Newton v. Marzban | Mar 18, 2008

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Newton v. Marzban,

2008 BCSC 328

Date: 20080318

Docket: S045960

Registry: Vancouver

Between:

And:

Christine Diane Newton (also known as

Christine Beban)

Plaintiff

Dinyar Marzban, Jenkins Marzban Logan,

Gordon F. Hubley, Bestwick & Partners, Gord Hubley Ltd.,

D. Jeffrey Harder and BDO Dunwoody LLP

Defendants

Before: The Honourable Madam Justice Neilson

Reasons for Judgment

Counsel for the Plaintiff

David A. Hobbs

Counsel for the Defendants,

BDO Dunwoody LLP and D. Jeffrey Harder

David B. Wende

& Emily Stock

Counsel for the Defendants,

Leslie Muir

Dinyar Marzban and Jenkins Marzban Logan

Counsel for the Defendants,

Michael Hewitt

Gordon Hubley and Bestwick & Partners

& Michael Shirreff

Date and Place of Trial:

January 15-19, 22-25, 29-31,

February 1, 5-9, 12-16, 19-23,

26, 27,

March 7, 26-30,

April 2-5, 10-13, 16-20, 23-27,

May 7-9, 14-18, 30

and June 1, 2007

Vancouver, B.C.

Newton v. Marzban

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INDEX

Page

INTRODUCTION………………………………………………………………….… 3

CHRONOLOGY…………………………………………………………………….. 5

OBSERVATIONS ON WITNESSES – CREDIBILITY

AND ABSENCES ………………………………………………………………..… 81

THE NATURE OF THE PLAINTIFF’S MATRIMONIAL CLAIM ……………... 85

THE ALLEGATIONS AGAINST THE DEFENDANTS ………………………... 86

THE ALLEGATIONS AGAINST MR. HARDER ……………………………..… 93

THE ALLEGATIONS AGAINST MR. HUBLEY ……………………………..…162

THE ALLEGATIONS AGAINST MR. MARZBAN ……………………………..184

CAUSATION……………………………………………..………………………... 234

DAMAGES ……………………………………….………………………………... 271

CONCLUSION …………….…………………….………………………………... 273

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INTRODUCTION

[1]

In the spring of 2000, the plaintiff separated from her husband, Lyle Newton.

A matrimonial proceeding ensued to deal with division of family assets and spousal

support. A central issue was the valuation of the family logging business, comprised

of a group of companies collectively referred to as the Alliford Bay Group (the

“ABG”), in which the plaintiff and Mr. Newton were directors, officers, and equal

shareholders. The action was ultimately settled in October 2001 on the basis that

Mr. Newton paid the plaintiff $1.771 million. $1.6 million of that represented the

value of the plaintiff’s shares in the ABG. Other relatively minor family assets were

essentially split equally, and the plaintiff released her claim for spousal support.

[2]

In the course of reaching this settlement, the plaintiff received advice and

assistance from the defendants in this action. Mr. Gordon F. Hubley, a chartered

accountant and partner in Hubley Bestwick & Partners, provided early support to the

plaintiff, and ultimately became the principal negotiator of the settlement. Mr. D.

Jeffrey Harder, a chartered accountant and chartered business valuator, and a

partner in BDO Dunwoody LLP, did a valuation of the ABG. Mr. Dinyar Marzban, a

matrimonial lawyer and a partner in Jenkins Marzban Logan, was retained by the

plaintiff as her lawyer in the proceeding. In the balance of these Reasons, I use the

names of the personal defendants as representative of both the individuals and their

partnerships.

[3]

The plaintiff now brings this action against these advisors and their

professional firms, claiming damages for breach of contract and negligence. She

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says that their advice and representation fell below the required standard of care in

that they failed to develop her best position, fully advise her of her options, and warn

her of the risks of settling without further investigation. She maintains that, as a

result, she accepted an improvident settlement and lost the benefit of a materially

more favourable outcome at a trial, which she estimates would have been in the

range of $3 million to $4 million more than the amount for which she settled.

[4]

In response to the plaintiff’s claims, the defendants mounted a united

defence, arguing that she received a high standard of professional services from

each of them. As well, they say that the evidence clearly demonstrates that she

would have settled regardless of their actions. Mr. Hubley usefully summarized the

defendants’ collective position as follows in his closing argument:

These Defendants respectfully submit that an allegation of professional

negligence in a case of settler’s remorse requires far more than a

hindsight theory of what might have been tendered as evidence on one

party’s behalf at a trial. It requires proof of negligent errors or

omissions causing an identifiable loss to the Plaintiff. In this case, it

requires credible testimony from the Plaintiff that she would have acted

differently and compelling expert evidence that advice given was

flawed. The Plaintiff provided neither.

[5]

I have concluded that the services and advice provided to the plaintiff by the

defendants Gordon F. Hubley, Bestwick & Partners, Gord Hubley Ltd., D. Jeffrey

Harder, and BDO Dunwoody LLP met the required professional standard of care,

and the action against them is dismissed. I have found that the services and advice

provided by the defendants Dinyar Marzban and Jenkins Marzban Logan did not

meet that standard of care in certain respects. However, I have concluded that the

plaintiff has failed to prove that their negligence caused her to suffer any loss. Her

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action in negligence against those defendants is accordingly dismissed. She is

entitled to recover nominal damages from them for breach of contract.

[6]

This action originally included other defendants as well, but the plaintiff

abandoned her claim against them before the trial proceeded. While this judgment

was under reserve, I received from counsel a Fourth Amended Statement of Claim

with amendments that reflect this development. Where it is necessary to refer to the

plaintiff’s pleadings, I accordingly use the paragraph numbers from this most recent

version (the “Statement of Claim”).

CHRONOLOGY

[7]

Credibility is a major issue in this case. I accordingly set out the parties’

varying accounts of the events in some detail.

Background prior to separation

[8]

The plaintiff was born in Nanaimo in 1966. She completed high school and

attended a community college for two years, but completed only one course. She

then moved to the Queen Charlotte Islands where she worked for her father’s

logging company.

[9]

While in the Queen Charlottes, she met Mr. Newton, who was working as a

logger for her father’s company. They were married on July 11, 1987. The plaintiff’s

father died shortly after the wedding, and she and Mr. Newton worked for his

company in 1988, commuting between Nanaimo, where she worked in the office,

and the Queen Charlottes, where Mr. Newton continued to log.

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[10] In mid-1988, Mr. Newton had an opportunity to buy a 50% interest in a

logging company in the Queen Charlottes. The plaintiff says that they used

$175,000 from her inheritance to do so, and the $87,500 for Mr. Newton’s half of the

purchase price was a loan from her to him that he agreed to repay (the “Start-up

Loan”). They each owned a 25% interest in the company.

[11] Both worked hard in the new business and Mr. Newton was able to increase

its productivity substantially. The plaintiff worked in the office. In 1989, they bought

out the other owner and each became a 50% shareholder in the business, which

they renamed Alliford Bay Logging Ltd. This company was the first of the group of

companies that ultimately comprised the ABG. Mr. Brewer, who had been the

accountant for the original company, became the accountant for the new company

and for Mr. Newton and the plaintiff personally.

[12] Mr. Newton continued to expand the company’s logging operations. The

plaintiff says that the business did better each year and they had a very comfortable

lifestyle for the duration of the marriage.

[13] In 1993, Mr. Newton and Mr. Brewer negotiated the purchase of a timber

company in Nanaimo that had logging interests in Clayoquot Sound. The plaintiff

and Mr. Newton relocated to Nanaimo where they purchased a home on

Stephenson Point Road (the “Matrimonial Home”) and set up the office of the ABG

on property purchased on Cienar Drive (the “Cienar Drive Property”). They also

purchased a property in Lantzville (the “Lantzville Property”). When the ABG began

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logging in Powell River, they bought a house there in the plaintiff’s name to provide

accommodation for the logging crew (the “Powell River Property”).

[14] From 1993 until the parties separated in 2000, the ABG continued to acquire

new assets and develop new businesses under the guidance of Mr. Newton and Mr.

Brewer. The plaintiff worked casually in various roles in the ABG’s office.

[15] In late 1997 and early 1998, the ABG established Duke Point Custom Log

Sort Ltd., a dry land sorting operation at Duke Point on land belonging to the

Nanaimo Port Authority. The ABG invested a substantial amount in grading and

paving the property, and building a booming ground, spillways, and an office. Logs

from its operations and from other customers were dumped, sorted, scaled,

dewatered, and loaded onto trucks there. The ABG also set up Duke Point Shake

and Shingle Ltd. and a chipper plant at the Duke Point site. Later in 1998, the ABG

established Alliford Bay Transport Ltd., a hauling business to serve its own

companies and other customers. Another of the ABG’s companies, 545161 B.C.

Ltd., purchased a Bill 13 logging contract for $500,000 in 1998 that permitted it to log

in Boston Bar for J.S. Jones Timber Ltd. (“J.S. Jones”).

The ABG and the forest industry at the time of separation

[16] When the plaintiff and Mr. Newton separated in the spring of 2000, the ABG

comprised 11 companies involved in a variety of activities related to the logging

industry. The plaintiff and Mr. Newton were equal shareholders and officers in each

company, and both were directors in most.

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[17] Mr. Newton was the central person in the operations of the ABG. Mr. Len De

Clark was the comptroller. Mr. Brewer remained the external accountant, although

Mr. De Clark described his role as closer to a chief financial officer.

[18] The ABG’s chief assets were logging equipment, logging and road-building

contracts, and real estate. The equipment was by far its largest asset. A brief

description of the logging industry at the time of the relevant events is necessary to

provide context for the assets and activities of the ABG, as well as the subsequent

negotiations between the parties.

[19] At that time, a few large forest companies (the “majors”) held most of the

timber tenures in British Columbia through license agreements with the provincial

government. These agreements provided for an annual allowable cut (“AAC”)

measured in cubic metres, which was set every five years.

[20] The majors typically contracted out a portion of their logging and related road-

building operations to logging contractors such as the ABG through agreements

known as Bill 13 contracts. Mr. De Clark testified that these contracts gave the

contractor a right to a certain logging volume or road-building distance, usually over

a five-year period. He said, however, that the volume or distance permitted was not

necessarily the same every year. If the government reduced the logging volume of a

major, the contractor’s cut would be reduced proportionally. Thus, a Bill 13 contract

did not guarantee a consistent annual income.

[21] Logging contractors often engaged in market logging to supplement Bill 13

income. This involved contracts to log private land, or bidding at government

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auctions for blocks of cut available under a small business forestry enterprise

program. Mr. De Clark said that Mr. Newton was good at “chasing wood” through

market logging opportunities, but their availability was unpredictable.

[22] Witnesses knowledgeable in the logging industry agreed that it is cyclical due

to a number of factors. Productivity and profitability vary due to seasonal and

climatic conditions, as well as economic factors such as fluctuating markets,

currency variations, trade agreements, and fuel costs. Changes in government

policies and regulatory measures also have a significant impact on the industry’s

performance.

[23] During the 1990s, environmental concerns in the coastal forest industry

played a significant role in changing forest practices, resulting in a reduction of the

AAC in some locations, and increasing use of more environmentally sensitive and

costly logging methods, such as heli-logging. The result was a reduced profit margin

for the affected loggers.

[24] Economic factors also created uncertainty in the coastal forest industry in

2000 and 2001. The impending impact of the expiry of the softwood lumber

agreement with the United States at the end of 2001 was unknown. As well, the

Japanese market was depressed.

[25] Mr. De Clark acknowledged that the ABG was affected by these challenges.

He said that the majors were tightening up when negotiating rates, and it was

difficult to budget in advance what volume the ABG would receive from each of its

Bill 13 contracts. This contributed to a decreased profit margin and cash flow

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problems. However, he could not recall any time between 1999 and 2001 when the

ABG actually had its AAC reduced, although he said its cash flow was tight during

those years.

[26] The financial state of the ABG in 2000 and 2001 was the subject of significant

controversy in this action. I will set out some aspects of its historical financial

performance as a reference point for issues that will be dealt with later in these

Reasons.

[27] The ABG’s fiscal year end was October 31. Its combined financial statements

from 1994 to 2001 record its revenue and operating income as follows:

1994

1995

1996

1997

1998

1999

2000

2001

Revenue

11,345,726 11,728,827 16,899,627 24,346,283 11,220,404 17,734,367 29,325,198 22,902,270

Operating

Income

(134,943)

(869,144)

916,528

76,184

(618,689)

420,991

511,160

(29,387)

[28] Management salaries for the plaintiff and Mr. Newton show significant

variation in those years:

1994

1995

1996

1997

1998

1999

2000

2001

Recorded

Management

Salary

$104,500

$70,700

$185,000

$186,600

$78,100

$92,100

$922,319

$947,500

[29] For tax purposes, any ABG profit over $300,000 was typically split equally

between the plaintiff and Mr. Newton and paid out to them as a bonus. After

personal tax was paid on those funds, the plaintiff and Mr. Newton paid them back

into the shareholders’ loan account of the ABG to assist in maintaining cash flow.

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As of October 31, 2000, and throughout the settlement negotiations, Mr. Newton and

the plaintiff each had a shareholder’s loan account of $408,775, and a net of

$182,300 due to them as their share of the 2000 bonus.

[30] In early 2000, the ABG was relying on financing from the Royal Bank of

Canada (the “RBC”) to run its operations. In March 2000, the RBC advised that it

intended to pull the ABG’s credit as the ABG had breached one of its borrowing

covenants by failing to maintain the required debt service coverage ratio. As a

result, the ABG began a search for new financing at about the same time that the

plaintiff and Mr. Newton separated. As part of that process, the ABG retained

American Appraisals Canada, Inc. to appraise its equipment.

May to September 2000 - early negotiations

[31] The plaintiff said that she left Mr. Newton because he joined the Hells Angels.

She testified that, while she still loved him, she was concerned about what the future

would hold with his new association. He had become verbally abusive, and she was

afraid of him.

[32] After the separation, the plaintiff no longer worked in the ABG’s office, but she

continued to draw an income of $5,000 a month from the company. She said that

because Mr. Newton made it uncomfortable for her to be in the office, she developed

a practice of going in at night to copy information that she wanted.

[33] The plaintiff and Mr. Newton initially attempted to negotiate a settlement

themselves, with assistance from Mr. Brewer. The plaintiff said that Mr. Newton and

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Mr. Brewer told her that a settlement must be reached as soon as possible, as they

were concerned that the uncertainty arising from the separation would have a

negative impact on the ABG’s precarious position with the RBC, and its refinancing

efforts.

[34] In early May 2000, Mr. Brewer presented a settlement proposal that valued

their joint net worth at $1,320,550, including $817,550 for the ABG shares. It gave

Mr. Newton the ABG and the plaintiff the Matrimonial Home, some other smaller

assets, and monthly payments of $5,074.70 for seven years.

[35] Mr. Hubley became involved at this point. He had practised as a chartered

accountant in Nanaimo since 1981. He had a number of clients who were involved

in the logging business and, since the death of the plaintiff’s father in 1987, he had

provided accounting services to the plaintiff’s mother and sister related to the family

business and personal matters.

[36] In late April 2000, Dolores Beban, the plaintiff’s mother, called Mr. Hubley and

asked if he would assist the plaintiff with her matrimonial dispute. She told Mr.

Hubley that the plaintiff had left Mr. Newton because of his association with the Hells

Angels, and warned him that she knew the plaintiff was sometimes difficult to deal

with. Mr. Hubley told Ms. Beban that he did not know how much he could help the

plaintiff, but he agreed to look at the offer she had received, and said that he would

likely refer her to matrimonial specialists for advice, as he did not know about

divorce situations. He said that he did this as a favour to an important client.

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[37] Mr. Hubley and the plaintiff met at his office on May 4, 2000. Mr. Hubley

testified that it was a short meeting, and the plaintiff appeared very anxious. He

advised her that he was not experienced in matrimonial disputes, but that he would

try to help her. He told her that he could look at financial information related to the

ABG and give her some indication as to whether the current offer from Mr. Newton

was fair. He also said that he would try to find people who could help her. He asked

her to obtain the financial statements of the ABG to allow him to assess the offer, but

told her that he could not do a valuation of the ABG because he was not a trained

valuator. Mr. Hubley said that he did not enter into an engagement agreement with

the plaintiff as he was uncertain what services he would provide to her other than

referring her to professionals competent in the matrimonial field.

[38] The plaintiff agreed that when she met Mr. Hubley she knew that he was a

chartered accountant who had worked with her family’s logging companies. She

was aware that he was not a lawyer, and understood the difference between these

professions. The plaintiff’s recollection of what occurred at their first meeting varied.

At her first examination for discovery, she said that she had no recollection of the

meeting, except that Mr. Hubley agreed to help her. At the trial, she provided more

details about it, but ultimately agreed that she could not testify under oath as to the

specifics of their discussions. However, she denied that Mr. Hubley told her he had

no experience in divorce cases.

[39] On May 8, 2000, the plaintiff dropped off the ABG’s 1999 financial statements

at Mr. Hubley’s office. Mr. Hubley said that they discussed the offer that she had

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received from Mr. Newton, and she was looking to accept it, but wanted advice from

him about whether it was fair.

[40] Mr. Hubley did an analysis of the ABG financial statements, and prepared a

spreadsheet setting out possible values of the plaintiff’s shares ranging from

$900,000 to $2 million, based on several hypothetical estimates of the fair market

value of the ABG’s assets. He described this as a “quick and dirty accountant’s

estimate” of what the ABG share value might be, and said that he prepared it to

show the plaintiff the impact that the equipment value had on the share value. He

and the plaintiff met on May 10, 2000 to review this, and he showed her that these

hypothetical estimates were significantly higher than the offer from Mr. Newton.

