valuation - Fall 1985

[2196] In an attempt to prove that Chester/IWS did not consent to any transfer of accounts to

SWRI/Philip, the Plaintiffs by Counterclaim rely upon six curious memos dated the fall of

1985.I have not referred to them with the 1985 developments as I do not know when they

were prepared.

[2197] As comptroller of IWS, Linton monitored IWS revenue. He said that until June of 1985,

IWS had gross waste revenues of about $20,000 per month, which decreased in July 1985 to

about $10,000 per month⁸²⁷.

[2198] In July 1985, he prepared a spreadsheet (JB 3494-A) [the original was marked as

Exhibit 283] showing June totals of $19,861, decreasing to $9,246 in July, showing a

decrease in Domtar revenues from $6748 in June to $1271 in July, and in Monroe revenues

from $4360 in June to $0 (zero) in July.

[2199] On JB 3494-B, Exhibit 284, he listed accounts and equipment.

⁸²⁷Linton, May 29, 2000

[2200] On JB 3494-C, Exhibit 285, he listed account description, company account,

equipment used, service charge and monthly service charge starting in January 1985. He

included three SWRI accounts—two Stelco accounts and one Slater account. He said Morris

must have provided that information. He said he must have examined documents because he

included Stelco and Slater purchase order numbers to SWRI. He listed IWS account No. 4 for

haulage and disposal of soap as an SWRI account and wrote “IWS bills Solid Waste” [for a

container charge.] In item 5, he identified Stelco as an SWRI customer and included Stelco’s

purchase order number to SWRI. Linton said Morris was not hiding the fact that SWRI, not

IWS, was servicing those accounts:

Linton, June 9, 2000

Q. …So you knew why sales were down in July?

A. Yes.

Q. Because the revenue from three or four customers wasn’t there, Isn’t it that simple?

A. I guess at the end of the day that’s probably a pretty accurate reflection.

Q. Sorry to go back to it, but you must have been doing this analysis for some other

purpose [other than determining what prompted the decrease]. That has to be so?

A. No, sir. (Emphasis added)

JB 3510/3511/3512 and JB 3528

[2201] The Joint Briefs contain two memos prepared by Linton dated October 18, 1985 and

November 26, 1985.

[2202] The Defendants by Counterclaim submit that they were possibly prepared after the

litigation started because Chester wanted to make it appear that he had not consented to the

transfer of accounts. He instructed Linton to prepare documents quoting him as follows, “We

have not sold and are not selling the disposal accounts or containers relating thereto.”

JB 3510/3511/3512

[2203] JBs 3510/3511/3512 (“JB 3512”) is a Linton memo addressed to Morris and to Chester

dated October 18, 1985, re Liquid Waste & Disposal Operations. Linton he said he drafted it

without any input from Chester.⁸²⁸They are identical except that JB 3511 contains two hand-

written amendments, which have been typed onto JB 3510 and JB 3512.

[2204] Using information from JB 3494-A, Linton calculated liquid waste/sludge revenue

between January 1985 and June 1985 at $123,390. After allocating expenses, he estimated

net cash flow including revenues already lost for the six months ending June 30, 1985 at

$90,000/$45,000 after tax [or $180,000 gross/$90,000 after tax for the whole year.] Using

multipliers of 7-9, Linton estimated the value of the waste business including revenues lost in

July at $630,000-$810,000.

[2205] Chester denied that Linton gave him a memorandum on the value of the liquid waste

business, saying it was not for sale.

[2206] Linton said in the fall of 1985, he received a call from IWS’ banker, Zeno Stanaitis, who

was concerned about a drop in IWS’ waste revenue. Linton promised to investigate and to get

back to him.⁸²⁹However, I have already mentioned that in cross-examination Linton said that

⁸²⁸Linton, May 29, 2000

⁸²⁹Linton said at trial that the following answers given on discovery were true:

Linton, June 9, 2000

Question: What about a discussion with Chester?

Answer: I had a discussion with Chester.

…Answer: Well. I think it sprang from a call I had from Zeno Stanaitis in Dundas. He was the C.I.B.C. manager and he was asking—he

asked me in looking through some of the our interim statements why the waste revenues were down.

Question: Yes.

Answer: And I can’t remember exactly what he told me. but I think he asked me to prepare an analysis of where that waste business was

going and I think I talked to Chester and wrote Zeno back.

Were you asked those questions and give those answers?

A. I believe so.

Q. Page 545, I’ll give the preamble question 2806:

Question: What did you tell Zeno in the first phone call?

Answer: I basically told him I would review the situation and get back to him.

Question: What did you do?

Answer: I think I went and told Chester about the conversation and Zeno’s concerns.

Question: Why did you speak to Chester instead of Morris?

Answer: I guess because it was of a financial concern.

…Question: Tell me what you told Chester?

Answer: Basically just told him that Zeno had called inquiring about the downturn in the waste business, and in that conversation

with Chester, as I recall I think he was aware that Solid Waste was doing business, and basically told me not to worry about it.

Because it was an IWS business being run for the benefit of IWS

…Question: Based on your conversation with Chester in 1985, was it apparent to you that Chester knew that Solid Waste Inc. was being run

by Michael and perhaps Morris?

Answer. I don’t recall him every mentioning Michael’s name, but he certainly mentioned Morris’ name.

…Q. And so, in the very conversation in which you say Chester Waxman talked about the possibility of lost accounts, he talked about Solid

Waste Reclamation Inc. Isn’t that so?

A. That’s my recollection.

Q. And he told you not to worry about it, isn’t that so?

A. Yes, he told me not to worry about it, that we hadn’t sold any accounts… Chester told me not to worry about the accounts because IWS

as far as he knew, hadn’t sold any and go and talk with Morris.

Q. Well, sir, that’s not what you said on discovery. You said he told you not to worry about it because Solid Waste Reclamation Inc. was an

IWS business. Just on your own discovery. Right?

A. Yes.

he had known since July the simple answer to the question posed was that certain accounts

were no longer producing revenue. The text of the memo contains the following:

As you are aware we have undertaken to report to the Canadian Imperial Bank of

Commerce our financial position on a quarterly basis, in connection with certain

covenants relating to our operating loans and established lines of credit. In this

connection, on October 151 forwarded our unaudited financial statements for the nine

months ended September 30, 1985 to Zeno Stanaitis at the Commerce.

Yesterday I received a call from Zeno pertaining to these statements. Other than a few

questions pertaining to our forecasts for the balance of the year, his credit officer was

apparently concerned about the drastic change in our waste operations in the third

quarter of this year. Zeno reminded me that our loan covenants obligate us to report

material changes in our company’s operations which would have an adverse effect on

the net worth reported to the bank.

I was somewhat embarrassed that I could not fully inform Zeno on the direction the

disposal operations were taking, and it was left that I would report back to him as soon

as possible.

As comptroller of the company it is my responsibility amongst other functions, to

safeguard company assets and to ensure that these assets are used solely by and for

the benefit of the company. In this regard, and as you are aware, I have asked on

several occasions since July what was happening to the disposal operations, and on

each occasion your response has been that “we have not sold and are not selling the

…Q. …In any event, you tell Chester: Zeno is calling about the decline in the waste business; and in that very conversation. Chester raises

Solid Waste Reclamation Inc. Right?

A. That’s my recollection. I don’t know if—what Chester has said but that’s my recollection. He said we haven’t sold any accounts, go and

talk to Morris.

…Q. …The simple truth is, first of all, to be blunt with you, there never was a call from Zeno, was there?

A. No, you’re wrong.

Linton had had one conversation with Chester about the decrease in waste revenue prior to writing JB 3510/3511/3512:

Linton, May 29, 2000

Q. What did you say to him and what did he say to you?

A. I think I had reviewed that initial analysis that I did, the January to July figures, and wanted to find out if he had any information on

accounts lost or whatever, and he said he wasn’t really the right person to speak to, he wasn’t involved, and I should go and seek information

from Mr. Morris.

Q. Do you recall anything else he said to you in that discussion or in the context of this analysis you were doing before you got the call from

Zeno?

A. I think he just mentioned that as far as he was aware, and he wasn’t into the detail of it. he said: I don’t think we have lost any accounts

that I know of anyway, or any significant waste accounts.

…Q. And to that point in time, what discussion had there been with you by either Morris or Chester in the nature that the waste revenue is

down because we have sold accounts, or we’re selling accounts or we’re getting rid of accounts?

A. There was never any discussion of lost accounts. My analysis, and it hadn’t been completed through September, was that, you know,

there might have been certain boxes taken out of accounts that would impact on the revenue from certain accounts, but I think all the

accounts were still there. (Emphasis added)

disposal accounts or containers relating thereto.” It is now obvious that I need a more

definitive answer from Morris and yourself to satisfy the concerns of the Commerce.

[Emphasis added.]

[2207] During Chester’s cross-examination at trial, his handwriting was discovered on the

back of the original Appendix A to this document [Exhibit 160 is the original of JB 3512.] The

copy of JB 3512 in evidence to that point in the trial did not include copies of Chester’s hand-

written notes on the back of Appendix A, as follows:

Please be advised that Zeno (called) enquired as to reduction monthly revenues &

receivables re Liquid Waste Disposal. As you know figures were—they are no—he’s

questioning these how do I answer these. I have asked re containers & accounts and

Philip Enterprises & containers.

[2208] 7 Chester at first denied any involvement in the preparation of the memo, saying he

had no time to become personally involved, as he was very busy with other matters.⁸³⁰

[2209] Even when confronted with his note on the back of Appendix A to JB 3512, Chester

denied any involvement in the drafting of JB 3512:

Chester, November 4, 1999

Q: Your assertion under oath that you were too busy and left it to Wayne Linton was

false, wasn’t it?

A: Exactly true.

Q: So you were too busy to deal with this but you helped Wayne Linton draft a

memorandum, is that it?

A: No, I did not.

Q: Why would you, Chester Waxman, so busy with charities and IWS Ferrous and liquid

waste being so miniscule and it all being left to Morris and Wayne Linton, why would you

take the time to put pen to paper to suggest a draft of a memorandum that might be

written to your brother under Linton’s name, do you suppose?

A: It’s hardly a draft and it certainly, I gave up on it very quickly and left it to Wayne

Linton to complete.

⁸³⁰Chester, October 8, 1999 and November 4, 1999

Q: Just looking at these notes that you have written, one of them is, there’s a phone

number on the document 578-1947. Do you see that right opposite December 7 at the

top?

A: I see that phone number, yes.

Q: Whose number is that?

A: I don’t know.

Q: …that phone number, if it was allocated to anybody, wasn’t listed in Hamilton in

1985. Interesting, and the area code. Kind of strange, isn’t it?

A: I can’t answer. I don’t know if it was listed or not listed.

Q: Just wondering how you would get a number like that, but if you can’t help me, do

you know a Mr. E. Dolison who used to work for, was it, Rockwell?

A: Yes.

Q: And you dealt with him?

A: Yes.

Q: And you know there’s another number in there 878-1757?

A: Yes.

Q: That was the number for Mr. Dolison from 1986 to 1989?

A: Yes.

…Q: Now, you know when you read these memoranda sir, I’m going to suggest to you

that they are too good to be true, and the language is too good to be true, and that the

Oct. 1985 and the Nov. 1985 memos make no sense together. I want to know, and

you’re under oath, is there any possibility that these memoranda were created after the

fact?

A: I don’t need you to remind me that I’m under oath. These memoranda were not

created after the fact and they were not a setup. Morris got his copies at the time here

and Mr. Linton will be here to inform you further.

Q: My doodle page has nothing to do with it.

A: So instead of on your evidence, instead of phoning up your brother and saying,

Morris, we both know what the problem is here, let’s phone the bank, instead you took

the time, on your evidence, to put pen to paper and have a go at a draft?

Q: You had no intention of making a draft?

A: I’m giving my evidence.

Q: When you put your pen to paper here on the back of Exhibit 160, what was the point

of the exercise, sir? What was the point of Chester Waxman writing down “please be

advised that Zeno,” etc.?

A: That’s a doodle

Q: So why are you, Chester Waxman, who weren’t even called by the bank, now

deciding that you want to do a memo? Why would you do that?

A: Obviously a memo needed to be done…

Q: I’m suggesting to you sir, that what this Exhibit in your handwriting

demonstrates, is that your posture about not being aware of or involved in what

was going on in the liquid waste division is false.

A: You’re wrong… I don’t know even know the date of the doodle.

Q: You might have indeed put that doodle on there some time after 1985. is that what

you’re saving?

A: You’re saying this is December 7, Freitag, even if it’s the same year. I don’t even

know if the thing is connected.⁸³¹

[2210] Morris could not remember receiving JB 3512.⁸³²

⁸³¹Chester, November 4, 1999

Q: I’m saying the assertion you’ve made of being distanced from what was going on in the waste business and not having anything to do, it’s

quite simply a false pose.

A: No, it’s not a false pose, it certainly was handed over to Wayne as quickly as I could. If he mentioned it to me I may have started it, but I

handed it over and said, Wayne, you take care of it. Because I never handled it from there on.

Q: The simple truth is you knew from the beginning, of course, what was going on with SWR Inc. I suggest to you.

A: That’s not true.

Q: And you knew from the beginning what your brother was doing, because he told you.

A: Morris manipulative, anybody that would ask his nephew to write that letter to Frankel Steel is very manipulative.

Q: I know that you say he asked—

A: He certainly did.

Q: Well, we’ve been over that and I don’t need to do it again… And I’m going to suggest to you, sir, this business about you not knowing

about the change in ownership of Solid Waste Reclamation Inc. at the time it happened, is another false pose. What do you say to that?

A: I’d say you’re absolutely wrong

Q: Appendix A to this memorandum that you say you got whenever you got it, it refers to Solid Waste as one of the disposal accounts of i.

Waxman & Sons Ltd., doesn’t it.

A: Yes…

Q: Did you notice that Solid Waste was listed as a disposal account?

A: I may have, and it didn’t twig.

JB 3528

[2211] JB 3528 is a hand-written memorandum addressed to Morris with a copy to Chester,

dated November 26th, 1985, which contains the following:

Last week Zeno Stanaitis phoned to ask a few questions concerning our financial

statements. Such questions had been raised by his credit department on reviewing our

September 30, 1985 results. In particular, the bank was apparently concerned about the

change in our waste operations in the third quarter of the year. Although Zeno did not

seem overly concerned, he reminded me that our bank loan covenants required us to

report material changes in our company’s operations which would have an adverse

effect on our net worth reported to the bank. He went on to say I have on a somewhat

regular basis asked Chester what was happening to the various containers and

accounts of the waste division and his only reply to me was that ‘we have not sold and

are not selling the disposal accounts or container assets.’ It is now obvious I need a

more definitive answer to satisfy the concerns of the Commerce. Mr. Morris, please

review and discuss with Chester my course of action, as I left it with Zeno that I would

have some answers for him as soon as possible…

[2212] JB 3528 contains language very similar to the language in JB 3512, which Linton said

he had already provided to Morris. It contains no reference to JB 3512. It does not contain

any information about the value of the waste division, including the lost accounts.

[2213] Linton did not specifically recall a conversation with Morris after JB 3528 was

delivered. He did not know whether Morris “got on-side” with the bank. He did not hear from

Zeno again or follow up with him.⁸³³

[2214] Morris said he had no recollection of ever receiving JB 3528 or discussing it with

Linton.⁸³⁴

[2215] Chester said in chief Morris received both Linton memoranda, JB 3512 and JB 3528.

When asked in chief what happened after he received the first memo, Chester said Linton

wrote another letter to Morris and he identified JB 3528. He did not recall any discussions

after the second memo. Chester did not believe Morris provided Linton with any answers.

⁸³²Morris, February 18, 1999

⁸³³Linton, May 29, 2000

⁸³⁴Morris, January 29, 1999

This was not something that would put IWS in danger for its credit. It just faded away without

resolution.⁸³⁵

[2216] Stenaitis was not called to give evidence.

Findings - Linton’s Memos

[2217] I find that by October 1985, Chester and Linton knew precisely why waste revenues

were down. Rather than trying to ascertain why, Linton’s efforts in JB 3494A, B, C and JB

3512 seem to have been directed to valuing the waste business, including accounts IWS had

already lost.

[2218] It seems unlikely the bank would have considered a $10,000 per month reduction in

waste business revenues, one-tenth of one percent of total IWS revenues, to be a material

change, let alone a “drastic” one, which could pose a threat to the IWS loan covenants.

Chester said it would not “put IWS in danger for its credit.”

[2219] It seems doubtful that Stanaitis would have requested the information set out in JB

3528. The Plaintiffs by Counterclaim did not call Stanaitis to give evidence.

[2220] Whenever it was prepared, I find Morris never received a copy of JB 3512. I note that

the memo contains the following “I need a more definitive answer from Morris and yourself,”

which suggests Linton intended the memo to be seen only by Chester.

[2221] JB 3528, Linton’s handwritten November 26, 1985 memo, is curious for a number of

reasons, including the following:

a) Many of its phrases are copied almost verbatim from the October 1985 draft.

b) It make no reference to the earlier memo.

c) The first two paragraphs make it appear that Linton had not heard from Stanaitis on

the subject before “last week,” whereas the October memo references a call from

Stanaitis on the same subject in October.

[2222] I do not know what to make of the memos. Since Morris did not receive them, they

could not have constituted notice to him that Chester/IWS did not consent to any transfer of

accounts to SWRI. I have found that Chester/IWS clearly did consent to the transfer of the

⁸³⁵Chester, September 30, 1999

accounts. The statement “we have not sold and are not selling the disposal accounts or

containers relating thereto” is curious in light of Chester’s admitted knowledge in July that the

Domtar and Monroe accounts had already been transferred. I make no finding about when JB

3512 and JB 3528 were written.

The Investigation of SWRI

[2223] The Plaintiffs by Counterclaim alleged that their concerns about SWRI predated their

knowledge that Morris intended to sue. They claimed that Morris brought the Main Action

against them as a pre-emptive strike only after Robert conducted an investigation into SWRI’s

activities and Chester confronted Morris about them.

[2224] The Defendants by Counterclaim said that the investigation of SWRI came only after

Chester learned of Morris intention to sue. The allegations were made as part of an overall

attempt to intimidate and discourage or prevent Morris from pursuing this litigation.

The Procter & Gamble Cheque and Subsequent Investigation

[2225] Robert said in January 1988, Rioux told him she had received JB 4096, a Procter &

Gamble cheque payable to IWS in the amount of $8,661. She could not match it with an IWS

invoice. I was advised that Robert’s counsel would be calling Rioux as a witness, so Robert

was allowed to give evidence about what Rioux told him about her discussion with an

unidentified person at Procter & Gamble. Robert said after he received that information from

Rioux, he spoke to an unidentified person at Procter & Gamble, who said Morris had directed

that he not speak to anyone at IWS about JB 4096. Robert said his phone call to Procter &

Gamble combined with Rioux’ reaction aroused suspicions about SWRI’s activities.⁸³⁶He

called his father to say he would like to investigate further. Chester gave him permission to

proceed.⁸³⁷Neither Rioux nor anyone from Procter & Gamble was called to give evidence on

this point.

⁸³⁶Robert, April 18, 2000

⁸³⁷Robert, April 11,2000

A. I told him about the conversations I had had with Linda, described to

him the conversations Linda described to me that she had had with Morris. I told him I thought it was extremely suspicious he would being

speaking to Linda in that fashion and I told him I called Procter & Gamble and the answer I got from Procter & Gamble about Morris’s call

and I told him it appeared to be suspicious and I’d like to investigate it further.

[2226] Morris said he had no memory of talking to Rioux in January 1988 about a Procter &

Gamble cheque. His evidence is in the endnote to this paragraph.⁸³⁸

[2227] Michael said in January 1988, Linton came to him saying he could not reconcile the

$8661 amount of JB 4096 with any IWS invoice to Procter & Gamble. He asked if SWRI had

an outstanding invoice to Procter & Gamble in that amount. As it did, Linton arranged for IWS

to pay SWRI. JB 4099 is an IWS cheque to SWRI for $8,661, signed by Robert and Gary.⁸³⁹

[2228] Chester said Robert and Gary signed JB 4099 “on purpose.”

[2229] Linton could not remember any issue about a Procter & Gamble cheque in January

1988. He was unaware of any investigation at that time.⁸⁴⁰If Michael had told him an SWRI

cheque had been misdirected, that would not have troubled him. He would have expected

Rioux to react the same way.⁸⁴¹A similar situation had occurred in June 1985. SWRI had

invoiced Procter & Gamble for $8,284. A Procter & Gamble cheque payable to SWRI in that

amount was mistakenly deposited to IWS’ credit. When the mistake was detected, IWS wrote

a cheque to SWRI for $8,284.

[2230] Gary’s credibility suffered in cross-examination when he was asked the following

questions and gave the following answers:

Gary, May 8, 2000

Q. In any event, you today have a clear memory of your brother Bob bringing this

cheque to you and telling you that he notified your father and ultimately it lead to the

investigation. You have a clear memory of that today?

A. Yes.

Q. Let’s look at your transcript for discovery, July 15, 1998, page 132, question 841.

⁸³⁸Morris, February 19, 1999

A. If that’s the one [cheque] that was exchanged, I remember that because I believe we had a lady working for us at the time in the office that

came in once every two weeks and this was overdue and she called P & G to find out where the cheque was and, they told us that it was

made to IWS by mistake, and I don’t know who went upstairs or whether the woman we had working for us called them and told them that

they had sent a cheque that should come to Solid Waste, and IWS, I believe, made a comparable cheque and sent it down. Did I see the

cheque they sent down? No, I’m not sure, but that’s what happened. Nobody spoke to me, no Linda, no Bobby, no Chester, no nobody.

⁸³⁹Michael, May 11, 1999; JB 4096 and 4099

⁸⁴⁰Linton, May 29, 2000

Q. There’s evidence that this cheque and events that followed it, caused an investigation of some sort to be conducted. Did you participate in

any investigation flowing from this cheque?

A. I did not.

Q. At any time in that time period, did you know an investigation was going on?

A. No.

⁸⁴¹Linton, June 9, 2000

Question: Were you aware of an incident involving a cheque with Procter & Gamble. I

believe it has been alleged in early 1988. Do you know anything about that?

Answer: No.

Q. Now, were you asked that question and give that answer on discovery?

A. Yes.

Q. And you say that you had suddenly had a much clearer memory of

what happened. Is that right?

A. Yes.

…Q. What documents did you look at that refreshed your memory?

A. We were discussing the Solid Waste issue. It was a much calmer environment for

me. I was reviewing it with him, my recollections, and he pulled out and showed me

the Procter & Gamble cheque and that twigged my memory to it. (Emphasis added)

Pleadings of the Plaintiffs by Counterclaim

[2231] Exhibit 133, an early version of the Plaintiff by Counterclaim’s pleading, contains no

mention of a Procter & Gamble cheque dated January 1988 or of an SWRI investigation in the

spring of that year:

(at para. 87): Gary became suspicious of the activities of Morris and Michael in or about

1985 or 1986. However, out of respect for his uncle and after discussions with Chester

and Bobby, the parties decided that the suspicions were likely without foundation. Late

in 1987 or early in 1988, Bobby was alerted to exorbitant amounts of IWS’ staff time

being spent on typing for Morris and Michael. Morris advised Bobby that projects were

developing but details of the projects were never provided. In the spring of 1998.

Michael and Morris ceased to use IWS’ staff and materials for their business. As a result

of this, new office equipment purchased by Morris and Michael as a result of certain

improprieties being suggested in regard to Philip Enterprises in public and which linked

Solid Waste Inc. to these improprieties. Chester confronted Morris about his activities in

or about late spring 1988. At this time, Chester advised Morris that he was suspicious

and that he would have Morris’ activities investigated if necessary. (Emphasis added)

[2232] Exhibit 133 was amended 10 years later, as follows:

(at para 85)… In early 1988, Bobby received a curious payment from Procter & Gamble

which further fueled the existing suspicions…

Robert’s Investigation of SWRI

[2233] Robert said during his first visit to the SWRI offices in January 1988, he looked for

Procter & Gamble invoices and files. He concluded that all amounts being invoiced by SWRI

were not flowing through IWS. In one of the first correspondence files he reviewed, he found a

1984 letter from SWRI advising Mr. Worron at Procter & Gamble that SWRI was a division of

the Waxman Holding Corporation. He removed some documents and stored them upstairs at

Centennial. He photocopied and returned others.⁸⁴²

[2234] He said he entered the SWRI offices on three or four occasions between January and

May of 1988, either early in the morning or after six at night, using a key that he had had

made.⁸⁴³Gary was involved in the investigation.

[2235] When Gary claimed at trial to have been involved in the investigation,⁸⁴⁴he was taken

to answers given on his examination for discovery:

Gary, May 9, 2000

Question: And were you aware before this litigation began, that your brother Bobby was

entering your uncle Morris’ office to look for documents and was copying some

documents? Were you aware that that was going on?

Answer: Not that I recall.

Question: Do you know anything about your brother Bobby or perhaps Vjecko Culig,

going into Morris’ office or the area surrounding Morris’ office secretly, and looking at or

copying documents? Do you know anything about that?

Answer: Not that I recall.

⁸⁴²Robert, April 11, 2000

⁸⁴³Robert, April 11,2000

Q. Did you go into the offices occupied by Morris and Michael?

A. Yes, I did.

Q. And on how many occasions from between say January and May of 1988?

A. Three or four.

Q. What time of day did you go?

A. Either early in the morning or after six o’clock at night.

Q. How long did you stay on each occasion?

A. Not long. Maybe half an hour.

Q. And how did you gain entry into the offices?

A. I had a key made.

⁸⁴⁴Gary, May 9, 2000

[2236] He said at trial that those answers were true, but he also said:

Gary, May 9, 2000

A. …still not inconsistent with what I’ve said today.

Q. Not inconsistent?

A. That I did not recall at the time.

[2237] At trial, Gary could not say how far apart the visits were. He could not recall whether he

or Bob had a flashlight. He had difficulty remembering where the files were, saying they were

“in the office somewhere.” He did not remember being in Morris’ office.⁸⁴⁵He was unable to

distinguish between what happened during the first visit and the second.⁸⁴⁶

Chester Allegedly Confronts Morris About SWRI - April/May 1988

[2238] Chester said after Robert told him IWS’ accounts were creating a big business for

Michael and Morris, he confronted Morris in April or May of 1988. Morris seemed a little

nervous and told Chester it was good IWS had not had any trouble. He was working on

projects that would generate more money for IWS than the few accounts that had been

transferred. Chester said he told Morris he did not believe him, he thought the matter was

serious, and he was going to investigate further.

⁸⁴⁵Gary, May 9, 2000

Q. What happened when you were in that office?

A. Bob was pulling files and handing me files to hold and when… we had what he wanted we went upstairs and did photocopying and came

back down.

Q. Where was he pulling these from?

A. Different files.

Q. From where?

A. Having difficulty remembering specifically where. It’s in the office somewhere.

Q. And any chance you’re having difficulty remembering because you weren’t there?

A. No. I mean there’s filing room, that—

…I remember a filing room in the back I would assume that’s probably where it was.

…Q. You don’t remember being in Morris’ office, I guess?

A. May have been.

Q. But you don’t remember?

A. Don’t remember.

…Q. But you just don’t know what he was looking for specifically at all?

A. …He didn’t say specifically of anything he was looking for.

Q. What was the objective of these entries into Morris’ office, what were you hoping to accomplish?

A. I did not ask and I don’t remember the inquiries or what was in Bob’s mind or my father’s mind at the time. I wasn’t involved in those

conversation.

⁸⁴⁶Gary, May 9, 2000

Q. So in your mind if there was a second visit, it unfolded exactly like the first visit?

A. Yes.

Q. If there was a second visit, was there anything specific about the second visit that you remember?

A. No, it would be similar to what we just discussed.

Q. And I guess after the event, you must have had at least some discussion with Bob about what had happened and what was going on?

A. I don’t recall.

…Q. Is it your evidence, Mr. Waxman, that you had no discussions with your brother Bob about these unauthorized entries either before,

during or after?

A. My evidence is that I do not have a recollection of any conversations before, during and after at this time.

[2239] Morris denied Chester confronted him about the activities of SWRI during the spring of

1988, or at any time before he commenced the litigation.

Timing of Legal Advice re Investigation

[2240] When Robert was cross-examined about his reasons for photocopying instead of

removing SWRI documents, he said during his first visit it was obvious that SWRI was being

operated apart from IWS and he did not want to have problems. At discovery, he had

answered that it was “upon advice from counsel.” Robert said that he first met with Cassels,

Brock in September of 1988.⁸⁴⁷

[2241] Chester at first said he could not recall whether Robert sought legal advice before he

started his investigation. He later said he believed Robert obtained legal advice before taking

copies of any SWRI documents.⁸⁴⁸

Findings - Investigation

[2242] I accept Chester’s evidence that he believed Robert obtained legal advice before

taking copies of SWRI’s documents, and Robert’s evidence that he first met with Cassels

Brock in September 1988. Cassels Brock was not retained until after Moldaver’s letter was

received.

[2243] The evidence of Robert and Gary about the details of the investigation was

inconsistent and implausible.

[2244] Gary’s answers at trial differed dramatically from his answers on discovery. He seemed

to be guessing when giving his evidence about the details of the investigation. I do not accept

that Gary was involved in any investigation of SWRI in the early months of 1988. Nor do I

accept Robert’s evidence that the investigation was initiated in January 1988 as a result of

suspicious circumstances surrounding JB 4096 [the cheque for $8661 from Procter & Gamble

payable to IWS.] Exhibit 133, the early pleading of the Plaintiffs by Counterclaim, makes no

reference to JB 4096. Linton had no knowledge of any investigation at that time. Neither

Rioux nor anyone from Procter & Gamble was called to give evidence about JB 4096.

⁸⁴⁷Robert, April 18, 2000

⁸⁴⁸Chester, November 5, 1999

[2245] I accept Morris’ evidence that he did not speak to Rioux or Robert about JB 4096 in

January 1988 and that Chester did not confront him about SWRI during the spring of 1988 or

at all before this litigation was commenced.

[2246] I find that JB 4096 did not come to the attention of the Plaintiffs by Counterclaim until

after Exhibit 133 had been filed. Robert did not start the investigation until the fall of 1988,

after Cassels Brock had been retained.

SWRI Activities After Morris was Terminated

[2247] I have found in Action 36583/89 that IWS terminated Morris’ employment without

cause on October 26, 1988.

[2248] On October 27, 1988, Morris on behalf of SWRI wrote JB 3854, a letter to Mr. Bert

Dilks of Procter & Gamble, about the handling of its diatomaceous earth. Prior to Morris’

dismissal, SWRI/Philip had never handled diatomaceous earth for that company.

[2249] JB 4295, dated November 24, the first SWRI invoice to Procter & for removal of

diatomaceous earth. JB 4293, shows that Philip removed the first load on November 8, 1988.

The Law

Did Morris Owe A Fiduciary Duty to IWS?

[2250] It is uncontested that as a director and as an officer until October 26, 1988, Morris

owed fiduciary duties to IWS.

The Scope of Morris’ Fiduciary Duty to IWS

[2251] The Plaintiffs by Counterclaim submit that Morris was obliged to develop the waste

business for IWS and that by reason of his directorship and presidency of IWS, he was

precluded from assisting Michael with SWRI. One who owes fiduciary duties to a corporation

cannot enter into engagements involving a conflict between his personal interests and his

duties to the corporation. A director or officer in breach of his fiduciary duty must account or

disgorge profits received as a result of appropriating a business opportunity, existing or

potential, properly belonging to the corporation, whether or not the corporation could have

availed itself of the opportunity. Relaxation of the doctrine can only occur if the profiteer can

meet a very heavy onus of demonstrating with persuasive, conclusive evidence that:

a) the corporation of which he is a fiduciary was not in the relevant area of business or

was wholly withdrawing from the same; and

b) the director and/or officer had the unequivocal consent of the corporation to benefit

from each business opportunity.

[2252] The Defendants by Counterclaim submit that that test is wrong in law, for the following

reasons:

a) If a corporation consents to limitations on the scope of a fiduciary duty that might

otherwise exist at law, that consent is valid and enforceable.

b) If a corporation consents to a director pursuing or assisting in the pursuit of a

corporate opportunity, as a matter of law that is the end of the matter.

c) A corporation need not have wholly withdrawn from the relevant area of business. If a

consent has been given, it has been given, even if the corporation otherwise continues

to do business in the relevant area.

d) It is not necessary for there to be a discrete singular consent to each new activity.

[2253] A beneficiary may consent to activities which would otherwise amount to a breach of

trust by a trustee. In Walker v. Symonds (1818), 3 Swans. 1 at 64, Lord Chancellor Eldon

said:

It is established by all the cases that if the cestui que trust joins with the trustees in that

which is a breach of trust, knowing the circumstances, such a cestui que trust can never

complain of such a breach of trust. I go further, and agree that either concurrence in the

act, or acquiescence without original concurrence, will release the trustees: but that is

only a general rule, and the court must inquire into the circumstances which induced the

concurrence or acquiescence.

[2254] In Regal (Hastings) Ltd. v. Gulliver, [1942] 1 All E.R. 378 (U.K. H.L.), the House of

Lords held that a corporation may consent to an action which would otherwise amount to a

breach of fiduciary duty. In that case, Garton, a solicitor for the corporation, took up a position

in a subsidiary company, and earned profits. Although he owed fiduciary duties to the

company, the House of Lords found he was not liable because the corporation consented to

his activities. Viscount Sankey wrote at p. 383:

Garton’s case is that in taking the shares he acted with the knowledge and consent of

Regal, and that consequently he comes within the exception to the general rule as to

liability of the person acting in a fiduciary position to account for profits… In these

circumstances, and bearing in mind that this evidence was accepted, it is clear that he

took the shares with the full knowledge and consent of Regal and that he is not liable to

account for profits made on their sale. The appeal against the decision in his favour

should be dismissed.

[2255] The Plaintiffs by Counterclaim seek to distinguish that case, submitting that Garton

was not a director and that the House of Lords found that the directors, although acting in

good faith, were nevertheless liable. They quote the following passages:

[2256] from the reasons of Lord Russell of Killowen at p. 391

There remains to consider the case of Garton. He stands on a different footing from the

other respondents in that he was not a director of Regal. He was Regal’s legal adviser;

but, in my opinion, he has a short but effective answer to the plaintiffs claim. He was

requested by the Regal directors to apply for 500 shares. They arranged that they

themselves should each be responsible for £500 of the Amalgamated capital, and they

appealed, by their chairman, to Garton to subscribe the balance of £500 which was

required to make up the £3,000. In law his action, which was resulted in a profit, was

taken at the request of Regal, and I know of no principle or authority which would justify

a decision that a solicitor must account for profit resulting from a transaction which he

has entered into on his own behalf, not merely with the consent, but at the request of his

client.

[2257] from the reasons of Lord MacMillan at p. 392

The position of the respondent Garton is quite different. He was the solicitor of the

plaintiff company and in no sense a trustee for it. True, he made a profit, as did the four

directors, but he subscribed for his shares not only with the knowledge, but at the

express request, of his clients, and I know of no principle on which he could be held

accountable to them for any resultant profit to himself.

[2258] However, I note that the House of Lords per Lord Russell of Killowen at p. 389 in Regal

(Hastings) Ltd., supra expressly recognised that the directors of the company who personally

took up a position in the subsidiary could have protected themselves from any liability by

obtaining the consent of the shareholders.

[2259] The statement that the consent of the shareholders of the corporation provides a

complete defence to a challenged activity was approved by the Supreme Court of Canada in

Canadian Aero Service Ltd. v. O’Malley (1973), 40 D.L.R. (3d) 371 (S.C.C.) at p. 383, where

Lasken quoted with approval the reasons of Lord Russell of Killowen at p. 389 from Regal

(Hastings) Ltd., supra on this point.

[2260] In Molchan v. Omega Oil & Gas Ltd. (1988), 47 D.L.R. (4th) 481 (S.C.C.) the Supreme

Court of Canada reaffirmed this principle at pp 493-494:

In Snell’s Principles of Equity, 27^thed. (1973), p. 239, it is pointed out that the true rule is

not that a trustee may not purchase trust property; it is that a purchase of trust property

by a trustee is voidable within a reasonable time at the instance of any beneficiary: see

Holder v. Holder, [1968] 1 Ch. 353, per Danckwerts L.J. at p. 398. Similarly, the rule as

applied to corporate fiduciaries is subject to exceptions when those to whom the duty is

owed have agreed to such exceptions or have consented to a sale of assets to the

fiduciary with full knowledge of that sale. In Regal (Hastings) v. Gulliver, [1942] 1 All E.R.

378 (H.L.), Viscount Sankey states

(at p. 383):

In these circumstances, and bearing in mind that this evidence was accepted, it is clear

that he took the shares with the full knowledge and consent of Regal and that he is not

liable to account for profits made on their sale. The appeal against the decision in his

favour should be dismissed.

[2261] The Plaintiffs by Counterclaim seek to distinguish the “very specific, unusual facts” in

Molchan I reject their submission on this point and find, as in Regal (Hastings) Ltd., supra and

Molchan, supra, that where a trustee of a corporation has the consent of all of those to whom

the duty is owed to pursue a corporate opportunity outside the company, and where those to

whom the duty is owed have full knowledge of the activities for which the consent is sought,

he may do so without breaching any fiduciary obligation.

[2262] I have reviewed the facts in the cases cited by the Plaintiffs by Counterclaim. In them

the corporation [or all of the shareholders] did not consent to the activities of the fiduciary.

[2263] A finding of consent is a finding of fact. Whether a director is pursuing a business

opportunity in conflict with a company of which he is a director, is also a question of fact to be

determined in each case. In Boucher v. Kennedy, [1998] O.J. No. 1612 (Ont. Gen. Div.);

affirmed [1999] O.J. No. 3407 (Ont. C.A.), Ferrier J. concluded there was no conflict of

interest on the facts, and therefore no breach of fiduciary duty, referring to several authorities

including Canadian Aero Service Ltd. v. O’Malley (1973), 40 D.L.R. (3d) 371 (S.C.C).

[2264] In Canadian Aero Service Ltd., supra, the Supreme Court of Canada referred with

apparent approval to a decision of the United States Court of Appeal, Second Circuit, in Burg

v. Horn, 380 F.2d 897 (U.S. C.A. 2nd Cir., 1967), in which that Court held that even where the

new opportunity was in the same business field, the liability issues should be determined with

careful regard to the particular facts, including the nature of the relationship between the

director and the company. That Court held that a director was not obliged to offer a new

business opportunity to the company where it arose independently and the company was

aware he was involved in another company, doing business in the same field. Welling,

Corporate Law in Canada: The Governing Principles, 2nd ed. (Butterworths; Toronto, 1991)

p. 407-416.

[2265] I have found in the case at bar that Chester/IWS were fully aware of, involved in and

expressly consented to (a) the restructuring of SWRI, (b) the business activities in which

SWRI was involved, and (c) the transfer of all accounts that moved from IWS to SWRI.

[2266] In the circumstances here, IWS was, during the relevant period, a closely-held private

corporation, having only two shareholders. Morris frequently discussed SWRI’s activities with

Chester. I have found that Chester/IWS were fully aware of the business activities of SWRI

and actively encouraged them. Morris, the only other shareholder, obviously consented as

well. No formal shareholders’ resolution was necessary. Eisenberg v. Bank of Nova Scotia

(1965), 52 D.L.R. (2d) 506 (S.C.C.) Morris and Chester conducted the business of IWS

without formal meetings. The corporate minutes of general meetings prepared by Ennis

typically recorded meetings that had never really occurred. In the circumstance here, all

shareholders and all directors (Morris and Chester) consented to all of the activities of SWRI.

[That is not to say that Chester’s/IWS’ consent was needed for EAF dust activities and others

obtained and sourced not by Morris but by Michael and Fracassi.] To refuse to give effect to

the consent because it was not evidenced by a formal minute of a meeting that was never

held, would be to give precedence to form over substance. Given those consents, Morris

breached no fiduciary duty to IWS in respect of SWRI’s business.

[2267] Further, the EAF dust business of SWRI was never an existing or potential business

opportunity of IWS. IWS never handled that material as a waste. SWRI’s revenues from flue

dust resulted from the initiatives, ideas and actions of Michael and Fracassi. They, not Morris,

found a way to recycle flue dust and found other uses for it. In any event, Chester/IWS

consented to SWRI handling that business separate and apart from IWS and indeed actively

fostered and encouraged it.

I have found inter alia that:

(i) Chester purposefully turned SWRI over to Michael and Douglas and instructed Ennis

to restructure it in a manner designed to circumvent the Laidlaw/Superior non-

competition agreements;

(ii) SWRI openly carried on business in the area of industrial waste management;

(iii) Morris and Chester frequently discussed the business activities of SWRI;

(iv) Chester, his sons and Linton were all fully aware of those activities and of the

substantial profits SWRI was earning apart from IWS;

(v) Chester/IWS agreed to the transfer of all of the IWS waste accounts that were

transferred to SWRI, in part because he and his sons had little interest or expertise in

the waste field, in part because he attached little importance to the waste business, in

part because the accounts were causing IWS problems, in part to involve Michael in

activities that would keep him away from IWS and in part to mollify Morris whom Chester

knew was unhappy about the share sale.

[2268] After May of 1981, I have found that while Chester/IWS intended that IWS would

continue to service the particular waste management needs of a few IWS scrap customers,

he/it did not intend to pursue any new business in the specialised industrial waste field in

which SWRI operated.

[2269] I note that after Chester/Robert induced the breach of the Philip-SWRI contract in early

1989, Chester/Robert/IWS made no effort to regain any of the SWRI/Philip accounts, even

those which at one time had been IWS accounts. Chester/IWS agreed that Philip would keep

all of the accounts.

[2270] As IWS improperly terminated Morris’ employment, officership and directorship on that

day, Morris owed no further fiduciary duties to IWS. He was free to compete with IWS after

that time.

Was the Transfer of the Shares to Michael and Douglas Ineffective by Reason of Defects in

the Manner of the Transfer?

[2271] The Plaintiffs by Counterclaim submit [and I have earlier found] that as of February 24,

1977, the directors of SWRI were really Morris, Chester and Ramsay Evans (IB 1245). The

by-laws of SWRI require three (3) directors. They permit vacancies to be filled by a quorum of

the remaining directors (By-Law No. 1, clause 2.08.) Ramsay Evans, the third director, died

July 16, 1979. The backdated Minute is wholly defective and invalid because the true

directors of SWRI (Morris and Chester) did not sign it. Michael and Mrs Cook lacked authority

to sign that minute.

Finding

[2272] I have found that Ennis or a member of his staff on Chester’s instructions, deleted

reference to Morris and Chester from the SWRI documents in order to avoid any possible

application of the non-competition clauses to Michael/Douglas/SWRI. A resolution of Morris

and Chester as the directors of SWRI would have defeated that purpose. The restructuring

was done with the consent of all involved. Chester/Morris/IWS intended to release IWS’

interest in the preference shares. If necessary, I would order rectification of the minute book

to reflect the intention of all involved that Michael and Douglas were to have all of the shares

of SWRI transferred to them, were to assume all management of SWRI, were to receive all of

the profits therefrom and that IWS was to have no further interest in SWRI.

Is IWS Still the Owner at Law of 2000 SWRI Preference Shares?

[2273] Similarly, the Plaintiffs by Counterclaim submit that as a matter of law, IWS is still the

owner of 2000 issued preference shares in SWRI. The Letters Patent of SWRI at JB 1069

have never been amended.⁸⁴⁹To effect a cancellation of the share certificate evidencing the

2000 preference shares, the following was required:

(a) a resolution of the Board of Directors of IWS transferring the preference shares. [It is

uncontested that no such resolution was ever prepared or executed]; and

(b) compliance with Article 9 of the Letters Patent of SWRI- a resolution of the Board of

Directors of SWRI or other written instrument, accepting the transfer of its preference

shares from IWS and the cancellation of the same. [It is uncontested that no such

resolution or other written instrument was ever prepared or executed.]

[2274] They submit that the whiting out of the corporate resolution in the minute book

reflecting issuance of preference shares and the amendments to the share register did not, at

law, constitute a valid transfer of the 2000 preference shares from IWS. They were only “a

clumsy attempt to obfuscate the existence of validly issued preference shares.”

[2275] The Defendants by Counterclaim seek relief, if necessary, pursuant to section 250 of

the Ontario Business Corporations Act, in the form of an order rectifying the minute book and

share register of SWRI to properly reflect that no preference or special shares are

outstanding, and that all of the common shares of SWRI are held by the Waxman Holding

Corporation, together with any necessary directions rectifying the minute book and share

register in this regard. They refer to Section 250 of the Business Corporations Act

R.S.O. 1990, c.B.16, which provides as follows:

250.(1) Rectifying error in entering, etc, name—Where the name of a person is

alleged to be or have been wrongly entered or retained in, or wrongly deleted or wrongly

omitted from, the registers or other records of a corporation, the corporation, a security

⁸⁴⁹Article 8(c), 8(0 and 8(g) read as follows:

8(c) The Corporation may, upon giving notice as hereinafter provided redeem the whole or any part of the special shares on payment of the

par value of each share to be redeemed, together with all dividends declared thereon and unpaid; not less than thirty (30) days’ notice in

writing of such redemption shall be given by mailing such notice to the registered holders of the shares to be redeemed, specifying the date

and place or places of redemption;…

8(f) Any amendment to the Articles of the Corporation to delete or vary an preference, right, condition, restriction, limitation or prohibition

attaching to the special shares or to create special shares ranking in priority to or on a party with the special shares, in addition to the

authorization by a special resolution, may be authorized by at least two-thirds (2/3) of the votes cast at a meeting of the holders of the special

shares duly called for that purpose; and

8(g) The holders of the special shares shall be entitled to one (1) vote for each special share held by them at all shareholders’ meetings. The

holders of common shares shall as such be entitled to one (1) vote for each common share held by them at all shareholders’ meetings.

Article 9 of the Letters Patent provides as follows:

The restrictions on the allotment, issue or transfer of shares are that the right to transfer shares of the Corporation is restricted in that no

share of the Corporation shall be transferred without the sanction of the directors of the Corporation expressed either by a resolution passed

by the board or by an instrument or instruments in writing signed by a majority of the directors.

holder of the corporation or any aggrieved person may apply to the court for an order

that the registers or records be rectified.

(2) Idem—In connection with an application under this section, the court may make any

order it thinks fit including, without limiting the generality of the foregoing,

(a) an order requiring the registers or other records of the corporation to be

rectified;

(b) an order restraining the corporation from calling or holding a meeting of

shareholders or paying a dividend or making any other distribution or payment to

shareholders before that rectification;

(c) an order determining the right of a party to the proceedings to have the party’s

name entered or retained in, or deleted or omitted from, the registers or records of

the corporation, whether the issue arises between two or more security holders, or

between the corporation and any security holders or alleged security holders;

(d) an order compensating a party who has incurred a loss.

[2276] In Teddy Bear Valley Mines Ltd., Re (1993), 1 C.C.L.S. 97 (Ont. Gen. Div.

[Commercial List]), an order was sought pursuant to section 250 of the Business Corporations

Act to rectify the share register to reflect the proper shareholdings of the company. Farley J.

wrote at p. 108:

Furthermore, section 250 of the OBCA gives the Court a wide discretion to rectify the

register of a corporation where a person’s name has been wrongly entered or deleted

from the register or other records of the corporation. Under these circumstances I

believe that there is no problem with respect to rectifying the register with respect to the

inappropriate deletion of the syndicate.

[2277] The Plaintiffs by Counterclaim submit that as the Waxman Holding Corporation Inc. is

presently listed on the register of SWRI as the owner of the shares and as it does not wish to

have its name deleted, rectification under s. 250 of the Business Corporations Act would be

inappropriate. They submit that the Defendants by Counterclaim are really seeking a

declaration that no preference shares are outstanding and that all the common shares of

SWRI are held by the Waxman Holding Corporation and that they cannot properly convert

such a claim into a claim for rectification.

[2278] I have found that Chester, with Morris’ concurrence, directed Ennis to transfer all of the

shares of SWRI to Michael and Douglas. Morris/Chester/IWS consented to IWS cancelling its

preference shares of SWRI. At the time the common shares were transferred, the trustees

obtained the consents of the beneficiaries to the trust, the common shareholders. The

procedure used for the share transfer to Michael and Douglas was devised by Ennis or

someone acting on his behalf. Morris/Michael/SWRI played no part in it. Since Chester

directed Ennis to cleanse the SWRI corporate record of any mention of Chester or Morris to

avoid the application of the Laidlaw non-competition agreements to SWRI, the SWRI

corporate documents could hardly contain a resolution signed by Morris and Chester as

directors transferring the preference shares and/or accepting the transfer and cancelling

them. Given the common intention of all of the directors and all of the shareholders of IWS

that the preference shares held by IWS be cancelled, I am prepared, if necessary, to rectify

the SWRI corporate records to reflect the cancellation of the preference shares.

[2279] If, as the Plaintiffs by Counterclaim submit, the corporate records should be read as

reflecting that IWS continues to own 2000 preference shares in SWRI, then as that was not

what all of the shareholders and directors of IWS intended, I would order the rectification

sought by the Defendants to Counterclaim.

[2280] If necessary, I am also prepared to order rectification of the minute book and share

register to properly reflect that Waxman Holding Corporation owns all the common shares of

SWRI, to delete any reference to IWS’ ownership of preference or special shares and to issue

any necessary directions rectifying the minute book and share register of SWRI.

Damages in the Counterclaims

The SWRI Counterclaim

[2281] In their calculation of damages, the Plaintiffs by Counterclaim have assumed that

SWRI’s entire business could have been conducted within IWS and that IWS was/is entitled

to all of SWRI’s profits and value.

[2282] I have considered the evidence including the expert evidence relevant to the

quantification of the damages claimed by the Plaintiffs by Counterclaim.

Low’s Counterclaim Report

[2283] Low, the expert called by counsel for the Plaintiffs by Counterclaim, prepared two

reports: the first, Exhibit 295, dated September 18, 1998, in which he opined that the financial

losses suffered by IWS as at November 1, 1998 were approximately $18-20 million before

pre-judgment interest; the second, Exhibit 295A, dated June 26, 2000, in which he expressed

the view that if IWS had not expanded its waste management business commencing in 1986

and if the services provided to SWRI by Philip could not have been provided through IWS, the

IWS financial losses as of November 1, 1998 would have been $8-8.75 million exclusive of

pre-judgment interest.

[2284] In Ex. 295, Low assumed inter alia, that all profits earned in SWRI from 1982 to the

sale to Philip should have accrued to IWS and that the IWS waste business would have been

expanded after 1986. The services provided by Philip to SWRI could have been provided by

IWS and the profit which Philip earned thereafter could have been retained in IWS. The

disruption to the SWRI business in 1989 would not have occurred. The waste management

business would have been sold to Philip on September 17, 1993. Morris would have received

50% of the pre-tax income and 25% of the proceeds of sale in 1993.

[2285] In Ex. 295A, Low assumed that IWS should have the benefit of all the profits earned by

SWRI, calculated in two parts, (1) $4.37 million of lost profits until September 17, 1993 when

IWS sold its assets to Philip [He assumed that Morris and his family would have been entitled

to a 50% share of these profits. Schedule IX, p. 4] and (2) $3.75-$4.2 million, being 75% of

the proceeds of the notional waste business as of the date of the Philip sale [after allocating

25% of the proceeds of the sale to Morris and his family Schedule X] for a total of $8 million -

$8,750,000 before pre-judgment interest.

[2286] He assumed that starting in 1981(1) Morris and Michael would have willingly

developed a waste business for IWS that they did not own; (2) IWS could have directly

benefited from the activities of SWRI from 1982 to 1986 [without regard to any contravention

of the Laidlaw agreements;] (3) the severance of the relationship between Philip and SWRI in

March 1989 did not take place; (4) IWS would have had a continuing business relationship

with Philip in the waste business, notwithstanding that no such relationship existed after

March 1989. [If that assumption had not been made, Low calculated that the net proceeds

from the theoretical sale (after the 25% allocation to Morris’ family), would have been reduced

to a low of $750,000 and a high of $1.75 million;] and (5) Philip would have purchased the

waste business in 1993. He applied no discount rate to his lost profit calculation.⁸⁵⁰

[2287] I have not accepted Chester’s evidence upon which Low’s calculation was based that

Morris agreed to develop the waste business on behalf of IWS. I have found that much of the

waste business carried out by SWRI could not have been conducted by IWS because of the

non-competition agreements. Chester had no interest in developing the waste business.

Chester/IWS consented to the transfer of all accounts to SWRI. The EAF dust business was

not Morris’ but Michael’s and Fracassi’s doing. IWS never handled EAF dust and has no basis

to claim in respect of any EAF accounts.

[2288] As Low’s assumptions are not based on fact, I did not find his calculation of damages

to be helpful.

The Office Destruction Counterclaim

[2289] In action no. 33234/88, IWS claims $100,000 plus interest against Morris and Michael

for wilful damage to the offices SWRI occupied at Centennial from 1985 to December 22,

1988 (“the Office Destruction Counterclaim”). IWS also claims for the cost of security services

from September 7 to December 22, 1988. They also claim the cost of photographs at JB

4333A. Joint briefs 4333A, 4511, 4511B and 4504 provide details of the damages.

[2290] I accept Michael’s evidence that when SWRI took up occupancy, the space at

Centennial consisted of cinder block walls and a 1950s style industrial carpet. SWRI paid for

panelling, carpeting, partitions and other improvements. When it moved out of the offices on

December 22, 1988, Michael said he removed any removable items for which SWRI had paid,

such as doors, panelling and wainscoting. Certain items could not be easily removed. Michael

decided to use a a crowbar to render them useless to IWS. He said it was “not my most

shining moment.” However, he said he did not damage anything for which SWRI had not paid.

Michael’s offer to clean up the mess was rejected.⁸⁵¹

[2291] A break-down of the construction costs being claimed is at JB 4511. They include

costs to renovate both the interior and exterior and the first and second floors at Centennial.

No itemised breakdown is provided in respect of the offices occupied by SWRI in a portion of

⁸⁵⁰Low, July 6, 2000

⁸⁵¹Michael, May 11, 1999

the first floor, although the second page of JB 4511 may relate to that section of the office. JB

4504, a note referable to a cheque payable to Prince Edward Construction Limited C for

$40,000, includes the following:

Account 390 re repairs to Centennial office building, re physical damage to first floor…

water damage et cetera to second floor offices.

[2292] Linton was unable to specify how much IWS actually spent on repairs to the offices

that had been occupied by Morris and Michael at Centennial.

[2293] The only itemised proposal which does appear (but which is not specific to any area)

bears the date October 8, 1998. It would appear that it is a list of renovations proposed for the

IWS offices 10 years later, including an executive office.

[2294] It goes without saying that on December 22, 1983, Michael should not have taken a

crowbar to the Centennial offices. His conduct was unacceptable and cannot be condoned.

The Plaintiffs by Counterclaim, however, have failed to precisely prove the quantum of

damages caused to those offices. In the absence of evidence precisely enabling me to

estimate the applicable damages, I have done the best I can. I find that IWS is entitled to

damages against Michael as of December 22, 1988 in the amount of $15,000.

The Furniture and Furnishings Counterclaim

[2295] In action no. 33234/88, IWS claims against SWRI, Morris and/or Michael an order of

replevin of certain furniture and furnishings unlawfully removed by them on December 22,

1988 from Centennial or damages of $100,000 (“the Furniture and Furnishings

Counterclaim.”)

[2296] JB 4327 is a list of the items taken from the offices on that day. JB 4612 is an

evaluation of the furniture that Chester claims belongs to IWS.

[2297] Morris gave evidence about the furniture which was removed, saying he personally

acquired it in the 1960s from Westinghouse, when the company was closing its main offices.

He said:

Morris, January 28, 1999

A: I saw this furniture in the room and I said to the fellow: What are you going to do with

that? And he said: Probably throw it out or break it up. And I said: I’ll take it away. He

said: No, I can’t let anything go out for nothing. I said: Okay. I’ll give you $100 for it.

Whereby I took $100 out of my pocket. In those days I had cash in my pocket, not

plastic. We picked it up and I believe it was stored for a while. Then it was brought back

to the office and… we had it cleaned up. Gary took the desk home; that’s Chester’s son.

I told Chester: I told you from the beginning that desk is for Douglas. It took a while, but I

believe in early 1988 Gary had the desk delivered back to Centennial and put in my

office…

[2298] Chester said that IWS owned the furniture. However, he was not present when it was

purchased. In about 1987, Morris asked Gary to return the oak roll-top desk to him, and Gary

delivered it back into the SWRI offices.⁸⁵²

Chester, November 9, 1999

Q. …Is it not the case that Morris demanded to have the roll-top desk back?

A. No, he did not. The only problem was there was no place to put it in the earlier years

at Windermere.

[2299] Mrs. Fraser thought that she remembered preparing a cheque to Westinghouse for

furniture. However, she was not present when the furniture was purchased. She could not say

whether the cheque was ever signed or given to Westinghouse.

[2300] While I believe that Mrs Fraser was attempting to be helpful, I prefer Morris’ evidence

on this point. His recollection was clear. Hers was not. Chester was not present when the

furniture was purchased. It was clear from his evidence that the furniture, particularly the

rolltop desk, was of personal significance to Morris. If Chester had thought IWS owned the

furniture, he would not have instructed Gary to return it to Morris in 1987. I dismiss the Office

Furniture Counterclaim.

The Overdrawn Promissory Note Counterclaim

[2301] In action no. 33234/88, IWS claims against Morris for reimbursement of $51,058.02

overdrawn from his IWS promissory note/loan/drawings account (“the Overdrawn Promissory

Note Counterclaim”).

[2302] Since I have found that Morris is entitled to 50% of the IWS profits from January 4,

1984, he must account to IWS for that $51,058.02.

The Caroline Street Expropriation Counterclaim

[2303] Chester claims against Morris and/or Morriston for equalization of amounts received by

Morriston and Chesterton in respect of the expropriation of the Caroline Street property (“the

Caroline Street Expropriation Counterclaim”).

[2304] In 1981 and 1983, Morriston received $77,273.49 and Chesterton received $55,727.34

from the City of Hamilton in respect of the expropriation of property located at 175 Caroline

Street North.⁸⁵³

[2305] I find that in order to equalise the expropriation proceeds received by each of Morriston

and Chesterton, Morriston must pay to Chesterton the sum of $10,773.07 plus interest and I

so order.

[2306] Punitive and Exemplary Damage and Solicitor/Client Costs Counterclaim

[2307] In addition to the above, the Plaintiffs by Counterclaim claim as against Morris, Michael

and SWRI pre-judgment interest, punitive and exemplary damages and solicitor and client

costs, in an amount to be fixed or assessed (“the Punitive and Exemplary Damages and

Solicitor Client Costs Counterclaim”).

[2308] Given my earlier findings of fact, there is nothing to warrant an order of punitive or

exemplary damages against the Defendants to Counterclaim and this counterclaim is

dismissed.

[2309] Counsel have requested the opportunity to make further submissions on interest and

costs.

Disposition

[2310] IWS’ counterclaim in the Main Action is allowed against Michael in the amount of

$15,000 and against Morris in the amount of $51,058.02.

[2311] Chesterton’s claim against Morriston is allowed in the amount of $10,773.07.

⁸⁵²Chester, November 9, 1999

[2312] The counterclaim in the Main Action is otherwise dismissed. Counsel may make further

written submissions on interest and costs as specified in the Main Action.

[2313] The counterclaim in the Inducing Breach action is dismissed. Counsel may make

further written submissions on interest and costs as specified in the Main Action.

Part VIII - Wrongful Dismissal

[2314] This is Action #36583/89.

Facts

[2315] As I have mentioned in Part II, Morris was terminated from his position as President of

IWS on October 26, 1988. On that day, Linton came to his office and handed him a letter of

termination JB 4247, which indicated that all of his health benefits were being terminated

immediately. Morris was surprised that a controller would be firing a president, and that

Chester did not come to speak to him. He was shocked by the termination, particularly given

that Shirley had been diagnosed with bladder cancer and was in the midst of cancer

treatment.⁸⁵⁴

[2316] Morris told Linton that he wanted all of his documents pertaining to Morris, Morriston

and his personal affairs. Linton refused, saying, “Oh, I can’t do that. That will screw everything

up”. Neither Linton nor anyone else advised him about any specific reasons for his

termination.⁸⁵⁵I have found that no complaint was made to Morris about his job performance

prior to the termination.

[2317] IWS subsequently refused to cover costs in connection with Shirley’s cancer treatment.

Morris said of his treatment at the time of termination, “I wouldn’t have done that to a dog, sir.

Not to a dog.”⁸⁵⁶

[2318] Chester did not deliver JB 4247 personally because he didn’t want to take a chance

with that loose cannon [Michael.] He did not attempt to contact or to speak with Morris on the

day that he was terminated, or in the days that followed.⁸⁵⁷

⁸⁵³JB 902A, 1803, 1813, 2822, 2831

⁸⁵⁴Morris, January 29, 1999, pp. 799-801

⁸⁵⁵Morris, January 29, 1999, pp. 802-803

⁸⁵⁶Morris, January 29, 1999, p. 803

⁸⁵⁷Morris, January 29, 1999, pp. 801-802

The Nature of Cause Alleged

[2319] Chester gave evidence that Morris was terminated for breach of fiduciary duty, theft of

accounts, lying, cheating and permitting acts of violence on the property, “overall harassment,

…day in and day out. Michael was unable to conduct himself properly and would glare at

Gary with those murderous eyes of his.”

Findings

[2320] For the reasons detailed in the section of these Reasons pertaining to the

Counterclaims, I have not accepted Chester’s evidence that Morris without Chester’s/IWS’s

knowledge or consent improperly diverted IWS business to SWRI. Rather, I have found that

Chester/IWS expressly consented to the transfer of IWS accounts to SWRI: (a) because he

knew that Morris was unhappy about the share sale and he wanted to mollify him, (b)

because Chester/IWS had no interest in the waste business, and (c) because Chester wanted

to keep Michael as far away from IWS as possible.

[2321] Given my findings set out elsewhere in these Reasons, including my findings about

Chester’s/IWS’s consent to Morris/SWRI’s activities, I find that Morris was dismissed without

cause.

[2322] Given my finding about the Share Sale, I have some doubt that Morris could be

terminated at all. However, since that submission was not made, I shall proceed on the

assumption that IWS could terminate his employment.

[2323] I do not accept the Defendants’ submission that Morris gave no evidence of any effort

or benefit on behalf of IWS after 1983. He was out in the plant every day. He was involved in

certain discrete matters for IWS and to a lesser extent IWS Ferrous, and he so testified.

[2324] I find the timing and the manner of Morris’ dismissal to be extremely troubling. Morris

was given no valid reasons for his termination. Chester sent Linton to fire Morris, rather than

speaking to him personally. Morris’ family health benefits were terminated at a time when it

was known that Morris needed medication for his heart condition and that Shirley had just

been diagnosed with bladder cancer.

Quantum of Damages

[2325] The Defendants submit that damages for wrongful dismissal should be calculated

having regard only to Morris’ salary and without regard to his historical drawings from IWS.

They further suggest that as his tax returns do not reflect amounts now said to have been

drawn by Morris from IWS, they should not be reflected in the calculation [despite Linton’s

evidence about Morris’ drawings during the relevant period]

[2326] During his employment with IWS, the method of remunerating Morris varied. Prior to

Linton’s arrival, it appears that he received a modest pay cheque and then took “draws” from

his drawings account (another indication of the partnership-like structure) to cover his family’s

needs. These two elements taken together were treated as salary for tax purposes. According

to his tax returns available for this period, his total remuneration from the company was

$100,000 (1968), $107,774 (1970), $70,772 (1971), $129,548 (1973), $404,601 (1974),

$254,776 (1975), $169,798 (1976) and $169,961 (1977).⁸⁵⁸

[2327] After Linton joined as controller in 1979, the procedure, but not the substance,

changed. A modest base salary of approximately $30,000 - $32,000 was paid, and

shareholder draws were off-set against bonuses, dividends or (in 1979) a dividend from the

holding companies. Morris’ “draws” from the company remained similar to those in the 1970s,

i.e., in the range of $100,000 - $170,000. After 1983, Linton began to offset Morris’ draws

against the “loan account”.

Reasonable Notice

[2328] An employer who dismisses an employee without just cause, must either give the

employee reasonable advance notice of the dismissal, or pay a sum or money equivalent to

the salary and benefits that would have been earned during the period of reasonable notice.

See [Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.)]

[2329] In determining reasonable notice, the period required to give the employee a

reasonable opportunity to secure equivalent, alternative employment, the length of service,

the employee’s age, experience, seniority, job skills, and the availability of suitable positions

in the market, must be considered. The intention of the parties (employer and employee) is

also relevant. A court must focus on what they would have considered to be a reasonable

period of notice of termination at the time the contract was formed. [See Wallace v. United

⁸⁵⁸Income Tax Returns of Morris Waxman

Grain Growers Ltd. (1997), 152 D.L.R. (4th) 1 (S.C.C.) at 29; Lazarowicz v. Orenda Engines

Ltd. (1960), [1961] O.R. 141 (Ont. C.A.)]

Finding

[2330] In the circumstances of this case, having regard to his 45 year history with IWS, his

position as President, his age, his experience and the circumstances of his discharge,

damages awarded should be based on a notice period of 2 years (24 months).

[2331] Vettese in his loss analysis report (Exhibit 100) calculated the losses suffered by

Morris as a result of his wrongful termination by IWS. On the assumption that Morris’ annual

income from IWS averaged $133,185 (based on the premise of his limited salary plus typical

annual “draws” from the company), Vettese calculated the October 1988 present value of

Morris’ loss to be $384,554, assuming a 36-month period of reasonable notice. On the

assumption that Morris’ salary for the purpose of determining of his damages was limited to

$33,185 (excluding any amount for “draws”), Vettese calculated the October, 1988 present

value of 36 months of salary to be $95,817.⁸⁵⁹

[2332] Given my disposition with respect to the share sale and my finding that Morris is

entitled to 50% of IWS profits (with adjustments) after 1983, given my desire not to allow him

double compensation, and given that amounts taken out of IWS over and above his salary will

be covered in that calculation, I award Morris the present value of salary only under this head,

calculated on a two-year notice period.

[2333] If counsel are unable to agree on the precise amount, I shall determine it.

[2334] Had I reached a different conclusion about the Share Sale, I would have had no

concern about double compensation and would have awarded damages based on a two-year

notice period of $133,185 per year for wrongful dismissal.

Part IX - The Action against Ennis and Ennis & Associates

[2335] The Plaintiffs claim in Action 42114/89 that the Defendant Ennis utterly failed to fulfil

his legal obligations to Morris/Morriston before, during and after the Share Sale. He breached

his contractual and fiduciary duties to Morris and Morriston. Further, the Share Sale

⁸⁵⁹Exhibit 100, p. 18

Agreement and lease that he prepared were unconscionable, obtained, inter alia, with

knowledge of Chester’s breaches of fiduciary duties owed to Morris and with Ennis’ collusion.

[2336] In the event that the Share Sale is not set aside, Morris claims that Ennis failed to

provide him with or to recommend that he obtain independent tax advice, with the result that

the deal was not properly structured from a tax perspective.

[2337] Ennis says he advised Morris to obtain independent legal advice (“ILA”) but Morris

refused to do so. He then undertook to perform only limited services for Morris. He met the

limited obligations he undertook to fulfill: to document the deal that Morris and Chester had

negotiated and to review the documents with them to ensure they accorded with their wishes.

He was not asked to comment on the fairness of the price or to provide business, tax or

accounting advice.⁸⁶⁰

General Comments

[2338] Ennis’ liability turns primarily on the facts, most of which have been covered in the

Reasons with respect to the Main Action #33234/88, My earlier detailed findings should be

considered to be part of these Reasons.

[2339] Since I have already made many of the findings relevant to Ennis’ liability, the format of

these Reasons differs from the format in the Main Action. Where findings have already been

made, I refer to them. Where findings have not been made where I considered it necessary, I

set out the relevant evidence before setting out my findings.

[2340] Ennis’ evidence with respect to the Share Sale was frequently implausible and at odds

with his own detailed contemporaneous notes, which were oddly deficient in respect of the

most crucial dates, December 20 and 22, 1983. His credibility was severely undermined on

cross-examination.

[2341] Throughout the trial, Ennis parroted Chester in many respects, even in instances

where his own notes make his oral version of events highly unlikely.

⁸⁶⁰Ennis, November 29, 1999.

[2342] He had been consulted about the Waxman business on an almost daily basis for

years, yet he purported to be disinterested, unaware of much that would have been obvious

to even a less involved layman.

[2343] By the time Chester started to talk to Ennis about the Share Sale in 1982, Ennis had

been Morriston’s/Chesterton’s/IWS/Chester’s/Morris’ lawyer for more than a decade. He had

represented some of the related companies for shorter periods. He had frequently given

advice about a variety of corporate and personal matters. The Waxmans were major clients,

as evidenced by the numerous and substantial accounts contained in the Joint Briefs.

[2344] From his lengthy involvement with Morris and Chester, I have no doubt that Ennis

understood (1) the complete faith and trust Morris placed in Chester; (2) Chester took

responsibility for financial and legal matters; and (3) Chester was far more sophisticated than

Morris in those areas.

[2345] I have concluded in other sections of these Reasons that Ennis was not averse to

bending the truth for his good clients, the Waxmans. He purged his SWRI file of any mention

that Chester and Morris were directors of SWR1 in order to circumvent the Laidlaw/Superior

non-competition agreements and to make it appear that SWRI was free to do business that

IWS could not. Ennis purged his Intercelco account of any mention of Chester/Morris/IWS in

order to make it appear that Intercelco was at arm’s length to IWS/Morris/Chester.

[2346] The evidence contains numerous misdated IWS corporate documents prepared in

Ennis’ office.

[2347] Ennis attempted to limit his duty to advise by saying Morris needed no advice. He said

he did not recommend that Morris obtain an independent valuation or see an independent

business or financial advisor, because he could see no reason for Morris to have a financial

adviser: “Morris was the valuator… Morris gives advice. He doesn’t accept it. No one could

give an appraisal of the assets of IWS save and except Morris. Morris knew exactly what the

business was worth. The expert in the field is Morris himself… Morris was his own financial

adviser. He would be the man who would tell you exactly what the business was worth. He

knew everything about that business.”⁸⁶¹

⁸⁶¹Ennis, November 29, 1999.

Q. Do you know what a financial advisor is?

A. I have an idea, but if you don’t know the business how can you be a financial advisor?

[2348] I have earlier noted that Ennis’ assertion that Morris was the expert and his own

financial advisor was contrary to the opinion of Taylor, Wiseman and others mentioned

elsewhere. Morris was not qualified to value the shares of IWS. Even Linton, who was

intimately familiar with IWS’ finances and trained in financial matters, said he was

uncomfortable when Chester asked him to value the IWS shares in November 1982.

[2349] In argument, there was much emphasis on Morris’ business sophistication, on his

participation in the Lasco, Laidlaw, Sheppard’s Quarry and other negotiations. However, I

have found that Ennis overstated Morris’ expertise.

[2350] I have found that Morris was not capable of being his own financial advisor. While he

was knowledgeable about certain aspects of the IWS business (e.g., equipment including

balers, cranes, trucks and shears), he was not at all sophisticated about financial matters. He

was not expected to be knowledgeable about them, as that was Chester’s domain. It should

have been obvious to Ennis that Morris could not reasonably have been expected to value his

IWS shares on his own without outside professional assistance.

[2351] When he was asked whether he accepted that the decision to sell his shares would

have been a major decision, Ennis downplayed its importance to Morris, saying, “He doesn’t

have much of a business left. They sold most of the business…”⁸⁶²

[2352] Although I recognise that there is no claim against Ennis in respect of the 1979, 1981

or 1982 bonuses or the estate freeze, his knowledge about them is an important element of

the context in which his actions in respect of the Share Sale must be judged.

Re 1979 Bonuses

[2353] I have found that in 1979, Ennis prepared IWS’ bonus minutes that allocated $150,000

to Morris and Chester and $100,000 to Chester’s sons. In April 1981, he replaced the earlier

1979 IWS minute with a backdated 1979 bonus minute allocating all of the $250,000 to

Chester’s sons. He did not discuss the reallocation with Morris.

Q. Did you ever recommend Morris see an independent business or financial advisor?

A. Morris was the man. Morris was his own financial advisor. He would be the man that would tell you exactly what that business was worth.

He knew everything about that business.

Q. Was it your practice at that time, Mr. Ennis, to recommend that business clients consult a financial advisor before making a business

deal?