[41] The plaintiff testified that Mr. Hubley told her at this meeting that he did not

know what her shares or the equipment were worth, and that the numbers in his

analysis were hypothetical, but he felt her shares were somewhere in that range.

She agreed that from that point on she understood that the value of her shares had

a direct relationship to the value of the ABG equipment, and that they were worth

considerably more than what Mr. Newton was offering her.

[42] Shortly after this meeting, on a recommendation from a friend, the plaintiff

retained David Lobay as her matrimonial lawyer. On May 19, 2000, she and Mr.

Hubley met with Mr. Lobay at his office.

[43] Mr. Lobay testified that the plaintiff wanted advice with respect to settling her

matrimonial dispute. He said that she gave him a handwritten list of her concerns

and some of the terms being discussed with Mr. Newton, and that he spoke with her

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about these. He could not recall all of their discussion, but said that he did advise

her of her rights as a shareholder of the ABG, and gave her preliminary advice on

her spousal rights. He testified that the plaintiff was concerned about the tax

implications of a settlement, and told him that she wanted a lump sum settlement

without having to pay tax on it.

[44] Mr. Lobay believed Mr. Hubley was present as a friend. He said that Mr.

Hubley did offer the view that the assets of the ABG were worth more than what was

being offered, and gave him a valuation of the company that demonstrated this. Mr.

Lobay saw the primary issue as the value of the ABG. In his view, any claim for

spousal support also depended on that valuation.

[45] Mr. Hubley confirmed that he gave his spreadsheet to Mr. Lobay, and

explained the importance of the equipment value to the share value of the ABG. He

said that they discussed Mr. Newton’s offer, but felt that they did not have enough

information to value the plaintiff’s interest in the ABG or to advise her with respect to

the offer. Mr. Hubley said that Mr. Lobay recommended to the plaintiff that they get

financial disclosure from Mr. Newton.

[46] The plaintiff’s recollection of this meeting was equivocal. She initially testified

that she did not recall very much about it apart from Mr. Lobay recommending that

she obtain financial disclosure. On cross-examination by Mr. Marzban’s counsel,

however, she identified the list that she had made for the meeting. It set out several

topics, among them alimony, a lump sum payout, interest, security, and the debt-to-

equity ratio of the ABG. The plaintiff said that this was just a list of things she was

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throwing out, and she was unable to recreate her thought process at the time she

made it. She did not recall discussing these things with Mr. Lobay. In particular, she

denied that he discussed her entitlement to spousal support at this meeting.

[47] Later, under cross-examination by Mr. Hubley’s counsel, the plaintiff

confirmed that at her examination for discovery she had testified that she

remembered nothing about this meeting of May 19, 2000. She said that she had

confused it with another meeting, and now she recalled that they had discussed her

separation, the offers that had been made, some background on the ABG, and Mr.

Hubley’s spreadsheet. She said that she did not recall telling Mr. Lobay what she

wanted. Nor did she recall him advising her about her rights. When Mr. Hubley’s

counsel put the same list to the plaintiff, she claimed that it was not the same

document that Mr. Marzban’s counsel had asked her about earlier.

[48] This list also recorded personal threats made by Mr. Newton against the

plaintiff and anyone assisting her in asking for a larger settlement, as well as his

comment that “you’ve chosen the wrong time to do this. The company is worth

nothing.” The plaintiff said that Mr. Newton had told her that if she did not sign the

deal, the bank would cause the ABG to go bankrupt. She said that she told Mr.

Hubley and Mr. Lobay about this, and Mr. Hubley explained that the bank could not

just force the ABG into bankruptcy. It would have to follow proper protocol.

[49] After this meeting, negotiations proceeded between Mr. Lobay and Mr.

Newton and his lawyer, Brett Vining. Mr. Hubley played no part in these.

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[50] Later in May, Mr. Newton bought a house and told the plaintiff that she must

sign a document for the credit union so that he could obtain a mortgage. This

document stipulated that he would receive a monthly salary of $10,000 from the

ABG, and that he would not be paying spousal support.

[51] On May 24, 2000, the plaintiff wrote Mr. Lobay asking whether she should

waive her rights to Mr. Newton’s personal income and to spousal support as he

requested. Mr. Lobay advised her not to do so. The plaintiff said she nevertheless

decided to give Mr. Newton what he wanted as she was afraid of him. Mr. Lobay

drafted a postponement of her claim to spousal support on her instructions, but

wrote to her on May 25, 2000 confirming his advice that she should not sign it. The

plaintiff nevertheless executed the postponement. At trial, she denied receiving that

letter.

[52] On May 25, 2000, Mr. Lobay wrote to Mr. Newton with respect to resolving

the matter. The plaintiff received and approved a draft of this letter before it was

sent. In it, he referred to the ongoing appraisal of the ABG equipment, and the

difficulty of valuing the plaintiff’s shares until he has reviewed the appraisal with

independent accountants. He suggested a possible discount if Mr. Newton bought

out the plaintiff’s shares at that time. He invited interim monthly payments of $5,500

to the plaintiff, to be credited against her shareholder’s loan account and against any

settlement agreement. He closed by advising that he had recommended to the

plaintiff that she not settle quickly before a full review of the financial statements and

appraisal.

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[53] The plaintiff testified that she had no recollection of this letter or advice of this

nature from Mr. Lobay.

[54] Mr. Lobay’s records indicate that on May 29, 2000, the plaintiff left him a

telephone message asking him to draft a separation agreement as soon as possible

for Mr. Newton to take to his lawyer. The plaintiff testified that she could not recall

leaving this message. She agreed, however, that despite Mr. Lobay’s advice not to

sign an agreement without getting full financial disclosure, she was going to sign it

anyway. She said that she did not understand what financial disclosure was, and

she was under a lot of stress and pressure. The plaintiff testified that she gave Mr.

Lobay a monthly amount that she wanted, but could not recall the details of the

agreement, and said that he did not review it with her.

[55] Mr. Lobay testified that he drafted a settlement agreement that reflected the

plaintiff’s instructions and sent it to Mr. Brewer on June 2, 2000. He said that the

terms came from the plaintiff, and were contrary to his repeated advice that there

must be a valuation of the company first.

[56] In June, the plaintiff rented a condominium in Victoria. She said that she was

encountering financial difficulties as she was unable to withdraw funds from the ABG

as she had in the past. As a result, she cashed in investments of $65,000 that she

and Mr. Newton had at Midland Walwyn (the “Midland Walwyn Shares”), and also

borrowed $30,000 from her sister.

[57] Mr. Vining, on behalf of Mr. Newton, commenced a matrimonial action against

the plaintiff on June 9, 2000. The statement of claim included a claim for dismissal

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of spousal support for both parties. The plaintiff testified that she could not recall

seeing this, and did not know that Mr. Newton was saying that he would not pay

spousal support.

[58] On June 12, 2000, the parties obtained a declaration under s. 57 of the

Family Relations Act, R.S.B.C. 1996, c. 178, (the “F.R.A.”) by consent.

[59] On June 13, 2000, Mr. Vining wrote to Mr. Lobay with Mr. Newton’s position

on the proposed settlement. His letter included these comments:

Mr. Newton basically told me what I am sure your client has told you,

the companies values are dictated by the market and Mr. Newton’s

ability to maintain the companies existence. In talking to my client, he

advises me that the companies are valued at anywhere between $1.00

and $816,000.00, which would be the combined shareholder’s values

of both himself and his wife. He feels that given his debt load in the

approximate amount of $11,000,000.00, that the agreement would

allow her to receive, at this time, approximately $190,000.00 over a

50% division between the parties, based on book value. To the matter

[sic] in its most blunt terms, our client, by retaining the companies, is

buying a “pig in a poke”. If he works hard and is lucky with the

economy, he will do well. If not, it could be disaster as Mr. Newton

could loose it all.

…

All claims of spousal support must be dismissed at this time. If Mr.

Newton has not paid the $420,000.00, it means that he has lost

everything, and your client will at least have salvaged the real property,

and he would be left with nothing. Why would Mrs. Newton be able to

come back after reaping the benefits of the tax free monies that she

had received, including the lion’s share of real property, and then ask

for maintenance when Mr. Newton would be unemployed and without

funds?

[60] The plaintiff, Mr. Hubley, and Mr. Lobay met on June 13, 2000 to discuss Mr.

Vining’s letter. Mr. Hubley testified that both he and Mr. Lobay advised the plaintiff

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that they did not have enough information to tell her whether the proposed

settlement was fair.

[61] Mr. Lobay testified that he and the plaintiff discussed Mr. Newton’s position

that the ABG could become insolvent and that she was lucky to get anything, as well

as the fact that if the company was insolvent she may receive nothing for her shares.

He said that security was also a concern as the proposed settlement involved

payments by Mr. Newton personally over a significant period of time. Mr. Lobay

testified that the dismissal of claims for spousal support was a given from Mr.

Newton’s perspective. He said that he advised the plaintiff of her right to spousal

support, and she understood that she was releasing this claim under the proposed

agreement.

[62] The plaintiff testified that she recalled some things about Mr. Vining’s letter,

but said that she did not really understand them. She could not recall reviewing the

letter with Mr. Hubley or Mr. Lobay. She acknowledged that Mr. Lobay was

concerned about the absence of financial disclosure. She denied that Mr. Newton

was suggesting that the value of the ABG could be variable, or that his position on

spousal support was discussed with her.

[63] Mr. Lobay said that he told the plaintiff that he was concerned about the

speed at which things were moving, and gave her strong advice not to execute any

agreement until they had full financial disclosure of the ABG. However, on June 14,

2000, he wrote to Mr. Vining and advised that, contrary to his advice, the plaintiff

would sign the settlement agreement if some minor amendments were made.

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[64] Mr. Vining and Mr. Lobay finalized the proposed agreement on June 15,

2000. Under its terms, the plaintiff was to transfer her interest in the ABG to Mr.

Newton in exchange for $650,000, payable in monthly instalments of $5,500 over

ten years. That figure included her shares as well as her shareholder’s loan of

$408,775. There was no provision for interest on the unpaid balance. As security,

the plaintiff’s shares were to be held in escrow until she was paid in full. Mr. Newton

was to indemnify her for any tax liabilities arising. The plaintiff was to receive the

Matrimonial Home and Mr. Newton was to pay the mortgage on it. The Lantzville

Property was to be sold, the proceeds used to first pay the mortgage on the

Matrimonial Home, and the remainder to be kept by Mr. Newton. The plaintiff was to

transfer the Campbell River Property to Mr. Newton, and they would jointly own the

Cienar Drive Property through a new company. The plaintiff reserved her right to

spousal support until all payments had been made under the agreement, and then

provided a full release of that claim. Other provisions dealt with an equal division of

RRSPs, and less significant assets and liabilities.

[65] Mr. Lobay testified that he reviewed this agreement with the plaintiff and it

remained his advice that she should not execute it. He wrote her a strongly worded

letter on June 15, 2000, advising her that the offer in the agreement appeared

substantially below her entitlement, and that it was impossible to assess it until he

had more financial information, particularly the asset appraisal.

[66] The plaintiff said that she did not recall reading this letter. She agreed that

she reviewed the agreement with Mr. Lobay, and she recalled some advice not to

sign it without full financial disclosure. She said that she nevertheless signed it

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because she wanted to have it over with, and Mr. Newton was making threats. She

testified that she did not know if it was a final settlement of all claims or not. She

said that she did not think of that when she signed it, and no one told her that.

[67] With respect to the release of spousal support, the plaintiff initially testified

that Mr. Lobay did not review this with her, and she did not understand that it meant

that her claim for support was gone. Later, she said that when she signed the

agreement, she did not understand the full extent of this provision; nor did she ask

anyone to explain it to her. She said that spousal support was not a concern in any

event because Mr. Hubley had earlier told her that she was not entitled to it. When

challenged on this, the plaintiff could not say whether he had told her that before she

signed this agreement. Finally, she said that she understood the agreement meant

that she was giving up “alimony”, but said that she did not understand what that

meant as no one discussed it with her.

[68] Ultimately, the settlement fell apart as Mr. Newton requested a last minute

change, and the plaintiff instructed Mr. Lobay to reject the amendment because she

had second thoughts about the settlement.

[69] Mr. Hubley was not involved in these negotiations, and was unaware that the

plaintiff had almost concluded an agreement until she told him some time later.

[70] On June 26, 2000, the RBC advised the plaintiff and Mr. Newton that it would

no longer provide credit to the ABG, and demanded payment of its outstanding loan

by August 15, 2000.

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[71] The plaintiff agreed that she was concerned that there would be major

repercussions if the RBC pulled the ABG’s financing. She was also concerned that

Mr. Newton’s connection to the Hells Angels was putting her interest in the ABG at

risk. She contacted Mr. Hubley and, at her request, he contacted representatives of

the RBC. They confirmed that the RBC had pulled the financing because of a

breach of a covenant, but said that the bank was also concerned about Mr. Newton’s

relationship with the Hells Angels. They advised, however, that because the Beban

family’s logging companies were valuable clients of the RBC, it would give the ABG

time to find alternative financing.

[72] Mr. Hubley reported this to the plaintiff. He then had no involvement with her

until mid-September.

[73] On June 29, 2000, American Appraisals Canada, Inc. issued their appraisal

(the “AA Appraisal”). This valued 214 pieces of the ABG’s logging equipment, as

well as smaller miscellaneous equipment, at $10,580,000 on an auction basis and

$13,680,000 on an orderly liquidation basis as of June 2, 2000.

[74] After the proposed settlement fell apart, the plaintiff told Mr. Lobay that she

had changed her mind and wanted to get financial disclosure from Mr. Newton

before settling. On July 10, 2000, Mr. Lobay wrote to Mr. Vining asking for a Form

89 Financial Statement, financial statements of the ABG, and a copy of the AA

Appraisal. They also exchanged correspondence as to the draws Mr. Newton and

plaintiff were entitled to take from the ABG pending settlement, in view of the

difficulties with the RBC. Mr. Newton was receiving $10,000 monthly, and the

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plaintiff continued to receive $5,000. Their respective draws on the ABG beyond

those amounts remained a contentious topic throughout the ensuing negotiations.

[75] Later in July, Mr. Newton changed the locks on the ABG’s offices. Mr. Lobay

advised the plaintiff that it may be necessary to take corporate action to ensure her

rights were protected. On July 31, 2000, he wrote to Mr. Brewer and advised that,

as an equal shareholder and director of the ABG, the plaintiff would take legal action

without further notice to ensure that she had access to the business. The matter

was rectified and the plaintiff received keys to the office.

[76] The plaintiff, Mr. Newton, and their lawyers had an acrimonious meeting on

August 1, 2000. Mr. Lobay said that Mr. Newton’s position was that the company

was in financial trouble and the plaintiff would get nothing more than the last offer.

As nothing was accomplished, Mr. Lobay believed it was time to get on with

litigation, but had difficulty getting instructions from the plaintiff to do so. He had no

further substantive involvement in the matter. In mid-September the plaintiff met

with Mr. Hubley and told him that she wanted a new matrimonial lawyer.

[77] Mr. Newton and Mr. Brewer continued to seek alternative financing for the

ABG. On August 1, 2000, HSBC Bank Canada (“HSBC”) offered credit of $4.7

million. The ABG was unhappy with some of the terms and conditions, however,

and turned this down. The RBC extended its demand for payment to October 15,

2000.

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October to December 2000 – retaining Mr. Marzban and Mr. Harder

[78] Mr. Hubley and the plaintiff agreed that they obtained Mr. Marzban’s name

from Peter Voith, a lawyer who had earlier acted for the ABG. They diverged,

however, as to Mr. Hubley’s role in this. The plaintiff was adamant that she obtained

Mr. Marzban’s name from Mr. Voith on her own. Mr. Hubley testified that he and the

plaintiff spoke to Mr. Voith together after the plaintiff made an initial telephone call to

him, and Mr. Voith agreed to help her find a matrimonial lawyer. Mr. Hubley said

they later received Mr. Marzban’s name from Mr. Voith when they met with him in

Vancouver.

[79] Mr. Marzban is an experienced matrimonial lawyer who had been in practice

for almost 20 years at the time of these events. He became a Queen’s Counsel in

2004, and has been active in professional organizations related to matrimonial law.

He has also been a frequent speaker and writer on matrimonial issues.

[80] On October 12, 2000, Mr. Hubley called Mr. Marzban at the plaintiff’s request,

gave him some background, and asked if he would represent her. Mr. Marzban

agreed to do so, and asked for a $5,000 retainer. Mr. Hubley relayed this request to

the plaintiff, and her mother provided the funds as the plaintiff could not afford it.

[81] On October 13, 2000, the ABG succeeded in arranging new financing. GE

Capital Canada (“GEC”) agreed to provide it with a term loan of just over $4 million,

and HSBC committed to a $400,000 line of credit.

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[82] On October 17, 2000, the plaintiff told Mr. Hubley that Mr. Newton had

assaulted her at the ABG’s office. Mr. Hubley advised Mr. Marzban. The plaintiff

reported it to the police, but was afraid to press charges. Instead, she made

arrangements to go to Mexico to get away.

[83] On October 25, 2000, before she left for Mexico, Mr. Hubley, Mr. Marzban

and the plaintiff met at Mr. Hubley’s office.

[84] Mr. Marzban testified that at this first meeting he covered basic information

with the plaintiff, such as the history of the relationship, Mr. Newton’s association

with the Hells Angels, what had taken place to date including the earlier negotiations

and aborted settlement, the postponement of spousal support, and details of the

parties’ assets and income, including the ABG. Mr. Marzban said that they

discussed the corporate structure of the ABG, its component companies, and Mr.