A. No, I wasn’t in that area that I would advise clients to seek financial advisors and I must indicate to you that in this particular situation, I

can see no reason to have a financial advisor. However, that wasn’t my practice if that’s the question. If that was the case, I would have

never closed a deal in my life.

⁸⁶²Ennis, January 14, 2000.

Estate Freeze

[2354] Ennis was involved in estate freeze discussions from the mid-1970s and received

copies of the Campbell valuations. By late 1981 or early 1982, from those discussions and

documents in his files, he should have been aware that Chester was attempting to use the

estate freeze to gain control of IWS. He had attended meetings with Scace in 1980 and early

1982, at which a voting trust was discussed that would have given control of IWS to

Chester.⁸⁶³In 1983 he was copied with JB 2635, a letter to Chester from Beau Meyers saying

that Chester wanted his sons to gain control of IWS. If, as he claimed, he did not appreciate

that the estate freeze being proposed would give Chester control of IWS, then he was not

paying sufficient attention.

[2355] Further, having been present during the estate freeze discussions, having received the

Campbell appraisals, and having awareness of the Lasco and Laidlaw proceeds, he should

have understood that Morris was getting less in the Share Sale than his side of the family

would have been entitled to receive under an estate freeze, even on a 60-40 basis.

Re 1981 - 1982 Bonus

[2356] Ennis attempted to justify the 1981 and 1982 bonuses by citing the contribution of

Chester’s sons. However, like Taylor, Wiseman and Linton, he should have known the

bonuses to Chester’s sons were excessive.

[2357] He knew Robert and Chester did not want Michael involved in IWS. He knew they were

reluctant to proceed with an estate freeze even on a 60/40 basis. He knew Morris wanted his

sons to be involved at IWS, that they had no less entitlement to do so than Warren, Robert

and Gary. Having been present during the Laidlaw and Lasco negotiations, Ennis was well

aware of the amounts of the proceeds received for assets Morris and Chester had built up

together over 40 years. His notes record his awareness of the 1981 and 1982 bonus

⁸⁶³Ennis, December 16, 1999.

Q. At JB 2242, is that a note sir of you meeting with Arthur Scace … in February 1982 it says “discussed IWS sales etc?”

A. Yes.

Q. And it says “trust agreement 3/2”

A. Yes.

Q. And then it talks about 21 years, does that say “death of trustee, resignation of trustee?”

A. Yes.

Q. And it says “will have documentation in our hands this week.” Right?

A. Yes…

Q. And I’m going to suggest to you that those notes would imply that you were discussing the voting trust agreement at that time with

McCarthy’s?

A. I can’t answer that. I can’t recall.

machinations. He prepared the corporate minutes in connection therewith. Sometime before

the end of 1981, he originally directed the preparation of a minute reflecting the bonus

amounts recorded on Exhibit 194 (including $250,000 to each of Chester’s sons and

$500,000 to each of Morris and Chester.) However, on January 12, 1982, a substitute minute

was prepared in his office, reflecting 1981 bonuses of $3.3 million, including much larger

bonuses to Chester’s sons.⁸⁶⁴

[2358] Ennis knew about the unusual timing of the 1982 bonuses. He directed preparation of

IWS minutes dated February 22, 1982, reflecting bonuses for 1982, including bonuses for

Chester’s sons in the same amounts as in 1981. As he received the instructions and directed

the preparation of the bonus minutes, Ennis knew that 1981-82 bonuses totalling $6.6 million

had been declared, the lion’s share in favour of members of Chester’s side of the family. It

should have been obvious to Ennis that the equity of IWS was being stripped and Morris’ 50%

of the company was being seriously devalued.

[2359] JB 2266, Ennis’ handwritten note of a meeting with Chester on March 12, 1982,

contains the following: “Set up sister company. Put all cash etc. in that company.” Ennis said

he assumed that the note referred to the cash that had been received on the sales to Laidlaw

and Lasco. He was taken to his examination for discovery concerning that meeting:

Ennis, January 11, 2000

Q. All right. Page 1352, were you asked these questions. Line 26: And by the way, who

was going to own this sister company do you figure? Answer I have no idea. Question:

How about Chester and Morris, would that be fair? Answer: I have no notes. I can’t tell

you. Question: It would be a bit surprising if the cash was to be moved into a company

owned by Chester? Answer: It could be moved to a company owned by the boys too.

Question: That would be a bit surprising too wouldn’t it? Answer: I don’t know maybe

you would be surprised… Question: What boys would these be, all five boys? Answer:

All five boys. Question. So. It would have made sense to you from an estate freeze point

⁸⁶⁴Ennis January 11, 2000.

Q. Let’s look at Exhibit 195, your other handwritten note. Whose handwriting … appears in pencil at the top of Exhibit 195?

A. I can’t make that out. Says this is a substitute.

Q. What else does it say?… It says make new resolution, doesn’t it?

A. …I’ll accept your view of it.

…Q. …I… suggest to you that it’s self-evident from your own documents that you. Paul Ennis. were told by Wayne Linton in late 1981. that

you were to make up a directors’ resolution for bonuses in the amount shown on Exhibit 194, and that you subsequently were told by

someone… to make up a new resolution with the increased amounts reflected in Exhibit 195. Do you agree with that?

A. No, I don’t agree with that. I didn’t pay attention to that.

of view, if all of this cash had been distributed to all five boys? Answer: I don’t know. I

can’t give you the answer. Question; It would be a bit surprising if it was transferred to

Chester Waxman’s boys and not Morris’s boys? Answer, I don’t think that would have

happened, Question: Because that would have been unfair? Right? Answer: Absolutely.

Question: Yeah. It would have scandalized you if that had been suggested in your

presence without Morris there. Right? Answer: I don’t think it would have happened.

Question: No. Because—why wouldn’t it have happened? Answer: Because that’s not

the way the two boys treated each other.

Q. Do you accept that evidence as your evidence of today under oath?

A. I accept that evidence.

Q. And I suggest to you you have the same view, whether it was done through a sister

company or through these bonuses that you knew about?

A. I can’t answer that.

Q. How about this. That knowing Chester and Morris as you did, in your own opinion,

knowing them as you did, you would not have expected the allocation of these proceeds

to result in Chester’s boys receiving a great deal of money and Morris’s boys none. Isn’t

that so?

A. No, that’s not so. Morris’s boys were not working in the business. Chester’s boys

were working in the business. I can’t care about that. You’re trying to involve me in the

declaration of $3.3 million in bonuses as though I had something to do with it. I don’t

care about that. I can tell you this: You asked my opinion. Michael and Douglas did

nothing for that business. Chester’s boys did. If they received bonuses that was a

decision made between Chester and Morris. Not myself. I had nothing to do with that.

[Emphasis added]

[2360] It was obvious to Ennis at the time the bonuses were declared and at trial, as it was on

discovery, that it would be unfair to transfer the proceeds of the Lasco and Laidlaw sales to

Chester’s sons and not to Morris’. Yet he purported not to recognise that the bonus

allocations had a similar result. He should have known that the bonuses to Chester’s sons

were at odds with the proposed distributions under the estate freeze.

[2361] While I accept that Ennis was not involved in the business decision-making at IWS, I

find that had he been paying sufficient attention to what he was hearing from Chester and

Linton, he would have known that Morris was vulnerable and that Morris’ interests were in

jeopardy. His own notes record numerous discussions that should have caused his warning

bells to ring.

The Share Sale

Was Ennis’ Retainer Limited?

[2362] I have not accepted Ennis’ evidence that Morris and Chester insisted he act. He did not

agree to act for both of them only on the condition they were in 100% agreement on the terms

of the deal.⁸⁶⁵Ennis was speaking only to Chester about the Share Sale from 1982. Morris

never agreed to a limitation on Ennis’ retainer.

Ennis’ Involvement in the Share Sale

[2363] It is a gross understatement to say that in his evidence in chief and much of his

cross-examination, Ennis overstated Morris’ involvement in the Share Sale negotiations.

[2364] I have found in my Reasons in the Main Action that Chester involved Ennis from the

beginning of his share purchase planning. He first met with Ennis about a share purchase in

the fall of 1982. I have found that in February 1983, he and Robert met with Ennis and

generally discussed a purchase of Morris’ shares.

[2365] I have rejected Ennis’ evidence that it was Morris who first approached him about the

Share Sale at a synagogue in May 1983. I have not accepted Ennis’ evidence that he

discussed the Share Sale with Morris repeatedly after May 1983.

[2366] In one of the most dramatic moments of this very long trial, Ennis admitted in

cross-examination he never discussed Share Sale drafts or specific terms of the deal with

Morris before December 20, 1983. He said there was “no point” in doing so until Chester

⁸⁶⁵Ennis, November 29, 1999; December 2, 1999.

knew what he wanted to do. This critical evidence is quoted in the Main Reasons and in the

endnotes here.⁸⁶⁶I note that in argument,

⁸⁶⁶Ennis January 19, 2000.

Q. I suggest that in fact the idea of turning this option agreement with a share sale into just a share sale, that those instructions you first

received from Chester on Monday December 19th?

A. That’s possible.

…Q. on that date quite probably you got instructions from Chester for the first time to… get rid of the option and create a share sale

document for the entire shares?

A. I think [it’s] Wayne Linton’s wording. That wouldn’t be Chester’s wording.

…Q. The note that says declare dividend of one million?

A. …It talks about a million dollars and then this taxable dividend to shareholders of record as of December 15th, I think that came from

Wayne Linton.

Q. So you were getting these instructions as of December 19?

A. Yes. It appears that way.

Ennis January 14, 2000

Q. You have no separate note on legal paper of meeting with Morris Waxman with respect to the share sale at all, up to December 19th. Am

I correct?

A. I don’t have it on papers no.

Ennis January 19, 2000.

Q. given the go ahead you started drafting up draft share sale agreements for the entire 250 shares. Correct?

A. Yes.

Q. Tab 74, JB 2918?

A. One of the drafts.

Q. The documents in the JB, at tab 61, JB 2913, And then tab 63, JB 2914, and tab 66, 2915; and tab 69, 2916; and tab 70, 2917; and tab

74, 2918; and tab 75, 2920; are these all various drafts of the shareholders’ agreement that you put together after you got the go ahead to do

a share sale agreement for the 250 shares?

A. They appear to be, yes.

Ennis January 14, 2000

Q. And remarkably on your evidence on this occasion, you went from meeting with Morris, right through the period up until December 19th,

you went to having meetings with Morris and Chester talking about a deal in detail, you went from that to talking to Morris, on your evidence,

in the hall? …you met with Chester in Chester Waxman’s office at Windermere at least twice, in your notes?… Why wasn’t Morris included in

those meetings?

A. Because Chester Waxman had to work out as best he could how he was going to pay for this.

Q. That’s why Morris weren’t included?

A. What’s the point of having Morris there unless Chester can figure out how he can pay for it… Why would they both be there, Chester is

trying to work out a scheme, a method by which he can pay Morris. What’s the point of having Morris there until he decides exactly how he’s

going to work it out. Then he will go to Morris and say this is what I can pay, Morris. I would have liked to see Morris there. If the two of them

wanted to discuss it but Chester and Morris were working it out themselves. I received instructions to draw drafts by Chester that’s exactly

what I did. Chester took the drafts hack to Morris. And he came back to me, this has to he changed and this has to be changed. That’s the

way it worked.

Q. Chester came back with drafts?

A. He came back with suggested changes.

Q. I sent him [Chester] drafts.

A. On your evidence you gave Chester drafts?

Q. Yes.

A. And then Chester spoke to Morris and came back?

Q. That he was my understanding.

A. No, Chester never came back with changes they are only three pages long.

Q. So he would remember to tell you what to change?

A. Yes.

Q. At some point did you say to Chester Look, I’ve asked von to bring Morris along. Where is he?

A. What’s the point? They haven’t worked out an agreement vet. Them is no final figure, There’s no final payment per year. Nothing has

been finalized. What’s the point of having a meeting when you can’t finalize anything, Chester was going to finalize it with Morris. He and

Morris were going to work it out themselves. Chester came, he gave me information, I prepared a draft. He came back and said this won’t

work, we’re going to try this, I prepared a draft on that. And he came back and said that’s not going to work. Let’s try this. That’s exactly what

happened

…Q. So why didn’t you pick up the phone and call Morris and say Morris come to these meetings?

A. I am not negotiating this deal. I was only a scribe I was to take instructions and draw a document when they worked out their agreement. I

never interfered I never insisted how they conduct themselves. They are experienced intelligent people who have made millions of dollars

and know exactly how to handle themselves. They don’t need me giving advice they would not accept advice from me… they are the people

who gave advice… I wasn’t concerned. You asked if I was concerned I said I would have liked to see him. When the documentation was

complete and ready to be signed we would have gone through it made any changes and it would have been executed

Ennis January 19, 2000.

Q. I suggest that right up until the morning of Dec. 20 and until the time Chester left, you Paul Ennis had never sent any drafts to Morris,

Correct?

A. I personally had not sent them. I gave them to Chester. Chester delivered them to Morris.

Q. I suggest it was only on Dec 20 that you finally knew according to Chester, that he was comfortable with the price and the structure, and

therefore up to the morning of Dec 20. you Paul Ennis had seen no reason to talk to Morris about this deal?

[2367] Ennis’ counsel and counsel for the other Defendants continued to attempt to rely on

Ennis’ evidence given prior to this critical admission and at odds with it.

[2368] I have accepted Ennis’ evidence in cross-examination that he did not believe he

reviewed the July 1983 draft of the Share Sale Agreement with Morris. I have also accepted

his evidence that he did not review the July 1983 draft lease agreement with Morris. I have

rejected Chester’s evidence on the point.

[2369] I have found Morris was unaware in the spring, summer and fall of 1983 that a Share

Sale was being discussed or that documents had been prepared in the summer of 1983.

[2370] In the July 1983 draft Share Sale Agreement Ennis used a Share Sale price of

$2,650,000, a figure supplied by Chester. The only “valuation” in Ennis’ possession was the

patently one-sided “valuation” dated November 15, 1982, prepared by Linton.

[2371] Later in July 1983, Chester instructed Ennis to prepare the Covenant Agreement to

protect Chester. No one explained it to Morris before he signed.

[2372] At that time, Ennis considered Chester [not Chester and Morris] to be his client:

Ennis, January 14, 2000

Q. Look at the entry [in Kevin Hope’s SPD, JB 2687] for the hour of two o’clock. Do you

see that? It says client is Chester Waxman… And it’s draft agreement re Morris

Waxman?… That’s exactly how Mr. Hope understood it. Chester Waxman was the client

and [Hope] was drafting up this covenant…. And you [Ennis] say the whole point of this

covenant was to somehow cover a hiatus before the share sale documentation?… And

just looking at this same note, do you accept that Mr. Hope wrote at the bottom here in

the last two lines: Chester Waxman meet with client and P.H.E. re agreement re Morris

Waxman?

A. I wasn’t talking to Morris, Chester was talking to Morris. Chester had the completed documents he picked them up to the best of my belief

on the 19th. He delivered them to Morris. Morris came into the office.

Q. You weren’t talking to Morris, Chester was?

…A. I never said I spoke to Morris about the documentation. I didn’t have it in final form until Dec. 19. That’s when I received, according to

my notes, my last instructions. And Kevin Hope was responsible for the draughtsmanship of both the lease and the agreement and that’s

what he spent his time doing on Dec. 19.

Q. And we’ve been through this, but you accept, I hope now, that up to the morning of Dec. 20, you Paul Ennis have no original record

showing your ever discussing the share sale with Morris at all. Do you accept that?

A. Not the terms of it because the terms were not known until December 19th.

Q. Morris Waxman pleaded that he had no prior dealings with you in regard to this share sale

A. He had no prior dealings with me. He knew he was working out a share purchase agreement, a sale agreement with his brother. He knew

that.

A. Chester Waxman is the client.⁸⁶⁷

[2373] I have not accepted Ennis’ evidence that Morris understood the Covenant Agreement

and the Share Sale to be part of the same transaction. I have accepted Morris’ evidence on

that point. I have not accepted Ennis’ evidence that he discussed the Share Sale with Morris

on July 21, 1983. I have found that their discussions on July 21 and July 27 were about

Sheppard’s Quarry and the Agreement to Sell Shares [i.e., the Covenant Agreement]

respectively. Ennis had Morris sign the Covenant Agreement without advising him he was

acting only for Chester and without suggesting that Morris should obtain ILA.

[2374] In short, I have found that Ennis was speaking to Chester and not to Morris about a

possible Share Sale and lease during that time frame.

November - December 1983

[2375] I have not accepted Ennis’ evidence that Morris was “a very, very healthy individual,

who bragged about his prowess … [and was] as strong as an ox.” In the fall of 1983, Ennis

knew Morris was ill. During a meeting with Chester the day after Morris’ November 22, 1983

medical appointment,⁸⁶⁸Ennis wrote “if Morris Waxman dies.” On November 28, Ennis again

noted the possibility of Morris’ death.⁸⁶⁹

[2376] I have found that in the fall of 1983, Ennis was aware of Chester’s growing concerns

about Morris’ health. Morris was obviously vulnerable due to poor health, lack of financial and

legal expertise and total trust in Chester. Ennis was aware that Chester and Morris viewed

legal documentation as Chester’s responsibility and that Morris would sign whatever

documentation Chester asked him to sign without question and often without reading it.

[2377] I have not accepted Ennis’ evidence that Morris may have joined the meeting on

November 23, 1983, because he did not think Chester would discuss Morris’ will in Morris’

absence.⁸⁷⁰I have found that Ennis and Chester did discuss Morris’ estate in Morris’ absence

on many occasions. During the November 25 to December 22 time frame, Ennis and Chester

also had many detailed discussions in Morris’ absence about financial aspects of various

proposed Share Sale structures.

⁸⁶⁷Ennis, January 14; 2000, January 18, 2000; Exhibit 289, Share Sale Brief, tabs 17 and 30.

⁸⁶⁸JB 2853.

⁸⁶⁹Exhibit 168.

⁸⁷⁰Ennis, December 2, 1999.

[2378] While Ennis’ documentary records indicate ten meetings or phone calls with Morris in

the November 25 to December 22 time period, I have found that he was not discussing the

Share Sale with Morris at all during that time frame.⁸⁷¹

[2379] I have rejected Chester’s attempt to tie the timing of the Share Sale to a possible sale

of Centennial. I have found that the timing of Chester’s and Ennis’ Share Sale activity was

tied to Chester’s growing concerns about Morris’ health and the looming prospect that

Michael might obtain an interest in IWS if Morris died. Ennis was aware of Chester’s concerns

about Michael’s involvement in IWS. I find that he was also aware that Chester felt great

urgency about getting ownership of IWS.

[2380] In December 1983, Ennis’ and Chester’s activity was frenetic. At Chester’s instance

only, option agreements and other documents were being drafted and redrafted. I do not

accept Ennis’ evidence that there was no rush on his part. Ennis said that Morris and Chester

wanted to complete the Share Sale before the end of the year for tax reasons, but that

evidence was at odds with his evidence that they decided to move the effective date of the

Share Sale from December 1983 to January 1984 for tax reasons.⁸⁷²

[2381] When on December 6, 1983, Ennis wrote the following words on an early draft of the

December 1983 lease, JB 2887:

(1) No jointly owned property to be sold, mortgaged, hypothecated, pledged or charged

without unanimous consent

(2) No additional acquisition, merger or any dealing in shares of Chesterton and

Morriston without unanimous consent

(3) Any action or default under lease - unanimous consent

(4) Lease cannot be assigned without unanimous consent by Landlord

⁸⁷¹Morris, January 26, 1999; Ennis, December 3, 1999, December 15, 1999.

⁸⁷²Ennis January 19, 2000.

Q. Insofar as the creation of these documents is concerned we’ve gone through what’s happened in December and you have had activity in

this file going by memory, Dec 12, Dec 13, Dec 14, Dec 15, Dec 16, you skipped Saturday. Dec 18, Dec 19, and Dec 20. Right?

A. That’s correct.

Q. What was the rush, Ennis?

A. No rush on my part.

Q. Did Chester tell you he was in a rush?

A. No, just said he wanted to get it done.

Q. Did Chester tell you he wanted to get it done?

A. I think it deals with the year-end Dec 31 I think there’s tax implications involved so the agreement should have been structured before the

year-end. But you will have to speak to Wayne Linton about that.

[2382] he had to know that Morriston/Morris stood to be seriously and adversely affected by

those provisions. He knew that the rent in the draft July 1983 lease had been $5000 per

month. He knew that IWS Ferrous was paying $19,000 per month for properties that were

worth less than those covered by the draft July 1983 lease. In December 1983, he knew the

rent was to be $2000 per month over a 50 year term without escalation [even after the

properties covered by the IWS Ferrous lease were included so that the lease would cover all

of Windermere, Glow and the Back 7.7 Acres.]

[2383] It was patently obvious that Morris’ and Chester’s interests as vendor and purchaser

and Morriston’s and IWS’ interests as lessor/lessee were inherently in conflict.

[2384] From Ennis’ contemporaneous documents, it is clear that as of December 7, 1983,

Chester had not settled on the specifics of the deal. A draft proposal had been drafted. An

option was being considered. Shirley and Morris were the proposed vendors. Chester was

contemplating declaring a $2 million IWS dividend, not the $1 million IWS dividend that was

eventually declared. Ennis was not speaking to Morris about the proposals under discussion.

[2385] Chester instructed Ennis to prepare documents recording that as of December 8, 1983,

Shirley had resigned as a director of IWS and Morriston,⁸⁷³and to transfer her IWS shares to

Morris. Arrangements were made for Shirley to sign those documents. Ennis gave no advice

to Shirley or Morris regarding Shirley’s resignation or the transfer of her shares to Morris. He

did not recommend that she obtain ILA.

[2386] It is unclear when and at whose instance Shirley signed the December 8 1983

documents. What is clear is that Ennis at no time suggested that Shirley obtain ILA or

explained to either Shirley or Morris what Shirley was being asked to sign.

⁸⁷³Ennis, January 19, 2000.

Q. In these drafts dated December 6, the vendors were to be Morris and Shirley. Correct?… And you met with Chester Waxman on

December 6, 7 and 8 as referred to in the evidence to date, in your diary JB 2557. Correct?… you were dealing with Chester, maybe Wayne

Linton and also Hope?

A. Yes.

Q. And by a document at least dated December 8th, 1983, the minute that’s at tab 52, whereby Shirley Waxman resigns, we know that

document presumably was created on or about December 8th, whenever it was signed…. With regard to requiring Shirley Waxman to resign

from IWS and indeed from Morriston, that those instructions came from Chester on that evidence?

A. I believe Chester said that was agreeable with his brother.

Q. Whether he said that was agreeable with his brother or not, he was the one who gave the instructions?

A. To the best of my recollection, yes.

Q. As a result of those instructions, when it came to be time to ask to have the share sale agreement signed, and the lease signed, referable

to the subject properties, it was no longer necessary to have Shirley Waxman present for either event. Right?

A. That’s correct, yes.

[2387] Ennis denied he understood in December 1983 that a large part of Morris’ 1982 bonus

was being reallocated to Chester to partially fund his share purchase. I have not accepted his

evidence on that point. I refer to his December 12, 1983 note⁸⁷⁴referring to the reallocation of

most of the bonuses to Chester and to his evidence set out in the end note hereto.⁸⁷⁵

[2388] On December 15, 1983, Ennis notes contain reference to “a promissory note, no

interest.” [Emphasis added.]⁸⁷⁶Again, such a provision was patently unfavourable to Morris

and favourable to IWS/Chester.

[2389] I have found that before December 22, 1983, Morris never agreed to sell his shares to

Chester and never entered into any negotiations to do so.

[2390] I have found that Ennis knew Morris had received no independent legal or financial

advice. He was aware that Taylor Leibow had not been involved.

[2391] For reasons set out in detail in the Reasons in the Main Action, I have largely rejected

Ennis’ evidence about the meetings of December 20 and December 22.I have found that at

the one short meeting at which Share Sale documents were signed, Ennis’ presence lent

normalcy to the proceedings. On that day, Ennis did not explain the documents to Morris.

They were not, as Ennis and Chester said, read aloud line by line by Ms. Butner. I have

accepted Morris’ evidence that he was called in to sign documents as he had often been

called in the past. He signed them without review or explanation, without appreciating that

these were not IWS documents being signed in the ordinary course of IWS business and

⁸⁷⁴Exhibit 289, tab 55. Also JB 2664 pp 213-214.

⁸⁷⁵Ennis January 18, 2000.

Q. Dec. 12/83 share sale JB tab 55, a copy from JB 2664 pages 213 and 214?

A. on page 214 it says… Linton.

…Q. Next, the entry says $3 million in bonuses accrued reallocate to Chester most of bonuses…. And that he had what Wayne Linton told

you?

A. That’s what I wrote down.

Q. And you knew what these $3 million in bonuses were because you had taken the note reflecting the minute in the first place?

A. I did have a minute, yeah.

Q. And you knew that you were being told by Wayne Linton that what he was contemplating was that the bonuses that had been reflected—

that had been set out in that minute, were going to be reallocated to Chester?

A. Well, that’s what the note says.

Q. And he told you that in the context of the share sale?

A. It seems to be in reference, we’re talking about a share sale.

Q. Yes… I’m suggesting it was obvious in your conversation and from your note that Linton was telling you in the context of the share sale,

he was looking at reallocating most of the three million dollar in bonuses to Chester?

A. I don’t take that interpretation of it.

Q. What other interpretation is there?

A. I don’t really care what the interpretation is. It’s of no concern to me. He’s given me some information here, I don’t care how much Morris

gets back net after taxes and I don’t care if the company will get back refundable tax up to $285,000 and it says company in July or August

gets refundable tax back of $250,000. That’s got nothing to do with me. I don’t particularly care about that information.

⁸⁷⁶JB 2664, p. 216/Ex. 289, tab 64.

without appreciating he was selling his shares to Chester. I have found that on December 22,

1983, Morris signed several documents dated December 20, 1983.

Ennis said of the Share Sale:

Ennis, December 6, 1999⁸⁷⁷

I think Morris got the better of the deal… in particular, I think the court has to be

aware that the Lasco deal was an onerous deal that required the services of

Chester and his family. Had the business failed, had Lasco gone under, had the

environmental problems arisen, Chester would have been saddled with all of those

responsibilities…

[2392] I have found that by December 1983, any threat that Lasco might fail had passed. I

have found Chester overstated the recession concern even in 1982, given the cash in IWS

(term deposits of almost $8.4 million and retained earnings of $6,273,468) and given the

cyclical nature of IWS’ business. I have rejected Chester’s evidence about assumption of

family obligations and environmental liabilities. I have found the Share Sale documents taken

together, including the December 1983 lease, are on their face patently and grossly unfair to

Morris/Morriston. Their unfairness should/would have been doubly apparent to Ennis given all

the information to which he was privy.

[2393] I do not accept the submissions of Ennis’ counsel that as the company lawyer and

Morris’ and Chester’s friend, Ennis understood there were a number of good reasons why

Morris wanted to sell his shares to Chester, that the Share Sale and lease documents must

be read and understood in the context of IWS’ need to survive, and its need to operate on the

land owned by Morriston and Chesterton.⁸⁷⁸

[2394] In making that submission, Ennis’ counsel quoted portions of Chester’s evidence that I

have rejected. I have found that Chester, Morris and Ennis never discussed environmental

concerns and support of the family before the Share Sale documents were signed. All three

did not discuss anything. Like Chester, Ennis is now ex post facto attempting to find reasons

to justify a patently onesided and unfair deal.

⁸⁷⁷also see Ennis, December 3, 1999.

⁸⁷⁸Ennis, November 25, 1999; December 16, 1999.

[2395] I have found that Morris never made a decision to sell at the price specified in the

Share Sale Agreement or to accept the rent and other terms specified in the December 1983

lease, based upon these or upon any other considerations. Ennis never discussed the terms

of the deal with Morris prior to or on December 22, 1983. Ennis received all his information

from Chester.

[2396] I have rejected Ennis’ evidence that Morris said he was not concerned that Morriston

would not receive market rent in the December 1983 lease,⁸⁷⁹or that Morris said his $1000 a

month “wouldn’t make or break him” or that “he didn’t care once the Lasco lease was over

any renewal he didn’t care about it”.

[2397] Both Ennis and Chester knew that Morris was unwell, worried about dying. That is why

they were rushing to get the documents prepared and signed before Morris’ angiogram.

[2398] I find that Ennis never challenged or refused to do anything that Chester or Linton told

him to do. He followed Chester’s instructions without seeking Morris’ confirmation. The

converse was not true. In “major matters” involving Chester, Ennis would seek confirmation of

Morris’ instructions from Chester. The evidence is reproduced in this endnote.⁸⁸⁰

Did Ennis Counsel Morris to Obtain ILA?

⁸⁷⁹Ennis, January 18, 2000.

⁸⁸⁰Ennis, December 10, 1999.

Q. I’m suggesting to you, sir, that whenever Chester was involved in a matter, you as a matter of practice would not proceed with legal work

without getting his instructions?

A. That’s not true.

Q. And in that regard, to not talk about Intercelco for a moment, but to talk about the estate freeze, do you agree with me that you’ve

expressed the view under oath that if Morris Waxman had called you with respect to the estate freeze, and said that he and his brother would

like to change the effective date of the freeze, you would not have proceeded without first contacting Chester?

A. No, on the contrary.

Q. I see. Well I’m going to ask you to look at your examination for discovery, please, July 30, 1997… question 167.

Question: Well, for example, if Morris Waxman called and said with respect to the estate freeze, we had like to change the effective date of

the freeze, would you assume he was speaking for both he and his brother? Answer: No. I would not assume that with respect to the estate

freeze. That involved both of them. I would no doubt contact Chester, and say Morris has called me, something has to be done. Or Morris

has spoken with me and I would get confirmation before I would do anything.

Now, were you asked that question and did you give that answer?

A. Yes.

Q. And was it true, sir?

A. That’s quite correct, but not in every situation.

Q. I’m suggesting to you, sir, in any matter of any consequence that involved Chester as one of the principals, as a matter of course, you

would contact Chester and get confirmation about how you were being asked to proceed before you proceeded?

A. Mr. Harrison, I don’t wish to debate the point with you, but this matter involving the sale of the assets of Intercelco was about $25,000,

Morris told me what to do, I did what Morris told me what to do. We’re not talking about an estate freeze. We’re not talking about the careers

and lives of people here, this is a very simple transaction. It wasn’t necessary for me to call Chester about it. I accepted what Morris told me

to do. This is a minor matter. And my question—the question put to me and the answer, refers to major matters. I never double checked what

Chester said to me or what Morris said to me. Eventually the matter would be resolved, but it wasn’t my practice of picking up the phone and

say by the way Chester Morris is in the office and Morris says this and Morris says that. Please Mr. Harrison, don’t degrade me to that point

where I’m a sort of yes boy where I have to get confirmation every time I do a very simple transaction involving your client and Chester

Waxman.

Q. In any event, you’ve given us this that if it was a major matter, you for sure would contact Chester before proceeding?

A. Major matters, yes.

[2399] Ennis said he was concerned about acting for both Morris and Chester on the Share

Sale because he recognised they had separate interests. He did not usually act for both

parties. He recognised that Morris’ perspective as vendor was different from Chester’s as

purchaser. However, he minimised Morris’ need for ILA, saying,

Ennis, January 14, 2000

A. Well, if you’re dealing with people that aren’t brothers and complete strangers, they

have different perspectives, but these are two brothers. It’s only a year apart between

them. They had been very successful businessmen in their enterprises. They had been

in business over 40 years and trusted one another and they weren’t at odds with each

other. It was an agreement they were working out amongst themselves as to what the

one brother wanted and what the other brother was prepared to pay for it, and that was

a decision they were going to make themselves.

[2400] I have not accepted Ennis’ evidence that on at least six to eight occasions between

May and December of 1983, he insisted that Morris obtain ILA. I have rejected his evidence

that the subject was discussed at the synagogue in May 1983, and again on July 27, 1983,

when Morris signed the Covenant Agreement.⁸⁸¹I have accepted Morris’ evidence that Ennis

never discussed ILA with him at any time before or when he signed Share Sale documents

and that he never urged him to seek ILA.

[2401] Ennis said he knew from the beginning that he wanted a waiver of ILA. He said he

reiterated to both Chester and Morris that he would not act unless they both signed one.⁸⁸²

Yet he did not obtain one until the day when Morris was called in and the documents were

signed.⁸⁸³

[2402] I have accepted Morris’ evidence about the circumstances under which the waiver was

signed:

⁸⁸¹Ennis, November 29, 1999; December 2, 1999.

⁸⁸²Ennis December 3, 1999; Chester, September 23, 1999.

⁸⁸³Ennis January 14, 2000 page 32.

Q. Did I not hear you say that Morris almost literally begs you to act?

A. I wouldn’t say literally begged me to act but he wanted me to because he didn’t want the family to know for one reason or another.

Q. You knew from the beginning… you wanted a waiver of independent legal advice?… Why didn’t you get one?

A. Why do I have to get one at the beginning? If Mr. Morris Waxman didn’t want to sign that certificate of independent legal advice he wasn’t

obliged to. I would not have acted.

Q. It just strikes me you did it backwards?… And given the level of your concern about not wanting to act, but being asked to act, why didn’t

you make a note of that?

A. I don’t have to make a note of that. I can remember that.

Ennis, January 18, 2000

Q. Well, you were very concerned, according to you, about representing both sides fairly. Right?… Not wanting to get in the middle.

Morris, January 26, 1999

A. Paul Ennis walked out of the office, out of the boardroom, came back within seconds,

handed Chester a sheet of paper. Chester read it. He looked at Ennis with a smile and

said: Oh, this is to save your ass. And then he handed it to me to sign. I signed it

because Chester handed it to me.

[2403] I find that it was neither read nor explained to Morris, and that Morris did not read it or

understand what it was. I reject Ennis’ evidence that Morris absolutely understood the

Acknowledgement when he signed it [on December 22, 1983.]⁸⁸⁴

The Simplicity of the Deal

[2404] I have already mentioned a number of examples of evidence given by Ennis that made

me conclude either that he did not understand the deal or he was being untruthful in giving his

evidence about its complexity. Ennis’ evidence was as follows:

Ennis January 20, 2000

Q. This gifting agreement on its face says that $1 million dividend will be declared.

Correct?

A. Yes.

Q. And $500,000 of that will go to Chester and $500,000 of that will go to Morris.

Q. And then it says Morris will gift back his $500,000 dividend to Chester.

Q. So so far, Morris has nothing. Right?

A. Yes.

Q. And then it says Chester will then use that $500,000 to pay Morris in full satisfaction

of his first purchase of shares in the amount of $500,000. Right?

Q. And then it says Morris will loan back to Chester 500,000.

A. It’s obvious there’s an error in the draughtsmanship.

Q. But it wasn’t obvious to you at the time because you say it was gone over and you

say signed at the time?

A. I wasn’t in the middle

⁸⁸⁴Ennis, November 29, 1999; December 2, 3 and 6, 1999; January 19 and 21, 2000.

A. Yes, that’s true. That’s true.

Q. On the face of the document, Morris gets nothing.

A. Morris Waxman was always to get $500,000.

Q. And not only that, the document provides in paragraph three that when the loan was

repaid, the repayment of the loan will be in full satisfaction of the second amount owing

under the share sale agreement. Right?

A. That’s correct because that called for $500,000.

Q. So if you just followed what this document says that you say Morris understood, he’s

short $500,000?

A. Well, in the end result he was not short $500,000 because the deal wasn’t completed

on December 20th. It was completed on December 22nd and it was all corrected at that

particular time.

Q. With all respect, you can’t have it both ways. You can’t be suggesting that Morris was

this clever, astute businessman and you reviewed all these documents with him with

care and he understood them and then insist this document was gone over on

December 20th and say to me casually it’s obviously wrong but we fixed it?

A. That’s exactly what I’m saying to you.

[2405] Ennis admitted the dividend gifting agreement that he had drafted made no sense,⁸⁸⁵

⁸⁸⁶yet he claimed Morris signed it after it was fully explained and understood.

[2406] When trying to describe the payment due to Morris by January 4, 1984, contrary to

Chester’s and Linton’s evidence that Chester was to pay Morris $1 million and Morris was

then to lend IWS $500,000, Ennis said:

⁸⁸⁵Ennis, January 20, 2000; Exhibit 289, Share Sale Brief, tab 78.

Q. In fact, the gifting agreement makes no sense, does it?

A. No, it doesn’t. No, that’s quite true…. It was completed on December 22nd and it was all corrected at that particular time.

⁸⁸⁶Ennis, January 20, 2000.

Question: Is it your evidence that it was not intended that Morris would loan a further $500,000 to the company? Answer: That wasn’t my

understanding of the transaction. Question: Do you know whether Morris did loan a further $500,000 to the company? Answer: Not to my

knowledge… Question: Sir, your evidence is that it was not intended that Morris loan a further $500,000 to the company? Answer: No. It was

the initial $500,000 by way of dividends that was gifted by Morris to Chester. Now Morris is out $500,000. How does he get his $500,000

back? Question: Yes? Answer: Okay he can get it back one of two ways. He can get Chester to sign a note or he can get IWS to sign a note.

IWS Limited signed the note because IWS Limited, all the shares, 250 shares, are owned by Chester. That’s the way we were instructed to

do it. That’s the way I did it. If you’re not happy with that then you will have to take your chances. Question: It was intended that IWS would

repay Morris the $500,000? Answer: IWS is Chester Waxman… Question 2803 Was it intended Morris would loan 500,000 to IWS and have

it repaid to him? Answer: No, I think no. He already had gifted $500,000 to his brother. He was now shy $500,000. My instructions were well

let’s say we’ll record a loan by Morris of $500,000 to IWS and IWS will then be obligated to pay $500,000 to Morris. That’s the $500,000

Morris had gifted to Chester… Question: It was not intended he would loan any money to the company. Answer: That’s not my

understanding of it. Question: You don’t know one way or the other whether he did loan the money. Answer: I have no idea.

Ennis, January 20, 2000

A. …There’s only one million dollars. The effort here was to show a million dollars to

Morris. But Morris was only to get $500,000 at that particular time… And so what he

does is he gets $500,000 on January 4th and then he pets a promissory note, which is

not reflected in this agreement which is payable by IWS for $500,000. So he still gets his

million dollars. He gets this $500,000 on January 4th, 1984 and he gets his further

$500,000 pursuant to paragraph 3-B

[2407] Ennis’ confusion about the deal would not have existed if it had been as “simple” as he

contended.

[2408] I do not accept Ennis’ evidence that he believed this was not a complex deal, given his

confused and contradictory evidence about it.

Events After the Share Sale

Re Staged v. Completed Sale

[2409] In the Main Action, I have mentioned IWS corporate records prepared by Ennis after

the Share Sale, which reflect that Morris continued to own the IWS shares for which Chester

had not yet paid.

[2410] I have rejected Ennis’ evidence that in April 1985 he told Wiseman the Share Sale was

a completed sale as of January 4, 1984. Ennis’ letter to Schmelzle dated December 21, 1983,

indicates otherwise. Ennis’ letter to Chester dated February 10, 1986 [in JB 377] contains the

following:

With respect the issued and outstanding common shares of the capital stock of I.

Waxman & Sons Limited, the following is a recap of the said issued and outstanding

shares

Owned by Morris J. Waxman

Owned by Chester H. Waxman

Total

145 shares

355 shares

500 shares

[Emphasis added.]

Re Ennis’ Behaviour After the Share Sale

[2411] Before the litigation was formally commenced, Ennis was aware that Morris intended to

sue Chester. He said he did not act as Chester’s lawyer after he learned about the litigation.

However, he was going to assist Chester as best he could with respect to this matter. He did

arrange a meeting and accompany Chester to the meeting at Cassels Brock with Cancellera

about the lawsuit.⁸⁸⁷

[2412] Sometime in September, Cancellera came to Hamilton to meet with Chester at Ennis’

office. Ennis allowed Cancellera and a law clerk access to all of the IWS files. I question

Ennis’ evidence that he did not give them access to any of Morris’, Michael’s, SWRI’s,

Intercelco’s or Celdex’s files, but I make no finding on that point.

[2413] On October 24, 1988, Ennis wrote JB 4242, a letter to Husband (one of the Plaintiffs’

lawyers) with a copy to Chester and Cancellera in which he refused to release documents in

his possession belonging to Morris:

⁸⁸⁷Ennis, December 9, 1999.

Q. And did you have any retainer from Chester Waxman at that time, when you introduced time to Mr. Cancellara?

A. None whatsoever.

Q. And did you at some point thereafter have any retainer from Chester Waxman in connection with the matters in this lawsuit?

A. No. Not in that sense of the word.

Q. In what sense of the word?

A. Well, I was going to assist him as best I can in providing information to Mr. Cancellara.

Q. So you were retained by Mr. Cancellara?…

A. Obviously.

Q. Yes. Okay so he retained you to assist him. Have I got it right now?

A. Not really. I was prepared to assist any of the parties in this particular litigation…

Q. Did you not just say that Mr. Cancellara retained you?

A. No. You suggested it. I didn’t suggest.

Q. So he didn’t retain you?

A. Of course he didn’t retain me…

Q. Were you retained by Cassels, Brock to assist in any way with respect to their conduct, their activity for their client Chester Waxman?

A. No, I was not retained by Cassels Brock.

Q. Were you retained by anybody?

A. I was going to assist Chester as best I could with respect to this matter. I had not been sued as yet, you know. As far as I was concerned,

I had documentation. I was going to be interviewed by Ken Cancellara. I was going to allow them to go through and to inspect IWS files.

They were going to make photocopies. And I intended to actually be paid for that. I wasn’t going to do that on a gratuitous basis.

…Q. All right. So you were retained by IWS to provide your assistance that you just described?

A. Absolutely…

Q. …you were paid something on account of these anticipated services for IWS and Chester? A. Absolutely.

Q. So before you acted for Chester and IWS, you wanted a retainer?

A. And for other matters as well. There were other on-going matters.

Q. One of them was acting for them in this case?

A. Assisting them as best I could.

Q. And how much in total have you been paid to assist them as best you

could? A. I can’t tell you that. I don’t know.

Q. Give me an order of magnitude?

A. I can’t give you an order of magnitude but the $25,000 has been used up since 1989… …Q. So on the bottom line, how much have you

been paid for your services to

Chester Waxman and I. Waxman & Sons to date? A. For this particular lawsuit?

Q. Yes, sir.

A. I would say less than $1,000 which covered mostly photocopying and telephone calls.

Q. Less than a thousand dollars.

I have been instructed by Chester Waxman and his counsel… that I am not to release

any document which in any way relates to any dealings with your clients and Chester

Waxman…

[2414] On October 26, 1988, the same day Morris’ employment at IWS was terminated, Ennis

sent an account to Morriston, JB 4248, for services going back to 1983.

[2415] In March 1989, Ennis attempted to bill IWS $15,524.80 for services related to the

Morris Waxman lawsuit. After speaking to Chester, Linton destroyed the account and

instructed Ennis to send the bill to Cassels Brock.⁸⁸⁸

[2416] At Chester’s request, someone in Ennis’ office assisted in preparing a “will say”

statement for one of the witnesses at Michael’s criminal trial, which took place in December

1989. Ennis and an associate lawyer attended as observers with Chester.

[2417] I find that even after the litigation against IWS started, Ennis continued to favour

Chester’s interests over Morris’ Ennis said, “I had not been sued yet, as you know.”⁸⁸⁹

The Law

Liability for Breach of Fiduciary Duty

Existence of Duty

[2418] Ennis’ counsel concede that Ennis owed fiduciary duties to Morris.

[2419] I agree that Ennis owed fiduciary duties to Morris/Morriston as their long-term solicitor

and advisor. Ennis knew they were relying on him to protect their legal interests.

Scope of Duty

⁸⁸⁸Linton, May 30, 2000.

A. …As I said, I got the bills, Paul brought them down and was, as I recall, in a rush to get more money out of us to settle the $37,000 that he

was showing. So as I said, I set up to review the accounts and get on side and I hadn’t had a chance at this point to review the bills with

Chester.

Q. And did you have a subsequent discussion with Chester about that bill that’s dated March 8th, 1989?

A. Yes, I had a chance to talk to Chester about that bill…

…Q. …don’t tell us what he said… Just tell us what you did?

A. I phoned Mr. Ennis and said the bill was not acceptable to Chester. It would not be paid by I. Waxman & Sons. Told him to cancel the

invoice and if he wanted to, to turn around and send his account to your law firm, Cassels, Brock for payment.

Q. Was any amount paid or any advance applied to this account that’s dated March 8th, 1989?

A. No.

…Q. To your knowledge, was any amount paid by Chester Waxman personally to Paul Ennis in respect of this series of lawsuits? A. Not to

my knowledge.

Q. BB-53-4 makes reference to an account dated March 8th, 1989… And do you know what happened to it?

A. I threw it out after my conversation with Paul when we gave him instructions to re-invoice the amount to Cassels, Brock.

⁸⁸⁹Ennis, December 9, 1999

[2420] Ennis’ counsel submit that their fiduciary duties to Morris were limited to (1) informing

him of the conflict inherent in acting for both brothers, (2) recommending he obtain ILA, and

(3) advising Morris that the documentation he was signing transferred his shares to Chester

for $3,000,000 over time and leased lands for $2,000/month for 50 years.

[2421] I accept the submission of Ennis’ counsel that a fiduciary relationship does not

necessarily entail an all-encompassing duty of loyalty for all purposes. The standard of care to

be exercised by a solicitor must be judged in the context of his/her retainer.⁸⁹⁰In determining

the scope of a fiduciary obligation, the contractual foundation of the relationship must be

reviewed. The scope of the undertaking by the solicitor defines his/her duty.⁸⁹¹

[2422] Even if the scope of his fiduciary duty were as limited as Ennis’ counsel contends [and

I do not agree that it was so limited], I have found that Ennis did not fulfil even those limited

obligations. He did not inform Morris of his conflict of interest, did not explain the waiver of ILA

and did not provide even rudimentary legal advice to Morris about the documents he was

being asked to sign on December 22, 1983.

[2423] In Davey v. Woolley, Hames, Dale & Dingwall⁸⁹², Wilson J.A. said at 602:

It was submitted by counsel for the defendants that it is not a hard and fast rule that

solicitors cannot act on both sides of a transaction and, indeed that it is not uncommon

for solicitors, particularly in rural areas, to represent both vendor and purchaser on a real

estate deal provided they make full disclosure and both parties consent to their acting.

This may well be true although even in the case of a so-called “simple” real estate deal, I

doubt that it is good practice. In any event, the solicitor unquestionably assumes a dual

role at his own risk, the onus being on him in any lawsuit that ensues to establish that

the client has had “the best professional assistance which, if he had been engaged in a

transaction with a third party, he could possibly have afforded”: see London Loan &

Savings Co. of Canada et al. v. Brickenden, [1933] S.C.R. 257 at 262, [1933] 3 D.L.R.

161 [affirmed [1934] 3 D.L.R. 465, [1934] 2 W.W.R. 545 (P.C.)] (Crocket J. quoting from

Lord O’Hagan in McPherson v. Watt (1877), 3 App. Cas. 254 at 266). Even on the

simple real estate deal the consequences of conflict can manifest themselves in a failure

to make the requisition that allegedly should have been made and would have been

⁸⁹⁰See Woodglen & Co. v. Owens (1996), 6 R.P.R. (3d) 259 (Ont. Gen. Div.) at 291, aff’d [1999] O.J. No. 3989 (Ont. C.A.).

⁸⁹¹See J.R.M. Gautreau, “Demystifying the Fiduciary Mystique” (1989) 68 Can. Bar Review 1 at 13, 18-19.

made if the solicitor had been motivated solely by a concern for the plaintiff. On a

transaction of the degree of complexity of the one before the Court on this appeal I think

it is clear that the solicitor cannot act on both sides…

Duty Not to Act

[2424] I have found that the deal was not as simple as contended. Wilson J.A. (as she then

was) for the Ontario Court of Appeal in Davey,⁸⁹³said:

It seems to me that the learned trial judge did not direct himself to the central issue in

this case, namely could the defendant law firm act for the plaintiff in this transaction

given the circumstances in which it found itself? Should it, when it was advised by the

plaintiff that he was now contemplating a deal with Howe, have said to him—“In that

case we cannot act for you. We act for Howe. Besides, we know too much. You will

have to find another lawyer. All kinds of problems can arise in a transaction of this kind

and you must have truly independent legal advice”. In my view this is what the

defendant’s fiduciary duty to the plaintiff required them to do. Nothing less would suffice.

I think the appeal as to liability must therefore be allowed.

[2425] From everything Ennis knew, as recorded in his own notes and as outlined in these

Reasons, it was obvious that Morris’ interests were being trampled. That information should

have prompted him to categorically refuse to act for either Morris or Chester on the Share

Sale.

[2426] It goes without saying that Ennis could not purport to act for Morris without talking to

Morris. Ennis never talked to Morris privately about the deal [or indeed in Chester’s presence

on December 22, 1983.]

[2427] It is trite to say that a lawyer has a duty not to act or to continue to act where there is or

is likely to be a conflict of interest, and where, as here, a client’s [Morris’] interest could be

seriously prejudiced if he were not independently represented.

[2428] Where, as here, Ennis should have had both a reasonable apprehension of a possible

and existing conflict between Morris and Chester, Ennis should have declined to act for

both.⁸⁹⁴

⁸⁹²(1982), 35 O.R. (2d) 599 (Ont. C.A.) [hereinafter Davey].

⁸⁹³Ibid. at 606 [emphasis added].

[2429] Given ail of the information he had that should have caused him to react as if to

flashing red lights, Ennis could not turn a blind eye and simply document the deal as Chester

had instructed. He knew too muck He could not draft documents clearly favourable to Chester

and then, purporting to act for Morris, lend the appearance of normalcy by sitting quietly when

Chester asked Morris to sign them. In all of the circumstances, Ennis could not and should

not have acted at all. He clearly breached his fiduciary duty to Morris.

If Ennis Could Act—Scope of Duties Owed

[2430] If he had been able to act at all, Ennis would have owed certain duties to Morris.

Duty to Disclose

[2431] The duty to disclose all material knowledge is at the “heart of the duty that lies at the

core of the fiduciary principle.”⁸⁹⁵

[2432] No information that Ennis had received from Chester could be treated as confidential.

He had a duty to ensure that all material information of which he was aware had been

disclosed to Morris, including but not limited to the following:

1. Most important, the basic fact that Morris was being asked to sign documents selling

his shares of IWS.

2. Linton’s valuation memo of November 1982;

3. information that the $3 million share price in the December 22, 1983 Share Sale

Agreement included and reflected a reallocation to Chester of $412,000 of Morris’

money;

4. information that the $3 million share price did not reflect $6.6 million in 1981-1982

bonuses and $250,000 in 1979 bonuses, which as of December 22, 1983 had been

declared and had been or were in the process of being removed from IWS;

5. information that IWS would be receiving $250,000 in the summer of 1984 resulting

from the declaration of the $1 million dividend as part of the Share Sale;

6. even though Morris did not keep the money, the notional payment to him of the

$500,000 dividend would attract tax before it was gifted to Chester;

⁸⁹⁴Ridge View Development & Holding Co. v. Simper, [1989] 5 W.W.R. 133 (Alla. Q.B.) at 151.

⁸⁹⁵Hodgkinson, supra endnote 442 at 208.

7. information that no interest would be payable on the $500,000 being loaned to IWS;

8. information that the Share Sale documents included a long-term lease with Morriston

at rental rates which were below market, below the rentals that Chester had suggested

in July of 1983 and below the amounts necessary to pay interest on outstanding loans

with respect to the Blue Building located on the property;

9. information that other terms in the lease were patently unfavourable to Morriston.

[2433] Ennis clearly breached his fiduciary duty of disclosure on the facts of this case. He did

not disclose to Morris that he was signing Share Sale documents and a lease, let alone

ensure that all pertinent material information had been disclosed and/or discussed.

Duty to Advise of Pitfalls

[2434] If he could have acted at all, Ennis would have also been required to provide the

maximum legal protection that he could for Morris. Morris was clearly vulnerable, clearly at

risk. The sale of his shares of IWS was of obvious importance to Morris and he clearly

needed professional advice.

[2435] In Davey,⁸⁹⁶Wilson J.A. said at p. 601:

Although it may be true that the parties negotiated the basic terms as two reasonably

knowledgeable businessmen, there was much to be done in filling out the bare bones of

the transaction, and particularly in providing legal protection for the plaintiff in areas

where, having regard to the method of payment of the overall purchase price, he was

clearly at risk. This was where he needed the legal advice … an important part of their

responsibility to build into the transaction the maximum legal protection they can for their

client… A solicitor is in a fiduciary relationship to his client and must avoid situations

where he has or potentially may develop a conflict of interest…

[2436] He owed Morris a duty to ensure that Morris understood the “pitfalls and dangers” of

the transaction.⁸⁹⁷

[2437] I have not accepted Ennis’ evidence that he warned Morris of the kinds of problems

that could arise in a transaction of this kind. I have found that he never discussed the terms of

the Share Sale Agreement, lease and ancillary documents with Morris. Ennis provided no

⁸⁹⁶Supra endnote 890.

advice to Morris. I have accepted Morris’ evidence that he was simply asked to sign certain

documents and he did, without reading or understanding what he was signing.

Reliance

[2438] I have found that on December 22, 1983, Morris was clearly relying on Ennis, as he did

whenever he signed legal documents in Ennis’ presence or prepared at Ennis’ office.

Causation

[2439] A lawyer who has breached a fiduciary duty to a client bears the onus of proving that

the Plaintiff has not been adversely affected by his divided loyalty.⁸⁹⁸

[2440] In my view, Ennis has not satisfied the onus on him of showing that Morris/Morriston

have not been adversely affected by his divided loyalty, or of demonstrating that Morris would

have entered into the transaction notwithstanding the breach.⁸⁹⁹

[2441] I have accepted Morris’ evidence that he did not want to sell his shares in December

1983. If Ennis had told Morris on December 22, 1983, that he was selling his shares to

Chester, Morris would not have signed.⁹⁰⁰

[2442] In my view, the Share Sale would never have occurred if Morris had been

independently represented. If he had wanted to sell his shares, an independent solicitor would

have advised Morris that the terms of the Share Sale and lease were patently and grossly

unfavourable to him, that he needed expert financial, valuation and tax advice. Morris would

not have signed the Share Sale documents.

The Waiver of ILA [Independent Legal Advice]

[2443] In Davey,⁹⁰¹Wilson J.A. held that a waiver of ILA was ineffective, inter alia, because

the solicitor had already begun acting for both sides before it was signed:

[2444] at 602:

⁸⁹⁷lbid.; Clarence Construction Ltd v. Lavallee (1980), 111 D.L.R. (3d) 582 (B.C. S.C.), aff’d (1981), 132 D.L.R. (3d) 153 (B.C. C.A.).

⁸⁹⁸Davey, supra endnote 890 at 604.

⁸⁹⁹Commerce Capital Trust Co. v. Berk (1989), 68 O.R. (2d) 257 (Ont. C.A.) at 261.

⁹⁰⁰Morris, March 2, 1999.

⁹⁰¹Supra endnote 890 [emphasis added].

It also precludes him from acting for two clients of adverse interests unless, having been

fully informed of the conflict and understanding its implications, they have agreed in

advance to his doing so… In my opinion Mr …, in undertaking to represent the plaintiff

on this transaction, put himself in a position where it was virtually impossible for him to

satisfy the onus of showing that the plaintiff had not been adversely affected by his

divided loyalty.

[2445] “In advance” would mean that Ennis would have had to have obtained the Waiver of

ILA before negotiations took place, before documents were drafted, before documents were

signed.

[2446] at 604:

On the appeal counsel for the defendants relied very heavily on an acknowledgement

signed by the plaintiff on the closing of the transaction. In it the plaintiff acknowledged

that he had been told that the defendants were acting on both sides of the transaction

and that Mr. Woolley had a personal interest in it and that he nevertheless consented to

have the defendants represent him. However, Mr. Stevens testified that the need to

“take some precautions” of this kind did not occur to him until October or November of

1975 when he realized that the Howe option was going to be exercised and Corporate

Master Limited was going to be the purchaser. He apparently considered that only then

would he be in a position of conflict. He had not raised the problem of conflict with the

plaintiff prior to this although he acknowledged in his testimony that he was “terribly

concerned” as to whether the plaintiff comprehended how vulnerable he was on some

aspects of the transaction. Mr. Stevens, in my opinion, was too late in appreciating his

conflict of interest position. He failed to take proper stock of the situation when he was

first approached by the plaintiff and Howe and as a result undertook to represent the

plaintiff when he should have directed him elsewhere. In so doing he breached his

fiduciary duty to the plaintiff and a subsequent acknowledgement and consent could not

exonerate him from any consequences that flowed from that breach.

[2447] In the case at bar, I have found that Ennis never advised Morris to seek ILA before

December 22, 1983. On that day he did not seek or obtain the waiver of ILA until after the

documents had already been signed. Even then, he never properly explained its implications.

I find that Morris signed it without sufficient explanation. Ennis cannot avoid liability by relying

on it. The waiver is of no assistance to Ennis.

[2448] Summary Finding - Breach of Fiduciary Duty re Share Sale

[2449] Morris/Morriston’s claims against Ennis for breach of fiduciary duty in connection with

the Share Sale and lease should succeed.

Liability for Negligence/Breach of Contract re Share Sale

[2450] A solicitor may be liable to his client both in negligence and in contract for a breach of

an implied duty of care and skill attaching to his retainer.⁹⁰²

[2451] Haley J. in 120 Adelaide Leaseholds Inc. v. Thomson, Rogers,⁹⁰³canvassed a

solicitor’s duties saying that he or she must exercise the degree of care and skill of a

reasonably competent and diligent solicitor and that he or she must be skilful and careful;

must advise the client on all matters relevant to the retainer, so far as may be reasonably

necessary; must protect the interests of the client; must carry out the client’s instructions by

all proper means; must consult with the client on all questions of doubt which do not fall within

the express or implied discretion left to him; must keep the client informed to such an extent

as may be reasonably necessary.

[2452] A solicitor owes his client a duty of reasonable care and skill in advising him/her in

relation to risks,⁹⁰⁴to explain unusual clauses in a document that might affect his/her

interests, and to draw such stipulations to the client’s attention.⁹⁰⁵

Application to the Case at Bar

[2453] I find that the Plaintiffs have proven both that Ennis was negligent and that he

breached his contract with Morris/Morriston. He did not advise them on any matters pertaining

to the Share Sale or lease and he did nothing to protect their interests.

Remedies Against Ennis for Breach of Fiduciary Duties/Negligence/Breach of Contract

⁹⁰²Central & Eastern Trust Co. v. Rafuse (1986), 31 D.L.R. (4th) 481 (S.C.C.).

⁹⁰³(1995), 43 R.P.R. (2d) 79 (Ont. Gen. Div.) at 96-7.

⁹⁰⁴Major v. Buchanan (1975), 9 O.R. (2d) 491 (Ont. H.C.).

⁹⁰⁵Sykes v. Midland Bank Executor & Trustee Co., [1970] 2 All E.R. 471 (Eng. C.A.)

[2454] Counsel for Ennis submit that an order of damages/compensation against a solicitor

who receives no personal benefit from a breach of fiduciary duty should be limited to

common-law damages, in this case to the difference between the price Morris received for his

shares and their fair value at December 1983.

[2455] I do not ascribe to the limited damages theory advanced by Ennis’ counsel in all of the

circumstances of this case.

[2456] I have found that Morris did not want to sell his shares and did not know he was selling

them on December 22, 1983. But for Ennis’ actions (and inactions), but for Ennis’ willingness

to give the Share Sale the veneer of a normal and proper business transaction, there would

have been no Share Sale. Morris would not have signed if Ennis had fulfilled his duties to him.

Similarly, Morriston would never have signed the lease if Ennis had fulfilled his duties to it.

[2457] Like any other fiduciary, Ennis is liable to his beneficiary for all losses causally

connected to his breach of fiduciary duty.⁹⁰⁶

[2458] Through Ennis’ breach of fiduciary duty, Morris has been deprived since late 1983 of

all the fruits of 50% ownership of IWS. All benefits that Morris has lost flow directly from

Ennis’ breach of fiduciary duty to Morris. Ennis is jointly and severally liable for those losses.

Ennis is also jointly and severally liable to Morriston/Morris on the same basis for any losses

flowing from the December 1983 lease.

[2459] If I had not ordered Chester to convey 50% of the shares of IWS to Morris, I would also

have held Ennis liable to pay Morris the value of 50% of the shares of IWS at the date of trial.

I have noted elsewhere there is an overlap between Morriston’s loss of profits on the lease

and Morris’ loss of IWS profits. IWS benefited from the underpayment to Morris.

Alternative Claims re Income Tax Losses

[2460] I have found that Morris is entitled to 50% of the IWS shares and 50% of IWS profits in

the interim. Therefore, it is not necessary to decide this issue. As Chester has been holding

Morris’ shares in trust [i.e. Morris never disposed of his shares] Morris should be able to

recover tax paid. I realise that much time has passed since the tax was paid but would urge

Revenue Canada to recognise the complexity of this litigation and to voluntarily repay the tax

⁹⁰⁶Davey, supra endnote 890 at 606; Hodgkinson, supra endnote 442.

paid in connection with the Share Sale. If this does not happen, the matter may be further

addressed. If I had upheld the Share Sale, I would have found liability against Ennis and have

assessed the damages at $351,808.

[2461] Morris claims that Ennis failed to provide or recommend that Morris obtain independent

financial advice with the result that the deal was not properly structured from a tax

perspective.

[2462] Ennis gave evidence, which I accept, that he had no special expertise in tax law, never

practised in that area, and never provided tax advice to IWS or to any other client. However,

Ennis recommended and retained Scace to provide tax advice to Morris and Chester in

connection with the estate freeze and to IWS in connection with the Lasco deal.⁹⁰⁷I have not

accepted Ennis’ evidence that he told Morris there were tax problems and Morris told him that

Linton, Taylor and Wiseman would give him all the tax advice he needed. I have found Ennis

never spoke to Morris about the Share Sale.

[2463] Linton said he did not speak to Morris about the Share Sale before the documents

were signed.

[2464] Ennis knew Taylor Leibow and Scace had not been consulted, that no independent

valuation had been obtained, and that Morris was not sophisticated about tax and financial

matters. Having been provided with Linton’s valuation, it was obvious that it was one-sided

and unfair to Morris and that Linton could not be relied upon to provide objective tax advice to

Morris.

Expert Evidence About Liability re Alternative Claim #1

[2465] Although Wiseman commented briefly, the principal evidence in respect of the tax filing

issues was provided by Michael Cadesky (“Cadesky”), an expert called by counsel for the

Plaintiffs, and by David Duff (“Duff”) an expert called by counsel for the Defendants. They

each gave evidence with respect to liability and quantification of damages.

[2466] Cadesky gave evidence regarding the structure of the Share Sale transaction. In his

report on that issue dated October 19, 1998, he said that a “very common” type of tax

planning vehicle—a “safe earnings strip”—employing a holding company and a rollover under

⁹⁰⁷Ennis, November 25, 1999; November 26, 1999, December 3, 1999.

section 85 of the Income Tax Act would have allowed for the payment of the entire purchase

price without any immediate tax consequences.⁹⁰⁸

[2467] Duff said he recommended “safe income strips” to his own clients in 1983 for

transactions of this sort. If Morris and Chester had come to him in 1983 and told him that they

were considering a Share Sale transaction, he would have considered this type of structure

and discussed it with them.⁹⁰⁹

Conclusion

[2468] If Ennis could have acted at all, given that he was not qualified as a tax or financial

advisor and that he had recommended that such advice be obtained from qualified experts in

the past, Ennis should have advised Morris to seek independent tax and financial advice. I

have found that Ennis should not have purported to act for Morris at all. Ennis’ failure to insist

that Morris be separately represented was negligent. An independent lawyer would have

advised Morris to obtain independent tax and financial advice. Ennis should not have acted

for both Chester and Morris and his failure to refuse to act for Morris caused Morris’ loss.

Expert Evidence re Damages re Alternative Claim #1

[2469] Under Scenario 1, Cadesky assumed that Morris would have personally received

$1,250,000 tax free in cash. In addition, $1,750,000 would have been rolled into a holding

company. Morris would have had the opportunity to earn income on the $1.25 million, plus the

income on the $1.75 million in the holding company without triggering tax. Those monies

invested at rates available during the relevant period would have generated about $300,000 a

year for Morris.

[2470] Duff opined that the tax cost of Ennis’ failure to structure the transaction properly under

Cadesky’s Scenario 1 was $351,808, present valued to December 1983.⁹¹⁰

[2471] Duff put forward two further alternative tax-cost scenarios under which Morris would

either withdraw all the funds from the holding company over a five year period, or would

withdraw $100,000 in dividends annually to supplement his income.

⁹⁰⁸Cadesky, June 7, 1999.

⁹⁰⁹Duff, August 30, 2000.

⁹¹⁰Duff, August 30, 2000; Exhibit 322, Schedule E.

[2472] Cadesky adopted Duff’s suggested revisions to his Scenario 1 calculations, accepting

as correct his Schedule “C” to Exhibit 232, which is a schedule of capital gains taxes paid by

Morris between 1984 and 1988 totalling $454,482 in respect of the share transaction. He

agreed with Duff that the difference between Morris’s tax costs under the deal as structured

and under a deal using a safe income strip is $351,808.⁹¹¹

[2473] Given the evidence about Morris’ historical earning pattern and lifestyle, I think it

unlikely that he would have required more than $300,000 income per year and I make no

further reference to these alternative scenarios here. Using the assumptions in Scenario 1, I

find that the quantum of damages caused by failing to recommend the use of an advisor who

would have recommended a safe income strip, is $351,808 present valued to 1983. Pre-

judgment interest on that amount would be calculated having regard to the year in which each

component of the loss was suffered.⁹¹²

[2474] I find that Morris’ damages resulting from Ennis’ negligence and breach of fiduciary

duty on alternative claim one is $351,808.

Alternative Claim #2

[2475] The second claim for income tax losses is based on the losses arising from the Share

Sale being characterised as a completed rather than a staged sale. If I had upheld the Share

Sale, I would have dismissed this part of the claim.

[2476] Ennis’ evidence with respect to whether the Share Sale was a completed sate or a

staged sale was confusing and contradictory. On January 21, 2000, Ennis gave evidence that

he was of the view that until such time as the shares were transferred by Morris to Chester,

Morris was still a shareholder. His letter to Schmelzle dated December 21, 1983 is indicative

that that was his understanding at the time. The letter in JB 377 referred to earlier in which

Ennis informs Chester that Morris is a shareholder of 145 IWS shares as of February 10,

1986, is also reflective of that view. The corporate documentation prepared in his office (e.g.,

share register) and contained in the IWS minute book is also consistent with the Share Sale

being a staged and not a completed sale.

⁹¹¹Cadesky, June 7, 1999; Exhibit 322, Schedule E.

⁹¹²Cadesky, June 7, 1999.

[2477] At another point in his evidence Ennis said he thought that all of Morris’ shares were

transferred to Chester as of January 4, 1984.

[2478] I have not accepted Wiseman’s evidence that Ennis told him in early 1985 that the

Share Sale was a completed sale. Ennis’ contemporaneously prepared documents, even

those prepared after April 1985, reflect that at the time. Ennis believed the Share Sale to be a

staged not a completed sale.

[2479] In any case, I have found the wording of the Share Sale Agreement to be

unambiguous, clearly providing for a staged sale. Taylor Leibow should not have resorted to

evidence of intention in preparing Morris’ tax. If I had not set aside the Share Sale, I would not

have found Ennis to be liable under this heading, as Wiseman should not have resorted to

evidence of intention in any event.

Damages re Alternative Claim #2

[2480] If I am incorrect in finding Ennis not to be liable under this heading, I would assess

damages with respect to Morris’ tax losses arising from the failure to reflect the Share Sale as

a staged sale in the same amounts as I have assessed against Taylor Leibow under this

heading in Action #44142/82.

Overlap Between Alternative Claim #7 and Claim #2)

[2481] It should be noted that there is an element of overlap in the two claims for tax losses. If

the Share Sale had been structured using a safe earnings strip, the tax filing issue would not

have arisen, as there would have been no tax payable by Morris. If the sale had been treated

as a staged sale, tax costs resulting from not using a holding company would have been

reduced because the figure of $454,482, which is the starting point for the calculation, would

itself be reduced. If it were necessary to determine the exact numbers, further submissions

would be necessary.

Disposition

[2482] Judgment will go against Ennis with respect to the Share Sale in the same amounts as

against Chester in the Main Action. Given my disposition with respect to the Share Sale, the

alternative claims are dismissed. Counsel may make submissions on interest and costs using

the procedure outlined in the Main Action.

Part X - The Claims against Taylor Leibow and Linton

[2483] In Action #44142/82 the Plaintiffs claim against Taylor Leibow and Linton/IWS.

[2484] The Plaintiffs claims against the Defendant Taylor Leibow (the “Auditors”) on three

bases:

(a) generally, as auditors, in failing to ensure that the IWS financial statements properly

reflected related-party transactions and to bring the extent of the related-party business

to Morris’ attention;

(b) in failing to discuss the bonuses with Morris;

(c) in failing to properly prepare Morris’ tax returns after the sale and to treat the Share

Sale if valid as a staged rather than a completed sale.

[2485] In this Action, the Plaintiffs claim with respect to the Share Sale that Linton:

• knew about the proposed Share Sale, and helped Chester draw up “the papers” and

arrive at the values set out in the Share Sale Agreement i.e., the share price;

• knew that the Share Sale Agreement and December 1983 lease were improvident

insofar as Morris was concerned;

• knew that Chester was breaching fiduciary duties that he owed to Morris, yet colluding

and dishonestly and assisting Chester with that breach;

• failed to ensure that Morris received independent tax and appraisal advice with respect

to the Share Sale;

• failed to warn Morris of the improvidence of the Share Sale;

• instructed Wiseman to characterise the Share Sale as a completed sale when he knew

it was a staged sale.

[2486] The Plaintiffs claim with respect to the bonuses that Linton failed to advise Morris

about the 1979, 1981 and 1982 bonuses knowing that Chester was breaching his fiduciary

duties to Morris and knowingly assisted/colluded with Chester in that breach.

[2487] The Plaintiffs claim with respect to the Profit Diversions that Linton knew of the nature

and extent of the business activities of Greycliffe and other related parties and failed to

ensure that the related-party transactions were disclosed on the IWS financial statements

and/or discussed with Morris.

[2488] The Plaintiffs claim with respect to the preparation of Tax Returns that Linton

improperly drafted Morris’ tax returns.

[2489] The Plaintiffs claim with respect to Morriston that Linton breached his fiduciary duties in

its financial administration.

The Claims Against Taylor Leibow

Relationship between Taylor Leibow and the Plaintiffs

[2490] It is uncontroverted that for many years preceding December 1983, the Auditors

conducted the IWS audit.⁹¹³Taylor was in charge of it from the late 1940’s until the late 1970s

and to a lesser extent thereafter. Wiseman was involved in the audit in the field in the late

1970’s and was partner in charge thereafter.

[2491] Over the years, Taylor Leibow’s involvement with the Waxmans extended well beyond

the IWS audit. Taylor Leibow assisted IWS with special projects such as the Regional tender

bid mentioned earlier.⁹¹⁴They provided advice in connection with the Laidlaw and Lasco

deals and the estate freeze. They performed auditing and accounting services for a number of

companies affiliated with IWS, including Greycliffe. They provided tax advice and either

prepared or supervised the preparation of, the personal tax returns of members of the

Waxman family, including Morris and Chester.

[2492] By 1983, Taylor had been aware for many years that Chester managed financial

matters for Morris. An early example is JB 383, a letter dated November 2, 1958, in which

Taylor makes inquiries of Chester, not only about IWS and Chester’s personal investments,

but also about Morris’ personal investments.

[2493] Taylor Leibow seeks generally to avoid liability on the basis that its client was IWS. It

submits that the only service provided to Morris personally in the relevant period was ensuring

that his tax returns prepared by Linton complied with the Income Tax Act.⁹¹⁵Except in 1984,

⁹¹³Wiseman, February 4, 2000; February 15, 2000.

⁹¹⁴Morris, December 17, 1998 and January 25, 1999; Wiseman, February 15, 2000.

⁹¹⁵Wiseman, February 4, 2000, February 15, 2000; Linton, May 16, 2000; Morris, December 17, 1998.