Brewer’s role as the corporate accountant. Mr. Hubley said a broad “guesstimate” of

the share value was between $2 million and $4.5 million, and they discussed the

need to retain a qualified valuator to value the shares. The plaintiff told him that she

and Mr. Newton were comfortable with the values of the real property they owned.

[85] Mr. Marzban testified that the basic situation appeared quite clear. The ABG

was the linchpin. The other assets were relatively small, primarily real property,

RRSPs, and vehicles. He recognized there was a question of spousal support, but

said there was not much discussion about that, other than he may have said that he

could not give the plaintiff any advice on support until he knew where the assets

would end up.

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[86] Mr. Marzban said that the plaintiff instructed him to get Mr. Lobay’s file, and to

send a letter to Mr. Vining advising that unless Mr. Newton made a more satisfactory

offer she would pursue financial disclosure. Mr. Marzban said he advised her

against this, as they did not know the value of the company and she had already

been through one failed settlement. He said that she was insistent, however, and so

he agreed to do this as he felt no harm would come of it.

[87] Mr. Marzban testified that at the meeting of October 25, 2000 it was agreed

that he could communicate with the plaintiff through Mr. Hubley for reasons of

convenience. The same pattern later developed with Mr. Harder. As a result, Mr.

Hubley often acted as the plaintiff’s agent in her dealings with both of these advisors.

[88] The plaintiff’s recollection of this meeting varied. In direct examination, she

recalled little of what was discussed, other than she had provided a brief history of

events, and Mr. Hubley had given Mr. Marzban an idea of the range of the value of

the ABG shares. She could not recall receiving any advice from Mr. Marzban or Mr.

Hubley during the meeting, and she was unsure if she gave any instructions to Mr.

Marzban. She was, however, able to provide a list of things that had not been

discussed at the meeting.

[89] On cross-examination, the plaintiff agreed that at her first examination for

discovery she had testified that she had no recollection of this meeting with Mr.

Marzban, and her only recollection of dealings with him in 2000 was a telephone call

while she was in Mexico. She confirmed that at a later examination for discovery her

recollection expanded to include a general discussion about the background and

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companies, and Mr. Marzban’s agreement to take over Mr. Lobay’s file. She agreed

that it made sense that they would have discussed past offers, her financial

situation, Mr. Newton’s use of company money, issues related to the RBC, and Mr.

Lobay’s correspondence, but said that she did not recall this. When pressed on

cross-examination as to whether spousal support was discussed, the plaintiff

conceded that there had been some mention of it, but said that she could not recall

the specifics.

[90] After the October 25, 2000 meeting, Mr. Marzban arranged corporate and title

searches of the ABG companies and the real property in which the plaintiff held an

interest. He obtained and reviewed Mr. Lobay’s file, and filed a Notice of Change of

Solicitor. He also filed Certificates of Pending Litigation and a Statement of Defence

and Counterclaim, in which he included claims for spousal support and

reapportionment. Mr. Marzban testified that although he viewed this as a case for

equal division of assets, he included the claim for reapportionment in case such an

argument emerged.

[91] On November 22, 2000 Mr. Marzban sent the plaintiff a letter providing the

advice on reconciliation mandated by s. 9 of the Divorce Act, R.S.C. 1985, c. 3 (2nd

supp.). On November 24, 2000, after first faxing it to her in Mexico for her approval,

he sent Mr. Vining a letter inviting an offer in accordance with the plaintiff’s

instructions.

[92] The plaintiff recalled that she left for Mexico after the meeting, and that there

was some discussion about obtaining an offer from Mr. Newton and, if none came,

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proceeding with financial disclosure. She agreed that it was her idea to invite this

offer, despite the fact that she was no further ahead in investigating the value of the

ABG, and despite advice to the contrary. She said that she did so because she was

under a lot of emotional stress, she did not know what she wanted, and she felt that

this was one way of possibly obtaining a settlement. She denied that Mr. Marzban

advised her against this, or warned her of the risks of proceeding without financial

disclosure.

[93] In December 2000, Mr. Newton retained Mr. Edward Mortimer, Q.C. as his

new counsel. Mr. Mortimer testified that he met with Mr. Newton and Mr. Brewer

around December 12, 2000. He said that Mr. Newton was very frustrated that the

action had not settled, and gave him instructions to make an offer to the plaintiff that

Mr. Newton said represented his “bottom line”. On December 14, 2000 Mr. Mortimer

sent Mr. Marzban an offer to settle on these monetary terms:

• payment of $500,000 for the plaintiff’s shares in the ABG;

• payment of the plaintiff’s shareholder’s loan of $408,775;

• these amounts to be paid at $10,000 per month commencing

January 31, 2001, with no interest payable on the outstanding

balance, and payment in full to be made by January 31, 2006;

• the Matrimonial Home and the Lantzville Property to be sold and

the proceeds shared equally;

• the Powell River Property to be transferred to Mr. Newton in

consideration of payment of $13,000;

• security by way of holding the plaintiff’s shares in escrow on

graduated release tied into payment amounts; and

• mutual release of spousal support claims.

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[94] Mr. Mortimer testified that he advised Mr. Newton that if they could not reach

a settlement and had to proceed to trial, he should offer to sell his shares to the

plaintiff, or take the position that the parties should remain shareholders in the ABG

and leave the resolution of the matter to company law. He said that he also advised

Mr. Newton that if the plaintiff received more than a million dollars in assets at a trial

she would not receive support due to her age, the length of the marriage, her job

skills and family connections, and the fact that she had no children.

[95] Mr. Marzban sent the offer to the plaintiff without comment or advice, as he

still had no information as to the value of the assets. The plaintiff testified that she

had a limited understanding of this offer, but decided to reject it without seeking

advice from Mr. Hubley or Mr. Marzban. She could not recall why. She advised Mr.

Marzban of this by leaving a message with his office on December 18, 2000.

[96] Mr. Marzban then proceeded with obtaining financial disclosure. On

December 21, 2000, he wrote to Mr. Mortimer rejecting the offer and enclosing a

Demand for Discovery of Documents, Notice to Produce and Notice to File a Form

89 Financial Statement. Mr. Mortimer responded with similar demands on behalf of

Mr. Newton.

[97] Mr. Hubley learned from Mr. Marzban that the plaintiff had rejected Mr.

Newton’s offer. They agreed that it was time to retain a valuator to value the ABG,

and that Mr. Harder would be an appropriate person to engage for that purpose.

Both had worked with him in the past and both held him in high regard as a valuator.

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[98] Mr. Harder has been a chartered accountant since 1983, and a chartered

business valuator since 1987. He has fellowship standing in both professions, and

has held positions in the Canadian Institute of Chartered Business Valuators, (the

“CICBV”). He also holds specialty certifications as a fraud examiner and in

investigative and forensic accounting. Mr. Harder has had considerable experience

in valuing logging companies, and in doing valuations in matrimonial disputes.

[99] Mr. Hubley spoke with Mr. Harder on December 21, 2000, and Mr. Harder

accepted the engagement. Mr. Hubley said that he also telephoned the plaintiff and

obtained her agreement to hire Mr. Harder.

[100] The plaintiff agreed that Mr. Hubley told her that Mr. Harder was a highly

regarded valuator in Vancouver who had experience with valuations of logging

companies, and that she agreed to hire him. She said that she understood that Mr.

Hubley was not a valuator, and Mr. Harder would value the shares of the ABG.

[101] Mr. Marzban spoke to Mr. Harder about his engagement, but did not discuss

it with the plaintiff. He and Mr. Mortimer agreed that Mr. Harder could contact Mr.

Brewer directly to obtain the necessary financial information to value the ABG. As a

result, neither of them pursued production of Lists of Documents or Form 89

Financial Statements. Mr. Mortimer testified that he did not think these steps were

necessary as the issue was simply how much compensation Mr. Newton was

prepared to pay the plaintiff for her shares.

[102] The plaintiff testified that she never withdrew her instructions to Mr. Marzban

to obtain financial disclosure. She said that he did not advise her about the different

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means of doing that, and she did not know what steps he took. She said that at this

point she did not know what Mr. Marzban and Mr. Hubley were going to do, but she

assumed they would carry on with what they were supposed to be doing.

January to March 2001 – preparation of the valuation of the ABG

[103] Mr. Hubley said that he met with the plaintiff on January 4, 2001 to explain the

valuation process, including the concept of fair market value as opposed to the

historic cost of equipment reflected on financial statements. The plaintiff had no

recollection of this meeting.

[104] On January 9, 2001, Mr. Harder faxed a draft of his engagement letter to Mr.

Hubley and Mr. Marzban. Mr. Hubley discussed with Mr. Harder what documents he

would review, and was satisfied to leave this to Mr. Harder’s discretion. He also

drew Mr. Harder’s attention to the importance of reviewing the AA Appraisal as Mr.

Hubley wanted him to use anything that would increase the value of the ABG.

[105] Mr. Hubley said that he reviewed Mr. Harder’s draft engagement letter with

the plaintiff, and sent it back to Mr. Harder with some notes to clarify the scope of his

valuation. In her evidence in chief, the plaintiff said that she did not recall Mr.

Hubley discussing the engagement letter with her. On cross-examination, however,

she agreed that she did review the letter with Mr. Hubley.

[106] The plaintiff signed Mr. Harder’s engagement letter on January 26, 2001. The

relevant portions stated:

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• Mr. Harder would provide an estimate of the en bloc fair market value of

the shareholder interests in the ABG companies for the purpose of a

division of matrimonial property.

• The valuation date would be October 31, 2000.

• His valuation would include, among other things, a review of “corporate and

business documents” including property and equipment appraisals, as well

as interviews with management and a tour of the facilities.

• He would provide a draft report following completion of his valuation, and

deliver a final report shortly thereafter.

[107] Valuators’ reports can provide three types of conclusions: a calculation, an

estimate, or an opinion. Mr. Harder’s report was to be an estimate, which provides

the middle level of assurance, analysis, investigation, and corroboration, and is

deemed suitable for pre-trial negotiations. It is often a preliminary step to an opinion,

which has the highest level of assurance.

[108] Mr. Marzban said that he reviewed Mr. Harder’s retainer letter and was

comfortable with its terms and the level of assurance at this stage. He did not

discuss it with the plaintiff.

[109] In January 2001, Mr. Marzban and Mr. Mortimer negotiated a consent

restraining order covering the family assets. The order inadvertently included an

unnecessary duplication of the earlier s. 57 declaration.

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[110] On January 8, 2001, Mr. Harder met with Mr. Brewer to obtain preliminary

information about the ABG. He requested and received a substantial amount of

financial information by mid-January, including a copy of the AA Appraisal and the

October 31, 2000 financial statements, which had just been completed. He spoke to

Mr. Newton to obtain additional information. He took steps to corroborate some of

the information provided by having his staff contact the majors in the forest industry

who were familiar with the ABG’s operations.

[111] Mr. Harder reviewed the AA Appraisal and concluded that it was not reliable.

He decided that he could not use it for his valuation. On January 24, 2001, he spoke

to Mr. Brewer about the AA Appraisal. Mr. Brewer advised him that it had been

done for financing purposes, and the values were high and unreliable. He said that

Mr. Newton would not accept it as the basis for any settlement. They discussed

having the ABG engage Cunningham Rivard to appraise the ABG’s real estate, and

Ritchie Bros. to do another appraisal of the ABG’s equipment for the purpose of Mr.

Harder’s valuation.

[112] Mr. Harder passed this information on to Mr. Hubley, who said that Ritchie

Bros. was acceptable to him as he knew it to be a reputable outfit. Mr. Hubley said

that he discussed this with the plaintiff and she raised no objection. Ritchie Bros.

was accordingly retained to appraise the ABG equipment.

[113] The plaintiff’s evidence about her knowledge of the AA Appraisal was

inconsistent. At one point, she testified that Mr. Newton had told her that the AA

Appraisal was inflated and it was ridiculous to rely on it. However, she also

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maintained that, while she knew it had been obtained for financing purposes, she did

not know that such appraisals tend to be on the high side. She denied that Mr.

Hubley told her that Mr. Newton wanted another appraisal because the AA Appraisal

was too high. Instead, she said that he told her that Mr. Harder needed a value for

the equipment because the AA Appraisal was outdated and because of something to

do with market conditions. She said that Mr. Hubley told her that Mr. Newton had

recommended Ritchie Bros. and that this was what they would do for appraising the

equipment. She agreed that she did not object to this.

[114] Mr. Hubley testified that the plaintiff later raised a concern about using Ritchie

Bros. She felt that because Mr. Newton had used them to buy and sell equipment in

the past he would be able to influence the outcome of the appraisal in his favour,

and she asked if they could use someone else. Mr. Hubley said that he did not put

much stock in the plaintiff’s concerns due to the size and reputation of Ritchie Bros.,

but they discussed it, and he told her that Ritchie Bros. would provide a market value

appraisal which was likely to be lower than the AA Appraisal prepared for financing

purposes. He also explained to her that Ritchie Bros. and Mr. Harder were

independent, and it would ultimately be Mr. Harder’s decision as to whether the

Ritchie Bros. appraisal would be suitable for his valuation. It would then be up to her

as to whether she accepted his valuation. If she did not, she could go to court, or

get another valuation. He told her that he did not know of any legitimate commercial

reason to refuse an appraisal by Ritchie Bros., and at the end she agreed that they

would use Ritchie Bros.

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[115] The plaintiff adamantly denied that this conversation took place, or that she

had objected to using Ritchie Bros.

[116] The Ritchie Bros. appraisal (the “Ritchie Bros. Appraisal”) was delivered to

Mr. Newton and copied to Mr. Harder on February 7, 2001. It valued 166 of the

larger pieces of the ABG logging equipment at $4,673,200.

[117] On February 9, 2001, Mr. Harder went to Nanaimo and met with Mr. Newton

and Mr. Brewer at the ABG’s office. After a tour of the Duke Point site, they went

through the Ritchie Bros. Appraisal and reconciled it with the ABG’s capital asset list.

Ritchie Bros. had not appraised 253 pieces of equipment. Most of these were

smaller miscellaneous items. Mr. Newton, Mr. Brewer, and Mr. Harder came to an

agreed-upon value for most of these, in many cases using their net book value.

[118] On February 21, 2001, the plaintiff went to Mr. Marzban’s office in Vancouver

to advise him that Mr. Newton was improperly expensing things through the

company, and that she believed that Mr. Newton and the ABG were conducting

illegal activities. She testified that she told Mr. Marzban these things in case

something happened to her. Mr. Marzban had a limited recollection of this meeting.

He said he was not instructed to take any steps as a result of this information.

[119] On the same day, the plaintiff went to Mr. Harder’s office and met with him for

the first time. Mr. Harder testified that they discussed her view of the ABG and some

of its contracts and equipment, but her primary concern was Mr. Newton’s use of

corporate assets for his own purposes and whether he was hiding money. Mr.

Harder said that he told the plaintiff that she could hire him to do a forensic

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investigation to determine if Mr. Newton was hiding assets but that it would be

expensive. She did not engage him to do this.

[120] The plaintiff had little recollection of this meeting. She did not remember

telling Mr. Harder of her concern that Mr. Newton was spending company money on

personal things. She was adamant that they did not discuss a forensic engagement.

[121] After that meeting, the plaintiff telephoned Mr. Hubley. Mr. Hubley testified

that she told him that she was concerned that Mr. Harder was biased against her

and was not listening to her position on the ABG’s assets. Mr. Hubley said that he

told her that they would have to wait and see the valuation but that, as the client, she

had every right to ask Mr. Harder for clarification and to find out exactly what was

going on. He also reiterated his previous advice that Mr. Harder was an

independent valuator and had to make up his own mind about the value of the ABG.

[122] The plaintiff agreed that she spoke with Mr. Hubley about her meeting with

Mr. Harder, but disagreed with his account of the discussion. She specifically

denied that she was unhappy with Mr. Harder.

[123] Neither Mr. Harder nor the plaintiff could recall whether they discussed the

large discrepancy between the AA Appraisal and the Ritchie Bros. Appraisal on

February 21, 2001. Mr. Harder testified that he was concerned about the

discrepancy, and so he contacted another appraiser, Mr. Robert Pearson of

Universal Appraisals, and sent him a portion of the AA Appraisal to review. Mr.

Harder said that Mr. Pearson reported to him that the AA Appraisal was too high and

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not supportable. Mr. Pearson also said that it would cost between $12,000 and

$15,000 plus disbursements for Universal Appraisals to do another appraisal.

[124] The Matrimonial Home had been listed for sale by agreement, and was sold

in February. Another lawyer handled the conveyance, and the plaintiff and Mr.

Newton ultimately split the proceeds from the sale equally. Mr. Marzban testified

that he spoke with the plaintiff twice near the end of February about the conveyance

and the ongoing valuation.

[125] Mr. Hubley testified that on March 1, 2001, he had a long meeting with the

plaintiff to examine the Ritchie Bros. Appraisal at Mr. Harder’s request, and to

explain to her how the valuation process worked and where it might end up. He said

that the plaintiff was frustrated with the way the valuation was being conducted. Mr.

Hubley said that he used the ABG’s financial information and the Ritchie Bros.

Appraisal to formulate and explain to her a “guesstimate” of what Mr. Harder’s

valuation might produce. This suggested that the plaintiff’s interest in the ABG might

lie between $1.5 and $2.5 million. He testified that she knew that his calculations

were speculative, but she understood the process better as a result of this exercise.

He said that he told her several times during this process that if she was not happy,

she always had the opportunity to go to court.

[126] The plaintiff testified that she did not remember what was discussed at this

meeting. She nevertheless denied that they discussed Mr. Harder’s role or that she

could go to court if she did not like where the settlement discussions were going.

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[127] Mr. Marzban’s time records show that he had a meeting with Mr. Harder and

a telephone conversation with Mr. Hubley during the first week of March regarding

valuation issues. Mr. Marzban had no recollection of these discussions, but said

that it was not unusual for him to be updated regarding the status of things.

[128] Mr. Hubley testified that on March 5, 2001, the plaintiff came to see him and

told him that Mr. Newton was charging personal expenses to the ABG. She asked

him to relay that to Mr. Marzban, and he did so.

[129] Mr. Hubley testified that on March 12, 2001, the plaintiff came to his office,

and again raised issues regarding the valuation. She also told him that she was

unhappy with Mr. Marzban, and asked what his ethnic background was. Mr. Hubley

said that he reminded her that Mr. Marzban had come highly recommended by Mr.

Voith, and told her to bear with it and see what happens.

[130] The plaintiff could not recall this meeting, but denied that the conversation

about Mr. Marzban occurred.

[131] On March 15, 2001, the plaintiff and Mr. Hubley went to Vancouver to meet

with Mr. Harder. Before they left, they met at Mr. Hubley’s office and reviewed an

equipment list that recorded the Ritchie Bros. Appraisal values and the AA Appraisal

values for each piece of equipment. Mr. Hubley said that they together added a third

column of equipment values that he described as their “best guesstimate” of what

the equipment could be worth, based on their experience with logging equipment.

These revised equipment values totalled about $6.5 million. Mr. Hubley said that,

based on his experience in the logging industry, he felt that the Ritchie Bros.

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Appraisal was fairly accurate, and he denied telling the plaintiff that their values were

too low. Nevertheless, he said that he and the plaintiff wanted to come up with a

reasonable alternative for the equipment value that Mr. Harder could present to Mr.

Newton and Mr. Brewer in an effort to negotiate a higher settlement.

[132] The plaintiff testified that the revised equipment list was prepared because

Mr. Hubley felt the Ritchie Bros. values were too low and they wanted to create an

argument that higher numbers should be used in the negotiation. She denied that

she played any role in estimating the revised equipment values, or that she knew

anything about the value of logging equipment.

[133] Mr. Hubley testified that at their meeting with Mr. Harder later that day, they

presented the revised equipment values and asked him to send these to Mr. Newton

and Mr. Brewer. The plaintiff’s recollection of this meeting varied. At an early

examination for discovery, she did not recall the revised equipment list being at the

meeting at all. At a later discovery, and at trial, she testified that this document was

discussed briefly with Mr. Harder.

[134] Mr. Harder testified that they discussed the revised values and talked about

where he was in his valuation. He understood that they presented the new

equipment values because the plaintiff was concerned about the Ritchie Bros.

Appraisal, and she wanted him to use these values instead in his valuation. Mr.

Harder said he was not prepared to do that as they were clearly unreliable and

biased. However, he did agree to pass the list on to Mr. Newton and Mr. Brewer.

Mr. Harder also testified that they discussed obtaining another appraisal, and said

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that a reference in his notes of the meeting to “12 to 15 plus disbursements” refers to

Mr. Pearson’s estimate of the cost of another appraisal.

[135] Mr. Hubley also testified that at this meeting they discussed the possibility of

the plaintiff obtaining a third appraisal, and that Mr. Harder told them this would cost

between $12,000 and $15,000.

[136] The plaintiff was confident that the topic of a third appraisal was not raised at

this meeting. She emphatically denied that Mr. Harder told her that another

appraisal could be obtained for $12,000 to $15,000 plus disbursements, or that she

ever discussed a third appraisal with him. She said that none of the defendants

advised her about contacting other equipment appraisers, and that Mr. Harder did

not tell her that he had contacted Mr. Pearson.

[137] The plaintiff was certain that she was the person who first raised the idea of a

third appraisal, and that this occurred later, after she heard from Mr. Hubley that Mr.

Newton would not accept the revised equipment values. She said that Mr. Hubley

told her that he would pose the idea of another appraisal to Mr. Newton and Mr.

Brewer. Later, he told her that they were not keen on her getting her own appraisal.

She said that was the end of it and she understood that Mr. Harder was going to

value the shares based on the Ritchie Bros. Appraisal. She said that none of the

defendants said anything else on the topic, and she did not know that she could

challenge that decision.

[138] Mr. Harder testified that he sent the revised equipment values to Mr. Newton

and Mr. Brewer. Mr. Brewer called him the following day and told him that they were

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unacceptable. Mr. Brewer also said that they were not pleased with the suggestion

that the plaintiff would not accept the Ritchie Bros. Appraisal.

[139] Mr. Hubley testified that on March 16, 2001 Mr. Harder called and told him

that Mr. Newton was very upset, and that he and Mr. Brewer were aggressive in

stating that the revised equipment values were a pipedream, and that they would

only consider the Ritchie Bros. values. He said they also indicated that if the plaintiff

wanted another appraisal she could go ahead, but it was irrelevant to them. They

suggested that they could liquidate the ABG and just get out of it, or the plaintiff

could buy out Mr. Newton. Mr. Brewer had said they would prepare an offer based

on Mr. Newton’s ability to pay.

[140] Mr. Hubley testified that on March 26, 2001 he met with the plaintiff to discuss

Mr. Harder’s call, and they talked about the issue of another appraisal again. He

said that they discussed the fact that Mr. Newton and Mr. Brewer were already

unhappy with the numbers that were being advanced by Mr. Harder, which were

based on the Ritchie Bros. Appraisal. Since they were trying to negotiate a

settlement, Mr. Hubley said that he and the plaintiff were unsure whether a further

appraisal, which could be higher or lower, would advance anything. Cost was also a

factor. Mr. Hubley said that he told the plaintiff that if she did not feel that she was

being treated fairly she could always take the matter to court. She said that she

understood this.

[141] Mr. Harder testified that the uncertainty regarding a third appraisal left him in

some difficulty. He was trying to get on with his valuation but knew the plaintiff was

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unhappy with the Ritchie Bros. Appraisal and was looking at other options. She did

not, however, provide instructions to proceed with another appraisal.

[142] Although the source of this information was unclear, it is apparent that by late

March the parties had sufficient information about Mr. Harder’s preliminary views to

suspect that his valuation might put the plaintiff’s interest in the ABG, including her

shareholder’s loan and 2000 bonus, in the neighbourhood of $2 million.

[143] Mr. Harder testified that he had a long phone call with Mr. Newton and Mr.

Brewer on March 27, 2001. They wanted him to pass on an offer to the plaintiff.

They were not keen on her getting another appraisal. They said that Mr. Newton

was considering a job offer that would see him making the same salary and doing

the same kind of work as managing the ABG. They also said that if the plaintiff

wanted to buy Mr. Newton’s shares, Mr. Newton would not sign a non-compete

clause. Finally, they threatened liquidation as Mr. Newton could not afford to pay the

plaintiff anything close to $2 million.

[144] On March 28, 2001, Mr. Brewer faxed Mr. Mortimer asking him to speak to

Mr. Marzban to ensure that any settlement discussions between Mr. Brewer and Mr.

Harder for the next ten days would be without prejudice. That was done. Mr.

Brewer’s fax also indicated that he felt that negotiations with Mr. Harder and Mr.

Hubley were likely to be more productive than dealing with Mr. Marzban. No reason

was given for that.

[145] On March 30, 2001, Mr. Harder received an offer from Mr. Brewer for

$1,364,660 for the plaintiff’s interest in the ABG. This included $600,000 for her

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shares. The balance was comprised of her shareholder’s loan and 2000 bonus.

The payment plan included application of Mr. Newton’s share in other assets that

were sold to the purchase price, with the balance of $830,775 to be repaid at $5,000

per month plus an amount based on cubic metres logged, with no interest on the

outstanding balance. The plaintiff’s shares were to be held in escrow as security.

Other adjustments were suggested to less significant assets and liabilities.

[146] Mr. Harder calculated the tax-adjusted offer of the plaintiff’s interest in the

ABG to be $1,201,000, and forwarded the offer to her through Mr. Hubley, with a

memorandum reporting on his March 27, 2001 conversation with Mr. Newton and

Mr. Brewer. He suggested they should review their position in a conference call.

[147] Mr. Hubley said that he discussed the offer and Mr. Harder’s memorandum

with the plaintiff. They both thought that the offer was low, given the preliminary

information they had from Mr. Harder about the plaintiff’s likely share value. They

discussed Mr. Newton’s threat that he would be better off to liquidate the ABG,

rather than assume the debt implicit in the plaintiff’s position. Mr. Hubley advised

the plaintiff that he did not believe that there was a large enough difference between

Mr. Newton’s offer and what they expected Mr. Harder’s going concern value would

be to provide an incentive to wind up the ABG; nor was he concerned that Mr.

Newton would remove himself from the ABG and accept a management contract

elsewhere. He said that the plaintiff observed that Mr. Newton had enough pride in

the ABG that he would not wind it up unless Mr. Brewer said that was the better

course.

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[148] The plaintiff testified that she recalled receiving an offer in late March 2001

and discussing it with Mr. Hubley, but she could not remember its terms or their

discussion. She could only say that he had some concerns about the offer and it

was rejected. The next step was to wait for Mr. Harder’s valuation.

April 2001 – the valuation, Westwood, and negotiation strategy

[149] Mr. Hubley, Mr. Harder, Mr. Marzban, and the plaintiff scheduled a

conference call for April 2, 2001. Mr. Marzban did not get connected to it for

unknown reasons.

[150] Mr. Hubley testified that they discussed the latest offer, Mr. Newton’s job

prospect elsewhere, and his threat of liquidation. Neither Mr. Hubley nor Mr. Harder

believed that liquidation was a serious threat, and both accepted that the ABG

should be valued as a going concern. They agreed, however, that Mr. Harder

should obtain a liquidation value from Mr. Brewer just to assess the downside risk.

[151] Mr. Harder testified that he was seeking instructions about how to continue

his engagement, and directions as to whether the plaintiff was going to get another

appraisal, accept the Ritchie Bros. Appraisal, go to court, or accept Mr. Newton’s

offer. However, he could not recall what was actually said or decided during the call.

[152] The plaintiff testified that she had no recollection of this conference call.

[153] Mr. Hubley said that he called the plaintiff after the conference call. She was

not happy with the offer, based on the preliminary numbers they had from Mr.

Harder, and so they discussed the option of having examinations for discovery and

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going to court. Mr. Hubley told her that he believed that Mr. Harder’s valuation

would drive the outcome in court, but that going to court involved matters with which

he was unfamiliar, and she needed to speak to Mr. Marzban about these. Mr.

Hubley said that the plaintiff told him that she wanted a settlement of $1.8 million,

and if she could not get near that she would go to court. She also asked him about

the payment of the start-up loan that she had made to Mr. Newton in 1988. Mr.

Hubley testified that he told her that they should raise that issue with Mr. Marzban,

and that he wrote “Dinyar!!” in large letters at the bottom of his notes of the call.

[154] The plaintiff testified that she did not recall this telephone call. When she was

shown Mr. Hubley’s notes of the conversation, she claimed that it was she who had

written the word “Dinyar!!” on the page, although she had no recollection of why or

how that could be, given that they were Mr. Hubley’s notes of a telephone call to her.

[155] Mr. Hubley testified that he had several calls with Mr. Marzban in early April to

update him on the conference call and other events. He also asked him to consider

the issue of the start-up loan and let them know what to do with respect to it. He

said that subsequently Mr. Marzban told him that it may or may not be a family

asset.

[156] Mr. Marzban appears to have received Mr. Harder’s memorandum of March

30, 2001 from Mr. Hubley on April 2, 2001. He could not specifically recall his

telephone conversations with Mr. Hubley during this time, but testified that he was

kept apprised of the issues being raised.

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[157] Mr. Hubley testified that by this point, the relations between the plaintiff and

Mr. Newton had improved, and she periodically told him about conversations she

had with Mr. Newton. Around this time, she advised him that Mr. Newton told her

that Mr. Harder’s draft numbers had upset him and Mr. Brewer. As a result, she was

worried she would not get a good settlement if they had to sell the company because

there was no incentive to carry it on. She said that there was a lot of acrimony

between Mr. Harder and Mr. Brewer and, contrary to her earlier concerns, she was

now worried that Mr. Harder’s valuation was too high. Mr. Hubley said she was

becoming very frustrated, nervous, and concerned about the process.

[158] The plaintiff denied that she was concerned that Mr. Harder was inflating his

values. Nor did she recall being nervous about the process.

[159] Mr. Mortimer testified that, following the s. 57 declaration, Mr. Brewer on

behalf of Mr. Newton had sought his advice as J.S. Jones wanted to hire Mr. Newton

to manage a logging operation because of his expertise. He wanted to know if this

could be done through a company without it becoming a family asset. Mr. Mortimer

said that he advised Mr. Brewer of Mr. Newton’s rights under s. 59 of the F.R.A. He

told him that, although Mr. Newton had an obligation to the ABG as a director and

shareholder, he was not in servitude to the company, and could operate this new

venture without it becoming a family asset as long as he did not use or encumber

any family assets, notably the ABG, in doing so.

[160] In early April, the plaintiff went to the ABG’s offices at night and obtained

some documents. These suggested that Mr. Newton had incorporated two new

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companies. They also led her to believe that he was going to buy another business

and not continue with the ABG, and that he was charging personal expenses to the

ABG. On April 9, 2001, she brought these to Mr. Hubley who called Mr. Marzban to

discuss them, and then faxed copies to him.

[161] Mr. Hubley testified that on April 10, 2001, the plaintiff called him and asked

him to call Mr. Voith to get his advice on whether they should proceed to court or try

to settle. The plaintiff also expressed concern about whether Mr. Marzban was the

appropriate person to take the case to court. Mr. Hubley said that they discussed

the fact that Mr. Newton needed to have some incentive to settle. The situation had

been going on for a year, and she had just obtained information of concern from the

ABG’s offices. She now wanted Mr. Marzban to show Mr. Newton that they were

serious about litigation. Mr. Hubley called Mr. Voith, who told him that if the

numbers are close, it is always better to settle than litigate because you never know

where the litigation will lead you. Mr. Hubley said he passed that advice on to the

plaintiff.

[162] The plaintiff denied that the conversation with Mr. Hubley on April 10 took

place, or that she had concerns about Mr. Marzban. She could not recall Mr. Hubley

reporting to her about a conversation with Mr. Voith.

[163] Mr. Harder obtained a liquidation calculation from Mr. Brewer, which valued

the plaintiff’s 50% interest in the ABG at $1.023 million, including her shareholder’s

loan and 2000 bonus. Mr. Harder also prepared his own liquidation calculation, to

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show the plaintiff his view of her downside risk. Mr. Harder’s liquidation value was

$1.308 million. Mr. Harder sent both calculations to Mr. Hubley on April 12, 2001.

[164] On April 14, 2001, Mr. Hubley sent Mr. Harder an e-mail to provide him with

an update on the plaintiff’s position and strategy for advancing her claim. He said

that he did not send it to Mr. Marzban as he had apprised him of the same matters

by phone. The e-mail starts by mentioning the plaintiff’s frustration with the process.

It then states:

True to his word Lyle is getting on with things. The documents that

Christine obtained were information on two new companies that Lyle

has incorporated within the last two weeks. These appear to be

incorporated in order for him to acquire other logging assets outside of

the Aliford Bay Group. In addition one of the companies is now

currently charging Duke Point Shake & Shingle with equipment rentals.

Needless to say Christine was livid. She was not consulted with

respect to contracting out of any services to these numbered

companies. She is also very concerned with an offer made by Lyle

through the Aliford Bay Group to acquire another logging contractor

and the diverting of that offer to the number company that Lyle has

recently incorporated. Her concerns are the [sic] Lyle is using Aliford

Bay’s assets to secure financing to acquire another logging

contractor’s contract and assets.

…

Christine has requested of Dinyar to proceed with the legal process for

the division of matrimonial assets. She is very concerned that Lyle will

over the course of the next several months divert assets and value

away from the Aliford Bay Group. As I stated earlier she is extremely

frustrated at her inability to prevent any of Aliford Bay’s assets being

used to finance these new ventures. She is convinced that Lyle is

proceeding with the negotiating process as a front to allow him to do

what he would like to do and thereby reduce her value in Aliford Bay.

She is not interested in accepting his offer of $1.2 million. A counter

offer at this point in time appears to be pointless. Christine would

entertain settling the value at the $2 million range as determined by

your estimated value. The $2 million is arrived at by taking one half of

the company’s value as you determined which would be approximately

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$1.3 million plus her shareholder’s loans plus her share of the October

31, 2000 bonus.

Jeff, Christine would like for you to communicate to Gary that we

cannot accept their offer as presented. However, before you contact

Gary Christine would appreciate you discussing with Dinyar the timing

of when Lyle’s lawyer will be served with the notice to proceed with the

legal process for the division of matrimonial property. She does not

want to provide any advanced warning to Lyle regarding the serving of

those papers. Once they have received those papers then she

believes it would be an appropriate time to have you contact them and

let them know that Christine has rejected the offer. Christine believes

that the only way that she will be able to get Lyle to truly come to the

table is to have the legal proceedings commence while at the same

time leaving the door open for them to make a better offer to you on

Christine’s behalf. The message we would like you to deliver to them

is that she is open for a fair and reasonable offer however given the

inadequate offer presented so far she has no option to commence with

the legal process.

[165] The plaintiff agreed that Mr. Hubley’s e-mail accurately summarized her

instructions, concerns, and frustration at that time, and that she came up with the

figure of $2 million herself. She also agreed that throughout the whole process she

was hoping to obtain a settlement.