Wiseman never met with Morris to discuss his tax returns.⁹¹⁶Wiseman said he never provided

tax, investment or financial advice to Morris personally.⁹¹⁷

[2494] Counsel for the Plaintiffs submit that given his long-standing relationship of trust and

confidence with Taylor and Wiseman, Morris was entitled to expect Taylor Leibow to protect

his interests. In JB 3070, a note written by Morris just before his open-heart surgery, Morris

asked Taylor and Wiseman to provide guidance to Michael in the event of his death. In

JB 3071, the Notes from the Grave, Morris wrote that the people he trusted most in the whole

world and in matters of importance as to the business and friendship were Chester, Taylor

and Wiseman.

[2495] Counsel for the Plaintiffs refer to Wiseman’s acknowledgement that Taylor Leibow’s

real clients in the IWS audits were Chester and Morris⁹¹⁸and to his evidence about his shock

when he learned Taylor Leibow had not been consulted about the Share Sale at any time

before the documents were signed:

Wiseman, February 24, 2000

A. I remember that aspect of it because I’ll tell you it was a shock.

Q. And the reason you were shocked, just not to put too fine a point on it, is you thought

you had developed a relationship such that both Morris and Chester could have put their

confidence in you to assist them in this regard. Correct?

A. I don’t know—yeah, yes. I thought there was some value added we could have

provided both Morris and Chester in respect of the share deal.

Q. You thought your relationship with both Chester and Morris was such that they could

expect you to look out for their interests… if they had retained you?

A. My relationship with respect to professional business matters, tax matters, advice was

more so with Morris, less so with Chester, but I’m prepared to accept that, yes.

[emphasis added]

[2496] They refer to Taylor’s evidence that he was absolutely shocked, extremely

disappointed and upset that he had not been consulted in advance about the Share Sale by

two brothers who were as close as family.

⁹¹⁶Wiseman, February 4, 2000, February 15, 2000; Linton, May 16, 2000.

⁹¹⁷Wiseman, February 15, 2000; Linton, May 18, 2000.

Taylor Leibow Audit Liability re Related-party Disclosure

[2497] The Plaintiffs allege the Auditors failed to ensure that the IWS financial statements

properly reflected transactions with Greycliffe and other related parties (Circuital, Big Rig,

Servtross and Icarus) that in all of the circumstances, they were required to bring the extent of

those related-party transactions to Morris’ attention and failed to do so. Morris was not aware

of the extent of the transactions or the profits being diverted from IWS to the related parties. If

Taylor Leibow had brought the profit diversions to his attention, Morris would not have trusted

Chester. If he had been warier, Chester could not have tricked him into signing Share Sale

documents.

Were the Related-Party Transactions Material?

[2498] Section 3840 of the CICA Handbook (“S. 3840”) provides, in part, as follows:

This Section deals with the financial statement disclosure required to assist the user of

financial statements to understand the manner in which and the extent to which

transactions with related parties have affected the financial position and results of

operations of an enterprise…

…To the extent that financial statements include the results of transactions with related

parties, users would reasonably expect to be made aware of those transactions. Such

information could influence user interpretation of financial statements. [Emphasis

added.]

1980 IWS Audit

[2499] Wiseman said S. 3840 applied to the IWS 1980 financial statements. When he

received the draft 1980 financial statements prepared by Linton, they did not include a

related-party note. He did not insist that one be included because he said he believed the

related-party transactions were not material to the intended users of the IWS financial

statements, namely Chester, Morris and the CIBC. Their judgment would not be affected by

note disclosure. IWS had cash-type assets of approximately $4 million and retained earnings

in excess of $7 million. Since Morris and Chester were intimately involved in the management

⁹¹⁸Wiseman, February 24, 2000.

of IWS on a day-to-day basis, they knew of the related-party transactions. They were aware

of Greycliffe. There was no need to tell them what they already knew.⁹¹⁹

[2500] He had no discussion with IWS management regarding his decision not to include a

related-party note in the 1980 IWS financial statements⁹²⁰nor did he document it in the audit

file.⁹²¹

1981 Greycliffe Statement For Year Ended May 31, 1981

[2501] Wiseman prepared the Greycliffe financial statements for the year ended May 31, 1981

(Exhibit 232B tab 34), which reflect revenues of $459,000, primarily earned by providing

transportation services to IWS. He said in chief he did include a related-party note in the

Greycliffe statements because he thought the information was material to users of the

Greycliffe statements other than Robert, including those leasing equipment and providing

financing to Greycliffe.⁹²²

[2502] The first draft of that related-party note reads as follows:

The majority of the revenues earned relates to transportation services provided by the

Company to I. Waxman & Sons Limited. The rates charged by the company

approximate the market value of the services rendered.

[2503] In the note as finalized, the wording of the last sentence reads as follows:

The rates charged by the company are at market value for services rendered.

[2504] Wiseman said Rosen’s opinion that the wording of the related-party note in the

Greycliffe statements obliged the Auditors to satisfy themselves that the Greycliffe

transactions were at fair market value was based on a false premise, i.e., that “fair market

value” is the same as “market value.”⁹²³

Wiseman, February 22, 2000

A. …we did not impose that obligation on ourselves since that note did not refer to… fair

market value.

⁹¹⁹Wiseman, February 18, 2000; Exhibit 232, tab 13.

⁹²⁰Wiseman, February 18, 2000; Linton, May 29, 2000.

⁹²¹Wiseman, February 18, 2000.

⁹²²Wiseman, February 18, 2000.

⁹²³Wiseman, February 21, 2000.

[2505] The Greycliffe note was intended to convey only that “the prices are what the prices

are”⁹²⁴:

Wiseman, March 6, 2000

Q. Sir, you, Steve Wiseman, first of all reported that Bobby Waxman said to you, I’m

referring to question 1406 that the transactions were at fair market value.

A. Right. Correct.

Q. And you yourself did not say, wait a moment, I see what you’re referring to, but that

doesn’t say fair market value. It says market value. You didn’t do that, did you?

A. No… The fact of the matter is that perhaps it’s my training in economics as well as

accounting, but there are major differences between fair market value, fair value and

market value…

…Q. …with respect to Bobby’s trucking companies and his cartage and haulage

expenses you were asked under oath (at discovery) whether you had to satisfy yourself

that those transactions took place at or near fair market value, and you answered under

oath unequivocally yes?

A. …I gave a correction on that or clarification because that question relates to tax

oriented question.

[2506] Wiseman said in chief he never talked to Linton about market rates or fair market value

or how to test whether the trucking rates were at market.⁹²⁵He was cross-examined:

Wiseman, March 6, 2000

Q. And do you acknowledge in that same transcript you were later asked what inquiries

or steps did you take to ensure that related-party transactions referable to cartage and

hauling did take place at fair market value, and that you said you made inquiries of

management and asked how they determined prices?

⁹²⁴Wiseman, February 21, 2000.

⁹²⁵Wiseman said that he never talked to Linton about market rates or fair market value or anything like that.

Linton, June 12, 2000

Q. Is it the case throughout your involvement in the audit from 1979 through 1983, Steve Wiseman did not discuss with you nor did any of

the audit team discuss with you, how trucking rates were established. Is that so?

A. I believe that’s correct.

Q. He didn’t ask you at all how they could test from your own documents whether or not the trucking rates were at market? A. No, I don’t

recall any discussions about market rates of haulage fees.

…Q. So your evidence is as the comptroller of the company, you were never told the view of Steve Wiseman on cartage and haulage fees,

ever?

A. That’s correct.

A. Correct.

Q. And you were asked… of whom you made those inquiries?

A. I believe I said Robert Waxman and Wayne Linton.

[2507] Robert said as part of the Greycliffe audit process, Wiseman asked him every year

about Greycliffe’s level of activity. He never had any discussions with him or anyone at Taylor

Leibow about Greycliffe’s profit margins.

1981 IWS Audit

[2508] The Plaintiffs submit that during the 1981 IWS audit, at the latest, the Auditors were

concerned about Greycliffe charges to IWS and at the very least suspicious that Greycliffe’s

charges to IWS were not at fair market value.

[2509] Linton’s first draft of the 1981 IWS financial statement contains no related-party note.

[2510] In early 1982, during the IWS audit for the year ended December 31, 1981 Demers [a

Taylor Leibow employee] concluded in a Highlight Note that related party transactions should

be disclosed.⁹²⁶[Further relevant entries in the 1981 working papers include JB 2537K; Ex

232B, tab 58; Ex 218, tab 16; JB 2527C; JB 2527B; Ex 218, tab 16.] By that time, the audit

team was referring to Robert as “CEO” of IWS.

[2511] Wiseman said in chief that after he reviewed that Highlight Note, he concluded the

related-party transactions to which Demers had referred were not material to the users of the

IWS financial statements. Greycliffe was well known to IWS’ management and owners. Morris

and Chester had access to IWS’ books and records and non-disclosure would not likely alter

the Bank’s position. IWS was strong financially with $8.5 million in retained earnings and

cash-type assets in excess of $11 million.⁹²⁷

[2512] When he was confronted with an earlier letter from his counsel advising counsel for the

Plaintiffs that non-disclosure was a mistake in both 1981 and 1982, he said the letter was

wrong.⁹²⁸On discovery he said it was fair to assume that no related-party transactions were

noted in IWS’ 1980 and 1981 financial statements because he was not aware of any.⁹²⁹He

⁹²⁶Wiseman, February 21, 2000; Ex 232, tab 39.

⁹²⁷Wiseman, February 21, 2000; Exhibit 232, tab 39; Harris, August 30, 2000.

⁹²⁸Wiseman, March 7, 2000; JB4626A.

⁹²⁹Wiseman, March 27, 2000.

later said, through his counsel, that his explanation for non-disclosure would be found in the

expert’s report.⁹³⁰

[2513] Wiseman gave evidence at trial that he never had any audit concern that Greycliffe’s

rates were uncompetitive. However, in early 1982, he and Taylor discussed haulage fees that

Greycliffe was charging IWS. Taylor told Wiseman he would raise the matter with Chester,

because if Revenue Canada found Greycliffe expenses to be unreasonable, it would not allow

IWS to deduct them from its taxable income. Wiseman said that he raised the point, not as an

audit issue but as a tax issue,⁹³¹not because he believed that Greycliffe’s rates were

excessive, but because of Revenue Canada’s aggressive attitude.⁹³²

[2514] Robert said that in 1981 or 1982, he told Wiseman that Greycliffe charged common

carrier rates or less. He could not recall whether he provided supporting documentation. He

thought Wiseman told him that if Greycliffe’s rates were excessive, IWS would not be able to

deduct the charges as expenses on its income tax returns.⁹³³In cross-examination, he said

he had lengthy discussions with Wiseman in 1981 about the fair market value of Greycliffe’s

rates.⁹³⁴

Findings - 1981 Audit

[2515] Prior to completion of the 1981 audit for IWS in early 1982, Wiseman knew Robert was

running both IWS and Greycliffe, and Greycliffe’s main source of revenue was IWS.

Related-party note disclosure was not made, even though Deniers recommended disclosure.

I do not accept Wiseman’s evidence that he was not concerned about Greycliffe’s rates. I find

he did have concerns during the IWS 1981 audit that the rates Greycliffe was charging to IWS

were not at fair market value. He spoke to Robert at length, but was obviously not satisfied

with his explanation, for he then spoke to Taylor, who spoke to Chester. If Wiseman thought

⁹³⁰Wiseman, March 8, 2000.

⁹³¹Wiseman, February 7, 2000.

A. …I asked him if he would discuss whether or not they were satisfied that the haulage rates in respect of the Greycliffe charges to IWS

were fair market value.

Q. What was your concern about a Revenue Canada issue?

A. section 67 in the Income Tax Act… talks about unreasonable expenses, and if Revenue Canada take the view that an expense is laid out

and it’s not laid out to earn income that expense is simply not deductible from taxable income… [then] it’s taxable in the entity or the person

receiving either the bonus or the haulage fees, it would still be taxable it’s revenue it’s taxable income and in the company that’s the payor

would not be deductible and therefore that company—if any portion was not allowed as a deduction, there would be additional tax.

Q. Were you party to the discussion between Sam and Chester?

A. No, Sam Taylor reported back to me.

Q. And what changes were made or adjustments made following the discussion between Chester and Sam?

A. None.

⁹³²Wiseman, February 21, 2000, March 7, 2000.

⁹³³Robert, April 11, 2000 and April 14, 2000.

⁹³⁴Robert, April 17, 2000.

the Greycliffe rates were reasonable, he would not have been concerned about the

deductibility of IWS’ Greycliffe expenses and he would not have spoken to Taylor.

[2516] In early 1982, Wiseman did not take steps to address the pitfalls created by Robert’s

dual roles in Greycliffe and IWS, despite obvious warnings contained in his own working

papers. As audit partner, he should have scrutinized the information provided by his audit

staff and by IWS management including Linton and Robert. From the contents of the working

papers, it was obvious that Robert was running both IWS and Greycliffe, negotiating both

sides of transactions between Greycliffe and IWS. He was directing Greycliffe’s billing of IWS

and was signing IWS cheques payable to Greycliffe.

[2517] No further investigation was done. No related party note was included in the 1981 IWS

financial statement. No one spoke to Morris.

1982 IWS Audit

[2518] Linton said when he prepared the draft 1982 IWS financial statements, he did not

include a related-party note.⁹³⁵He told the Auditors, “it was Bob’s feeling or preference that

they not disclose the related-party transactions if possible.”⁹³⁶[Emphasis added]

[2519] During the 1982 audit, Wiseman reviewed working papers, including the following:

(1) JB 2537K, headed Sales Receivables Receipts, in the handwriting of Taylor Leibow

staff member Ron Krivenky, which contains a note under “Summary of Owners’ Control”

as follows:

Owner’s son Bob approves all customer orders, writes up sales orders and

approves the pricing done by Linda [Rioux]. He also approves credit notes, A/R

[accounts receivable] write-offs, no-charge invoices, customer credit extensions

and A/R adjusting entries and reviews ageing listings.

(2) JB 2527-B, Internal Audit Review, Year Ended December 31, 1982, in which it is

noted under B-2 and B-3

[Q] ‘do we know of any other signing officers - what if Robert away?’

[A] ‘cheque held’.

⁹³⁵Wiseman, February 21, 2000; Exhibit 232, tab 61.

⁹³⁶Linton, May 29, 2000.

[Q] ‘One signing officer for all payments?

[A] Yes, BW;’

(3) Exhibit 89, tab 14, which contains the following Item 5:

Greycliffe, Wayne Linton prefers not to disclose. Bank knows about this;

(4) Exhibit 232-B, tab 65, Highlight Notes, on page 2:

related parties - Greycliffe - there are large payments for haulage paid to Greycliffe.

We should disclose these payments… A/R at 12/31/82 = NIL. Haulage fees

paid:____[indicating that an amount was to be filled in.]

Circled to the left the following is handwritten:

Wayne does not want to disclose [Emphasis added.]

[2520] In contrast with JB 1561A, an organization chart prepared by the Auditors as of

September 1980 that shows Morris and Chester as the two head-men at IWS with Chester’s

sons off to the side under the heading Steel Sales, Exhibit 218, tab 16, an organization chart

as of 1982 shows Robert as the General Manager of IWS and Morris no longer as a head-

man at IWS. It reflects that Robert, whose title was Assistant to the President, did NOT report

to Morris, the President, but to Chester. It also reflects that the Greycliffe truck drivers did not

report to Morris but to Robert through Larry Verbaas [an IWS employee.]

[2521] Wiseman said he had no concerns about Robert’s dual role in IWS and Greycliffe. He

did not scrutinise what Robert was doing.⁹³⁷He did not consider advising Morris that Linton

did not want to disclose Greycliffe’s related-party transactions. He assumed Morris and

Chester knew about Greycliffe.⁹³⁸He was cross-examined as follows:

Wiseman, February 7, 2000

Q. …it’s more than that, sir. It’s not enough to say they knew about Greycliffe… Your

audit obligation is much different. It’s to establish the manner and extent not the fact, but

⁹³⁷Wiseman, February 24, 2000.

Q. Did the fact that Bobby Waxman had the amount of control that he did in 1982 and he was also as it were, dealing with himself in

Greycliffe, did that every strike you as something that you should be concerned about, just a little bit?

A. Not given the tightness of that family, the way that company ran, the interplay of personnel, especially at the family level. The degree of

trust that was reflected by everybody in everybody else. The fact that there were various functions undertaken by various family personnel in

that company. Didn’t concern me because of what I knew about the family, based on what I saw, heard.

Q. did it ever occur to you as an auditor you should be scrutinizing, as an auditor, the transactions involving Bobby Waxman with some care

because of his dual role and his control. Did that ever occur to you?

A. That was not my frame of mind.

⁹³⁸Wiseman, February 21, 2000.

the manner and extent and, sir, with regard to Greycliffe, you say it was so easy to

know, then how come back when you were doing the audited statements for I. Waxman

& Sons for 1982 and we’ll get to this and Wayne Linton indicated a reluctance to

disclose, do you remember all of that?

A. Yeah, I do… if you wanted to know the breakdown of what payments are made to

Greycliffe or any other company, you would have go through the accounts and just take

off the amounts… You would have to go to the general ledger card or general ledger

account and retrieve that information with an adding machine.

Q. And that’s exactly, that’s exactly what the purpose of the related-party disclosure is

for, isn’t it?

A. If it’s considered to be material.

Q. …you cannot tell from the I. Waxman & Sons financial statements if you look at the

line that included haulage, you cannot tell from that, how much of that is Greycliffe… can

you?

A. From my point of view and my judgment based on how active the management is and

what they know and the fact that Greycliffe is hauling, I know how much Greycliffe’s total

revenues are and I know how much I. Waxman & Sons total costs are and its revenues

and its purchases so I can make a decision on whether or not it’s material or not in terms

of what the users know. These they are active management signing the cheques too.

Looking at invoices, approving bills, they do see Greycliffe trucks… given the fact that

[Morris & Chester] are down there on a day-to-day basis. Approving bills, writing

cheques have access to that information…

…Q. You knew, from your own audit that Morris Waxman was not down there approving

bills and signing cheques referable to Greycliffe you knew that?

A. That’s incorrect as far as I’m concerned. Morris Waxman was an active member of

management right up until the day he decided to sell his shares in that company. Morris

Waxman was a cheque signing officer. Morris Waxman examined bills. He paid bills he

was involved in that company. He was being reported to every month. On an interim

basis. He was involved. You’re saying he was not involved or he’s saying he was not

involved. But that was something that was never telegraphed to me and I don’t accept

that. [Emphasis added]

[2522] Before the wrap-up meeting, Wiseman drafted a list of Points to Clear with Linton (at

Ex. 232B tab 63,) which contains the following:

Item 3 Related parties

• Greycliffe haulage fees

• Purchase from IWS Ferrous?

• Wage reimbursements

• Circuital transaction

[2523]The 1982 Wrap-Up Meeting

[2524] Morris did not attend the 1982 wrap-up meeting. Wiseman said he met with Linton and

Chester, inter alia, to ascertain Linton’s reasons for not including a related-party note in the

draft IWS financial statements and for preferring not to disclose. He said Linton told him he

did not want to disclose because he did not want to wave a red flag at the tax department.⁹³⁹

[2525] Linton denied expressing any concern about a tax audit at the 1982 wrap-up meeting.

He said he thought IWS could make full disclosure of its transactions with Greycliffe and deal

with the tax people on any audit.⁹⁴⁰

[2526] Chester said if the Auditors knew Linton was telling them he did not want related-party

transactions disclosed on the IWS financial statements, he would have expected them to

advise him immediately.

[2527] After the wrap-up meeting, Wiseman said he instructed Levy to remove the entire

related-party note from the 1982 IWS financial statement, as none of the related-party

transactions were material to the users of the financial statements. He said:

Wiseman, February 21, 2000

A. At the end of 1982 the company’s position was still strong. It had great working

capital of over five million dollars. Seven million dollars in retained earnings, which was

over its tangible net worth threshold. I didn’t see any imminent danger at that point in

time with respect to the company’s financial affairs. There was a recession at that point

in time, 1982, that had started. There were some concerns with LASCO. This was

⁹³⁹Wiseman, February 21, 2000; Exhibit 232, tab 58 and March 8, 2000.

discussed at the wrap-up meeting. There had been some reduction in the management

fees, I think in 1982, last few months, some adjustments were agreed to and negotiated.

[Emphasis added.]

[2528] Levy did not remove the entire related-party note. The 1982 IWS financial statements

as finalized (Exhibit 232-B, tab 53) contain a related-party note that lists related-party

transactions by category and amount, as follows:

10. Related-party transactions

During the year, the company had the following transactions with related parties:

Sales

1,642,879

Tonnage fee income

Management fee reimbursements

Yard services paid

Rent paid

603,054

232,646

120,000

50,000

39,000

Storage fee

[2529] The list includes other related-party transactions as small as $39,000, but it omits

Greycliffe transportation fees totalling more than $1 million.

[2530] Levy was not called to explain, inter alia, why the entire related-party note was not

removed from the Notes to the 1982 IWS financial statements.

[2531] In 1982, Robert personally attended at the Taylor Leibow office to pick up an envelope

containing the draft 1982 IWS financial statements. Exhibit 92 is a Taylor Leibow financial

statement control sheet dated March 18, 1983, which shows that all of the draft 1982 IWS

financial statements, marked For the Purpose of Management Discussion, were given to

Robert. Exhibit 93 contains copies of Taylor Leibow financial statement control sheets dated

80, 81, 82, 84, 85, which reflect that Robert did not receive copies of draft IWS financial

statements in any of those years [as the Auditors were in the spring of the following year, the

dates on the control sheets pertain to the audit of the previous year.] Robert said he simply

delivered the envelope to Linton.

⁹⁴⁰Linton, June 12, 2000.

[2532] During the 1982 audit, the Auditors departed from their usual practice of asking only

those in attendance at the wrap-up meeting to sign a representation letter. Wiseman asked all

of Robert, Linton, Morris and Chester to sign a letter of representation (Ex. 218, tab

14/Exhibit 43) dated April 5, 1983. Item F reads as follows:

Except as disclosed to you, … no facts have been discovered… which would have a

material effect on the financial statements, including items of such significance to the

company as to require disclosure in a note thereto.⁹⁴¹

[2533] Morris said he did not know why he was asked to sign that letter. He had not been

asked to sign any other letter of representation.

Findings - 1982 Audit

[2534] Greycliffe’s revenues and profits were soaring after 1981. Greycliffe financial

statements for the year ended May 31, 1981, reflect revenues of $458,941, for the year ended

May 31, 1982, $693,129.⁹⁴²

[2535] In Part II, I have found that Robert/Gary/Greycliffe were profiting by overcharging IWS

for trucking services and were benefiting from the absorption of Greycliffe expenses by IWS. I

find that Wiseman knew during the 1982 audit that Linton had expressed Robert’s preference

that Greycliffe related-party transactions not be disclosed on the 1982 IWS financial

statements. I accept Linton’s evidence in that regard. As the transactions had already been

disclosed on the Greycliffe financial statements and provided to Revenue Canada,

Linton’s/Robert’s preference could not have been driven by concerns about Revenue

Canada. I find that Wiseman made a deliberate decision to accommodate Robert’s request

not to disclose the Greycliffe related-party transactions at a time when Morris could not

possibly have been aware of their extent. I accept the evidence that that information could

only have been retrieved by totalling amounts on IWS’ general ledger with an adding

machine. Wiseman allowed Robert to review the draft IWS 1982 financial statement to satisfy

himself that the Auditors had accommodated his preference.

[2536] Wiseman knew Robert did not want Greycliffe related-party transactions disclosed on

the 1982 IWS financial statements. Rather than insisting on disclosure and/or talking to

⁹⁴¹Morris, March 4, 1999.

⁹⁴²Volume 80 of the Joint Briefs, Greycliffe Financial Statements section.

Morris, Wiseman arranged for all of Morris, Chester and Robert to sign a representation letter

to protect the Auditors in the event that the failure to disclose the Greycliffe transactions was

later questioned. No one explained the import of the representation letter to Morris. I find that

Wiseman asked Morris to sign the 1982 representation letter precisely because he was

concerned about irregularities in the 1982 audit. In his evidence mentioned earlier, Wiseman

said he decided not to disclose because the information was not material. Morris was heavily

involved in management at IWS on a day-to-day basis and was aware of Greycliffe. There

was no need to tell him what he already knew.

[2537] Wiseman gave evidence he understood that between 1979 and 1983, Morris was

responsible for the operations/production side of IWS including the yard, equipment, trucking

and transportation. He understood that Morris was also involved in certain aspects of IWS

administration, including approving bills and signing cheques for IWS trucking and reviewing

trucking rates paid by IWS to confirm that they were competitive.⁹⁴³

[2538] The opinions of the experts turned upon the factual assumptions they were asked to

make, in large part based on Wiseman’s understanding and assumptions about Morris’

knowledge of and involvement in Greycliffe. I shall therefore set out here my findings of fact

relevant to that point and relevant to the validity of the assumptions made by the experts and

underlying their opinions.

Was the Related-Party Information Omitted from the IWS Financial Statements 1980-1982

Material?

[2539] In argument, counsel for Taylor Leibow referred me to certain Taylor Leibow

memoranda, which they submitted relate to Morris’ supervision of IWS trucking and his

involvement in obtaining quotes for transportation services. Exhibit 232A at tab 8, for

example, is a memo dated September 27, 1979, from Linton to Welsh regarding Glow Avenue

purchasing procedures and shows M. Waxman as having to approve any purchase order over

$1,000. Exhibit 232-A tab 25 is a working paper prepared in connection with the IWS 1980

audit. It notes on p. 2 that M. Waxman checks all purchase orders.

Findings - Morris’ Knowledge of Greycliffe and Other Related-Party Activities

⁹⁴³Wiseman, February 18, 2000, February 22, 2000.

[2540] Wiseman’s impressions about Morris’ relationship with Chester and his nephews were

formed at “maybe half a dozen 5:00 meetings in 1976” and at meetings during which “Morris

never indicated that he didn’t know what was happening in the company.” Wiseman said he

did not hear about a “hegemony problem down at IWS… wherein Morris had been

disenfranchised,” until after the Share Sale.

[2541] I am of the view that Exhibit 232-A tabs 8 and 25 do not prove Morris’ involvement with

and knowledge of Greycliffe’s business at the relevant times. They predate September 21,

1981. In any event, IWS never used purchase orders for Greycliffe invoices.

[2542] Wiseman’s hands-on field audit experience at IWS occurred before September 1981.

As the audit partner in charge of the IWS and Greycliffe audits, all of the working papers

prepared by Taylor Leibow staff crossed his desk. It should have been obvious that a

dramatic shift in operations had occurred and Morris’ role within IWS had been significantly

diminished. Robert was running IWS. It should have been obvious that Robert, not Morris,

was responsible for reviewing trucking rates, approving bills and signing cheques. The

organisation charts make this plain. A number of the working papers refer clearly to Robert’s

assumption of responsibility for IWS operations, recording him as the one who wrote all

customer and sales orders, approved all pricing and signed virtually all cheques. At the same

time, as Greycliffe’s auditor, Wiseman knew Robert was an owner of Greycliffe, the provider

of trucking services to IWS, and he should have appreciated that Robert was in a position to

take advantage of his dual role.

[2543] Wiseman gave evidence that in his supervisory role he did review the working papers,

yet he refused to admit at trial that he knew about the change to Morris’ status. I do not

accept his evidence. Wiseman should have been aware of the change in Morris’ position at

IWS.

[2544] I have earlier found that Morris never approved Greycliffe invoices on behalf of IWS or

signed IWS cheques payable to Greycliffe. A few months after the Lasco closing, Morris was

aware that Robert and Gary owned Greycliffe and it was providing some trucking services to

IWS. Morris was not aware of the extent of that business. To determine the volume/dollar

value of the Greycliffe business, it would have been necessary for the Auditors or Linton to go

to the general ledger accounts and total the individual entries with an adding machine. Linton

followed this procedure when he finally calculated the IWS payments to Greycliffe for haulage

for inclusion in a related-party note in the 1983 IWS financial statements. Wiseman, as

preparer of the Greycliffe financial statements, was privy to information about Greycliffe’s

revenues to which Morris was not privy.

[2545] I find that Wiseman could not assume that the related-party information was not

material because there was no need to tell Morris what he already knew.

[2546] Expert Evidence Relevant to Materiality & Duty to Disclose Related-Party Transactions

[2547] Mr. Al Rosen (“Rosen”), an expert witness called by counsel for the Plaintiffs, first gave

evidence in June 1999. He offered his opinion based on information contained in the 1980 -

1983 Taylor Leibow working papers and in the Greycliffe and IWS financial statements. He

did not assume that the information was not material because Morris already knew the nature

and extent of Greycliffe’s dealings with IWS. His report is Exhibit 288.

[2548] He said the 1981 Greycliffe Note is “a very strong note.” Because the Auditors were

saying that the Greycliffe rates were at fair market value, they were required under GAAS to

gather sufficient, appropriate, external, corroborative evidence to ensure that that statement

was factual.⁹⁴⁴

[2549] Rosen said in his opinion there was no question the related-party transactions were

material and should have been disclosed in the IWS financial statements. He looked at the

haulage expense as a percentage of IWS’ revenue in Exhibit 91 (a hand-written comparison

of IWS sales revenue to its haulage and cartage costs for the years 1978 through 1983.)

Haulage costs ranged from 7% to almost 15% of IWS revenue, starting off “gently enough”

but then “taking off.” Between 1982 and 1984, IWS revenue declined, yet its haulage

expenses stayed the same or increased. Based on that, the Auditors should have

investigated whether the rates were at market value.⁹⁴⁵

[2550] Rosen said:

Rosen, June 7, 1999

A. Firstly, I find it curious that there’s no problem in naming IWS on Greycliffe’s financial

statements, so why isn’t the other part of it not sitting here in IWS’ financial statements?

⁹⁴⁴Rosen June 7, 1999.

⁹⁴⁵Rosen, June 7, 1999.

Then I have to be concerned about the ownership of Greycliffe, why is it not a 100%

owned subsidiary of IWS? Then, I have to be concerned about the comments of

Mr. Linton, who seems to not have a good idea of what related-party transactions are.

And I have to be concerned about the auditors’ comments to the effect that Wayne

Linton can decide what is reported and what isn’t. I have to then add to that that the

auditor does not seem to have gathered evidence to support that the transactions are at

fair market value. So when you piece it together, it’s just, to me, it’s very strong evidence

that something is awry or astray.

[2551] Rosen said, quite apart from noting related-party transactions in financial statements,

situations may arise when auditors must do more. It is clear in the literature and in GAAS that

if auditors come across something suspicious, they have to “probe it to the bottom.” They

cannot just speak to management. They must gather external corroborative evidence.

Reasonable auditors would be very suspicious of Linton’s preference not to include a

related-party note in IWS’ 1982 financial statement. The primary focus of the suspicion would

be whether Greycliffe’s rates were at fair market value.

[2552] On cross-examination, Rosen was asked the following questions, and he gave the

following answers:

Rosen June 8, 1999

Q. But even just accepting your whole analysis as you just stated, we still have to have a

situation of the accountant/auditor becoming apprised of something which causes him to

question the measurement of haulage fees as stated to him by management…

Management says haulage fees were $1 million. They are management numbers, right?

He has to have some reason to question that measurement?

A. In IWS, yes, but in Greycliffe it’s very explicit. It says they are at fair market value.

So that then forces the auditor to go down that path of getting the proof. And my

point is if you’re forced down the Greycliffe path, you automatically end up on the

IWS path… Has to audit to be satisfied that that is a fair representation. You cannot just

take what a client tells you because that of course is not auditing … they trapped

themselves in putting such strong wording in Greycliffe. So that forced the auditor then

to have to determine is that a fair comment?

Q. So by this overzealous note in the Greycliffe statement you say they are now put on

this “what could be significant” exercise of determining whether IWS is paying fair

market value for their haulage?

A. It changes their obligations. It moves away from stumble over it as an auditor while

doing other things, to having to prove that that is a good solid respectable accurate

sentence.

Q. Even if you’re right, why do you say it goes beyond Greycliffe?

A. Once they go into Greycliffe and the Greycliffe statement says they were dealing with

1WS, they then have to start chasing as auditors whether those are at fair market value

or not. [Emphasis added.]

[2553] In the 1981 Greycliffe auditors’ report, Taylor Leibow represented to Greycliffe’s

shareholders that the Greycliffe statements were in compliance with generally accepted

accounting principles, applied on a consistent basis. The Auditors were saying that GAAP and

GAAS auditing had been used (that there is external, corroborative evidence that is sufficient

and appropriate,) and that the financial statements were not materially misleading.

[2554] Rosen said that auditors must ensure the shareholders are being treated equitably.⁹⁴⁶

If there is inequity, then they must tell the shareholders about it.⁹⁴⁷

[2555] Mr. Raymond Harris (“Harris”), a chartered accountant called to give evidence by

counsel for the Defendant Auditors, opined that Wiseman complied with the standards

required of chartered accountants and auditors in the years 1980-83. His first report, Exhibit

325, dated October 20, 1998, was delivered in response to Exhibit 88, Rosen’s report of

⁹⁴⁶Rosen, June 5, 1999: “Management con do whatever it wants and it’s your obligation to stand in between these two and make sure the

shareholders are treated quote equitably…”

⁹⁴⁷Rosen June 8, 1999.

A. …I think there were enough indications that this was an issue that should have been pursued simply because of the nature of the

Greycliffe note and the ownership differences in the company, and the comments Mr. Linton provided. To me an auditor just can’t leave it at

that level. They have to do more investigation… I think what you have to do is to gather evidence on the Greycliffe invoices, exactly what

was it they were hauling, at what times and so forth. And then try to determine by competitors what prices were being charged at that time.

Then you would look at profitability of haulage companies and you would look at, for example, Greycliffe has some very interesting

management fees being run through it.

Q. That’s IWS?

A. Yes, and so the question is what were equivalent services at that time. So you would have to try to determine, just the same as if you

were doing a damages calculation for court, what were the competitors doing and what were they charging and why was Greycliffe somehow

giving this additional service that generated them more volume. There has to be some reason for it. And otherwise, your suspicion is that it’s

not at fair market value so you gather enough evidence to be comfortable with the comment… Doing their audit is to gathering the external

corroborative evidence. You can’t just talk to management. That’s not an audit… If there’s inequity then the auditor has to pursue this right

through to the shareholders to tell them about it. If the shareholders then choose to ignore it that’s that shareholder’s choice but the reporting

obligation is to the shareholders. You don’t stop short of that.

September 24, 1998. He delivered a second report dated August 25, 2000, Exhibit 326, just

before he gave his evidence in August 2000.

[2556] Harris was asked to assume that Morris had a high level of involvement in IWS

management and that he had knowledge of its activities, particularly its trucking activities. In

chief, he said Wiseman was entitled to make the judgment that the related-party transactions

were not material; they did not need to be disclosed because the information was known to

the users of the financial statements.⁹⁴⁸He based his opinion in part on information that

Morris was involved in IWS operations on a day-to-day basis, was involved with yard

operations, and was aware of Greycliffe transportation. He assumed Morris was aware of the

extent of the transactions between IWS and Greycliffe.⁹⁴⁹

[2557] He said that having inserted a statement that the rates charged by Greycliffe were at

market value for services rendered in the May 31, 1981, Greycliffe financial statements, the

Auditors were obligated to test that statement, if material. However, that obligation would not

carry over to IWS. If the Auditors had met their audit obligations vis-à-vis Greycliffe, they

would have been able to uncover whether or not the rates charged by Greycliffe were

competitive. If they had had any indication that the related-party transactions were not at

competitive rates, they would have had an obligation to obtain sufficient, probative, but not

necessarily external, audit evidence. In cross-examination, he said if auditors suspect a

material misstatement in the financial statements, they cannot leave it alone. They cannot

avoid their auditing obligations by turning a blind eye to facts causing them to suspect a

material misstatement.

[2558] In cross-examination, counsel for the Plaintiffs asked Harris to make a number of

assumptions, including:

• in early 1982 (referable to the 1981 audit), Wiseman had spoken to Taylor to ask him

to speak to Chester about the Greycliffe haulage rates in the context of recognizing that

if they were not competitive, they might be deemed to be unreasonable under the

Income Tax Act,

⁹⁴⁸Harris, August 30, 2000.

⁹⁴⁹Harris, August 31, 2000.

Q. It’s not material to Morris Waxman to know the extent of the dollar transactions with a company in which he has absolutely no interest.??

Are you serious?

A. He’s involved in the management and would be aware of the extent.

• they knew that Chester and Morris did not see the Greycliffe financial statements on

which related-party transactions with IWS had been disclosed,

• Robert was running both Greycliffe and on a day-to-day basis IWS and was dealing

with himself in setting the rates,

• Morris on a day-to-day basis was not running the trucking business,

• all or essentially all of Greycliffe’s revenues came from IWS,

• although there were three IWS signing officers, if cheques were to be signed and

Robert was not there, cheques were held,

• receivables were approved by Robert,

• haulage fees as a percentage of revenue had increased significantly from 1981 to

1982,

• Levy & Demers, had (a) noted that payments to Greycliffe were large, (b) noted that

Greycliffe had no accounts receivable at December 31, 1982, (c) come to the conclusion

that the related-party transactions should be disclosed,

• Levy had spoken to Linton about related-party note disclosure and that during that

discussion Linton had spoken to Robert, and then said to Levy he would prefer not to

disclose,

• they had no reason to think that Morris was aware of the extent of the transactions with

Greycliffe. Their dollar magnitude was not collected in any one place. If one wanted to

collect that information, one would have had to get it from the general ledger and total

the amounts,

• they were aware of facts reflected in Exhibit 91, a handwritten comparison of IWS

sales revenue and cartage and haulage costs 1978 to 1983,

• Linton did not say that he preferred not to disclose all related-party transactions. He

said he preferred not to disclose Greycliffe related-party transactions,

• if the transactions were at fair market value, any Revenue Canada audit would not

create a problem,

• Robert had arranged to pick up copies of the draft 1982 financial statements, and

• there was no communication with anyone other than Linton speaking for Robert with

regard to the preference not to disclose.

[2559] On those assumptions, Harris said he would be suspicious that the transactions

between Greycliffe and IWS were not at fair market value. As an auditor, he would be obliged

to investigate. If he came to the view that the haulage fees being charged by Greycliffe were

grossly overstated, he would be required to go to the board of directors. If the auditors were

suspicious and did not investigate, they could not sign an unqualified audit report. They would

be negligent if they did not follow through to determine whether or not the rates were

competitive. If Morris did not know the specific, or even the general, extent of the Greycliffe

transactions with IWS, disclosure of those transactions would be material to him.⁹⁵⁰As

Greycliffe had already noted its related-party transactions with IWS on its financial

statements, Revenue Canada would be on notice of those transactions whether or not they

had been disclosed in a related-party note in the IWS statements.⁹⁵¹

[2560] Rosen was called to give evidence again on September 19, 2000. As counsel

objected, his report was not entered into evidence.

[2561] When Rosen was asked to make assumptions similar to those that had been put to

Harris, he said the Auditors should have included a related-party note in the IWS financial

statements.⁹⁵²All the assumptions need not have been true before that obligation would have

arisen:

Rosen, September 19, 2000

A. You don’t need too many [of the assumptions to be true] in my opinion because look,

this is so_fundamental. You are the auditor of a private company. So you don’t have any

back-up by Securities Acts, stock holders, analysts and so on. You are the one and only

whistle blower with a duty under the Companies Act to tell the shareholders if things are

happening. This is much more to me, a situation where they had to go to the

shareholders. And now that I have seen this additional information, it just backs up what

I suspected the last time… I don’t like this at all. This is very serious in the whole

profession of auditing, to see something like this.

⁹⁵⁰Harris, August 31, 2000, September 6, 2000.

⁹⁵¹Harris, August 31, 2000.

⁹⁵²Rosen, September 19, 2000.

[2562] Rosen said there were many indicators of problems in the documents which the

Auditors prepared and reviewed:

Rosen, September 19, 2000

A. Look, if we look at the existence of Greycliffe as a company and who owned it. We

look at the fact that Morris Waxman doesn’t sign the cheques. We look at the increasing

dollar volume of transactions. We look at Mr. Linton saying I don’t want a note. That one

screams out… Wayne Linton doesn’t want disclosure is right there in the working

papers… I think there’s tons of evidence to say that all sorts of investigation should have

taken place … disregard some of [the assumptions], there’s still quite a few sitting there.

It’s a private company. It’s in the scrap business. You have got a qualification on the

audit report about inventories. How overwhelming does it have to be before you

account?

[2563] If there was a request not to disclose, if the same manager was on both sides of a

transaction, if Greycliffe was not owned by Chester and Morris but by Chester’s two sons, or if

there was a concern that the transactions were not at fair market value, they would have an

obligation to report the request for non-disclosure to Chester and Morris.⁹⁵³

[2564] The Auditors could not simply assume that Greycliffe was just another supplier of

trucking services, because it was owned by Chester’s two sons.

Rosen, September 19, 2000

That in itself gets the alarm bells ringing… Greycliffe was set up by two sons of one of

the owners… That in itself is very suspicious. Robert Waxman is on both sides of

Greycliffe and I. Waxman & Sons. Linton comes and says “I don’t want a note to the

financial statements”. Right away, you’re saying who’s this guy? Why doesn’t he want it?

Your brain then tells you his tax reason doesn’t make sense; the bank one was not

accepted by Taylor Leibow anyways, so by process of elimination, who’s likely to be

behind the nondisclosure, is it Morris Waxman and Chester Waxman? They don’t want

to know the magnitude of Robert Waxman’s transactions…

[2565] Linton and Robert had no right to request the Auditors not to disclose. The Auditors

were obliged to check on their level of management and to communicate with the clients, the

⁹⁵³Rosen, September 19, 2000.

shareholders.⁹⁵⁴The Auditors could not simply talk to members of management and accept

what they said without more, as Taylor Leibow appears to have done. They had to factor into

the auditing fundamental changes in IWS, such as Robert taking charge of operations. Rosen

said in cross-examination:

Rosen, September 19, 2000

A. …why do you hire an auditor?… to… look after your interests as a shareholder. So

you may have presumed that all along that the auditors knew what their job was and

were gathering the evidence and they would tell you.

Q. But if owner number one never expresses his concern about these services to the

auditors, how are they supposed to go forward and read his mind?

A. No, no, look. Fundamental to auditing is the financial statements not be misleading…

Q. Where do you put the auditors in the chain?

A. They are exactly where they are in corporate law and history and everything. The

officers of the company prepare the financial statements, the shareholders are up here,

the auditors off to the side making sure the shareholders get the complete story, that

there’s nothing in the financial statements that is misleading either because of omission

or commission.

[2566] Rosen said:

Rosen, September 19, 2000

A. Well, it’s a matter of how much you’re aware of. Were they aware of the total dollar

transactions?; were they aware of them being or not being at fair market value? Were

they aware of Robert and Gary Waxman being heavily involved in the decisions and

Robert Waxman also being part of I. Waxman & Sons? An auditor cannot wave away

knowledge of what’s happening. There is a duty to the shareholders, so that for me

personally to use what is being described, I would have a letter witnessed saying we’re

aware of all of the following, therefore you don’t need a note. But even then, as an

auditor, I would be very concerned that somebody else would pick up the financial

statements, not be aware of these transactions. So here’s GAAP screaming out to you

to have a note to the financial statements, showing all of this. So you’re now in the

⁹⁵⁴Rosen, September 19, 2000.

position of an auditor of saying I don’t want to follow… a whole section of the C.I.C.A.

handbook. So I had better have overwhelming evidence. Otherwise it’s a very, very

scary situation for an auditor to be in. So I don’t know what evidence they had, but I’m

having trouble visualizing that this could be that strong for an auditor to say I’m going to

waive this. You know what your function on earth is and that’s to report to the

shareholders. Did you talk to all of them? What was conveyed? Do you have

information, records, letters?… Then we get into the GAAS side of it. What evidence

was collected that was sufficient, appropriate, corroborative, external…?

[2567] As in his earlier evidence, Rosen reiterated that under GAAS, audit-discovered

irregularities must be probed to the bottom. If the Auditors had indications that the

transactions between IWS and Greycliffe were not at fair market value, then they were

obligated to discover the facts. If they discovered the transactions were not at fair market

value, they were obligated to inform the directors that cash and profits were being diverted

from IWS. They could not ignore those indications. They had to gather the audit evidence to

prove the transactions were at market value. They should have investigated to determine

whether the rates were competitive. They should have looked at similar transactions, similar

times, similar loads. If they found, during the Greycliffe audit, that the rates were not at fair

market value, as auditors of both Greycliffe and IWS, they could not ignore that knowledge.

[2568] Auditors represent that financial statements are fairly presented in accordance with

GAAP. As they did not include a related-party note, they did not do the necessary auditing.

[2569] The Auditors failed to comply with both GAAP and GAAS. They failed to ensure the

financial statements were not “materially misleading.” They did not disclose the extent of the

transactions as required by s. 3840 of the C.I.C.A. Handbook.

[2570] In summary, they failed to meet their obligations in three of four parts of the audit

report. The IWS financial statements 1980-1982 were not in accordance with GAAP or GAAS.

They were materially misstated.

IWS Audit for the Year Ending December 31, 1983 (Spring 1984)

[2571] The Greycliffe financial statements for the year ended May 31, 1983, reflect revenues

of $1,954,895.

[2572] By the time of the 1983 audit in early 1984, Morris had complained to Wiseman, inter

alia, about the Share Sale and his exclusion from IWS management.

[2573] During the 1983 audit, Wiseman in his own Review Notes (at Ex. 232-C, tab 84) asked

whether “…all material related-party transactions are disclosed?” He sought information from

Linton about amounts paid to related parties ($2,701,101.33) and included that information in

the 1983 IWS financial statements (see Ex 232-C, tab 89.)⁹⁵⁵

[2574] JB 232-C tab 77 is the 1983 IWS financial statement. Note 9 lists related-party

transactions and reflects the extent of those transactions, including Greycliffe and Icarus

charges for haulage totalling $2,476,000, driver and yard services of $135,000, and metal

purchases from Circuital of $89,000.⁹⁵⁶

[2575] Wiseman said that in early 1984, he concluded that a related-party note was material

for the 1983 year because Chester was the sole shareholder and could theoretically draw

large sums of money out of IWS. A $1 million dividend had been paid. IWS was close to its

limits on its banking covenants.⁹⁵⁷

[2576] Linton said he could not recall any discussions about the inclusion of a related-party

note in the 1983 financial statements.⁹⁵⁸He was asked to pull numbers together.⁹⁵⁹

[2577] Exhibit 232-C, tab 85 is a note that Wiseman wrote in preparation for a discussion with

Chester at the wrap-up meeting. Item No. 6 reads in part: “cartage, haulage fees appear

grossly overstated.”⁹⁶⁰Item #7 also relates to Greycliffe, “Truck - repairs - s/b Greycliffe

expenses - 25,000-30,000. Same problem as above.”

[2578] Wiseman said he did not think he actually expressed his concerns to Chester at the

wrap-up meeting in the way he expressed them in his note.⁹⁶¹

Summary Finding - 1983 Audit re Related-Party Note

[2579] I find that when he finally talked to Morris at length starting in January 1984 about the

Share Sale and other mistreatment at the hands of Chester, Wiseman started to be

⁹⁵⁵Wiseman, February 22, 2000, March 8, 2000; Exhibit 232, tabs 84 and 89.

⁹⁵⁶Wiseman, February 22, 2000.

⁹⁵⁷Wiseman, February 22, 2000, March 8, 2000.

⁹⁵⁸Linton, May 29, 2000.

⁹⁵⁹Linton, June 12, 2000.

⁹⁶⁰Wiseman, February 7, 2000.

⁹⁶¹Wiseman, February 22, 2000, March 8, 2000.

concerned about the lack of related-party notes in the IWS financial statements. He knew

from previous IWS and Greycliffe audits about Greycliffe’s charges. He knew the Auditors had

not talked to Morris. When he thoroughly considered the matter, he realised a related-party

note was material and necessary and he included one in the IWS 1983 statements.

The Law re Liability of Taylor Leibow re Related-party Note

Negligence

[2580] Counsel for the Plaintiffs submit that the auditors owed a duty of care to Morris, one of

only two shareholders of IWS, a closely held corporation. Wiseman acknowledged that Morris

and Chester were the “clients,” the users of the IWS financial statements. Audit reports

contained in financial statements are directed to shareholders. Auditors represent to the

shareholders that the financial statements are not misleading and that they fairly present the

position of the company. They submit that I should consider all of the circumstances of the

relationship to determine whether the Auditors owed fiduciary duties to Morris, including the

following:

[2581] (a) with respect to Wiseman:

• he knew that Morris and Chester were Taylor Leibow’s clients,

• he acknowledged the need for mutual trust in the conduct of the audit engagement,

• he believed his relationship with Chester and Morris was such that both of them could

expect the auditors to look out for their interests if they were retained in professional

business or tax matters.⁹⁶²

[2582] (b) with respect to Taylor:

• he was as close to Morris and to Chester as a non-family member could be.

• In the context of the estate freeze, Taylor felt a professional obligation to point out to

Morris the 60/40% allocation of the common shares that was being contemplated and to

make sure that Morris understood.

⁹⁶²Wiseman, February 7, 2000 and February 24, 2000.

[2583] In JB 3070 Morris asked Taylor and Wiseman to act as advisors for his sons in the

event that he died during surgery in February 1984. At no time did Morris raise any concern

with the auditors or ask them to protect him personally.

[2584] Counsel for Taylor Leibow submit that with respect to the audit engagement, Taylor

Leibow’ duties of care were owed only to IWS. Whatever its duties to IWS, it did not owe

duties to individual shareholders or any other third party. Under the rule in Foss⁹⁶³, individual

shareholders generally have no cause of action for breaches of auditors’ duties to a

corporation. Actions must be brought by the corporation or by way of a derivative action on

behalf of the corporation. Absent any specific duty of care, an individual shareholder has no

cause of action against the auditors.⁹⁶⁴

[2585] The duty of care owed by auditors to users of financial statements has been

circumscribed in Canada:

(1) Auditors’ reports are prepared to provide shareholders collectively with information to

be used in overseeing the management and affairs of the corporation, not for the

purpose of guiding personal investment decisions.

(2) Individual shareholders are only entitled to rely on the work of the corporation’s

auditors if:

(a) The identity of the shareholder is known to the auditors; and

(b) The specific purpose for which the shareholder is relying on the auditor’s

services is known to the auditor⁹⁶⁵.

[2586] The Anns Test—Did the Auditors Owe a Prima Facie Duty of Care to Morris?

[2587] In Hercules⁹⁶⁶, LaForest J. said:

It is now well established in Canadian law that the existence of a duty of care in tort is to

be determined through an application of the two part test first enunciated by Lord

Wilberforce in Anns v. Merton London Borough Council, [1978] A.C. 728 at pp. 751-52:

⁹⁶³Supra endnote 516.

⁹⁶⁴Roman Corp. v. Peat Marwick Thorne (1992), 11 O.R. (3d) 248 (Ont. Gen. Div. [Commercial List]) at 260 [hereinafter Roman]; Hercules,

supra endnote 515.

⁹⁶⁵Hercules, ibid. at 599; Roman, ibid. at 259; Caparo Industries plc v. Dickman, [1990] 1 All E.R. 568 (U.K. H.L.) [hereinafter, Caparo].

⁹⁶⁶Hercules, ibid. at 586.

First one has to ask whether, as between the alleged wrongdoer and the person

who has suffered damage, there is a sufficient relationship of proximity… such that,

in the reasonable contemplation of the former, carelessness on his part may be

likely to cause damage to the latter—in which case, a prima facie duty of care

arises. Secondly, if the first question is answered affirmatively, it is necessary to

consider whether there any conditions which ought to negative, or to reduce or limit

the scope of the duty or the class of person to whom it is owed or the damages to

which a breach of it may give rise…

[2588] and at page 589:

To my mind, proximity can be seen to inhere between a defendant representor when

two criteria relating to reliance may be said to exist on the facts:

(a) the defendant ought reasonably to foresee that the plaintiff will rely on his or her

representation and

(b) reliance by the plaintiff would, in the particular circumstances, be reasonable.

[2589] I have considered the evidence of Wiseman that he considered the shareholders,

Morris and Chester, to be the clients and the evidence of Rosen about duties owed by

auditors to shareholders.

[2590] In the case at bar, the Auditors clearly knew the identity of the two IWS shareholders.

[2591] In all of the circumstances, I find that the auditors owed a prima facie duty of care to

Morris. The test in Anns v. Merton London Borough Council⁹⁶⁷, adopted by the Supreme

Court of Canada in Hercules⁹⁶⁸has been met here. A sufficient relationship of proximity or

neighbourhood exists between the auditors and Morris such that carelessness on the part of

the auditors would be likely to cause damage to Morris. The auditors were clearly aware that

Morris was a 50% shareholder of IWS and a client. It was foreseeable that Morris would

reasonably rely on the IWS financial statements.

Is the Prima Facie Duty Owed to Morris Ousted by Policy Considerations?

[2592] I have been troubled by the submission that the purpose of the audit was to assist the

collectivity of shareholders, and that policy considerations here oust the prima facie duty of

⁹⁶⁷(1977), [1978] A.C. 728 (U.K. H.L.) at 751-52 [hereinafter Anns].

care. The specific factual matrix in a given case may render it an “exception” where typical

concerns surrounding indeterminate liability may not arise. In Hercules, LaForest J. said:

To my mind, the presence of such factors in a given situation will mean that worries

stemming from indeterminacy should not arise, since the scope of potential liability is

sufficiently delimited. In other words, in cases where the defendant knows the identity of

the plaintiff… and where the defendant’s statements are used for the specific purpose or

transaction for which they were made, policy considerations surrounding indeterminate

liability will not be of any concern since the scope of liability can readily be

circumscribed⁹⁶⁹.

[Emphasis added.]

[2593] In Hercules the auditors knew the identity of all the appellant shareholders. On that

basis it was argued that no concerns over indeterminate liability could arise. LaForest J. said:

While knowledge of the plaintiff is undoubtedly a significant factor serving to obviate

concerns over indeterminate liability, it is not, alone, sufficient to do so. In my discussion

of Glanzer, Hedley Byrne and Haig, supra, I explained that indeterminate liability did not

inhere on the specific facts of those cases, not only because the defendant knew the

identity of the plaintiff who would rely on the statement, but also because the statement

itself was used by the plaintiff for precisely the purpose or transaction for which it was

prepared. The crucial importance of this additional criterion can clearly be seen when

one considers that even if the specific identity or class of potential plaintiffs is known to a

defendant, use of the defendant’s statement for a purpose or transaction other than that

for which it was prepared could still lead to indeterminate liability⁹⁷⁰.

[2594] He considered the purpose for which the audit statement was prepared, quoting with

approval the words of Lord Oliver in Caparo:

…It is the auditor’s function to ensure, so far as possible, that the financial information

as to the company’s affairs prepared by the directors accurately reflects the company’s

position in order, first to protect the company itself from the consequence of undetected

errors, or, possibly wrongdoing… and second to provide shareholders with reliable

⁹⁶⁸Supra endnote 515.

⁹⁶⁹Ibid. at 596.

⁹⁷⁰Ibid. at 599.

intelligence for the purpose of enabling them to scrutinize the conduct of the company’s

affairs and to exercise their collective powers to reward or control or remove those to

whom that conduct has been confided.⁹⁷¹

[2595] at p. 601:

…the standard purpose of providing reports to the shareholders… should be regarded

no differently under the analogous provisions of the Manitoba Corporations Act. Thus

the directors of a corporation are required to place the auditor’s report before the

shareholders, at the annual meeting in order to permit the shareholders, as a body, to

make decisions as to the manner in which they want the corporation to be managed, to

assess the performance of the directors and officers, and to decide whether or not they

wish to retain the existing management or to have them replaced.

[2596] In Roman, Farley J. said:

As a matter of law, the only purpose for which shareholders receive an auditor’s report is

to provide the shareholders with information for the purpose of overseeing the

management and affairs of the corporation and not for the purpose of guiding personal

investment decisions or personal speculation with a view to profit⁹⁷².

[2597] I have considered the submission of counsel for the Plaintiffs that if the auditors had

directly communicated information about related parties and related-party transactions to

Morris, he could have used it in his management role. This information would also have

caused him to distrust Chester and to avoid the Share Sale.

[2598] In Hercules the Supreme Court considered and rejected a similar argument. LaForest

J. said:

…the appellants submit that they each relied on the auditor’s reports in overseeing the

management of NGA and NGH and that had those reports been accurate, the collapse

of the corporations and the consequential loss in the value of their shareholdings could

have been avoided.

[55](1) …it was, as Lord Oliver and Farley J. found in the cases cited above, to permit

the shareholders to exercise their role, as a class, of overseeing the corporations’ affairs

⁹⁷¹Ibid. at 601.

⁹⁷²Roman, supra endnote 962 at 260.

at their annual general meetings. The purpose of providing the auditor’s reports to the

appellants, then, may ultimately be said to have been a “collective” one; that is, it was

aimed not at protecting the interests of individual shareholders but rather at enabling the

shareholders, acting as a group, to safeguard the interests of the corporations

themselves. On the appellant’s argument, the purpose to which the 1980-82 report were

ostensibly put was not that of allowing the shareholders as a class to take decisions in

respect of the overall running of the corporation, but rather to allow them as individuals,

to monitor management, so as to oversee and protect their own personal investments.

Indeed, the nature of the appellants claims (ie. personal tort claims) requires that they

assert reliance on the auditor’s reports qua individual shareholders if they are to recover

any personal damages. Insofar as it must concern the interests of each individual

shareholder, then, the appellants’ claim in this regard can really be no different from the

other “investment purposes” discussed above, in respect of which the respondents owe

no duty of care⁹⁷³.

Taylor Leibow Owed No Duty of Care to Morris in the IWS Audit

[2599] I agree with the submissions of counsel for Taylor Leibow that, absent a specific

request by Morris for protection by the Auditors or by Taylor or by Wiseman, any duty of care

arising from the audit engagement was owed to IWS.

[2600] On the facts of this case, given the authorities cited above, I find no specific

circumstances sufficient to give rise to fiduciary duty owed to Morris personally in respect of

the audit.

[2601] There was no evidence here to the effect that in respect of the audit Taylor Leibow was

specifically retained to provide information to Morris. While I am troubled by this aspect of the

case, I find that Taylor Leibow owed no duty of care in respect of the audit to Morris

personally, that policy considerations about indeterminate liability override the prima facie

duty of care. The facts here do not fall within the exceptions discussed by the Supreme Court

in Hercules⁹⁷⁴.

If there is a Duty of Care to Morris, Has it been Breached?

⁹⁷³Hercules, supra endnote 515 at 604.

⁹⁷⁴Ibid.

[2602] When considering the non-disclosure of the related-party transactions, I have made

factual findings about the knowledge of the auditors including, but not limited to, the following:

[2603] • Demers had come to the view that the Greycliffe transactions and their dollar value

should be disclosed.

[2604] • During the 1982 audit, Wiseman was told that Linton preferred not to disclose. He

knew the request not to disclose the Greycliffe related-party transactions came from Robert.

He knew Robert ran both Greycliffe and the IWS non-ferrous division and set the rates

charged and signed virtually every cheque.

[2605] • Wiseman knew the extent of the Greycliffe business with IWS could only be

determined by totalling individual amounts taken from the ledgers of IWS. During the 1981

audit, he had been sufficiently concerned about the rates that Greycliffe was charging IWS

that he had spoken to Taylor, who had spoken to Chester. If the auditors had not feared that

the rates were uncompetitive, they would not have had the concern.

[2606] I have rejected Wiseman’s evidence that Linton cited a possible Revenue Canada

audit as a reason for non-disclosure. Revenue Canada already had notice of the related-party

transactions as they had been disclosed in the Greycliffe financial statements.

[2607] I have found that the auditors were concerned the Greycliffe fees were unreasonable,

and IWS was being overcharged for haulage. Yet, they did not take appropriate steps to

probe the matter to the bottom and to disclose the true situation.

[2608] No one spoke to Morris.

Summary Finding - Expert Evidence re Related-Party Note

[2609] I have found that the Plaintiffs have proven the facts underlying the assumptions put to

Rosen except that Linton requested non-disclosure in 1980 and 1981. The assumptions used

by Rosen are based on the facts as I have found them [with the one exception] and the

assumptions used by Harris are not. I prefer the evidence of Rosen and I accept his

conclusions that the related-party transactions were material and should have been disclosed.

The Auditors should have been suspicious of Linton and Robert. Their inclusion in the

Greycliffe statement of the representation that Greycliffe’s rates were at market value

obligated them to conduct a full investigation to establish whether this representation was

true. If they had done so, they would have determinately ascertained that the Greycliffe rates

were not competitive, were not at market value.

[2610] On the facts as I have found them, Harris also said he would be suspicious that the

transactions between Greycliffe and IWS were not at fair market value.

[2611] I accept Rosen’s evidence that any reasonable auditor would have been suspicious of

a request that a related-party note not be included in IWS’ 1982 financial statements, and the

primary focus of the suspicion would have related to whether Greycliffe’s haulage rates were

at fair market value. I find that the related-party transactions were material.

[2612] It is uncontroverted that if they were material, there was an obligation to disclose

related-party transactions in the IWS financial statements.

[2613] The related-party transactions should have been disclosed at the latest in the 1981 and

1982 IWS financial statements.

[2614] If I am incorrect in my conclusion above, and if the Auditors owed a duty of care to

Morris personally, I would accept the evidence of Rosen and would find the Auditors were

liable in negligence to Morris.

[2615] If the Auditors owed an audit duty to Morris personally, I would have found that they fell

below the standard of reasonably competent accountants, were negligent in the conduct of

the audit in failing to include a related-party note and, in the absence of such a note, in failing

to speak directly to the directors of IWS (Morris and Chester) about the suspicious

circumstances. They should have been concerned about the fairness of the Greycliffe rates,

Robert’s dual role, the request not to disclose, and should have probed their concerns to the

bottom. They breached their duty to ensure the IWS financial statements were not materially

misleading.

Finding - Breach of Fiduciary Duty

[2616] As with the ordinary duty of care, it is a matter of law that any fiduciary duties owed by

auditors are generally owed to the corporation and not to the individual shareholders.⁹⁷⁵

Farley J. said in Roman:

⁹⁷⁵Roman, supra endnote 962 at 260.

It seems clear that the auditors have a relationship with their client. That client is

the corporation… it would be the corporation which would be able to complain

about any breach of fiduciary duty…⁹⁷⁶

[2617] In order for a fiduciary duty to be owed to an individual shareholder, there must be a

clear expansion of the auditors’ mandate to specifically protect the individual shareholder’s

personal interests in addition to those of the corporate client.

[2618] I therefore dismiss the Plaintiffs’ claim for breach of fiduciary duty.

Are the Plaintiffs Barred from Recovery In Any Event?

[2619] Despite the fact that I have decided to dismiss the claims against the Auditors on the

ground that Taylor Leibow owed no audit duty to Morris personally. I have considered whether

Exhibit 41, the Agreement and Undertaking dated July 30, 1998, would bar recovery in the

event that I am wrong on that point.

[2620] Counsel for Taylor Leibow submit that Exhibit 41 bars all claims advanced by the

Plaintiffs against the Auditors in connection with the related-party issues. It provides that in

consideration of the production of the working paper files, the Plaintiffs would not commence

any civil proceeding against Taylor Leibow on the basis of any alleged negligence or other

deficiency with respect to their accounting and auditing work for the aforesaid companies for

the fiscal years indicated.

[2621] While I accept that Exhibit 41 was not intended to cover pre-existing claims, its

wording, including the phrase “any alleged negligence… with respect to… accounting and

auditing work,” precludes pursuance of civil proceedings against Taylor Leibow based on

negligence with respect to its accounting and auditing work in the years indicated. I find that

Exhibit 41 is akin to a Release and is a bar to the amended claims in negligence of the

Plaintiff against the Auditors in respect of the failure to include a related-party note.

[2622] Since I have found that Taylor Leibow owed no fiduciary duty to Morris personally, I

have not decided whether Exhibit 4L the Agreement and Undertaking dated July 30, 1998,

would also preclude pursuance of claims for breach of fiduciary duty.

Taylor Leibow Liability Re 1979, 1981 & 1982 Bonuses

⁹⁷⁶Ibid. at 263.

[2623] The Plaintiffs allege the Auditors ought to have been suspicious when, in the course of

the 1979, 1981 and 1982 audits, they learned of the bonuses declared by IWS. The size of

the payments to be made to Chester’s sons ought to have caused them to discuss the

bonuses with Morris.

[2624] Counsel for Taylor Leibow denies it had any obligation to discuss the bonuses with

Morris.

Audit Procedures re Corporate Bonuses Generally

[2625] Wiseman said that once profits are discernible, members of management of privately

held companies typically consider whether to declare bonuses in the course of completing the

year-end financial statements. Allocations are often decided later. Management instructs the

company’s legal counsel to prepare minutes, which are typically back-dated to predate the

year-end. Generally speaking, the obligations of the auditors are limited. They are required to

determine whether bonuses have been declared for the fiscal year being audited; to verify the

amounts; and to ensure that they are properly included in the year-end financial statements.

They are generally entitled to rely on information provided by management and are not

required to obtain an assurance that a minute authorising the bonus has been signed.

However, if such a minute exists at the time of the audit, they may rely upon it. Unless

specifically engaged to do so, the auditors do not participate in deciding the quantum or the

allocation of the bonuses.⁹⁷⁷⁹⁷⁸

[2626] It is uncontradicted that the Auditors were not asked in advance to provide advice to

IWS in respect of any decision to declare bonuses in 1979, 1981 or 1982.⁹⁷⁹

Audit in relation to 1979 Bonuses

[2627] In the Main Action, I have outlined the facts relating to the 1979 bonuses, which are

also relevant to the issues under consideration here.

⁹⁷⁷Wiseman, February 17, 2000.

⁹⁷⁸Wiseman, February 29, 2000.

I think I’ve said that I was excluded, although I don’t know why you are using the word, “excluded”. I had no contact. I was not apprised. I

was not asked for my opinion as to whether or not it would be better to pay a salary or to pay a dividend or to pay the tax and forget about

dividends or salaries. …but I can tell you this, there is no way Steve Wiseman, Sam Taylor or any other chartered accountant should get

involved in deciding who should get what. That’s not something that we do. That’s best reserved for others.

⁹⁷⁹Wiseman, February 29, 2000.

[2628] Wiseman said he first learned of the 1979 bonuses during the 1979 audit Exhibit 232A,

tab 11 reflects that initially the bonus was to have been in the amount of $100,000. Shortly

before completion of the audit field work Linton advised it had been increased to $250,000.

Exhibit 232-A, tab 10 summarises the statutory remuneration of the directors and officers of

IWS and reflects an accrual of $250,000 (but without specifically indicating who would benefit)

The Auditors reflected the $250,000 bonus as a liability on the 1979 Financial Statements at

Note 9 (Statutory Information) and included the bonus figure on Schedule 1, page 10 in the

figure for wages of $2,356,432.⁹⁸⁰

[2629] JB 1719-B shows that bonus and profit sharing plans were determined by Chester

Waxman.

[2630] I have noted earlier in the main Reasons that Exhibit 238, tab 4 in the 1979 working

papers refers to “accrued bonuses - owners - JV [Journal Voucher] 184, $150,000.”

[Emphasis added]

[2631] Wiseman did not discuss any change in 1979 bonuses or any change in bonus

allocation in 1981 with Morris.⁹⁸¹

[2632] Wiseman said he was not contacted about Linton’s instructions to Ennis dated April 20,

1981, reflected Exhibit 238, tab 9. As of April 20, 1981, the Auditors had no 1979 bonus

minute and no extract of bonus minutes in their working papers.⁹⁸²He denied that an earlier

1979 bonus minute was removed from the working papers.⁹⁸³He saw no corporate minute in

respect of the initial bonus accrual in the course of the 1979 audit.⁹⁸⁴

[2633] In cross-examination, Wiseman said that if the usual method of structuring the file had

been used, Section VIII of the 1979 working papers would have included an “Extract of

Minutes.” Section VIII is missing from the 1979 Taylor Leibow working papers produced in this

⁹⁸⁰Wiseman, February 17, 2000; Exhibit 232, tabs 1, 10, 11, 31, 32, 46 and 47.

⁹⁸¹Wiseman, February 17, 2000.

Q. look at the second book at tab 46.

A. The 1979 bonus, if you look at the continuity… it shows $192,000 outstanding from the end of 1980, and then it shows the payments to

Gary Waxman, Bobby Waxman, Warren Waxman, in the total amount of $192,000 and that left a balance of nil in respect of the 1979 bonus.

So these were paid in the 1981 year.

…Q. …when you saw this in your review of the working papers, finalizing the 1981 audit in early 1982. did you go to Morris Waxman and

inform him that a bonus declared in 1979 of $250,000 or accrued in 1979. was paid out entirely to Chester’s sons?

A. No.

⁹⁸²Wiseman, February 22, 2000.

⁹⁸³Wiseman, February 7, 2000, February 15, 2000.

⁹⁸⁴Wiseman, February 17, 2000.

litigation. [The Taylor Leibow working papers files do contain an extract of minutes in 1980

(Exhibit 232A, tab 28), in 1981 (Exhibit 232B, tab 41) and in 1982 (Exhibit 232B, tab 71).]⁹⁸⁵

[2634] In item 6 of tab 11, Exhibit 238, Senior’s and Final Reviewers’ Questionnaire for the

December 31, 1979 year end, under the heading Senior’s Verification Procedures During

Year-end Audit, the word “yes” is written beside the words: “Review the minutes of the

directors, shareholders, etc. to the date of the audit report and make extracts or photocopies

for our file (section VIII)”. Wiseman conceded in cross-examination, upon reviewing that

document, that during the 1979 audit, a representative of Taylor Leibow looked at minutes in

the minute book: “I would say that’s what it says and I’m not going to retract on that.”

Finding re Audit re 1979 Bonuses

[2635] Based in part on Item 6 of Exhibit 238, tab 11, I find that the auditors saw a 1979

bonus minute during the 1979 audit. I find that the auditors were aware of the allocations at

that time as they were evident from Exhibit 238, tab 4, which referred to accrued bonuses of

$150,000 to the owners.

[2636] I have found that in 1981, at Linton’s request someone in Ennis’ office destroyed the

original 1979 bonus minute, which had provided that Morris and Chester were each to receive

$75,000 and Chester’s sons collectively were to receive $100,000. That minute was replaced

with a minute providing that Chester’s sons would collectively receive all of the $250,000. The

$250,000 was or already had been paid to Chester’s sons. The Auditors knew about the

original allocation and they received the substitute minute as it was loose in their working

papers. Exhibit 278 tab 9.1, a Taylor Leibow working paper BB-10, shows that the Auditors

reviewed Ennis’ letter to Linton dated April 21, 1981 and the replacement minutes dated

December 17, 1979. Yet they did not speak to Morris about the change in the 1979 bonus

allocations.

Audit in relation to 1981-1982 Bonuses

[2637] In the Main Action, I have reviewed the evidence relating to the declaration of the

1981-1982 bonuses in early 1982.

⁹⁸⁵Wiseman, February 28, 2000.

[2638] Linton said he did not speak to Taylor Leibow beforehand about the declaration of $6.6

million in 1981-1982 bonuses. He was asked the following questions and gave the following

answers:

Linton, June 1, 2000

Q. And this was you will grant me, a very significant distribution? It was a significant tax

plan, one of the biggest things you had ever done for the company?

A. Probably the biggest.

Q. Did you in fact speak to someone at Taylor Leibow to try it on and say look this is

what I’m going to be proposing to management. Before I make some big boo boo here,

am I on side. Did you do that?

A. No.

Q. Why not?

A. I felt comfortable with the calculations…

[2639] Wiseman said that Demers, a Taylor Leibow audit senior, reviewed the IWS minute

book in March 1982 and summarised the minute re 1981 bonuses dated December 23, 1981.

His note indicates that it had not been signed by Shirley or Bailey and the minute book

contained an unsigned minute dated February 22, 1982 declaring further bonuses in the

same amounts for the 1982 year.⁹⁸⁶Wiseman first learned of the 1981 and 1982 bonuses

from reviewing that summary. He inferred from it that Morris and Chester had signed the 1981

minute. He said he included the bonuses in the Statutory Remuneration figure at Note 11 of

the 1981 IWS financial statements.⁹⁸⁷

[2640] When asked in chief about his reaction to bonuses totalling $6.6 million, including

millions to Chester’s sons, he said,

Wiseman, February 17, 2000

I reflected on the bonuses, and discussed the matter with Sam Taylor in regards to

(what) Revenue Canada’s attitude might be with respect to the tax deductibility of the

bonuses to Warren, Robert and Gary.

⁹⁸⁶Wiseman, February 17, 2000; Exhibit 232, tab 41.