[166] Mr. Hubley testified that he did not know what the upcoming legal process

would be. He saw his role as just assisting the plaintiff in communicating her

position as she asked. He said that in their discussions leading up to the e-mail, the

plaintiff had told him that she had a strong preference to settle, rather than go to

court. While her feelings about this did fluctuate during the negotiations, he said that

her most consistent theme was that she wanted a settlement as long as it was fair to

her. She told him that her desire to settle was influenced by her wish to stay on

good terms with Mr. Newton, and to receive compensation for her shares in the ABG

sooner rather than later.

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[167] Mr. Harder testified that he chose not to accept the instructions in Mr.

Hubley’s e-mail to respond to the offer, or to negotiate on behalf of the plaintiff. It

was his view that he was engaged to do a valuation, and he did not want to become

involved in the negotiations. However, since it appeared that the plaintiff planned to

continue to negotiate, he was concerned that she should have some idea of where

he was in the valuation process. He knew that Mr. Newton was suggesting that he

may liquidate, or walk away and get another job, and that Mr. Brewer was pushing to

get a settlement by April 30, 2001 for tax reasons. Mr. Harder said that he was

essentially prepared to issue his estimate report, subject to resolution of the issue of

whether the plaintiff wanted another appraisal. He therefore decided to prepare a

memorandum about issues related to the negotiation of the share value, including

his view of the value of the ABG at that point based on the Ritchie Bros. Appraisal.

[168] Up to this point, Mr. Hubley had had no direct dealings with Mr. Newton or Mr.

Brewer. On April 18, 2001, he had an unexpected call from Mr. Newton who asked

if he could assist in settling the value of the ABG. Mr. Newton told him that Mr.

Harder and Mr. Brewer were at loggerheads, and were not making any progress in

the negotiation. He felt that Mr. Harder’s values were grossly inflated and said that

he could not buy the ABG on those numbers. Mr. Newton expressed his frustration

with the whole process, the time it was taking, and the uncertainty. He said he was

afraid that it was all going to go down the drain unless a more reasonable

negotiation took place, and he asked Mr. Hubley for his help.

[169] Mr. Hubley said there was nothing threatening in the conversation. He told

Mr. Newton that he did not know if he could help, and that he would have to talk to

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the plaintiff. Mr. Hubley then called the plaintiff and Mr. Marzban and told them

about Mr. Newton’s call.

[170] The plaintiff denied that Mr. Hubley ever told her about any conversation he

had with Mr. Newton.

[171] On April 20, 2001, Mr. Harder sent the plaintiff, Mr. Hubley and Mr. Marzban a

memorandum with his opinion as to the value of the ABG shares, and his thoughts

on the negotiations. Although it was not his final valuation, it was not marked “draft”.

He attached to it schedules of his valuation calculations of the ABG on both a going

concern basis and a liquidation basis, and a comparison of those to Mr. Brewer’s

liquidation calculation and Mr. Newton’s offer of March 30, 2001.

[172] The key paragraphs read:

For purposes of our negotiations Gerry Brewer has valued Alliford on a

liquidation basis. I have told Brewer that we disagree with using

liquidation versus a going concern approach. However, BDO prepared

both a going concern and liquidation valuation for Alliford as a point of

comparison with Brewer. Both BDO valuations are based on the

Ritchie Bros. equipment appraisal and my valuation for Alliford’s

logging contracts. Brewer’s en bloc (total company) liquidation share

value is $895 thousand while BDO’s is $1.465 million. Lyle’s offer to

Christine multiplied by two is $1.2 million for all of the Alliford shares.

BDO’s going concern value is $2.635 million. Gerry Brewer did not

complete a going concern valuation. If we were to litigate this matter,

BDO’s opinion would be that a going concern valuation is most

appropriate.

My view is that we should counter Lyle’s offer with a value for

Christine’s shares of between $700 thousand and $1.3 million as

opposed to the offer of $600 thousand. I believe that it will be difficult

to deal with Lyle if we ask for $1.3 million for shares, and a total

consideration of $1.9 million. Our best position is probably $1 million

for shares, which would mean a total consideration to Christine of $1.6

million as opposed to the $1.2 million implicit in Lyle’s offer. The price

Newton v. Marzban

Christine will accept from Lyle for her shares is obviously Christine’s

Page 53

decision and if her position is $1.3 million for shares and she does not

want to compromise on price it is still worthy of a counter offer. We

would also counter requesting $409 thousand for Christine’s one half

of the shareholder loan and the fiscal 2000 bonus, which will be $171

thousand net of tax.

[173] Mr. Harder’s memorandum also offered a number of suggestions as to terms

and conditions for an offer, including a payment schedule, and provisions for security

and interest.

[174] After delivering this memorandum, Mr. Harder had no further contact with the

plaintiff. His involvement was limited to periodic conversations with Mr. Hubley. He

did not complete a final report.

[175] Mr. Hubley testified that he met with the plaintiff on April 23, 2001 to review

Mr. Harder’s memorandum. He said that they talked about the reports they had both

heard from Mr. Newton that Mr. Harder and Mr. Brewer were unable to negotiate

productively because they were too confrontational. Mr. Hubley said that the plaintiff

then asked if he would undertake the negotiation of her interest in the ABG for her.

She told him that the major reason she wanted him to get involved was that she did

not want to take the time to go through the court process, as long as she could

receive a fair settlement. She also said that she wanted to remain on good terms

with Mr. Newton. Mr. Hubley said that she told him that because he understood the

issues faced by logging contractors, she thought that he would be in a better position

than Mr. Marzban to counter the issues being raised by Mr. Brewer and Mr. Newton.

[176] Mr. Hubley said he and the plaintiff then discussed Mr. Harder’s

memorandum. They decided that they would not consider Mr. Brewer’s view that

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the shares should be valued on a liquidation basis, but would base their position on

Mr. Harder’s going concern calculation. Mr. Hubley said that they looked at Mr.

Harder’s value range of $700,000 to $1.3 million for the shares and agreed that they

would do their best to get $1.3 million. When the plaintiff’s shareholder loan and

2000 bonus were added, the potential total was $1.89 million. Mr. Hubley said that

the plaintiff then told him that she would like to settle for as close as possible to $2

million, but she would be happy if she could get around $1.8 million for her share in

the ABG.

[177] Mr. Hubley testified that he told the plaintiff that he felt comfortable accepting

her instructions to negotiate the value of the ABG, as long as it was a commercial

negotiation. He advised her that he could not deal with the personal assets as he

did not have a background in that and did not know what her entitlements would be.

He also told her that he would only get involved if Mr. Brewer and Mr. Newton

agreed to establish ground rules for a principled negotiation. Mr. Hubley said that at

the end of the meeting the plan was that he would undertake negotiations on the

terms they had discussed.

[178] The plaintiff’s evidence about this meeting and Mr. Harder’s April 20

memorandum was variable and confused. She testified in chief that she did not

have any discussions with any of the defendants about how to proceed after the

March 30, 2001 settlement offer and Mr. Harder’s memorandum. She said that,

after receiving the memorandum, the defendants just continued to do what they

were supposed to do, and she did not know what that was. She agreed that after

April 20, 2001 Mr. Hubley began negotiating directly with Mr. Brewer on her behalf.

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When asked why that was so, she said that she just assumed everybody was

working together throughout the process.

[179] On cross-examination, the plaintiff agreed that she discussed the

memorandum with Mr. Hubley at a meeting on April 23, 2001, but said that she did

not recall him telling her what they should do next. She denied that she was

concerned at that point that Mr. Harder and Mr. Brewer could not productively

negotiate, and said that she did not recall asking Mr. Hubley to negotiate on her

behalf. Nor did she recall telling Mr. Hubley that she wanted to settle for $1.8

million, or Mr. Hubley telling her that he would try to get her the amount she wanted,

and that he would establish some ground rules with Mr. Brewer for the negotiations.

[180] As for Mr. Harder’s memorandum itself, at her examination for discovery, the

plaintiff said that she saw it in Mr. Hubley’s office but she did not know if he said

anything about it. At trial, she initially testified that all she could recall about the

memorandum was that there were some share values, and some information

regarding negotiations. After reviewing it, she said that she recalled Mr. Hubley

recommending an offer between $700,000 and $1.3 million for her shares. She

agreed that she understood that Mr. Harder’s valuation was based on the Ritchie

Bros. Appraisal. She agreed that she knew that Mr. Harder was not finished and

that he still had to prepare a formal report. She said that no one told her that his

numbers might change, or that the conclusions in the memorandum had any

shortcomings. Nor did any of the defendants discuss with her the underlying

valuation premises and how they related to the ABG, although she did recall Mr.

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Harder mentioning in one memorandum that if they went to court the ABG would be

valued as a going concern.

[181] On cross-examination, the plaintiff said that she did not understand that Mr.

Harder was including liquidation values in his memorandum only as a point of

comparison with Mr. Brewer’s analysis. She said that she quite often got documents

like this and read them but did not fully understand them. For example, she said that

she did not understand the term “litigate” in Mr. Harder’s memorandum. She said

that while people talked about going to court, no one discussed “litigation” with her.

Nor did she ask anyone to explain it. She said that she did not feel that was her

responsibility as she had three advisors who she assumed were working in her best

interests and she did not feel she had to question them on everything. She said that

she never understood that, if the case went to court, Mr. Harder would say that the

value of the ABG shares was $2.6 million. She agreed that she understood the

memorandum provided a range within which to negotiate, but said that she did not

know precisely how much her shares were worth.

[182] Mr. Marzban testified that he did not discuss Mr. Harder’s memorandum with

the plaintiff. Nor did they discuss her choice of Mr. Hubley as negotiator. He said

that he knew that she had asked Mr. Hubley to negotiate for her, and he was not

concerned about this. He thought it was a good idea, given Mr. Hubley’s

qualifications, and it was understood that he would review any deal reached by Mr.

Hubley before it was finalized.

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[183] Mr. Marzban had reviewed the documents obtained by the plaintiff from the

ABG offices earlier in April, and did company searches that showed that one of the

two numbered companies incorporated by Mr. Newton belonged to his brother. The

other was controlled by Mr. Newton and was renamed Westwood Logging Ltd

(“Westwood”). Some of the documents suggested that Mr. Newton was offering to

purchase a substantial logging contract through this new company. Others indicated

that he may be improperly expensing things through the ABG.

[184] Mr. Marzban felt that the evidence regarding diversion of the ABG assets by

the new companies was thin, and that the plaintiff had a big problem in asserting a

claim to Westwood, unless it made improper use of the ABG’s opportunities or

assets. He also felt that there were risks in bringing an application too early to find

out more. The company had no track record yet. Its value might lie in

demonstrating that Mr. Newton had additional income which strengthened a claim

for spousal support. However, Mr. Newton might not develop this business

opportunity if he thought that the plaintiff was seeking an interest in it. As well, the

application could negatively impact the negotiations. Regardless, he advised the

plaintiff that an application should be brought to get documents related to these

ventures, and to obtain joint signing authority on the ABG cheques to prevent

improper spending by Mr. Newton.

[185] The plaintiff instructed Mr. Marzban to proceed. She agreed that she was

concerned that Mr. Newton might divert assets and value away from the ABG, and

she was frustrated at her inability to prevent this. She was also convinced that he

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was using the negotiation process as a front to allow him to do what he wanted and

to reduce her value in the ABG.

[186] On April 20, 2001, Mr. Marzban faxed a draft affidavit to the plaintiff and Mr.

Hubley. The plaintiff made a note on this fax stating “Alimony – now? On top of

salary”. She testified that she could not remember what the note meant, but said

she was sure that she did not discuss it with Mr. Marzban. She said that she

reviewed the draft affidavit with Mr. Hubley and provided Mr. Marzban with her

comments.

[187] Mr. Hubley agreed that he reviewed parts of the affidavit with the plaintiff, but

said that he did not discuss how it would be used, and did not know what was

ultimately done with it.

[188] The plaintiff reviewed the final form of her affidavit with Mr. Marzban, and

swore it on April 27, 2001. It exhibits the documents that she had obtained, and sets

out her concerns that Mr. Newton was withdrawing company funds for personal use

while limiting her access to funds, diverting income from the ABG through the new

companies, and making substantial financial commitments without her knowledge.

[189] Mr. Marzban testified that ultimately he was instructed not to proceed with the

motion as the settlement negotiations resumed. He did not recall who gave him

those instructions.

[190] The plaintiff denied that she gave those instructions to Mr. Marzban. She

said that nothing happened with the affidavit and she did not know why. Mr.

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Marzban did not say anything more to her about the numbered companies and the

matters raised in the affidavit. She said that when she spoke to Mr. Newton he just

told her that he was going to do a “labour only” contract with J.S. Jones, and that he

and Mr. Brewer had set it up so that she would not have a claim to it. She said that

she told Mr. Hubley this, but he gave her no advice about it.

May to August 2001 – the settlement negotiations

[191] The plaintiff testified in chief that from May until August she understood that

the defendants were continuing to value her shares, and Mr. Brewer and Mr. Hubley

were working to come up with an agreement. She said that all she recalled was an

offer in May, and an issue about security later in the summer. She said that she did

not remember specific conversations or receiving any information from Mr. Hubley.

Nor did she recall being at his office. She did agree that they communicated by

phone several times a month.

[192] On cross-examination, however, the plaintiff agreed that in some respects

there was a fairly constant back and forth discussion and negotiation from May to

August. She also acknowledged that Mr. Hubley was in contact with her throughout

that process, and that he kept her well apprised of what was going on. However,

she had little recollection of their discussions, and said that she did not recall him

reviewing offers and counteroffers with her.

[193] Mr. Hubley’s timesheets indicated that during those months he spent over 16

hours with the plaintiff at 12 different meetings, and they spoke on the telephone at

least 26 times. His testimony and file documents provided specific details of the

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advice he gave her and the instructions he received during the negotiations with Mr.

Brewer and Mr. Newton.

[194] Mr. Hubley said that the plaintiff’s instructions throughout the negotiations

remained that she wanted a fair and quick settlement, but if she could not get that

she wanted to be sure that court proceedings were being advanced to minimize

delay. She told him that she was having some financial difficulty as she no longer

had the funds or the lifestyle that she had enjoyed during the marriage. Mr. Hubley

said that he was not aware of the steps being taken in the matrimonial litigation

during this time, but the plaintiff told him that she was in contact with Mr. Marzban.

[195] The plaintiff testified that apart from some discussion about setting a trial

date, she had few conversations with Mr. Marzban between May and August 2001.

She believed that Mr. Hubley kept Mr. Marzban in the loop on the negotiations. She

said that she did not talk to Mr. Marzban about how to proceed with her action

against Mr. Newton, but agreed that there were times when he applied pressure on

Mr. Newton by heating up the court process.

[196] Mr. Marzban testified that during the negotiations the plaintiff and Mr. Hubley

called him periodically to report on their status and seek his advice. His time

records show sporadic communication. Mr. Marzban said that there was some

“slippage” as he did not record all telephone calls, particularly when they were brief.

Mr. Hubley’s time records support that, as they record calls with Mr. Marzban that do

not appear in Mr. Marzban’s records. Mr. Marzban recalled little of the content of

these calls.

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[197] Mr. Hubley testified that on May 1, 2001 he and the plaintiff met with Mr.

Newton and Mr. Brewer to discuss an approach to the negotiations. He said that Mr.

Newton and Mr. Brewer agreed that they would negotiate on commercial principles,

and that they wanted to settle rather than go to court. They were firm that some

consideration for Mr. Newton’s income tax issues would be important in reaching a

settlement. Mr. Hubley said that he made it clear that they must negotiate on the

basis that the ABG was a going concern. They agreed that Mr. Hubley and Mr.

Brewer would meet as soon as possible to exchange their positions.

[198] The plaintiff testified that she could not recall this meeting, and denied that

she was involved in a discussion about negotiating using commercial principals.

[199] Mr. Hubley testified that on May 2, 2001 he met with the plaintiff to discuss

their negotiation strategy. He said that they spoke about Mr. Brewer’s stubbornness,

and the need to come up with arguments that would allow him to save face if he

moved from his liquidation position. They identified some strategies to accomplish

that.

[200] The plaintiff testified that she could not recall this meeting, but denied that

they discussed giving Mr. Brewer options to allow him to save face as a settlement

strategy.

[201] Mr. Hubley testified that on May 7, 2001 he met with the plaintiff and her

mother. He had prepared a detailed two-page analysis of the parties’ needs,

objectives and purposes as a guide for the negotiation. This defined the plaintiff’s

objectives as fair compensation and certainty of payment, and Mr. Newton’s

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objectives as affordability and flexibility. He also prepared a schedule outlining five

potential scenarios based on the numbers that had been discussed up to that point.

Mr. Hubley testified that he reviewed this analysis with the plaintiff and her mother to

ensure that the plaintiff knew how he was going to approach the negotiations. He

said that he told the plaintiff that, at the high end, he thought she could get close to

$1.7 million in a negotiation based on Mr. Harder’s top numbers, a tax concession

for Mr. Newton, and an acknowledgement of the $87,500 Start-up Loan.

[202] The plaintiff initially testified that this meeting on May 7, 2001 did not happen,

and said that her mother was never at a meeting with her and Mr. Hubley. Under

cross-examination, however, she did recall her mother being at a meeting, and

discussing some of the objectives set out in Mr. Hubley’s notes.

[203] Mr. Hubley and Mr. Brewer met on May 10, 2001. They did not discuss

numbers, but focused on the terms and conditions that would satisfy each side in a

settlement. The following day, Mr. Hubley sent Mr. Brewer a memo summarizing

their discussions, and setting out the terms that were necessary to satisfy the

plaintiff’s need for certainty of payment. These included a general security

agreement and holding her shares in escrow until full payment was made. The

memo proposed using asset sales to pay the plaintiff, and suggested limits on Mr.

Newton’s draws beyond a base salary of $10,000 unless the plaintiff received equal

payments. It stated a requirement for a significant down payment and stipulated that

the plaintiff would be paid the balance in monthly instalments of $5,000 + $0.75 per

cubic metre logged. It conceded that interest would not be payable on the

outstanding balance for two years. Finally, it raised the concern that Mr. Newton not

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divert logging activities from the ABG to Westwood after the settlement, thereby

limiting the plaintiff’s payments based on monthly logging revenue. Mr. Hubley

testified that he and the plaintiff knew that Mr. Newton had just incorporated

Westwood but they did not know what it was doing.

[204] Mr. Hubley said that he reviewed this memo with the plaintiff and discussed

the need for security, but at this point she was more concerned about the amount of

her settlement. She began to appreciate the importance of security as the

negotiations proceeded.

[205] The plaintiff testified that she could not recall discussing the issues set out in

this memo with Mr. Hubley.

[206] On May 18, 2001, Mr. Brewer called Mr. Hubley and told him that he was

concerned that the company could not afford Mr. Harder’s going concern value, and

that Mr. Harder had over-valued the Duke Point operation. He took the position that

the Start-up Loan was a family asset and said Mr. Newton would not repay it. He

asked for a list of all of the family assets from the plaintiff before the negotiations

went further.

[207] Mr. Hubley said that he asked the plaintiff to prepare a list of the family

assets, but told her several times that he did not know what her entitlements to those

would be. He understood that she was dealing with Mr. Marzban about them.

[208] The plaintiff prepared a list of the family assets of both parties, comprised of

real estate, vehicles, personal effects, and Westwood. She also listed their values,

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which totalled $605,000, including an estimate of $60,000 for Westwood, $80,000 for

equity in Mr. Newton’s new home, and $87,500 for the Start-up Loan. The plaintiff

agreed that Mr. Hubley gave her no advice about these personal, as opposed to

corporate, family assets. She gave the list to him, and he sent it on to Mr. Brewer.

[209] Mr. Hubley said that he and Mr. Brewer had agreed that he was to present an

offer. On May 24, 2001, the plaintiff left him a voice mail message that she would

accept $1.75 million for her share in the ABG.

[210] Mr. Hubley relayed that to Mr. Brewer, who replied that Mr. Newton did not

want to negotiate in two stages, and he wanted an all-inclusive number that included

all family assets. Mr. Hubley discussed this with the plaintiff on May 25, 2001, and

she told him she would accept $2 million for her interest in all of the family business

and personal assets. Mr. Hubley passed that on to Mr. Brewer.

[211] The plaintiff testified that she chose the $1.75 million figure on her own, and it

did not arise from a recommendation by Mr. Marzban or Mr. Hubley. She said that

she based it on the information she received from Mr. Harder, and it looked like a

good number to her. She agreed that when the other family assets were introduced

to the negotiation, she added another $250,000, and instructed Mr. Hubley to offer

an all-inclusive settlement of $2 million without any discussion or advice. She said

that she gave these instructions because she did not know how the legal process

worked, or what she should do, and she was not getting any help with it. She was

trying to do anything to come up with a settlement.

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[212] Mr. Hubley made an offer of $2 million to Mr. Brewer on May 25, 2001. Mr.

Hubley said that Mr. Brewer telephoned him and complained that the plaintiff was

not negotiating, as she was still stuck at $2 million. Mr. Brewer warned that unless

there was movement there was no sense in negotiating any further.

[213] Mr. Hubley said he discussed this with the plaintiff. They saw no point in

bidding against themselves by making another offer, and they agreed that Mr.

Hubley and Mr. Brewer should meet again.

[214] On May 28, 2001, Mr. Marzban’s office booked a five-day trial for the week of

January 14, 2002 in Vancouver on the plaintiff’s instructions.

[215] Mr. Hubley and Mr. Brewer had a lengthy meeting in June. Mr. Hubley said

that for the first time Mr. Brewer was willing to discuss valuing the plaintiff’s shares at

$1.3 million, but he wanted a deduction from that representing a tax concession for

Mr. Newton. He offered two different scenarios with respect to taxes.

[216] The scenario to which the plaintiff later agreed gave her approximately $1.08

million for her shares. She was to apply her available capital gains exemption of

about $400,000 to the share value of $1.3 million, so that only $900,000 of the

purchase price would be taxable. This would give Mr. Newton the benefit of

bumping up the adjusted cost base of the shares that he would receive from the

plaintiff. There would be a spousal rollover under s. 73 of the Income Tax Act,

R.S.C. 1985, c. 1 (5th Supp.) with respect to the remaining $900,000. Mr. Newton

would also receive a deduction of $220,000 from the purchase price, representing

the potential tax that he would have to pay on the $900,000 if he sold the company.

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[217] Mr. Hubley said that Mr. Brewer gave him Mr. Newton’s list of personal

assets, which totalled $278,000. The list did not include Westwood, Mr. Newton’s

new home, or the start-up loan. It did include $30,000 for the Midland Walwyn

Shares that the plaintiff had cashed in for $65,000 in June 2000 without Mr.

Newton’s knowledge. It also indicated that Mr. Newton would receive the Powell

River Property, as Mr. Brewer took the position that since it provided housing for the

ABG employees it was a company asset.

[218] Mr. Hubley said that after this meeting he prepared a two-page review of Mr.

Brewer’s offer and the remaining issues, and met with the plaintiff on June 25, 2001

to discuss these. Mr. Hubley said that he went through his notes with the plaintiff,

and explained that Mr. Brewer had moved significantly in accepting Mr. Harder’s

going concern value of $1.3 million. He explained the tax concession of $220,000

that Mr. Newton wanted. He told her that he thought that the ABG would pay

$55,000 toward her professional and legal fees. He set out their real property which

they proposed would be split equally. He showed her that all of this produced a total

of just over $1.8 million, which meant that they were getting close to the number she

wanted. He said that the plaintiff was happy about this.

[219] Mr. Hubley said they also discussed issues that still required resolution.

These included security, the value of the Midland Walwyn Shares, repayment of her

shareholder draws which were at $62,700, and a possible discount in the settlement

amount if Mr. Newton paid the plaintiff early.

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[220] At the bottom of Mr. Hubley’s handwritten review prepared for this meeting is

a note written in different handwriting that reads:

Dinyar: claim for alimony on management contract with WW? Can I reserve

my rights to alimony if I put a claim for alimony? He may say F- it? So I can

reserve for a later date.

[221] Mr. Hubley thought that the writing looked like the plaintiff’s, although he

could not be sure. He said that around that time she was thinking of whether she

would get spousal support. She told him at some point that she was not worried

about that as she could always go back and get support later, so he need not look

into it. Mr. Hubley said he would not have looked into it if she had asked him to, as

he had no idea how to deal with that issue. He told her to speak to Mr. Marzban

about support and she said that she would. Mr. Hubley said that he had only

discussed support with the plaintiff in a general way. She had asked him if he had

ever seen a settlement with no support paid, and he told her that one of his partners

had had a divorce settlement that did not include support.

[222] The plaintiff was shown Mr. Hubley’s notes from this meeting. She said that

she could not recall discussing many of the things they set out. She testified that it

was possible that Mr. Hubley sometimes discussed numbers and concepts that she

did not understand and therefore could not recall. She said that she often did not

even get the gist of what he was saying and that at one point she asked him a

question, and he became a little bit agitated because she did not understand.

[223] The plaintiff denied that Mr. Hubley explained to her that that the value for her

shares in the ABG was $1.3 million, and said that she did not know that until much

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later. She said that she did not recall discussing the tax issues with Mr. Hubley.

She said that she recalled something about Mr. Newton requiring concessions

around June 2001, but she did not remember agreeing to deduct $220,000 for tax to

achieve a deal, or that there was any tax concession in the ultimate settlement. Nor

did she recall discussing an issue with respect to the value of the Midland Walwyn

Shares. She denied that she wrote the note about alimony at the bottom of Mr.

Hubley’s notes. She had no explanation for that note, but was insistent that she

never discussed alimony with Mr. Marzban.

[224] Mr. Hubley and Mr. Brewer exchanged memoranda on June 25 and 26, 2001

that summarized the status of the negotiations. At this stage, they had agreed to the

share value and tax concessions, and to a number of elements in the payment plan.

Most of the issues related to personal property had been settled on the basis that

these assets, or the proceeds from their sale, would be split equally. Outstanding

issues included treatment of shareholder draws by both parties, payment of

professional fees, the Powell River Property, use of the plaintiff’s capital gains

exemption, security, interest, the role of Westwood, and the Midland Walwyn

Shares.

[225] Mr. Hubley met with the plaintiff on June 28, 2001 to discuss the status of the

negotiations. He said that at the conclusion of the meeting she instructed him to

continue to try and negotiate the numbers they were looking for.

[226] Mr. Hubley testified that the issue with the Midland Walwyn Shares was

ultimately resolved by a trade-off with the Powell River Property which they agreed

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had equity of $40,000. When Mr. Brewer pressed for further information about the

value of the Midland Walwyn Shares, Mr. Hubley said that the plaintiff instructed him

to drop her demand for the Powell River Property if Mr. Newton dropped his demand

for half of the proceeds from the sale of the shares.

[227] The plaintiff testified that she did not recall making any kind of deal to fix the

problem created by her unilateral sale of the Midland Walwyn Shares.

[228] Mr. Hubley testified that in early July the plaintiff told him that Mr. Newton had

said that it looked like things were going to settle and she was going to get $1.75

million. When Mr. Hubley mentioned this to Mr. Brewer, however, his response was

“not in your lifetime”. Later, Mr. Brewer called Mr. Hubley and told him that the

process was not working, that Mr. Newton could not afford to pay the plaintiff that

much money, and that Mr. Newton was “going logging”.

[229] The plaintiff recalled being told something to this effect by Mr. Hubley.

[230] Around this time, Mr. Hubley conceived the idea of a retiring allowance of

$145,000 as a possible means of avoiding Mr. Brewer’s demand that the plaintiff

repay her draws from the ABG, which by now were about $72,500. The retiring

allowance would let the plaintiff keep the draws, and allow the ABG a tax deduction

to the point that the company would be cash flow neutral. Mr. Hubley knew she did

not want to attract tax on any part of her settlement, and so he discussed the

concept with the plaintiff on the phone before proposing it to Mr. Brewer. He

explained to her that she could mitigate the tax consequences of the retiring

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allowance through the available room in her RRSP contributions, which was around

$100,000. He then sent Mr. Brewer a memo with this proposal on July 9, 2001.

[231] The plaintiff agreed at trial that she knew that her shareholder draws had to

be addressed in reaching a settlement, and that she understood that Mr. Hubley

negotiated a retirement allowance so that she did not have to pay them back.

[232] On July 12, 2001, Mr. Marzban sent Mr. Hubley copies of the documents that

the plaintiff had attached to her affidavit in April to enable Mr. Hubley to discuss Mr.

Newton’s personal draws from the ABG with Mr. Brewer.

[233] Mr. Hubley testified that he met with the plaintiff on July 13, 2001 to discuss

the status of the negotiations and the outstanding issues in light of the objectives

they had set in early May, and to obtain her instructions as to how she wanted to

proceed. He said that he prepared three pages of notes which he reviewed with her

at this meeting, and they covered the following:

a) The share value being discussed at that point was $1.3 million.

The plaintiff had $420,000 available to her in capital gains exemptions,

and after the tax concession of $220,000 to Mr. Newton she would net

$1.08 million for her shares. When her shareholder’s loan and bonus

were added, the total for her share of the ABG would be $1.672 million.

b) The plaintiff’s eligible RRSP room of $92,500 could be used to

reduce the tax on the retiring allowance received from the ABG.

c) The total cash that the plaintiff could anticipate at the end of the deal

would be $1,758,500, comprised of the settlement amount, the

retirement allowance, and her share of the personal assets, less her

draws and her share of professional fees.

d) The plaintiff had close to 94% of what they had thought they could

get, but security remained a significant issue to be raised in further

negotiations with Mr. Brewer.

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[234] With respect to the Start-up Loan, Mr. Hubley testified that Mr. Newton’s

position remained that it was a family asset. The plaintiff told him to negotiate as

best he could around the numbers they had, but ultimately they abandoned an

independent claim for this.

[235] Mr. Hubley said that at the end of the meeting, the plaintiff instructed him to

continue to negotiate and to try to improve on any of the items that he could. Mr.

Hubley also testified that during July, when he discussed the numbers with the

plaintiff, he always let her know that if she did not like where they were at, there was

the option of going to court to improve on the amount, and he directed her to talk to

Mr. Marzban if she wanted to do that.

[236] The plaintiff testified that she had no recollection of this meeting. When she

was shown Mr. Hubley’s notes, she denied that he presented them to her, or took

her through the numbers in them that represented the offer at that time. She

reiterated that it was possible that Mr. Hubley discussed a lot of numbers and

concepts with her during this time frame that she did not understand and therefore

does not recall.

[237] On July 13, 2001, Mr. Hubley telephoned Mr. Marzban to discuss the

difficulties he was having in getting security for the plaintiff, and to get some

guidance about what they might do to protect her if Mr. Newton decided to walk

away from the ABG and she could not be paid out. He said that Mr. Marzban

confirmed the importance of obtaining security.

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[238] Mr. Hubley testified that on July 16, 2001 Mr. Brewer told him that the

invoices regarding Mr. Newton’s personal expenses would be charged against his

shareholder’s loan. Mr. Hubley told the plaintiff, and she was not happy as she felt

Mr. Newton was benefiting from the company, but she did not alter her instructions

with respect to continuing the negotiations.

[239] On July 17, 2001, Mr. Hubley wrote a long memo to Mr. Brewer about the

plaintiff’s need for security. He reviewed the course of the negotiations and the

concessions made by the plaintiff to meet Mr. Newton’s needs. He said that now

she needed Mr. Newton to recognize her need for security. Mr. Hubley raised the

fact that despite Mr. Newton’s personal commitment to pay the settlement, current

economic issues in the forest industry could put her at risk. Mr. Hubley testified that

he discussed the issues in this memo with the plaintiff and told her he intended to be

as stubborn as he could on the security issue.

[240] On July 18, 2001, Mr. Brewer advised that security was not an option. He

said that the funds available to the plaintiff immediately under the present offer

placed her in a better position than if the company were liquidated.

[241] Mr. Hubley said that he met with the plaintiff on July 19, 2001. He said that

he explained to her that Mr. Newton was digging in his heels on security and they

needed to find a way around that, or they would not be able to settle.

[242] The plaintiff could not recall this meeting, although she did recall that there

was an impasse over security.

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[243] Mr. Hubley continued to discuss security with Mr. Brewer. However, on July

23, 2001, Mr. Brewer took the position that discussions had broken down. Mr.

Hubley said that the same day the plaintiff called and told him that she had

discussed security with Mr. Voith, and that he agreed that she should pursue it. Mr.

Hubley told her that the discussions had broken down, but he would come up with a

plan. He said that the plaintiff was disappointed, but understood it was in her best

interest to get security.

[244] The plaintiff testified that she did not recall discussing the matter of security

with Mr. Voith, and she thought that this was unlikely.

[245] Mr. Hubley testified that on July 24, 2001 he met with the plaintiff to discuss

security, as well as advancing the legal proceedings since it appeared they could not

get past the security impasse. He told her to talk to Mr. Marzban about this as he

could not advise her on legal issues.

[246] The plaintiff said she did not recall the option of going to court coming back

into the scenario at that time, or speaking to Mr. Marzban about this. She agreed

that she instructed Mr. Hubley to continue to speak to Mr. Brewer about a way to

solve the security problem.

[247] Mr. Hubley testified that Mr. Brewer called him on July 24, 2001 to discuss

parameters for winding up the ABG. Mr. Hubley said he believed that Mr. Brewer

was just posturing, but he spoke to Mr. Marzban about Mr. Brewer’s call.

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[248] Around this time, the plaintiff obtained documents from the ABG’s office that

indicated that Westwood was overdue in paying an invoice of over $486,000 to

Hayes Forest Services Limited for heli-logging at Pitt Lake in May and June, and that

J.S. Jones had sent a cheque to Westwood to cover this. The plaintiff claimed that

she did not read these documents beyond noting they had to do with Westwood, but

said that she gave them to Mr. Hubley as she thought they were significant. She

denied that she knew that Mr. Marzban could obtain additional information about

Westwood if she wished, and said she did not ask him about this. She said that no

one gave her advice about these documents.

[249] Mr. Hubley faxed the documents to Mr. Marzban on July 24, 2001. Mr.

Marzban believed that they showed that Mr. Newton was doing a fair bit of work

through Westwood, but they gave no indication of profitability. Mr. Marzban

remained of the view that Mr. Newton was entitled to go off and do his own thing.

His time records show a lengthy telephone call with the plaintiff and Mr. Hubley that

day, and he testified that he believed they discussed the significance of the

documents, but no action was taken.

[250] On July 27, 2001, Mr. Marzban delivered a formal notice of trial to Mr.

Mortimer, confirming the trial date of January 14, 2002 set earlier.

[251] Mr. Hubley said that on July 30, 2001 he met again with the plaintiff to provide

an overview of the financial aspects of the settlement. He gave her a typed analysis

demonstrating the cash flow impact of the various RRSP alternatives she could use

to demonstrate how the settlement was modified by the retiring allowance, and how

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much money she would receive at the end of the process. He said that they also

discussed the ongoing security issue, and he suggested that she speak directly to

Mr. Newton about it.

[252] By this point, the plaintiff and Mr. Newton were on good terms, and had even

resumed intimate relations. Mr. Hubley said that the next day the plaintiff told him

that Mr. Newton had agreed to grant security, and Mr. Hubley was to contact Mr.

Brewer to make the arrangements. Mr. Hubley did so. The end result was that Mr.