⁹⁸⁷Wiseman, February 17, 2000; Exhibit 232, tab 33.

[2641] Disallowed expenses of that nature are considered to be a distribution of capital.^{988 989}

His tax concern applied only to bonuses to the sons. If Morris and Chester had been receiving

them, Revenue Canada would not have had a problem. He recognised the bonuses were

being funded by the sales to Laidlaw and Lasco. Although he was not aware of any significant

contributions that would justify the bonuses to Chester’s three sons, he assumed no mischief

and did not discuss them with Linton or Morris.⁹⁹⁰

[2642] He said he went to Taylor to obtain another opinion as to whether he was

“overreacting” to what Revenue Canada might consider to be a problem, having in mind the

size of the bonuses to Chester’s sons.⁹⁹¹His concern was not based on any assessment of

the fairness of the bonuses, which were large, but not “devilishly large.”⁹⁹²When asked why

the most significant removal of dollars from IWS in its history was not mentioned in the

working papers, Wiseman said, “There’s nothing unusual about a bonus declaration… It was

pretty straight forward and the minutes were summarised.”⁹⁹³

[2643] Taylor said in chief that he spoke to Chester because he felt he should point out to him

that if the Department of National Revenue decided the bonuses were unreasonable, it would

result in double taxation. He said he was not motivated by a concern over the fairness of the

⁹⁸⁸Wiseman, February 29, 2000.

⁹⁸⁹Wiseman, March 2, 2000.

Q. And I suggest to you, sir, that the reason that you went to speak to Mr. Taylor was because in your own mind the issue of these bonuses

and the Greycliffe charges was very important and you were very concerned and that’s why you went to speak to him instead of speaking to

Linton, Chester or Morris directly?

A. I wanted to get his views on matter…. And as far as I’m concerned I wanted to solicit his views and he said he would look after it with

discussion which is what he did …. what I wanted was basically confirmation I wasn’t out in left field… I wanted to get another opinion as to

whether or not I was … overreacting to what Revenue Canada may consider to be a problem.

Q. Having in mind the size of the bonuses to the boys?

A. Yes, yes… Sam said he would discuss it at a meeting he was going to have with Chester… Disallowed expenses of that nature are

considered to be a distribution of capital. That was my concern…

⁹⁹⁰Wiseman, February 29, 2000.

⁹⁹¹Wiseman, February 7, 2000.

A. Following my review of the financial statements [of IWS] for the year ended December 31^st, 1981, sometime in the spring … of 1982… I

saw accrued bonuses in excess of $3.3 million…. I had a concern with respect to the deductibility of those bonuses from a Revenue Canada

perspective…. I asked Sam Taylor whether he thought the bonuses of approximate area of $500,000 … to Gary, Warren and Bob Waxman,

would constitute an issue from the point of view of deductibility in the company from Revenue Canada’s perspective.

⁹⁹²Wiseman, February 17, 2000.

⁹⁹³Wiseman, March 2, 2000.

Q. There are no review notes past BB-3.12 for Mr. Weland.

…And none at all for Mr. Demers?

A. Correct.

Q. And so these review notes stopped before, for example, the reviewers

got to BB-4 and BB-5, which are the bonuses …. what puzzles me is how it is that Mr. Weland in the field does these detailed notes that stop

at 3.3, but he remembers to bring forward for continued consideration, BB-23?… How can it be sir, that in respect of the most significant

removal of dollars from I. Waxman & Sons in the history of the company up to that stage there’s not one single reference by you, the audit

team, to the bonuses you saw. Not one single reference?

A. …there’s nothing unusual about a bonus declaration…. It was pretty straight forward and the minutes were summarized.

Q. …we’re to accept on your evidence that there’s nothing in the working papers and there never was any note about these bonuses. Right?

A. Correct.

allocation of the 1981 bonuses.⁹⁹⁴He did not give a thought to whether the bonuses were

excessive.⁹⁹⁵He said,

Taylor, January 27, 2000

I don’t know how else to explain it. I may or may not have considered them odd in terms

of allocations …, but the fact that they were authorized and the minutes duly signed, that

was as far as we had to go from my point of view and my only reason for speaking to

Chester Waxman was to apprise him of the attitude at times of the Department of

National Revenue with regard to such bonuses… I simply pointed out to him what the

attitude of the Department of National Revenue was with any transaction such as this

that were or might, in their opinion, be excessive….

[2644] That did not mean Taylor agreed they were excessive.⁹⁹⁶

[2645] No one from Taylor Leibow spoke to Morris about the 1981-1982 bonuses during the

1981 audit.

[2646] Counsel for the Plaintiffs submit that I should be concerned about the absence of any

documentation regarding the 1981 bonuses in the 1981 working papers. Review notes

relative to sections BB-4 or BB-5 (where any discussion about bonuses would have been

recorded) are not in the working papers, although review notes relative to later

sections are.⁹⁹⁷

1982 Audit

[2647] Wiseman said during the 1982 audit (which took place in early 1983) Demers reviewed

the IWS minute book. His summary of minutes, Ex 232-B, tab 71, refers to the bonus minute

dated February 22, 1982, declaring 1982 bonuses of $3.3 million and does not indicate it had

not been signed. Demers would have told him if they had not been signed.^{998 999}Wiseman

⁹⁹⁴Taylor, January 26, 2000.

⁹⁹⁵Taylor, January 28, 2000.

⁹⁹⁶Taylor, January 28, 2000.

⁹⁹⁷Wiseman, March 2, 2000.

⁹⁹⁸Wiseman, February 17, 2000.

⁹⁹⁹Wiseman, March 2, 2000.

Q. The 1982 audit …. tab 71 of Exhibit 232-B

…It doesn’t actually … say one way or the other whether the minute was signed, does it?

A. That’s true, but Mr. Demers modus operandi with respect to these matters is sort of reflected in the previous year is that they weren’t

signed, he would indicate not signed…. In this particular case these bonuses set up Feb. 22nd, 1982 pursuant to a resolution, they are large

bonuses, and I would expect them to be signed…. Further point out when I was down at Paul Ennis’ office I saw the minutes were signed ….

it would have been about a year later, yes.

relied on that summary as confirmation that the 1982 bonuses had been authorised. He said

“they are large bonuses, and I would expect them [the minutes] to be signed”. Although the

Revenue Canada issue crossed his mind again during the 1982 audit, he did not raise it with

either Morris or Chester.¹⁰⁰⁰

1983 IWS Audit in relation to 1982 Bonus Reallocations

[2648] The Plaintiffs submit that the Auditors should have spoken to Morris during the 1983

IWS audit about the reallocation of $412,000 of his 1982 bonus to Chester in December 1983.

[2649] Exhibit 232-C, tab 95/JB 3004, a 1983 working paper, shows the 1982 bonus balances

accrued as of December 31 1982. The bonus reallocation had not yet taken place. As of

December 31, 1983, under the heading “bonus reallocations” is written:

-$412,000 to Morris; -$196,650, to Kumer; -$40,400 to Rosen; +$649,050 to Chester.

[2650] Tab 86 of Exhibit 232-C contains Demer’s writing as follows: “Re Reallocation of 1982

Bonuses—Wayne would like to know if documentation is required for the bonus reallocation—

say in Minute Book!” Levy’s review note at tab 83 of Exhibit 232-C reads as follows: “why

bonus reallocations.” Beside those words, the initials “W/L” are circled. A separate Levy note

“Points to Discuss with Wayne Linton” (Exhibit 232-C, tab 82) reads as fallows: “If original

bonus allocation in minutes, reallocation [should be] also”. On the right hand side of the page

are the words “s/b [should be] reallocated in minutes - WL told”.

[2651] Wiseman said he first became aware of the reallocation to Chester of $412,000 of

Morris’ 1982 bonus toward the end of the 1983 audit in 1984.¹⁰⁰¹His review notes include the

following: “Re - bonus re-allocation - I note that your review points covered this area—what is

WL’s explanation? Who authorized the allocation?”¹⁰⁰²

[2652] In preparing a note of items to discuss with Chester at the 1983 wrap-up meeting,

Exhibit 232C, tab 85, Wiseman wrote: “Bonus reallocation does not have approval by MW per

WL”. On cross-examination, Wiseman said he raised the issue at the wrap-up meeting

…Q. And I’m suggesting to you that the truth is you didn’t know whether they were signed or not when you did this audit and you wanted to

find out if you had a problem

A. …I’m saying they were signed at this time because if they weren’t signed would have received an indication from Rick Demers that they

weren’t signed.

Q. …all Rick Demers had to do was make a list of minutes whether final or draft…. Paragraph six item A general procedures.

¹⁰⁰⁰Wiseman, February 17, 2000.

¹⁰⁰¹Wiseman, February 17, 2000.

¹⁰⁰²Exhibit 232C, tab 84.

because he knew that $412,000 had been taken away from Morris without documentation. He

thought the reallocation of the $412,000 might relate to the Share Sale.¹⁰⁰³He made the

notes at Exhibit 232C, tab 85 before the meeting scheduled with Chester because he wanted

the meeting to be a very tough, focused meeting, and he did not want to get sidetracked.¹⁰⁰⁴

[2653] Wiseman said he did not follow his script when he met with Chester. He did not tell

Chester that Linton had advised that Morris had not approved the bonus reallocations, or that

he thought the cartage and haulage fees seemed grossly overstated.^{1005 1006}Rather, he

advised Chester that Morris’ written approval of the reallocation should be sought. Chester

responded that Linton would look after it.¹⁰⁰⁷

Wiseman, March 6, 2000

Q. …I suggest to you you wrote in plain English that you understood “bonus reallocation

does not have approval by Morris Waxman.” That’s explicitly what you understood when

you wrote your note at tab 85. Isn’t that so?

…A. No…. I felt that the reallocations should be minuted and approved by Morris

Waxman and Chester Waxman in the minute book. Wayne Linton was told that. We

raised the issue. We suggested it would be a good idea.

[2654] When he was cross-examined about the plain meaning of his note, “bonus reallocation

does not have approval by Morris” he said:

Wiseman, March 6, 2000

• A.

…Those were the words I put down, sufficient for me as a memory jogger to suggest to

him in the strongest terms possible that we were advised that the reallocation was

provided—instructions were provided, information was provided by Chester Waxman,

¹⁰⁰³Wiseman, March 6, 2000.

¹⁰⁰⁴Wiseman, February 17, 2000.

¹⁰⁰⁵Wiseman, March 6, 2000, March 8, 2000.

¹⁰⁰⁶Wiseman, March 6, 2000.

Q. …at tab 85 … did you actually cover these points with Chester Waxman?

A. Yes.

Q. …When you got to point five, you must have said to Chester Waxman, Chester, Morris—Wayne Linton tells me that Morris has not

approved the reallocation of these bonuses. Right?

A. Not likely… I probably said that there was a reallocation, we told Wayne

Linton it should be minuted. It should be approved by both you and Morris and I would strongly suggest you get that done and Chester says

well, Wayne should look after that. He looks after minutes that’s basically what his answer was.

Q. …you did not say to Chester, Wayne Linton has told me that Morris Waxman has not approved this bonus reallocation.

…A. I don’t think I would have used those words no.

and that in our view, in our view, that reallocation should be minuted, and that minute

would have the approval or should have the approval by both parties. Both directors,

Morris Waxman and Chester Waxman. I see nothing wrong with that myself. (Emphasis

added)

[2655] Chester gave evidence that he had no recollection of speaking to Wiseman about

Morris’ authorisation of the bonus reallocation. He had no knowledge of a discussion involving

Linton and the Auditors.¹⁰⁰⁸Neither Linton nor Wiseman told him it was necessary to have

Morris sign new minutes.^{1009 1010}

¹⁰⁰⁷Wiseman, February 17, 2000, March 2, 2000.

¹⁰⁰⁸Chester, October 19, 1999.

Q. So on your evidence, sir, the documents that we’ve just reviewed referable to this bonus reallocation and it not having been approved by

Morris Waxman, on your evidence this dialogue involving Mr. Linton and the auditors as recorded in these documents on your evidence went

on without your knowledge?

A. That’s correct.

Q. And on your evidence, no one spoke to you about the issue being discussed?

A. Exactly.

…Q. You’re not able to help us as to how Mr. Linton got it into his head that on this occasion Morris Waxman did not approve this bonus

reallocation?

A. He didn’t know that Morris didn’t approve it. Morris and I approved it and I’m the one that gave Mr. Linton the instructions based on Morris

approving it.

Q. And so these documents that record explicitly that Mr. Linton didn’t, was of the view that Morris Waxman had not approved this bonus

reallocation, you just can’t help us with how that happened?

A. Exactly. Cannot help you.

…Q. But in the context of the audit, nobody spoke to you, Chester Waxman. about this issue of Morris Waxman not approving the

reallocation and the need for a minute. I want to be very clear?

A. I don’t recall any discussion after Wayne Linton and I discussed the reallocation. I expect that from there on, Wayne Linton would have

taken care of whatever documentation or minutes or whatever was necessary, as he had for years before.

Q. Is it in fact the case that you made a specific decision not to pursue the issue of minuting this bonus reallocation because you knew that

Morris would object?

A. Absolutely not.

¹⁰⁰⁹Chester, October 29, 1999.

¹⁰¹⁰Chester, October 19, 1999.

Q. Sir, no minute was ever drafted or signed with respect to this reallo-

cation of 412,000 from Morris in favour of you, was there?

A. I don’t believe so….

Q. is it fair to say that you would have expected an amendment to the minute as it related to the 1982 bonuses?

A. I would have expected Wayne Linton, along with legal counsel, in his good judgment to have created whatever minutes were necessary.

Q. And … in fact you relied on Wayne Linton, you told us this, to do whatever he thought was necessary working with Ennis?… And I guess

speaking to your auditors as well?

A. I told you I had never requested the creation of a minute, that it was either the accountants or it would have been my own lawyer,

depending on the deal or the circumstances to create the necessary minutes to cover that.

Q. Did you understand that Linton from time to time reviewed the status of minutes as it reflected the audit?

A. I thought auditors would review the minutes as reflected from Ennis and our company.

Q. So you knew the simple point that your auditors reviewed relevant minutes when they did the audit?

A. In general terms, I believe that, yes.

…Q. So on the basis of all of that, did Mr. Linton speak to you and say: You know, this bonus reallocation does not have Morris Waxman’s

approval?

A. No, he did not.

…Q. Did Mr. Wiseman speak to you Chester Waxman, and say: Who authorized this bonus reallocation?

A. Not that I can recall.

Q. Not that you can recall?

…A. I don’t recall any such conversation with Steve Wiseman.

…Q. Did Mr. Wiseman, in the context of the December 31, 1983 audit talk to you about bonuses?

A. No recollection of that.

Q. Does that mean you deny it?

A. I’m closer to denying it than anything else at the moment.

Q. Is it consistent with something that might have happened or inconsistent?

A. I don’t think it happened.

Q. And did Mr. Wiseman say to you: You know, Chester … Linton tells me that Morris hasn’t approved this bonus reallocation. Did he tell you

that?

A. No.

[2656] Linton denied telling the auditors that Morris had not approved of the reallocation.¹⁰¹¹

He said he did not discuss the reallocation with Morris even though he thought it was

irregular.¹⁰¹²

[2657] Morris never signed any minute approving or authorising reallocation of 1982 bonuses.

Findings - Audits re 1981 - 1982 Bonuses

[2658] I find Taylor Leibow was not involved in planning about the 1981-1982 bonuses before

they were declared. Chester had Linton prepare the tax plan. Taylor Leibow was excluded

even though it was “probably the biggest” thing Linton had ever done for IWS.

[2659] I find that in early 1982, Wiseman knew the following:

• Chester and Morris were 50% owners of IWS, that the LASCO and Laidlaw

transactions had been completed and that substantial cash had been generated by

virtue of those sales; that shareholders’ equity had increased by at least $5.6 million

before taxes.

• much of the equity of IWS was being distributed to Chester’s sons through these

bonuses

Q. Did Mr. Linton or Mr. Wiseman come to you and say, “We’ve got to get another minute signed?”

A. No.

Q. Did in fact you say to Mr. Linton or Mr. Wiseman in these contexts: Well, Morris won’t sign any such thing?

A. No, I did not.

Q. Did in fact you tell Linton or Wiseman: I’ve got enough trouble with Morris right now. I’m not going to ask him to sign a new minute?

A. That’s fiction.

Q. Did you at any time tell Linton or Wiseman: You’re wrong. Morris does know about this minute?

A. Don’t recall that.

Q. This bonus reallocation?

A. No. Ever since Linton was there, he got instructions generally from me with regard to matters concerning such things.

…Q. On the issue of minuting the reallocation of the 1982 bonuses, if your recall is inaccurate and in fact Linton or Wiseman or both spoke to

you about that fact, on your evidence you would have said: If it needs a new minute, do a new minute?

A. Absolutely.

Q. Because on your evidence you had no reason to think that Morris wouldn’t sign such a new minute. That’s your evidence?

A. That’s correct.

¹⁰¹¹Linton, May 23, 2000.

¹⁰¹²Linton, June 13,2000.

Q. You knew under the existing minute, Morris Waxman was entitled to $700,000, didn’t you?

A. Yes.

…Other than what Chester had told me that everybody had agreed to give up those bonuses. It hadn’t been minuted, that’s correct.

Q. You knew at the very least, that was irregular?

A. Since I have been with Waxmans I hadn’t seen it done before, that’s correct.

Q. You had never seen such a thing before, had you?

A. No.

…Q. And you didn’t ask the auditors what if anything they had done about it?

A. No, I didn’t.

Q. Yet you thought it was irregular, but in the end you didn’t pursue it?

A. I would have pursued it if Chester had asked me to make up a minute.

Q. And you never discussed the issue of Morris at all. did you?

A. No, I didn’t.

Q. You never said to Morris, you know, I’m the controller of the company and there’s no minute here authorizing the reallocation of your

bonus. Did you know that, you never had any such conversation with him, did you?

• he knew of nothing to justify their quantum.

• just prior to learning of the 1981-1982 bonuses, totalling $6.6 million, Taylor Leibow

had been considering the impact of the sales to Laidlaw and Lasco on the estate freeze.

Wiseman had met with Chester and Linton and prepared JB 2143, a memo to Linton

dated November 16, 1981 (copied to Chester), in which he had addressed the effect of

those sales. He had told Chester that if they wanted to proceed with the estate freeze,

they should have Campbell prepare an updated valuation to take account of the cash

received on the sales to Laidlaw and Lasco.¹⁰¹³

[2660] When he learned of the bonuses, Wiseman was concerned about the allocations to

Chester’s sons and, as noted elsewhere, also about the Greycliffe profit diversions. As a

result of those concerns, Wiseman spoke to Taylor, who was also concerned and who spoke

to Chester but not to Morris.

[2661] I find that before the 1983 wrap-up meeting, Linton told Wiseman that Morris had not

approved of the reallocation. Wiseman intended to confront Chester. Like Michael before him,

he had made a note before the meeting because he did not want to be side-tracked. By that

time he had talked to Morris about his concerns. Despite his preparation of a script for a

tough, focused meeting, Wiseman did not confront Chester about that bonus reallocation or

about the Greycliffe rates being “grossly overstated.” If he owed a duty to Morris personally,

he should have told Morris what he had learned. He did not do so.

[2662] Chester gave no instructions to Linton to obtain new minutes. No new minute was

prepared.

[2663] After the wrap-up meeting, Wiseman did not follow up with Chester or with Linton to

ensure a new minute was prepared.¹⁰¹⁴

A. No.

¹⁰¹³Wiseman, February 29, 2000; Plaintiffs’ Argument, Vol. 1, p. 129, para. 435-464 and Vol. 3, p. 669, para. 2191.

¹⁰¹⁴Wiseman, February 17, 2000, March 2, 2000, March 6, 2000.

Wiseman, February 17, 2000

Q. As an auditor, did you consider going directly to speak to Morris at this point in time about what you observed in the audit file relating to

the bonus reallocation?

A. Well, the circumstances at that point in time were I would say a bit out of the ordinary in relation to the previous history of that company.

Had already been apprised of the share deal as between Morris and Chester. I had heard on the basis of a number of meetings up until the

end of January, 1984 from Morris on a sort of a build-up series of complaints that Morris had in respect of the share deal. He wasn’t happy,

there was no question in my mind based on his discussions with me and with Mr. Sam Taylor of our office, and I did I think refer to the

telephone call I received from Morris from the hospital shortly after his operation in which he indicated that he and Chester had a meeting the

night before his surgery in which he indicated that the share deal based on what Chester said was to be ripped up. And there was no

indication from Paul Ennis that that had been the case when I had been down there at Paul’s office. It seemed like the situation was sort of

moving forward save and except for documents that had to be signed. There was no mention of the share deal being ripped up and I had no

indications from Chester at that wrap-up meeting, and of course Morris was convalescing at the time of my meetings with Chester at that

Did Taylor Leibow Owe A Duty to Discuss the Bonuses with Morris Personally?

The Law re Audit Liability re Bonuses & Bonus Reallocation

[2664] For reasons already given in the section of these Reasons relating to related-party

transactions, I have found that at the relevant time, Taylor Leibow owed no audit obligations

to Morris personally. The Auditors were excluded from involvement in calculating the bonuses

and in providing advice with regard to their declaration or allocation. They were not consulted

about the advisability of the bonuses declared in favour of Chester’s sons. Information about

the bonuses came to their attention only in the course of the IWS audits. I find that the

Auditors owed no duty to Morris personally to speak to him about the bonuses when they

learned of them in the course of the IWS audits.

[2665] If Taylor Leibow Owed a Duty re Bonuses to Morris, Was it Breached? If I am wrong

about the Auditors’ duty to Morris personally with respect to the bonuses, if all that the

Auditors had seen during the 1981 audit was the December 22, 1981 bonus minute that

Morris had signed, I would have found that they were entitled to assume that Morris had

approved the 1981 bonuses. However, the same 1981 audit review also mentions an

unsigned minute reflecting a declaration (subject to change) of 1982 bonuses in the amount

of $3.3 million, most of which were to be allocated to Chester and his sons. I have found that

Wiseman was sufficiently concerned about the size of the bonuses to Chester’s sons that he

spoke to Taylor who spoke to Chester. The Auditors were concerned because they thought

the bonuses to Chester’s sons were excessive. They would not have been concerned about

disallowance of the bonuses as an IWS expense by Revenue Canada unless they were

concerned the bonus expense to Chester’s sons was unreasonable.

[2666] As long standing IWS auditors, they had a great deal of information about IWS and its

two shareholders/owners. They knew the bonuses to Chester’s sons could not be justified

based on market considerations. The estate freeze proposals about which they had been

consulted were more generous to Morris’ sons and less generous to Chester’s sons than the

1981-1982 bonuses. They knew the bonuses were being paid out of the proceeds of sales of

wrap-up meeting and did not talk to him about it, just indicate that Chester that you know Morris’s approval should be sought with respect to

the reallocations in the minute book and Chester said Wayne would look after that, that’s what he does. And I had received no indication

from him that is to say from Chester, that there was any share deal ripup, there was no discussion about the share sale at all, and that’s the

way I left it and if there was any ambiguity in what Chester and Morris had talked about at the hospital the night before his surgery, then that

would be straightened out between the two of them. This seemed to me to be a personal matter as between the individuals and not the

company.

assets that Morris and Chester had built together over 40 years. In all of the circumstances, if

they owed a duty to Morris personally, I would find that they were negligent in failing to

discuss bonuses totalling $6.6 million with him during the 1981 and 1982 audits and to

discuss the reallocation of the $412,000 of Morris’ 1982 bonus to Chester during the 1983

audit.

Causation

[2667] Counsel for the Plaintiffs submit that if representatives of Taylor Leibow had discussed

$6.6 million in bonuses with Morris in early 1982, he would not have trusted Chester

thereafter and would not have signed the Share Sale documents. In the Main Action, I have

noted that in 1982, Chester started to take steps that eventually led to the Share Sale in

December 1983. He spoke to Ennis. He decided not to proceed with an estate freeze. In

October and November of 1982, he instructed Linton to prepare a “valuation.” In early 1983,

he met with Ennis and in the summer of 1983, he instructed Ennis to prepare Share Sale

documents and the Covenant Agreement. In late 1983 he instructed preparation of the final

Share Sale documents. Morris knew nothing about any of this activity.

[2668] It is not necessary for me to decide whether disclosure of the bonuses prior to

December 1983 would have made Morris sufficiently wary of Chester that he would not have

signed documents on December 22, 1983. Counsel for the Auditors submit that even after the

Share Sale, Chester was able to manipulate Morris. Even after the Share Sale, lease and the

$6.6 million in bonuses were revealed to him, Morris transferred Ancaster to Warren based on

Chester’s promise that things would be “straightened out.”

[2669] If it were necessary to decide the point I would find that if Morris had been properly

advised of the $6.6 million in bonuses and their allocation in early 1982 and if he had been

fully advised that approximately $5 million of those bonuses were to be paid to Chester’s side

of the family, Morris’ trust in Chester would have been seriously eroded. Had he also been

informed about the extent of Greycliffe profit diversions and the absorption of Greycliffe

expenses by IWS, I would find that even though Morris was unaware of the preparation of

Share Sale documents at that time, Morris would have sought independent legal and financial

advice and/or talked to Michael about the bonuses and profit diversions. If he had done either,

the Share Sale would not have happened.

Limitation Defences

re 1979 Bonuses

[2670] Counsel for Taylor Leibow submits that Morris was aware of the 1979 bonuses at the

time they were declared because he signed the minute authorising them and his claim with

respect to the 1979 bonus is statute barred.

[2671] Whenever he signed the 1979 bonus minute, I have found that he did not know what

he was signing. Morris did not receive the 1979 financial statements, which, in any event, did

not identify the $250,000 bonus as such. He would not have understood that a $250,000

bonus was included in wages of $2,356,432. Morris did not learn about the 1979 bonuses

until examinations for discovery in 1997. His pleading was amended in that respect in 1998,

which was less than six years before the claim in respect of 1979 bonuses was made. If it

were necessary to decide the issue, I would find that the limitation defence in respect of the

claim regarding the 1979 bonus fails.

Re 1981 - 1982 Bonuses

[2672] I have found in the Main Action that Morris learned of the bonuses in 1985 and

commenced action with respect to them in 1988. If it were necessary to decide the issue, I

would find that the limitation defence in respect of the claim regarding the 1981 and 1982

bonuses fails.

Liability re Morris’ Tax Returns After The Share Sale

[2673] The Plaintiffs claim against Taylor Leibow in failing to properly prepare Morris’ tax

returns after the sale and to treat the Share Sale if valid as a staged rather than a completed

sale. If the Share Sale is not set aside, Morris claims $223,458 plus interest against Taylor

Leibow for tax overpaid on the Share Sale proceeds.

[2674] Morris claims that part of the gain on the sale of the shares should have been

attributed to Shirley as she was the owner of 56 1/4 IWS shares from December 1971 until

roughly the time of the Share Sale.

[2675] Given my disposition on the Share Sale, it is unnecessary to determine this issue.

However, I shall briefly outline the relevant considerations here.

How Should Wiseman have Treated the Share Sale on Morris’ 1984 Tax Return?

[2676] Counsel for Taylor Leibow submit that Wiseman was not negligent in the preparation of

Morris’ 1984 tax return. Once he characterised the Share Sale as a completed sale, not a

staged sale, that characterisation could not be changed. When the Income Tax Act was later

amended to allow capital gains deductions over a number of years, retroactive tax planning

would have been improper.

[2677] When Linton prepared the first draft of Morris’ 1984 income tax return in April 1985, he

treated the Share Sale as completed (i.e. as if all of Morris’ shares had been sold to Chester

as of January 4, 1984). He attached a schedule to the return that included the following

words: “Assumption - All Shares Sold”.¹⁰¹⁵

[2678] In the Main Action, I have already found that Linton contacted Wiseman in December

1983 to discuss the wording of the Share Sale. I have found that Wiseman may have learned

about the Share Sale and received the Share Sale Agreement from Linton. I have found

Linton and Wiseman did discuss whether the wording of the Share Sale Agreement would be

interpreted as a staged sale even before Morris was aware he had signed Share Sale

documents. They agreed it could be so interpreted. I have already alluded to Wiseman’s

evidence that the first time he discussed the Share Sale Agreement with Morris, he told

Morris that he queried whether Morris had sold all of his shares as of January 4, 1984.

[2679] In Exhibit 218 at Tab 40, Wiseman wrote: “In reading the agreement at FF, do you

think CW owns all of the shares? Has Morris … really disposed of the shares in their entirety

at the January 4 date? Would you opt for securing an outside legal opinion as to the

interpretation of the agreement?” Toby Marr, the engagement senior, had responded, “Yes…

I think we should confirm this, or would the minute book tell us?”¹⁰¹⁶

[2680] Wiseman said when he received Morris’ draft 1984 tax return, he reviewed Linton’s

treatment of the Share Sale as a completed sale. He called Linton and asked him why he had

assumed all the shares had been sold and why the Share Sale Agreement could not be

interpreted as a staged sale. Linton advised Wiseman that he understood there had been an

outright/completed sale as of January 4, 1984 and he suggested Wiseman call Ennis.

¹⁰¹⁵Linton, May 16, 2000; Wiseman, February 14, 2000; Joint Document Book, Vol. 77, tab 1984B.

¹⁰¹⁶Wiseman, February 14, 2000, February 22, 2000.

Wiseman said Ennis advised him that the parties intended it to be a one-time sale.¹⁰¹⁷Based

on that information, Wiseman concluded that Linton’s treatment of the Share Sale was

appropriate. He dictated a letter to Morris dated April 26, 1985, attaching a copy of the

return.¹⁰¹⁸On April 29, 1985, he met with Morris. He sent him another letter dated April 29,

1985.

[2681] In the Main Action, I have mentioned Wiseman’s differing evidence in chief and cross-

examination.¹⁰¹⁹I have found that Wiseman did not explain the implications of treating the

sale as a completed sale to Morris at that time. He simply advised Morris to pay the tax but

not to file the return. He did send Morris a letter, JB 3407, containing the following:

You should pay particular attention to Schedule 3 … indicates that you have disposed of

all of your shares in I. Waxman & Sons during the 1984 taxation year… The inclusion of

capital gains and related reserves as calculated is based on instructions provided to us

by Wayne Linton. [Emphasis added.]

[2682] Morris said he did not read the letter but handed it to Linton, who paid his taxes.

[2683] Although he had advised Morris not to file his 1984 tax return in April 1985, Wiseman

did not revise it after the introduction of the capital gains exemption in May 1985, but before it

was filed.¹⁰²⁰

[2684] When Morris’ 1984 income tax return was prepared in the spring of 1985, the

difference in tax payable on a completed or a staged sale was not significant. However, on

May 23, 1985 a new capital gains exemption was announced. If the Share Sale had been

treated as a staged sale, Morris could have deducted his gain over a number of years and

significant tax savings would have resulted.¹⁰²¹

[2685] Further, in 1987, an enhanced capital gains deduction of up to $500,000 was

introduced, which applied to the sale of shares in Qualified Small Business Corporations

(“QSBC’s). If the Share Sale had been treated as a staged sale, counsel for the Plaintiffs

submit this additional deduction could have been used to offset a portion of the capital gains

otherwise payable on the sale of Morris’ shares.

¹⁰¹⁷Wiseman, February 14, 2000.

¹⁰¹⁸Wiseman, February 22, 2000; JB 3407, Exhibit 233, tab 5.

¹⁰¹⁹Wiseman, February 14, 2000.

¹⁰²⁰Wiseman, February 22, 2000.

¹⁰²¹Wiseman, February 22, 2000.

Expert Evidence on the Tax Filing Issue

[2686] Counsel for the Plaintiffs called Mr. Michael Cadesky (“Cadesky”) to give evidence

relating to the tax filing issues. Counsel for Taylor Leibow called Mr. David Duff (“Duff”)

[2687] If Morris’ 1984 tax return had been prepared and filed on the assumptions set out in

Cadesky’s report, (Exhibit 84), inter alia, that (i) the transaction was a staged sale, (ii) the gain

on the 56¼ shares which Shirley held between 1971 and December 8, 1983, would be

attributed to Shirley, and (iii) the QSBC Small Business Corporation exemption could be

applied to IWS in 1988, then Morris’ tax savings would have been $249,363. Shirley would

have paid additional taxes of $25,905. Thus, Morris and Shirley together suffered an overall

tax loss of $223,458 as a result of the manner in which their tax returns were prepared. In the

event the QSBC exemption did not apply, the tax savings would have been $107,644 less, or

$115,814.

[2688] Cadesky said that if the agreement was ambiguous, then the ambiguity might be

resolved by understanding the background and the intentions of the parties. However, he did

not find it to be ambiguous. The face of the Share Sale document provides for a series of

sales as opposed to a single sale and the tax returns should have been prepared on that

basis.¹⁰²²Taylor Leibow could have revised Morris’ 1984 tax return before it was filed and

could have filed subsequent returns which reflected the sale as a series of sales.¹⁰²³Had that

¹⁰²²Cadesky June 7, 1999.

Q. And looking at the subject agreement, your view as to how it should have been reported on the tax returns is what?

A. My view as to how it should be reported on the tax returns is as a series of separate sales on a series of dates, which is exactly what the

document on its face seems to say.

A. A. the agreement in article three seems to indicate quite clearly that the

purchase price for the purchased shares shall be paid as follows as to 84 shares $1,000,000 on January 4, 1984, as to 21 shares, $250,000

on December 31, and so on. So it gives rise to a strong impression in my mind that shares are being conveyed at different points in time over

an extended period which is reinforced by other language, particularly on page three, article four of the agreement, which indicates that we

have sales and purchases of the purchased shares and that these transactions are to be completed on the respective dates in the years as

provided … defined as closing dates.

Q. What would have been the effect, in your opinion, as it relates to the tax returns of Morris and Shirley and the tax paid if this sale

transaction had been reported as a staged sale?

A. Well, if it had been reported as a staged sale, then a series of capital gains would have been reported from 1984 through and including

1990 or earlier. As opposed to a one-time sale for a promissory note which requires that the transaction be recorded entirely in 1984 and

then a reserve or deduction be taken for the portion of the capital gain that has not yet been received The difficulty with the second approach

is that [it] requires there to be an unpaid balance of the purchase price and it is difficult on the face of this agreement for me to understand

how there is an unpaid balance of the purchase price when the purchase price is not due until the dates that are specified in the agreement.

Which is why the first method which requires that the entire transaction be recorded in 1984 is difficult to interpret.

Q. Exhibit One of your report at tab one [of] your report Exhibit 84

…A. reported not as a one time sale but as a staged sale with gains being recorded over time… Tax returns were prepared in April 1985, the

difference would not have appeared particularly significant. However, on May 23rd, 1985, the Federal government announced the

introduction of an exemption on capital gains which was to be phased in over six years at the rate of $20,000 in 1985, $50,000 the next year,

$100,000 by 1987, $200,000 in 1988, $300,000 and then $500,000. So climbing gradually over a six year period to reach a total of $500,000,

that any individual could claim as exempt capital gains and that would have been highly beneficial to Morris and Shirley knowing at that point

in time that they were looking at a series of capital gains that will coincidentally fit quite well within that exemption and the growing maximum

exemption amounts.

¹⁰²³Cadesky June 7, 1999.

been done, then a series of capital gains could have been reported from 1984 until the final

payment was made and significant lax savings could have been achieved as a result.¹⁰²⁴Duff

opined that Taylor Leibow prepared Morris’ and Shirley’s tax returns in an appropriate manner

because Linton and Ennis had told him that the transaction was intended to be a completed

sale and because Morris had told Wiseman that he did not want to be a minority shareholder.

An accountant should attempt to determine the intentions of the parties when trying to

interpret an ambiguous agreement.¹⁰²⁵

Small Business Exemption

[2689] 4 Wiseman said that in his view, the IWS shares did not qualify for the enhanced

$500,000 QSBC at the relevant times.¹⁰²⁶

[2690] 5 Cadesky said that the enhanced QSBC exemption for shares of small business

corporations,¹⁰²⁷applied only to Canadian controlled private corporations in which

substantially all (generally meaning 90% or more) of their assets were being used in an active

business. He could not definitively say that this exemption would have applied to IWS without

knowing its fair market value in 1988, and without knowing whether its term deposits,

securities and related assets were being used in its active business. Provided that IWS used

at least 50% of its assets in its active business, and provided that Chester cooperated, a fairly

routine “purification” could have been done by removing redundant assets, term deposits,

cash, etc. to a holding company in order to qualify IWS for the QSBC exemption.¹⁰²⁸

[2691] Duff opined that the IWS shares would not have qualified for the enhanced QSBC

exemption because of the value of redundant assets shown on the IWS 1987 and 1988 IWS

Q. Given that chain was there anything, if they were so minded, to prevent in this case Taylor Leibow from refiling so as to reflect the sale as

a series of sales rather than a one time sale?