Newton provided security covering about 81% of the outstanding balance owed to

the plaintiff, primarily from a general security agreement over the ABG assets, and

mortgages on personal property owned by him.

[253] The plaintiff said she could not recall speaking to Mr. Newton in late July

about the issue of security, and denied that she had done so. She testified that the

issue was resolved by Mr. Hubley and Mr. Brewer.

[254] Once the issue of security was resolved, the remaining aspects of the

proposed settlement fell into place. Mr. Hubley testified that on August 14, 2001 he

faxed the plaintiff a three page summary of the proposed settlement, showing how

much she could expect to receive immediately, and the security she would have on

the outstanding balance.

[255] The terms dealing with proposed payments to the plaintiff indicated she would

receive a total of $1,771,000, prior to deductions for a portion of Mr. Harder’s fees,

and the anticipated RRSP contribution to cushion the tax liability related to the

retirement allowance. $1.6 million of that amount represented the purchase price of

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her interest in the ABG, comprised of $1.08 million for her shares, and $592,000 for

her shareholder’s loan and 2000 bonus. The balance of the settlement amount was

comprised of the retiring allowance of $147,500 and a contribution of $30,000

toward Mr. Harder’s fees. She was to receive $400,000 on signing the agreement.

The balance was payable by monthly instalments of $5,000 plus 75 cents per cubic

metre logged by the ABG, excluding logging done under the Westwood contract with

J.S. Jones. No interest was payable on the outstanding balance for the first two

years. Mr. Newton was to receive the Powell River Property. The proceeds from

the sale of the Matrimonial Home and the Lantzville Property were split equally.

Those amounts were not included in the $1,771,000 received by the plaintiff. The

proposal made no reference to spousal support. The settlement was subject to the

approval of GEC and HSBC pursuant to the ABG’s financing commitments.

[256] Mr. Hubley met with the plaintiff to review these terms. He said that he

explained to her that this was the best he could get for her in the negotiation, and

told her that if she had any issues about agreeing to it to let him know. Otherwise he

would tell Mr. Brewer that they had an agreement.

[257] The plaintiff testified that she recalled a meeting like this, but said that she did

not recall all of the numbers. She agreed that the deal presented to her on August

14, 2001 was consistent with what she had asked Mr. Hubley to negotiate for her.

[258] On August 20, 2001, the plaintiff told Mr. Hubley she would accept the

proposal. Both parties expected that the proposed settlement would be reviewed by

their respective lawyers. Mr. Hubley accordingly reported the settlement to Mr.

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Marzban, who advised him that they should retain a corporate lawyer to draft the

security and settlement documents. Mr. Hubley retained Mr. Thomas English to do

that.

[259] Mr. Hubley wrote to Mr. Brewer on August 23, 2001 confirming the terms of

the settlement.

September to December 2001 – the conclusion of the settlement

[260] Mr. Hubley testified that during September he had some further negotiations

with Mr. Brewer over the plaintiff’s draws, which were now over $80,000. She

remained upset with what she believed to be Mr. Newton’s use of company funds for

his own purposes, when her monthly payments of $5,000 from the ABG were not

sufficient for her living expenses. When Mr. Hubley asked Mr. Brewer about this he

remained firm that she must repay her draws, and reiterated that Mr. Newton’s

expenses were being charged back against his shareholder’s loan.

[261] On September 28, 2001, Mr. English provided a draft separation agreement

to Mr. Marzban, Mr. Hubley, and Mr. Moore, the ABG’s corporate counsel. This

included a release of spousal support by both parties, a term not included in the

settlement reached by Mr. Hubley and Mr. Brewer.

[262] On October 2, 2001, Mr. Marzban met with the plaintiff, her sister, and Mr.

Hubley in Nanaimo to review and discuss the draft agreement. The details of this

discussion are reviewed later in these Reasons. By way of summary, Mr. Marzban

said he went through the agreement clause by clause to ensure that the plaintiff

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understood the terms. He discussed the valuation, and questioned the exclusion of

spousal support and Westwood from the agreement. He said he did not make a

recommendation to the plaintiff with respect to whether she should accept the

settlement, but advised her that he felt that the terms were within the range of likely

outcomes. In essence, he told her that she could do better or she could do worse if

the matter proceeded to trial. Mr. Marzban said that at the end of the meeting the

plaintiff indicated that she was going to go with the settlement.

[263] The plaintiff testified that it was quite a long meeting, and she recalled

reviewing the agreement with Mr. Marzban clause by clause, but she could not recall

what he or Mr. Hubley said. She said that she thought that Mr. Marzban had drafted

the agreement and she understood that he was happy with it. He did not raise any

concerns about it and neither did she, although she agreed that she had the

opportunity to do so. She said that quite often she did not understand some of the

legal wording, but she did not question it. She said that she settled on these terms

as her advisors told her they were good. She said she was prepared to release her

claim to spousal support under the agreement as she understood that she was not

entitled to it, based on the advice she said she had received from Mr. Hubley.

[264] After the meeting Mr. Hubley and Mr. Marzban gave Mr. English comments

on the agreement that Mr. English incorporated into a new draft.

[265] On October 9 and 10, 2001, Mr. Brewer and Mr. Hubley had further

discussions about the plaintiff’s draws, as she had taken a further $8,000 from the

ABG. Mr. Hubley relayed Mr. Brewer’s concern to the plaintiff.

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[266] On Mr. Newton’s side, Mr. Mortimer testified that he discussed the final

settlement with Mr. Newton through Mr. Brewer and thought it was a good

settlement from the point of view of both parties. He did not believe that they could

have obtained this kind of structured settlement through the courts had the matter

been litigated and, as he understood it, there was not enough cash available in the

ABG for Mr. Newton to pay out the settlement as a lump sum.

[267] In the course of concluding the settlement, Mr. Mortimer requested that a

consent order be done incorporating the terms of the agreement and Mr. Marzban

agreed. The order was entered on January 10, 2002.

[268] On November 2, 2001, Mr. English met with Mr. Hubley and the plaintiff in

Nanaimo to review and execute the security and settlement agreements. He said he

went through the settlement agreement clause by clause with the plaintiff to ensure

that she understood its terms, and she executed it.

[269] The plaintiff said that she understood the basics of the agreement, but not the

legal wording. She said that she did not tell Mr. English or Mr. Hubley that, or ask

questions, since Mr. Marzban had already approved it, and she assumed her

advisors were working in her best interests.

[270] Mr. Newton obtained the approval of the GEC and HSBC to pay the down

payment of $400,000 to the plaintiff from his shareholder’s loan account in the ABG.

The plaintiff came to Mr. Hubley’s office to pick up that payment shortly after she

signed the documents. Mr. Hubley said that she was happy the ordeal had come to

an end, and she told him that she was happy with the settlement. He suggested to

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her that she had a decent amount of money, and that if she invested it properly and

took on employment, she could look after herself quite well in the future. He said

that the plaintiff replied, “You’re not my father, don’t tell me how to spend my

money.”

[271] The plaintiff recalled meeting with Mr. Hubley at his office to receive her

cheque but denied the exchange related by Mr. Hubley.

After 2001

[272] Mr. Hubley remained involved in overseeing the payments under the

settlement until the fall of 2003, when Mr. Brewer advised that Mr. Newton wanted to

pay out the plaintiff. She accordingly received the full payment of the settlement by

the end of October 2003.

[273] In mid-2002, the plaintiff consulted a lawyer with respect to commencing an

action against Mr. Newton to re-examine the settlement agreement or revisit the

issue of spousal support. That lawyer expressed concern about the merits of such

an application as the settlement had been merged into a court order.

[274] The plaintiff consulted a second lawyer who commenced a Supreme Court

action against Mr. Newton in October 2003 seeking to set aside or vary the consent

order and the settlement agreement. The statement of claim in that action includes

this statement:

The Defendant threatened and pressured the Plaintiff into signing the

agreement and consent order prior to disclosing all of the relevant

information and material facts regarding the Defendants assets. The

Newton v. Marzban

Plaintiff relied on the Defendants representations as to the nature of

Page 81

the value of the Defendants assets and financial position. At the

relevant times, the Plaintiff and Defendant had a special relationship

such that the Defendant influenced or controlled the Plaintiff to his

advantage.

[275] There is no evidence that the defendants were aware of threats or pressure

from Mr. Newton during the negotiations conducted by Mr. Hubley, or when the

settlement was concluded. At the time of this trial, the plaintiff had not proceeded

with that action.

OBSERVATIONS ON WITNESSES – THE CREDIBILITY OF THE PARTIES, THE

ABSENCE OF MR. NEWTON AND MR. BREWER

[276] Credibility is a significant issue in this case. Many of the plaintiff’s allegations

focus on advice and instructions given or not given, and her testimony about her

communications with the defendants diverged significantly from theirs. My views on

credibility play a significant role in my findings of fact.

[277] The plaintiff’s recollection of her dealings with the defendants was

significantly limited and often inconsistent. While some lapse of memory is

understandable when testifying about events that occurred six years ago, her

evidence in chief was remarkable for its gaps. For example, her account of events

jumped from the affidavit prepared in April to the final settlement in October with

almost no mention of the extended negotiations that took place in that time frame.

While cross-examination produced a somewhat fuller account of events, it also

revealed internal inconsistencies in her testimony.

[278] The plaintiff attempted to explain her lack of recollection by saying that she

was unable to understand many of the complex matters the defendants, and

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particularly Mr. Hubley, discussed with her and so cannot recall them. While that

might apply in some instances, it fails to explain her inability to remember the details

of almost every encounter she had with the defendants. Instead, I had the

impression that either she was so focussed on her “bottom line” throughout the

negotiations that she was not interested in nor attentive to the advice she received,

or that her lack of recollection is deliberate.

[279] The plaintiff’s limited memory of her communications with the defendants did

not prevent her from testifying with certainty as to advice the defendants failed to

give her. For example, she agreed that she could not recall what was discussed

during a lengthy meeting with Mr. Hubley on March 1, 2001. Yet, when it was

suggested that they talked about Mr. Harder’s role and the fact that she could

always pursue her claim through court, she adamantly denied this. Such evidence

appears selective and self-serving, and is difficult to accept.

[280] At times her evidence was demonstrably false. For example, she said that

she was the person who wrote “Dinyar” on notes Mr. Hubley made when speaking to

her on April 2, 2001. It is difficult to understand how that could be, as they were

talking on the phone. She also denied that she wrote a note about “Dinyar” and

“alimony” on Mr. Hubley’s notes of their June 25, 2001 meeting although that note,

written as it is in the first person, could only have been made by the plaintiff.

[281] At times, the plaintiff tried to avoid damaging admissions or explain

inconsistencies by quibbling over the use of particular words. For example, she

denied that she gave her advisors “permission” to do things on her behalf. When

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pressed, she acknowledged that she did give them instructions but said she did not

use the word “permission” in doing so. When challenged on her statement that she

never instructed anyone to negotiate for her, she said that she did not use the word

“negotiate”, but agreed that she asked some of her advisors to do things for her in

the context of the negotiations. She testified that she did not understand that she

could go to court as she did not know what the word “litigate” meant. I find that

statement incredible in the context of her extended matrimonial dispute.

[282] I am left with serious reservations as to the reliability and credibility of the

plaintiff’s evidence.

[283] By contrast, I found Mr. Hubley a credible, careful and straightforward

witness. He presented as a practical and conscientious advisor, with an organized

and detailed approach to both the events that transpired and his testimony about

them. He was quietly certain in his description of his dealings with the plaintiff, and

his evidence had no suggestion of embellishment. His memory was assisted and

supported by his comprehensive notes, time records, and the handwritten

presentations he had prepared specifically for his discussions with the plaintiff.

[284] I find that Mr. Hubley provided by far the most complete and accurate account

of the events. Where the plaintiff or the other defendants have given uncorroborated

evidence that is at odds with Mr. Hubley’s testimony, I prefer the evidence of Mr.

Hubley.

[285] Mr. Harder was methodical and clear in describing the steps he took to value

the ABG, and his dealings with Mr. Brewer and Mr. Newton. He was less clear in his

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account of his dealings with the plaintiff. He had a limited recollection of their

discussions, which was not greatly assisted by his abbreviated notes of those

encounters. For example, although he said he was concerned about confirming his

instructions during the conference call on April 2, 2001, he had no recollection of

what was discussed during the call. I nevertheless found him credible as to the

events he recalled. There were no significant internal inconsistencies in his

evidence, and I did not discern any attempt by him to reconstruct events in a manner

that assisted his defence.

[286] Mr. Marzban was also a credible witness, but his evidence was significantly

limited by his inability to recall many of his communications with the plaintiff and the

other defendants. He had virtually no written record of his instructions or the advice

he provided after his initial meeting with the plaintiff on October 25, 2000. Although

he was able to provide a detailed account of his own analysis of the legal issues that

arose during his retainer, it was difficult to discern how much of this he imparted to

the plaintiff. He was, however, straightforward in conceding these difficulties and

made no attempt to fill in the gaps in a self-serving manner.

[287] Mr. Newton and Mr. Brewer did not give evidence. Statements reportedly

made by them to others were admitted by agreement of counsel, on the

understanding that they are relevant to the state of mind of other witnesses, but not

admissible for their truth. No adverse inference can be drawn from their absence

since they were adverse in interest to all of the parties to this action during the

matrimonial dispute. Nevertheless, their absence creates a difficulty in reaching

reliable conclusions on some of the issues before me.

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THE NATURE OF THE PLAINTIFF’S MATRIMONIAL CLAIM

[288] I find it useful to define at the outset the elements of the plaintiff’s matrimonial

claim against Mr. Newton, which provided the context for the defendants’ actions,

and for my analysis.

[289] The plaintiff advanced a claim for division of family assets under Part 5 of the

F.R.A. and for spousal support under s. 15.2 of the Divorce Act.

[290] There were two main issues with respect to the assets. The first was the

value of the ABG. It was the Newtons’ major asset, and its valuation was the most

significant and contentious issue between them. The second was whether

Westwood, Mr. Newton’s new corporate endeavour, had a role to play in the

plaintiff’s claims.

[291] The rest of the family assets were comparatively minor, and it was evident

early in the dispute that the parties agreed on their values and that they would be

divided equally. The only exception was the allocation of the Powell River Property

to Mr. Newton, and the Midland Walwyn shares to the plaintiff, an exchange that

operated to her benefit in terms of their respective values. Given the limited and

uncontroversial role that these assets had, I have not considered them in my

analysis.

[292] The plaintiff also advanced a claim for spousal support. All of the lawyers

who testified at this trial held the view that at the time of the plaintiff’s matrimonial

dispute, the law was clear that her entitlement to support could only be determined

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after the result of the division of assets was known. The decision in Newson v.

Newson (1993), 78 B.C.L.R. (2d) 35 (C.A.) had established a strong line of authority

to the effect that, if a spouse received assets of substantial value, this often

precluded an award for spousal support, particularly where there were no

considerations of ill health, no children, and the spouse was able to work.

THE ALLEGATIONS AGAINST THE DEFENDANTS

[293] The parties agree that there can be concurrent liability in contract and tort for

professional negligence: Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147 at paras.

49-53.

[294] They are also in substantial agreement as to the elements that must be

established to succeed in an action for professional negligence. John A. Campion &

Diana W. Dimmer, Professional Liability in Canada, looseleaf (Toronto: Carswell,

2007) at 3-18 [Campion & Dimmer] summarize these as follows:

1.

2.

A duty of care exists between the defendant and the plaintiff;

There has been a breach of that duty in that the defendant’s

conduct is negligent or in breach of the standard of care

required of him;

3.

4.

Damages have been suffered by the plaintiff which have been caused

by the conduct of the defendant; and

That damage is reasonably foreseeable as arising from the

defendant’s conduct or in other words the damages are not too remote

a result of the defendant’s conduct.

[295] Each defendant has appropriately conceded that he owed a duty of care to

the plaintiff. My analysis therefore begins with an examination of the standard of

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care, and whether any of the defendants breached the standard applicable to him in

his dealings with the plaintiff.

General legal principles with respect to the standard of care for all

professionals

[296] The standard of care defines the degree or content of the duty of care: Ryan

v. Victoria (City), [1999] 1 S.C.R. 201 at para. 25. It guides the court in determining

whether a defendant’s particular act or omission breached that duty.

[297] The standard of care imposed on all professionals shares a common core,

described in Campion & Dimmer at 3-26:

A professional is required to exercise reasonable care, skill and

knowledge in the performance of the professional service which has

been undertaken. Thus, the professional will be judged by what is

reasonable and appropriate to expect of a professional in the same

calling exercising reasonable care and skill in similar circumstances.

The standard of care is an objective one and it will not be sufficient to

disprove negligence if the professional simply proves that he did the

best that he was able to based on his skill and knowledge in the

circumstances.

[footnotes omitted]

[298] While that standard is refined by the characteristics and responsibilities

associated with the defendant’s particular profession, key common principles

nevertheless emerge from the authorities.

[299] First, the terms of the professional’s engagement inherently inform the

applicable standard of care and what is expected from that professional: Nussbaum

v. Rajesky (1988), 3 R.P.R. (2d) 108 at paras. 12-17 (Ont. H.C.), aff’d (1991), 16

R.P.R. (2d) 78 (Ont. C.A.); Fasken, Campbell, Godfrey v. Seven-Up Canada Inc.

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(1997), 142 D.L.R. (4th) 456 at para. 59 (Ont. Gen. Div.), aff’d (2000) 182 D.L.R.

(4th) 315 (Ont. C.A.); and Krabbendam v. Brito (November 10, 1998), Vancouver

C961170, at para. 9.

[300] Second, a professional will not be found liable for an error in judgment unless

that error was one that an ordinarily competent professional in the same field would

not have made: Nichols v. Warner, 2007 BCSC 1383 at para. 106 [Nichols].