A. There was nothing to prevent a tax return from being amended

¹⁰²⁴Cadesky, June 7, 1999.

¹⁰²⁵Duff, August 29, 2000.

¹⁰²⁶Wiseman, February 22, 2000.

¹⁰²⁷Cadesky, June 7, 1999.

¹⁰²⁸Cadesky, June 7, 1999.

A. whether or not the company qualified would be relevant for 1988.

Q. Now, let’s assume hypothetically for the moment that it doesn’t qualify for the small business corporations deduction in 1988. Is there any

way to address that issue from tax planning point of view to therefore still give the capital gains benefit to Morris and Shirley?

A. Well, yes, there is. Provided the company uses at least 50 percent of its assets in an active business, but doesn’t use 90 percent in an

active business, it’s possible to withdraw the investment assets to go from the level that it is at to the 90 percent active business level, so for

example if the company had 10 million dollars of cash which caused the company to not be a small business corporation, it would be a fairly

routine matter to withdraw a large portion of that cash, generally to a Holding Company, much the same way that I have illustrated before,

and immediately after that, to have a company that used all or substantially all of its assets in an active business with the redundant

assesses, term deposits, cash, being segregated out. That is a routine transaction in tax terminology called a purification.

Q. to what degree Chester Waxman’s cooperation would have been required?

A. His cooperation would have been required because he would have had to have been a party to the transaction… It would have involved

legal fees and accounting fees and it would have required his cooperation to agree to a series of transactions that would benefit Morris.

Balance Sheets.¹⁰²⁹In attempting to determine the extent of redundant assets, he did not

speak to Chester or to Robert. He relied principally on the $12 million of cash and term

deposits and the book value of $26 million shown on the 1988 IWS balance sheet. He was

not aware that Vettese had concluded that only one-third of the cash in IWS ($4 million) was a

redundant asset, or that Low had suggested that the value of redundant assets was even

lower. Duff said that if one-third of the cash and near-cash in IWS (about $4 million) in 1988

was redundant, then the value of the IWS as a going concern would need to be approximately

$40 million [a $14 million increase over book value] to qualify. He was not aware that $2.5

million in dividends and $20 million in bonuses had been removed from IWS in the few years

following 1988, suggesting a going-concern value much higher than book value.¹⁰³⁰He did

not know that IWS’ operating assets excluding all cash and term deposits, excluding all real

estate and goodwill associated with the name IWS, had been sold for $27 million in 1993.

[2692] In cross-examination, Duff was questioned about a number of indicia used by Revenue

Canada to determine whether a company qualifies for a QSBC exemption (as set out at

pages 7-8 of Exhibit 320). He said that Revenue Canada has directed that cash that is

temporarily surplus to the needs of the company and that has been invested in short-term

income-producing investments may be considered as being used in an active business.

Revenue Canada also recognizes that prudent financial management requires businesses to

maintain current assets [including inventories and accounts receivable as well as cash and

near-cash] in excess of current liabilities. In 1988, IWS’ current liabilities were in excess of

90% of its current assets. He acknowledged that he had done this mathematical exercise but

had chosen not to mention it in his report.¹⁰³¹

The Law re Liability Of the Auditors re Morris’ Tax Returns

[2693] There is no contest that Taylor Leibow owed a duty to Morris personally in connection

with his tax returns.

¹⁰²⁹Duff, August 29, 2000.

¹⁰³⁰Duff, August 30, 2000.

Failure to Reflect Transaction as a Staged Sale

[2694] Counsel for Taylor Leibow submits that when an accountant is faced with an

ambiguous document, he should seek to ascertain the intentions of the parties to determine

how it should be treated for tax purposes, just as Wiseman did.

[2695] JB 2941, the Share Sale Agreement effective as of January 4, 1984, executed on

December 22, 1983, contains the following:

At paragraph 3: “The purchase price payable for the purchased shares pursuant to the

provisions of paragraph 2 of this agreement shall be payable by cash, certified cheque

or other means acceptable to the vendor on the closing dates (as hereinafter defined),

as follows:

(a) as to 84 of the purchased shares, the sum of $1 million on the 4^thof January.

1984

(b) as to a further 21 of the purchased shares, the sum of $250,000 on or before

December 31. 1984

(c) as to a further 42 of the purchased shares, the sum of $500,000 on or before

December 31. 1985 provided however that the purchaser shall have the right of

purchasing any of the remaining purchased shares at any time…

At paragraph 4: The sales and purchases of the purchased shares referred to above

shall be completed at Hamilton at 2:00 pm Ontario time on the respective dates in each

year as above provided or such earlier date as the purchaser may decide pursuant to

the aforementioned paragraph 3 in its entirety upon (the actual time and dates of

completion being hereinafter referred to as the “Closing Dates”)

(a) the purchaser shall make payment to the vendor as required by the provisions

of paragraph 3 … or as otherwise agreed between the vendor and the purchaser.

(b) the vendor shall deliver to the purchaser evidence reasonably satisfactory to

the purchaser that:

(i) the vendor is the beneficial owner of the purchased shares

…

¹⁰³¹Duff, August 30, 2000.

At paragraph 5: Each of the dates set out in Paragraph 3… shall upon written notice

being given by the purchaser to the vendor be extended for a period of one year.

…

At paragraph 6: If on any of the Closing Dates the vendor fails to complete the sale of

the purchased shares, the purchaser shall have the right without prejudice to any rights

which he may have, upon payment of the purchase price payable for the purchased

shares … to execute and deliver on behalf of and in the name of the vendor, such

deeds, transfers, share certificates and other documents as may be necessary to

complete the sale of the purchased shares… [emphasis added]

[2696] In my view, the wording of the Share Sale Agreement dated December 22, 1983, is

clear and unambiguous on its face. It clearly provides for a series of sales [i.e., staged sales]

of Morris’ shares to Chester.

[2697] The parol evidence rule applies.

[2698] Taylor Leibow should not have considered evidence of intention in construing the

Share Sale Agreement. Taylor Leibow’s working papers reflect that Taylor Leibow considered

seeking an outside legal opinion on the issue of interpretation but did not do so. The Auditors

could not simply follow the directions of Linton on the interpretation of the Share Sale

Agreement without seeking a legal opinion.

[2699] In my view, as the Share Sale Agreement was clear and unambiguous, it was not open

to Wiseman to rely on external evidence of intention in interpreting it. If the Auditors had

sought an outside legal opinion as suggested in their own working papers, they would have

been so advised.

[2700] I find that Wiseman simply followed Linton’s “instructions” to calculate capital gains on

the assumption that all shares were sold on January 4, 1989, despite his discussion with

Linton in December 1983 and their agreement that the December 22, 1983 agreement

reflected a staged sale. That is why amendments to the Agreement were sought. Linton and

Wiseman knew Morris never signed the amended Share Sale Agreement. Nevertheless,

Wiseman followed Linton’s “instructions” and filed Morris’ 1984 return as he had been

directed. No one ever explained the tax implications of that manner of filing to Morns.

[2701] By May 23, 1985, Wiseman should have known that it would be to Morris’ benefit from

a tax perspective to treat the sale as a staged sale rather than a completed sale. He would

have always known that it would be to Moms’ benefit for other reasons, e.g., continuing

participation in the profits of IWS.

Was Taylor Leibow Negligent?

[2702] Had it been necessary to determine the issue, I would have found Taylor Leibow to be

negligent in this regard.

[2703] Wiseman had a duty to read the clear and unambiguous terms of the Share Sale

Agreement and to file Morris’ return properly, in accordance with its terms as he had been

retained to do. He should not have resorted to evidence of intention. If he had any concerns

about the interpretation of the Share Sale Agreement he should have sought and obtained

independent legal advice as he had recognised in Exhibit 218 tab 40. If he had, he would not

have considered evidence of intention or followed Linton’s direction re interpretation of the

Share Sale Agreement.

Taylor Leibow’s Failure to Attribute Gains on 56¼ Shares to Shirley

[2704] The share register in the IWS minute book and the shareholders’ ledger reflect a

transfer from Morris to Shirley of 56¼ shares on December 21, 1971. JB 380 includes share

certificates in Shirley’s name reflecting a transfer date of December 21, 1971. Although the

Defendants have questioned the actual date of the transfer [postulating that it was in 1972

and therefore that the capital gains exemption does not apply to those shares], Taylor said he

did not have any specific information that the share transfer took place after December 31,

1971.

[2705] As far as Wiseman knew, Shirley had transferred her shares to Morris as of December

8, 1983. [I have found elsewhere that Shirley did not sign the transfer of her shares to Morris

until sometime after May 9, 1984. On December 22, 1983, Morris could not transfer Shirley’s

shares to Chester because they had not been transferred to him.

[2706] Wiseman knew nothing about the date on which Shirley signed documents and

assumed they had been transferred to Morris on December 8, 1983.

[2707] On JB 1478 the Campbell valuation dated April 5, 1980, Shirley is listed as a beneficial

owner of 56 1/4 IWS shares.

[2708] When the 1984 tax returns were prepared, Wiseman said he did not consider

attributing the capital gain on 56 1/4 shares to Shirley, as he did not believe she was the

beneficial owner of those shares. He thought she was holding them in trust for Morris.¹⁰³²

[2709] Cadesky opined that Taylor Leibow erred in failing to attribute the capital gain to

Shirley on 56 1/4 shares of IWS. He referred to corporate records reflecting that the shares

were initially transferred to Shirley in 1971, just prior to the introduction of the capital gains

regime. No trust document exists to suggest she did not hold those shares both legally and

beneficially. Revenue Canada will normally accept that beneficial ownership follows legal

ownership.¹⁰³³

[2710] Duff noted in chief that Shirley did not receive either the dividends or the appreciation

in respect of the 56 1/4 IWS shares. In cross-examination, he agreed that in determining

ownership, Revenue Canada looks principally at the legal documents.¹⁰³⁴

Finding Re Liability of Taylor Leibow re Failure to Attribute Gains on 56 1/4 Shares to

Shirley

[2711] A total of 56¼ shares were transferred from Morris to Shirley in 1971 for the purpose of

legally avoiding capital gains tax. At no time did Morris or Shirley intend to forego the benefits

of the tax planning done in 1971. Chester arranged for Ennis to transfer Shirley’s shares to

Morris as of December 8, 1983, without Morris’ knowledge.

[2712] It is unclear from the documentation before me whether Shirley ever received

dividends. As she did not have a drawings account, her dividends may have been initially paid

into Morris’ drawings account and then paid to her. One minute in the 1972 working papers

appears to reflect payment to Shirley of 11.3% of a non-taxable IWS dividend declared in that

year. Another part of the working paper may reflect otherwise.

[2713] Wiseman spoke to Morris at length about his lack of knowledge about the Share Sale

and ancillary matters in the period following the Share Sale. Given all the information that

¹⁰³²Wiseman, February 22, 2000.

¹⁰³³Cadesky, June 7, 1999.

¹⁰³⁴Duff, August 29, 2000.

Wiseman admitted receiving from Morris at that time, given his awareness that Morris did not

understand what had been signed, he should have spoken to Morris and Shirley and

explained the possible lax savings that would result from attribution of capital gains to Shirley.

If he had done so, they would have instructed him to attribute the capital gains on 56 1/4

shares to Shirley. Wiseman could not simply accept Linton’s draft of the tax return without

discussing the implications with Morris.

[2714] Given the content of Ennis share register and shareholders’ ledger and the evidence of

Duff that Revenue Canada would likely not have questioned Shirley’s ownership of the 56¼

shares, I find that if ownership of Morris’ shares had been validly and completely transferred

to Chester as of January 4, 1984 [I have found they were not: Chester has held Morris’ shares

as Morris’ trustee since that time] both Shirley and Morris could have benefited from capital

gains exemptions, and Revenue Canada would likely have allowed the capital gain on the

appreciation of the 56 1/4 shares to be attributed to Shirley.

Quantification Of Damages

[2715] Cadesky and Duff agreed upon the quantification of the damages with respect to the

tax filing. I accept their evidence that the damage caused to Morris and Shirley, on the

assumption that IWS would have qualified for the QSBC exemption, is $223,458. However,

the Plaintiffs have failed to prove that IWS would have qualified for the QSBC exemption. If

Wiseman had properly prepared Morris’ and Shirley’s tax returns, if he had attributed the

capital gains on 56 1/4 shares to Shirley, but without claiming a small business deduction,

taxes of $223,458 - $107,644 = $115,814 would have been saved. I therefore assess the

damages with respect to the negligent preparation of Morris’ income tax returns at $115,814.

Disposition re Taylor Leibow

[2716] The Plaintiffs’ claims Taylor Leibow with respect to related-party disclosure and the

bonuses are dismissed. Given my disposition with respect to the Share Sale, the alternative

claims are also dismissed.

The Claims against Linton

[2717] Part II of the Reasons contains much about Linton’s words and actions. My findings in

the Main Action apply equally in this Action.

[2718] In this Action, the Plaintiffs allege:

Re Share Sale

• Linton knew about the proposed Share Sale, and helped Chester draw up “the

papers” and arrive at the values set out in the Share Sale Agreement i.e., the share

price;

• knew that the Share Sale Agreement and December 1983 lease were

improvident, unconscionable, obtained by undue influence and breach of fiduciary

duty insofar as Morris was concerned;

• knew that Chester was breaching fiduciary duties that he owed to Morris, yet

colluded/knowingly assisted Chester with those breaches;

• failed to ensure that Morris received independent tax and appraisal advice with

respect to the Share Sale;

• failed to warn Morris of the improvidence of the Share Sale;

• instructed Wiseman to characterise the Share Sale as a completed sale when he

knew it was a staged sale;

• knowingly participated and involved IWS in the Share Sale in a manner that was

oppressive to Morris.

Re Bonuses

• Linton failed to advise Morris about the 1979, 1981 and 1982 bonuses;

• knew that Chester was breaching his fiduciary duties to Morris and knowingly

assisted/colluded with Chester in that breach;

• knowingly participated and involved IWS in the bonus declarations and

reallocations in a manner that was oppressive to Morris.

Re Profit Diversions

• Linton knew of the nature and extent of the business activities of Greycliffe and

other related parties;

• knew of the profit diversions and failed to ensure that the related-party

transactions were disclosed on the IWS financial statements and/or discussed with

Morris;

• knowingly assisted Robert in breaching his fiduciary duties to IWS;

• knowingly participated and involved IWS in the oppressive activities vis-à-vis

Morris mentioned earlier.

• Linton improperly drafted Morris’ tax returns knowing that the Share Sale was not

a completed sale, but a staged sale.

• knowingly instructed Wiseman to complete the tax returns showing a completed

sale.

Re Morriston

• Linton breached his fiduciary duties to Morris/Morriston in the financial

administration of Morriston.

Punitive Damages

• The Plaintiffs also claim punitive damages against Linton.

[2719] Without repeating all of the evidence pertinent to the liability of Linton here, suffice it to

say there is much in the evidence that illustrates Linton’s unquestioning service of Chester

and his side of the family. Linton was aware of all of the reasons making Morris vulnerable to

Chester’s breaches of trust, including but not limited to:

• the division of responsibilities in IWS,

• Morris complete trust in Chester

• Morris’ poor health in late 1983

• the manner in which documents were signed

[2720] Yet:

(1) In April 1981 Linton wrote to Ennis directing him to replace the original 1979 bonus

minute, which allocated $75,000 to each of Morris and Chester and $100,000 to

Chester’s sons, with a new minute allocating all of the $250,000 to Chester’s sons. He

instructed Ennis to destroy the old one. He did not speak to Morris.

(2) He never spoke to Morris about the 1981 and 1982 bonuses, their allocations or

their reallocations.

(3) In early 1982, he reviewed a draft 1981 IWS financial statement with Morris that did

not reflect the 1981 bonuses that Linton knew Ennis had already been instructed to

minute.

(4) In December 1981 he instructed Ennis to prepare a directors’ resolution declaring

bonuses as in Exhibit 194. On January 12, 1982, he instructed Ennis to prepare

“substitute” minutes allocating much larger bonuses to Chester’s sons.

(5) He never sent Morris a copy of JB 2244, his February 24, 1982, memorandum in

which he warned Chester that “we may be hard pressed to justify” the 1981-1982

bonuses [to Chester’s sons] to Revenue Canada and Campbell.

(6) He never spoke to Morris about moving the debt in connection with the Blue Building

to Morriston and Chesterton in 1982.

(7) During the 1982 audit he acted on Robert’s instructions to request Taylor Leibow not

to note IWS’ related-party transactions with Greycliffe in the IWS financial statements.

(8) He never spoke to Morris about any of the work he was doing for Chester in advance

of the Share Sale.

(9) He did not send Morris a copy of JB 2473, his November 15, 1982, memorandum

“valuing” IWS, [which I have found clearly evidences that Linton preferred Chester’s

interests over Morris’]

(10) He prepared “musings” to assist Chester to structure the Share Sale in the manner

most favourable to Chester, to help Chester to find the money to buy Morris’ shares. He

recommended actions that I have found were oppressive to Morris, including reallocation

of approximately $400,000 of Morris’ money to Chester. While Linton may not have

originated many of the oppressive ideas [e.g. the allocation of the 1981-1982 bonuses,]

he helped Chester use IWS to implement them without speaking to Morris.

(11) Linton knew that the structure of the Share Sale would have negative tax

implications for Morris.

(12) He assisted Chester in depositing the $412,000 to Chester’s credit at the end of

1983 without discussing the reallocation with Morris or taking any steps to ensure that

the February 22, 1982 IWS bonus minute was amended.

(13) Linton said he prepared a $1 million cheque in Chester’s name, dated January 4,

1984. I have found that that cheque was never prepared and never existed.

(14) After discussing the wording of the Share Sale Agreement with Wiseman in late

1983 and concluding that it could be interpreted as a staged sale, in early 1984 Linton

instructed Ennis to amend the Share Sale Agreement so that it could not be construed

as a staged sale. If it were a staged sale, Morris would be a continuing owner and

entitled to share in the profits of IWS. He did not explain to Morris the reasons for the

change.

(15) Knowing that Ennis had not obtained Morris’ signature on those amended Share

Sale documents, Linton nevertheless drafted Morris’ 1984 tax return as if Morris had

signed them. Linton also instructed Wiseman to assume on Morris’ 1984 tax return that

the Share Sale was a completed sale, even though he knew the amended Share Sale

documents had not been signed,

(16) He never discussed the loan account with Morris. He charged Morris’ drawings and

expenses to it without informing Morris. I have not accepted Linton’s evidence of

discussions with Morris about charges to the loan account. I have found that he knew

Morris did not know about the loan account as he characterised a portion of the loan as

“non-current” indicating that he did not expect Morris to demand payment of the non-

interest bearing loan repayable on demand.

(17) He applied $ 132,000 of tax “contras” against rents owing by IWS to Morriston and

Chesterton under the December 1983 lease. The beneficiary of the contra scheme was

IWS/Chester. He did not seek Morris’ approval or even advise him about it.

(18) He deliberately ignored Morris’ instructions of December 31, 1986 about deposits

into his bank account and about investment of the trust account in June 1987.

(19) When he prepared a list of payments received by Morris 1981-1984 [JB 1733], he

overstated the amounts by $810,000.

(20) He administered the Windermere Investments account in such a way that at the

time the litigation started, there was a $122,000 imbalance in favour of Chesterton.

(21) He wrote JB 4596-C, a letter to the Ministry of Revenue dated January 9, 1989,

seeking information about SWRI to which IWS was clearly not entitled. I have not

accepted Linton’s attempted justification for this request.

[2721] In Part II, I have detailed Linton’s involvement in assisting Chester to structure the

Share Sale and the December 1983 lease in a manner obviously unfavourable to Morris and

favourable to Chester and IWS. He seriously undervalued the shares of IWS in November

1982 using patently unreasonable assumptions. I have rejected his evidence that he did not

see drafts of the Share Sale Agreement before it was signed. I find he was actively involved in

helping Chester and Ennis to structure the Share Sale and was intimately involved in the

bonus machinations that largely deprived Morris of the benefits of 40 years of labour. While

he did not originally suggest the allocations to Chester’s sons, he actively assisted in

implementing them with the knowledge that they were undeserved and with the knowledge

that Morris knew nothing about them.

[2722] In short, he followed Chester’s directions without question, and knowingly assisted

Chester to breach his fiduciary duties to Morris. He was actively involved in the oppressive

conduct of IWS vis-à-vis Morris.

[2723] Linton knew Morris owned 50% of IWS. It is clear that Linton handled many personal

financial matters for Morris and Morriston, and he knew Morris was relying upon him and

Chester to act properly and in his interest. Yet he accepted instructions from Chester that

were transparently in Chester’s interest and contrary to Morris’ without reviewing them with

Morris or seeking Morris’s approval. Linton was aware of Morris’ vulnerability. He knew that

Morris did not know what was happening. He clearly favoured the interests of IWS/Chester

over the interests of Morrris/Morriston.

The Share Sale-Breach of Fiduciary Duty

[2724] Even though he was aware of the pending Share Sale and provided assistance to

Chester, he did not do the same for Morris. However, I accept the submissions of Linton’s

counsel that Linton did not hold himself out to be an advisor to Morris with respect to the

Share Sale or lease. Morris knew nothing about them. Linton knew Chester did not want him

to speak to Morris about them. He also knew Chester did not want him to disclose his

intention to buy Morris’ shares to Taylor Leibow or any independent outsider. That is why

Linton asked Wiseman only generic questions to assist in his Share Sale planning. Linton

actively assisted Chester in keeping his Share Sale planning secret.

[2725] Morris did not engage Linton or rely on him in respect of the Share Sale. I have found

that Linton’s evaluation memo of November 15, 1982 was never given to Morris. Linton never

provided his musings to Morris.

[2726] As Morris did not receive advice from Linton or rely on Linton with respect to the Share

Sale, there can be no breach of fiduciary duty.

Liability for Knowing Assistance/Collusion

[2727] Linton actively assisted Chester to structure the Share Sale in a manner that was

obviously grossly unfair to Morris. I have referred at length to his “valuation” of November 15,

1982 and to his “musings” about the structure of the sale. I find that Linton had actual

knowledge of Chester’s breach of trust. He suggested that IWS dividends be declared as a

way of funding Chester’s purchase. He mentioned dividend refunds to IWS. In other words,

Linton came up with some of the ideas to use IWS to favour Chester’s interest, which I have

found to be oppressive to Morris. He actively assisted Chester in breaching his fiduciary

duties to Morris knowing that Chester’s actions were a breach of Morris’ trust.

[2728] I have found that Chester provided Linton with Ennis’ drafts of the Share Sale

Agreement and that changes were made on his recommendations as late as December 21

and December 22, 1983. He participated in the reallocation of the $412,000 to Chester. After

the Share Sale, he favoured Chester in trying to get the agreement amended so Chester

would not have to share IWS profits with Morris. He drafted Morris’ tax returns as if Morris had

signed the amended documents. He ignored Morris’ continuing shareholdings. When he went

to see Scace and a restructuring was under consideration, knowing that Morris might have a

continuing interest in IWS and the right to vote his shares, he suggested that Morris’ shares

could be non voting shares.

[2729] Linton is liable to Morris for knowingly assisting Chester in breaching his fiduciary

duties to Morris in connection with the Share Sale. IWS is liable to Morris as Linton’s

employer and under the oppression remedy. Chester/IWS knew and approved of what Linton

was doing. Linton was actively involved in IWS’ oppressive actions vis-à-vis Morris.

Re the Bonuses

[2730] In April 1981 Linton knowing that Morris knew nothing about the original 1979 bonus,

that $75,000 of 1979 bonuses had been allocated to Morris and that such a bonus had been

minuted, nevertheless instructed Ennis to prepare a new minute reflecting that all of the 1979

bonuses had been allocated to Chester’s sons and to destroy the old minute. I find Linton

knew Morris knew nothing of the 1979 bonuses. Linton knew the bonus and the reallocation

were improper, in breach of Chester’s fiduciary duty to Morris, He knowingly assisted in the

breach.

[2731] I find Linton knew Morris knew nothing about the 1981-1982 bonuses. Linton reviewed

a draft 1981 IWS Financial Statement with Morris that made no mention of the 1981 bonuses.

In 1983, Linton would never have suggested in his musings that approximately $400,000 of

Morris’ 1982 bonus be unilaterally reallocated to Chester [i.e. without first speaking to Morris

to find out if he would agree to such a reallocation] unless he knew that Morris knew nothing

about the 1982 bonuses. I have noted that Linton used Morris’ 1981 bonus to clear Morris’

drawings account in 1982 at precisely the point in time it would exhaust the full amount of the

bonus. He reallocated Morris’ 1982 bonus and cleared his drawings account in December

1983. Morris received no cheque on account of a 1982 bonus.

[2732] Linton suggested 1981-1982 bonuses for tax reasons. Linton knew the same tax

benefits would be available to IWS if Morris and Chester each received 50% of the 1981-1982

bonuses. He knew there was no tax reason to allocate bonuses to Chester’s sons. He knew

payment of the bonuses represented a distribution of equity in IWS. He knew Morris was a

50% shareholder. He knew of no reason to justify the size of the bonuses to Chester’s sons.

He knew Chester was breaching a fiduciary duty owed to Morris in directing the allocation of

those bonuses. He instructed Ennis to minute the bonuses. He followed Chester’s instructions

to pay them out. Linton never spoke to Morris about those bonuses. Linton/IWS are liable for

knowing assistance and collusion.

[2733] Again, Linton was actively involved and participated in involving IWS in the activities

that I have earlier found to be oppressive, including the activities surrounding the 1981-1982

bonuses.

[2734] I therefore find Linton/IWS liable for $125,000 in respect of the 1979 bonuses and for

$2,312 million in respect of the 1981-1982 bonuses.

Re Profit Diversions to Related Companies

[2735] I find Linton was aware of the nature and extent of the related-party transactions. He

did not reflect them in his draft of the IWS Financial statements between 1980 and 1982 as

required. Linton knew that Robert owed fiduciary duties to IWS. When Robert told him that he

preferred not to disclose the Greycliffe related-party transactions in the 1982 IWS statements,

Linton conveyed that preference to the Auditors, and in so doing, actively assisted Robert in

breaching his fiduciary duty to IWS. He did not discuss the related-party transactions with

Morris.

[2736] Although Linton prepared the initial drafts of the IWS tax returns 1980-1982, which I

have found should have included related-party notes, Taylor Leibow/Wiseman could have

included such notes or qualified the Auditor’s report.

[2737] I therefore do not find Linton/IWS liable in this regard.

Re Preparation of Morris’ Tax Returns

[2738] Linton was aware that the wording of the December 22, 1983 Share Sale Agreement

mentioned a series of closings [i.e., a staged sale.] That is why he amended the Share Sale

Agreement in January 1984 replacing “closing” dates with “transfer” dates. He knew the

amended Share Sale document was never signed. Nevertheless, he drafted Morris’ 1984 tax

return on the assumption that all of Morris’ shares had been transferred to Chester on

January 4, 1984. As Wiseman’s letter of April 29, 1985 discloses, Linton so instructed

Wiseman.

[2739] However, as I have found that the wording of the Share Sale Agreement was clear and

unambiguous, Taylor Leibow/Wiseman should not have listened to Linton or followed his

instructions. Therefore, this claim is dismissed against Linton/IWS.

Morriston

[2740] Linton undertook to provide services to Morriston including the monitoring of its bank

accounts and the preparation of its tax returns and financial statements. He did not perform

those duties in an even handed way. For example, he conceived of the contra scheme to

benefit IWS. In implementing that scheme, he knowingly assisted Chester in breaching his

fiduciary duty to Morris/Morriston and is liable for knowing assistance in that connection.

[2741] In 1982 a loan in connection with the Blue Building was charged to Morriston and

Chesterton (JB 1716 and JB 1718). On January 27; 1982, Linton witnessed JB 2213, Morris’

signature on an agreement with the CIBC allowing any one of Morris, Chester, Morriston or

Chesterton to deal with the CIBC on behalf of other. I have found that later in 1982,

Morriston’s bank loan was increased by $300,000 without Morris’ knowledge. The result was

that at the time of the Share Sale, Morriston owed the CIBC $309,000. In 1983, Morriston

paid bank charges and interest on the loan of $40,311. Under the December 1983 lease,

Morriston was to receive only $12,000 per year in connection with the Blue Building, 8 acres

of surrounding land, the Back 7.7 Acres at Centennial and after expiry of the IWS Ferrous

lease, the rest of Windermere and Glow. Morriston could not sell or mortgage its properties to

pay off that debt or any other debt incurred in connection with the properties.

[2742] I have found that Linton knowingly assisted Chester to breach his fiduciary duty to

Morris/Morriston by favouring Chester’s/IWS’ interests over Morris’/Morriston’s. On the test

set out earlier in these Reasons, Linton is liable to Morriston for knowing assistance in that

regard.

Compensation

[2743] Linton/IWS is liable for knowing assistance of Chester and IWS’ participation in the

oppressive activities. I therefore order Linton and IWS to pay Morris damages as follows:

re Share Sale- same amounts as in para 2594 hereof are determined to be owing by

Chester

re 1979 bonuses

$

125,000

re 1981-1982 bonuses

$ 2,312,000

re Greycliffe profit diversions

re Icarus profit diversions

re Servetross profit diversions

re Big Rig profit diversions

re Circuital profit diversions

$

965,403

136,421

30,975

23,822

23,452

[2744] While Linton’s behaviour cannot be condoned, it was at least in most cases, at the

behest of Chester. Linton did not benefit personally. I make no order of punitive damages

against Linton.

Part XI - Summary of Disposition

Main Action - Part II

The Share Sale

[2745] I order and declare that Chester has held 50% of the shares of IWS on constructive

trust for Morris since December 22, 1983.

[2746] As of today’s date, Chester/IWS are ordered to transfer 50% of the shares in IWS to

Morris.

[2747] I order Chester/IWS to pay Morris 50% of the profits/distribution of equity of IWS

between December 22, 1983 and today’s date.

(a) As to the quantum of profits, Morris may elect between:

(i) a reference to precisely determine the amount of those profits. On the reference

Chester must account as a trustee for the period December 22, 1983 to the date of

this judgment. [I have chosen December 22, 1983 because Morris’ drawings after

that date were deducted from the loan account even though the Share Sale was

not to take effect until January 4, 1984.] or

(ii) an amount to be determined on a reference using the following formula:

($27,284,000 less adjustments as outlined in paragraph 1678) ÷ 2

plus

($30,420,031 less adjustments as outlined in paragraph 1678)+ 2

minus $2,094,721

= Morris’ share of lost profits (plus interest, if appropriate)

(b) In the meantime, I order Chester/IWS to make immediate partial payment of $12

million to Morris, which will be credited against the amount found to be owing under

either (a)(i) or (a)(ii)

(c) Morris is entitled to a tracing order. He may use the tracing order to determine

whether any profits remain in the hands of persons other than bona fide purchasers for

value without notice [I find that Warren, Robert and Gary are not bona fide purchasers

for value without notice.] Upon execution of the tracing order, Morris may elect between

a constructive trust or a personal remedy [judgment against Chester personally].

[2748] 3 IWS is also liable to Morris for the total amount under (a) above and I order it to

make payments in satisfaction of same.

1979 Bonuses

[2749] Chester and IWS are ordered to pay Morris $125,000 in respect of the 1979 bonuses.

Upon execution of my tracing order, Morris may elect between an order that Chester has held

the $125,000 on constructive trust for Morris since December 17, 1979 or a personal remedy

against Chester. I also order IWS to pay $125,000 to Morris.

1981-1982 Bonuses

[2750] In respect of the 1981-1982 bonuses, I find that Morris is entitled to 50% of the $6.6

million declared, being $3.3 million, minus the $988,000 received, or $2,312,000. I order that

Morris may trace those bonuses and elect between a constructive trust or a personal remedy

against Chester.

[2751] I order IWS to pay Morris $2,312,000.

[2752] Chester’s sons are liable to Morris for knowing receipt in the following amounts:

Robert

Warren

Gary

$622,000

$936,000

$500,000

[2753] With respect to the 1979, 1981-82 bonuses, if any remain in IWS or have been loaned

back to it, they are impressed with a constructive trust to the extent of Morris’ interest.

Profit Diversions

[2754] I order Chester, IWS, Robert to pay Morris $1,180,073.I order Greycliffe, Icarus,

Servtross, Big Rig and Circuitel to pay Morris the following amounts: Greycliffe, $965,403;

Icarus, $136,421, Servtross, $30,975; Big Rig, $23,822; Circuitel, $23,452. A tracing order will

issue. If tracing uncovers identifiable assets, such as but not limited to racehorses, Morris

may elect a constructive trust or equitable lien or personal orders as appropriate for this

portion of the award.

[2755] Robix as successor of Icarus is liable to pay Morris $136,421 and I order it to do so.

[2756] Greycliffe as successor of Big Rig is liable to pay Morris $23,822 and I order it to do so.

Ancaster

[2757] Chester is ordered to pay $98,000 for breach of contract in relation to the Ancaster

property plus interest from January 1, 1986.

Punitive Damages

[2758] For reasons given earlier, I order Chester to pay punitive damages in connection with

the Share Sale, bonuses and profit diversions of $350,000.

Inducing Breach Action - Part VI

[2759] Robert and Chester and IWS are liable to SWRI for inducing breach of contract. I

assess damages against them at large at $2.5 million plus punitive damages of $100,000.

Given my disposition with respect to the Share Sale in the Main Action, it would not be fair to

effectively hold Morris 50% liable for an intentional tort against himself by attributing liability to

IWS. If Morris’ shares in IWS had not been restored to him, I would also have made a similar

order against IWS.

[2760] The Counterclaims Part VII

[2761] IWS’ counterclaim in the Main Action is allowed against Michael in the amount of

$15,000 and against Morris in the amount of $51,058.02.

[2762] Chesterton’s claim against Morriston is allowed in the amount of $10,773.07.

[2763] The counterclaim in the Main Action is otherwise dismissed.

[2764] The counterclaim in the Inducing Breach action is dismissed.

Wrongful Dismissal Action - Part VIII

[2765] Morris is entitled to damages against IWS based on a notice period of 2 years.

[2766] If counsel are unable to agree on the precise amount, I shall determine it.

Ennis Action - Part IX

[2767] Judgment will go against Ennis with respect to the Share Sale in the same amounts as

against Chester in respect of the Share Sale as in paragraph 2592 above. The alternative

claims are dismissed.

Taylor Leibow & Linton Action - Part X

[2768] The Plaintiffs’ claims against Taylor Leibow are dismissed. Linton/IWS are ordered to

pay damages to Morris as follows:

• re Share Sale- the amounts to be determined as in paragraph 2594 above

•

re 1979 bonuses

$

125,000

•

re 1981-1982 bonuses

$ 2,312,000

•

re Greycliffe profit diversions

re Icarus profit diversions

re Servetross profit diversions

re Big Rig profit diversions

re Circuital profit diversions

$

965,403

136,421

30,975

23,822

23,452

•

Interest

[2769] In argument, counsel volunteered to provide assistance in the calculation of interest. I

am of the view that submissions on interest where Morris is entitled to elect his remedies

should be deferred until after the execution of the tracing order and the Plaintiff’s election of

remedies. Submissions on interest where there is no election would be helpful immediately,

e.g. re damages for Ancaster, Inducing Breach, the Counterclaims, Wrongful Dismissal.

[2770] If counsel disagree, I am prepared to receive written submissions on the point.

Costs

[2771] Counsel have requested the opportunity to make separate submissions on costs.

[2772] Further submissions on the scale of costs and the procedures to be used in quantifying

costs may be made in writing on or before September 16, 2002.

Final Comment

[2773] I started these Reasons with Chester Waxman’s comment that this dispute has not

been a “civil” civil action but a war. I end with a comment of my own. However apt Chester’s

comment was about the lack of “civility” of some of the parties to this litigation, his comment

was totally was about the lack of “civility” of some of the parties to this litigation, his comment

was totally inapplicable to the conduct of their counsel. Throughout, they all exemplified the

finest qualities of advocates. They were helpful, extremely competent and civil. I thank them

all.

Order accordingly.