[301] Third, institutional professional standards or customs provide some evidence

of the standard of care, but are not conclusive: Kripps v. Touche Ross & Co.

(1997), 33 B.C.L.R. (3d) 254 at para. 73 (C.A.).

[302] Fourth, the standard of care will be judged on the standards in place at the

time of the relevant events, and not with the benefit of hindsight: ter Neuzen v.

Korn, [1995] 3 S.C.R. 674 at para. 47.

[303] Elements of the standard of care applicable to the different professions of

each of the defendants will be discussed later in these Reasons.

Defining the Allegations against the Defendants

[304] Defining the precise allegations against the defendants, particularly Mr.

Harder and Mr. Hubley, has been difficult for three reasons.

[305] First, during the trial the plaintiff pursued a number of allegations in addition to

those set out in the Statement of Claim. Some of these were put forward by Mr.

Barbour, the plaintiff’s expert, who testified to the standard of care of a chartered

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accountant and chartered business valuator. Others arose for the first time during

the cross-examination of the defendants.

[306] The law is clear that the pleadings must define the issues between the

parties, so that they may know the case to be met, and the court may know the

matters to be determined: Brook v. Wheaton Pacific Pontiac Buick GMC Ltd.,

2000 BCCA 332 at paras. 22-24; Homalco Indian Band v. British Columbia

(1998), 25 C.P.C. (4th) 107 at paras. 5-6 (B.C.S.C.). I have accordingly limited my

analysis to those allegations set out in the Statement of Claim.

[307] Second, paragraphs 26, 28(a), 32, and 36 of the Statement of Claim state

that damages may be measured in two ways: first, the difference between the

settlement that the plaintiff obtained and a more advantageous settlement; and

second, the difference between the settlement obtained and the judgment that the

plaintiff could have obtained and executed upon after a trial.

[308] During her closing argument, however, the plaintiff effectively conceded that

she could not establish that a better settlement was available, given the

intransigence of Mr. Newton and Mr. Brewer, and the multitude of factors at play in

the negotiations. I find that the evidence clearly supports that view. There was

nothing to indicate that some act by any of the defendants would have achieved a

more advantageous settlement. The multiplicity of variables, and the absence of

testimony from Mr. Newton or Mr. Brewer as to their side of the negotiations, make it

impossible to determine what other outcome might have been available through the

negotiations.

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[309] This means that the plaintiff’s claim is based on her decision to settle rather

than go to trial. Only those allegations that are related to that decision and to her

state of mind when she made it are relevant. In my view, these fall into two main

categories: allegations that the defendants omitted key steps in investigating her

claim and so were not in a position to fully inform her; and allegations that they gave

her erroneous or inadequate warnings and advice that led her to choose settlement

instead of trial. My analysis deals only with the allegations that fall into one of those

categories.

[310] Third, the pleadings with respect to Mr. Harder and Mr. Hubley, set out at

paragraphs 34-38 of the Statement of Claim, include uncommonly broad allegations.

Paragraphs 34 to 36 set out the general allegation that Mr. Hubley breached the

standard of care of a chartered accountant in his advice to and representation of the

plaintiff. Paragraph 37 states that the particulars of his breaches are the same as

those alleged against Mr. Harder in paragraph 30 and Mr. Marzban in paragraph 27.

Further complexity arises from paragraph 38 which reads:

In the premises, as Mr. Harder and Mr. Hubley undertook and

did advise and represent Ms. Newton in relation to her ongoing

matrimonial dispute and the Settlement, Mr. Harder and Mr. Hubley

were subject to and owed Ms. Newton the same contractual duties and

duty of care measured to the standards of a reasonably competent

solicitor as alleged herein against Mr. Marzban, and further, breached

such standards of care in the same manner as alleged against Mr.

Marzban, thereby causing Ms. Newton damage, loss and expense.

[311] In effect, the plaintiff says that in acting as her advisors and representatives

during her matrimonial dispute, Mr. Hubley and Mr. Harder assumed a role properly

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performed by a lawyer, and should accordingly be judged against the standard of

care of a reasonably competent solicitor. In support of this position, the plaintiff

relies on the decision of Cohen J. on a pre-trial motion brought by Mr. Hubley to

strike an earlier version of similar pleadings: Newton v. Newton, 2005 BCSC 1880.

Mr. Justice Cohen dismissed the motion, relying on the decisions in Drabinsky v.

KPMG (1998), 41 O.R. (3d) 565 (S.C.J.), and Bolkah v. KPMG, [1998] E.W.J. No.

2937 (C.A.) Those cases dealt with the standard of care applicable when an

accounting firm accepted an engagement to conduct a forensic investigation

involving a former client. Mr. Justice Cohen stated at para. 16:

What I take from these authorities is the general principle that if

a chartered accountant holds himself out as possessing special skill

and knowledge to provide forensic accounting services then he

undertakes to use care, knowledge and skill in providing those

services. That is his clear professional duty to the client. However, in

certain circumstances, the fair and reasonable standard of care and

competence to be applied to determine whether the chartered

accountant's duty has been met may be that of a solicitor.

[312] I do not agree that this statement serves to import the particulars of breaches

alleged against Mr. Marzban to Mr. Hubley and Mr. Harder, or the particulars alleged

against Mr. Harder to Mr. Hubley. The cases relied on by Mr. Justice Cohen dealt

with issues of confidentiality and breach of fiduciary duty that are common to both

the legal and accounting professions. Particulars of professional negligence, on the

other hand, typically introduce standards related to the diverse training and

experience of each of these professions.

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[313] I accept that there are areas in which the duties of these professionals may

overlap. For example, the rules of the Institute of Chartered Accountants of British

Columbia (the “ICABC”) govern both Mr. Harder and Mr. Hubley. Rules 201.5 and

213.2 permit accountants to serve as advocates for clients, but prohibit advocacy

that constitutes the practice of law. Thus, if Mr. Hubley and Mr. Harder, as chartered

accountants, act as a client’s advocate in negotiating a commercial settlement, their

role may mirror that of a solicitor. I do not agree, however, that their actions will

therefore be judged by the standard of a solicitor. As long as their activities remain

within the realm of accounting expertise, they will be judged against the standard of

their own profession, which is informed by the training and expertise of that calling.

[314] Should they venture beyond their expertise and purport to provide legal

advice in the course of commercial negotiations, I do not interpret Mr. Justice

Cohen’s decision as importing a solicitor’s standard of care to measure that advice.

Such an interpretation would make little sense. For example, many of the particulars

of negligence related to Mr. Marzban are allegations related to actions that only a

lawyer can perform, such as a failure to conduct an examination for discovery, or

prepare for trial. Mr. Harder and Mr. Hubley are clearly not qualified to perform such

services. If they undertook them, there would be no reasonable expectation that

they would do so to the standard of a reasonable solicitor. Instead, they would be in

breach of the standard of care of their own profession for venturing beyond their

expertise. The breach would lie in doing such work at all.

[315] Finally, many of the allegations against Mr. Marzban in paragraph 30 deal

with his failure to take action as a solicitor. It is nonsensical to allege that Mr. Harder

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or Mr. Hubley was negligent in failing to act as a solicitor when they were not

qualified to do so.

[316] I conclude that the plaintiff’s attempt to impose the entirety of the solicitor’s

particulars in paragraph 27 on Mr. Hubley and Mr. Harder, and the chartered

business valuator’s particulars in paragraph 33 on Mr. Hubley, is ill-conceived.

Having said that, I acknowledge that where some of those particulars cover areas of

common expertise, they should be dealt with.

[317] The three issues I have outlined in this section guide my selection of the

allegations that must be addressed with respect to each defendant later in these

Reasons.

THE ALLEGATIONS AGAINST MR. HARDER

[318] The plaintiff’s allegations against Mr. Harder centre on the thesis that no

reasonable chartered business valuator would have valued the shares of the ABG at

his figure of $2,635,000. She argues that this valuation significantly underestimated

the value of the shares, resulting in a settlement that Mr. Newton was prepared to

accept. She says that if Mr. Harder had performed his valuation to the standard

expected of a reasonably competent business valuator, he would have produced a

higher value, rendering settlement unlikely. She would have then proceeded to trial

with that valuation and obtained a judgment well in excess of the settlement amount.

[319] Paragraph 33 of the Statement of Claim sets out the particulars of negligence

alleged against Mr. Harder. There is some overlap in these. As discussed above,

there is also the question of whether some of the particulars alleged against Mr.

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Marzban in paragraph 27 should be imported to Mr. Harder by virtue of paragraph

38. Having considered these matters, I am satisfied that the following list, cross-

referenced to the relevant paragraphs in the Statement of Claim, fairly summarizes

the allegations against Mr. Harder and the manner in which the case against him

was presented and defended at trial:

1.

2.

Failing to give appropriate advice about and selecting an

inappropriate valuation date of October 30, 2000 [para. 27(l)];

Relying on advice and information about the ABG from Mr.

Brewer without question, and failing to obtain all necessary

information for his valuation [paras. 33(g) and (i)];

3.

Failing to consistently endorse the valuation of the ABG as a

going concern, rather than on a liquidation basis, in particular,

failing to use an appropriate equipment appraisal consistent with

a going concern premise, and failing to advise the plaintiff of the

implication of these matters [paras. 33(d) and (h)]. In particular:

(a)

(b)

(c)

rejecting the AA Appraisal without a proper investigation

[para. 33(b)];

failing to obtain an appraisal based on the premise of fair

market value in continuing use [para. 33(h)];

relying on the Ritchie Bros. Appraisal which used an

auction premise inconsistent with valuation as a going

concern [paras. 33(b), (d) and (j)];

(d)

(e)

failing to properly reconcile the differences in the asset

list provided by Mr. Newton and Mr. Brewer, the AA

Appraisal, and the Ritchie Bros. Appraisal [para. 33(e)];

and

failing to give appropriate advice to the plaintiff about an

equipment appraisal to be used in his valuation [paras.

33(c) and (h)];

4.

5.

Failing to take into account the equity held by the ABG in leased

equipment [para. 33(f)];

Failing to discount the tax shield foregone [para. 33(a)];

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6.

Inappropriately taking on the role of an advocate in relation to

the plaintiff’s matrimonial dispute and settlement [para. 38].

The law with respect to the standard of care of a chartered business valuator

[320] Decisions dealing with the standard of care applicable to valuators and

appraisers acknowledge that these professions deal with matters of art rather than

science, and that variations in their conclusions are therefore common.

Nevertheless, their judgements must be exercised within acceptable standards of

skill and expertise, and be based on rational assumptions: Phelan v. Realty World

Realty Ltd. (1994), 38 R.P.R. (2d) 128 at para. 57 (B.C.S.C.); Kokanee Mortgage

MIC Ltd. v. Concorde Appraisals Ltd., 2000 BCSC 1197 at paras. 51-55.

[321] This view was expressed in a context somewhat similar to this case in

Debora v. Debora (2006), 83 O.R. (3d) 81 (C.A.). At para. 51, Weiler J.A. made

this observation about a valuator engaged in calculating the value of shares held as

family assets:

In both corporate law and family law, where the goal is to determine

the fair market value of the business, perfect accuracy is impossible.

As Viscount Simon wrote in Gold Coast Selection Trust Ltd. v.

Humphrey (Inspector of Taxes), [1948] A.C. 459 [1948] 2 All E.R. 379

(H.L.) at p. 473 H.C., "Valuation is an art, not an exact science.

Mathematical certainty is not demanded, nor indeed is it possible." The

valuator must make assumptions as to how a prospective purchaser

would have evaluated the business based on the purchaser's

knowledge at the time in question and the amount of risk the purchaser

would likely have been willing to assume concerning a lawsuit.

Hindsight information is not admissible on the question of whether that

assumption was correct but, as indicated in Ford, supra, it can be used

to test whether that assumption was reasonable.

[emphasis in original]

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Expert evidence with respect to the standard of care

[322] Mr. Daniel Barbour, an experienced chartered accountant and chartered

business valuator with extensive forensic background, prepared four reports and

testified as an expert witness on behalf of the plaintiff. His Report #1 dealt with the

standard of care of a chartered business valuator. His Report #2 was critical of Mr.

Harder’s valuation, and sets out an alternative valuation of the ABG in the amount of

$7,586,972 as of October 30, 2000, based on an appraisal prepared by Springer

Appraisal and Consulting LLC (the “Springer Appraisal”). His Report #3 dealt with

the standard of care of a chartered accountant. His Report #4 calculated the

potential increase in value of the ABG as at October 31, 2001, and the financial

impact of Westwood on the earnings of the ABG.

[323] The defendants challenged the admissibility of these reports and mounted a

full scale attack on Mr. Barbour’s credibility. Following a voir dire, I ruled some parts

of Report #1 and Report #3 inadmissible as they did not set out the assumptions on

which his opinions were based, as required by Rule 40A of the Rules of Court. The

balance of Mr. Barbour’s evidence was then accepted as evidence on the trial by

consent.

[324] I will not recount the details of the challenges made to Mr. Barbour’s

credibility by the defendants. I do not accept the validity of all of them. Some,

however, lead me to approach his evidence with caution.

[325] Mr. Barbour was retained in December 2003, at an early stage of the

plaintiff’s investigation of the defendants. It became clear during his evidence that

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over the course of time, in preparing for this litigation, he relinquished the limited role

of an independent expert and entered the realm of advocacy, providing strategic

advice to the plaintiff and her counsel, and adjusting his opinion for tactical reasons.

His demeanour during cross-examination enforced this impression. He was at times

evasive and argumentative, conduct that is not expected of an impartial expert. I

weigh his evidence against that of the defendants’ experts with this in mind.

[326] As well, despite his familiarity with the court process, Mr. Barbour’s Reports

#1 and #3, dealing with the standard of care, contained virtually no statement of

assumed facts. He rejected a statement of facts provided to him by the plaintiff’s

counsel, and instead, on his own initiative, prepared generic reports based on a

hypothetical chartered business valuator and chartered accountant, practising in

essentially a factual vacuum. The reason for his reticence was unclear, particularly

when it was apparent during cross-examination that Mr. Barbour was extremely

familiar with the factual background to the plaintiff’s claims. Mr. Barbour testified

that he did not like to see Mr. Harder’s name in a critical context, and so wrote in

general terms. That explanation is difficult to understand, and leaves one to wonder

why Mr. Barbour would choose to undertake this case if he did not wish to be critical

of Mr. Harder. The defendants argued that this tactic was a deliberate attempt by

Mr. Barbour to shield his opinions from cross-examination. While I am not prepared

to make that finding, I do conclude that his superficial approach to the facts was

inappropriate and unhelpful, and significantly limits the weight to be placed on his

opinions. I will return to Mr. Barbour’s credibility on specific issues later in these

Reasons.

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[327] The defendants called three chartered business valuators as expert

witnesses, who each reached his opinion independently of the others. Mr. Michael

Bowie has practised in this field for over 25 years, and has had experience with

valuations in both logging and matrimonial contexts. His opinion was based on a

lengthy statement of assumed facts, and I found his evidence thoughtful and

credible. Mr. Bowie admitted that he knows Mr. Harder quite well, as a “friend in a

professional context”, but nevertheless testified that he believed he could be

objective in his evidence. I have scrutinized his evidence with some care, due to

that relationship.

[328] Mr. Clayton Schultz, who has been a chartered accountant since 1971, and a

chartered business valuator since 1980, gave evidence for the defence with respect

to both Mr. Harder’s valuation and the standard of care of a chartered accountant,

based on an extensive statement of assumed facts. Mr. Schultz has had

considerable experience with the coastal logging industry, and in providing

accounting and valuation services in the context of matrimonial disputes. He did not

know Mr. Harder as well as Mr. Bowie did. I found his valuation evidence credible

and helpful.

[329] The third valuation expert called by the defendants was Mr. Michael

Cheevers. He has been a chartered business valuator since 1995, although more

than half of his work is in the insolvency field. Mr. Cheevers had not testified as an

expert before, but his evidence was straightforward, and I have no reason to doubt

his credibility. Any limitations in his opinion arise from the fact that its factual basis

was limited to the ABG financial statements.

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Introduction to Mr. Harder’s Valuation

[330] I find that Mr. Harder was engaged on December 21, 2000 with the

concurrence of the plaintiff and her advisors. All agreed that a valuation of the ABG

was integral to the resolution of her matrimonial dispute. I find that he was retained

as an independent expert to provide an objective valuation of the ABG shares, not

as an advocate for the plaintiff to obtain the highest share value possible.

[331] I am satisfied that the plaintiff retained Mr. Harder directly by signing his

engagement letter on January 26, 2001, and that she understood its terms after

reviewing them with Mr. Hubley. I am also satisfied that, for reasons of convenience

and with her consent, Mr. Hubley generally acted as the plaintiff’s agent in her

dealings with Mr. Harder

[332] Mr. Harder was engaged to provide an estimate as to the “en bloc fair market

value” of the shareholder interests in the ABG. Mr. Barbour and Mr. Harder agreed

that this was the appropriate method to use in valuing the business for matrimonial

purposes, and concurred that Mr. Harder’s engagement letter set out the approved

definition of “fair market value” used by the CICBV:

The highest price, expressed in terms of cash equivalents, at which

property would change hands between a hypothetical willing and able

buyer and a hypothetical willing and able seller, acting at arm’s length

in an open and unrestricted market, when neither is under compulsion

to buy or sell and when both have reasonable knowledge of the

relevant facts.

[333] It was common ground that there are two valuation approaches to

ascertaining fair market value: liquidation value and going concern value. The

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former is used when the highest value will be obtained by winding up the business

and selling its assets. Mr. Harder and Mr. Barbour agreed that the CICBV approves

this definition of liquidation value:

The net amount that would be realized if the business is terminated

and the assets are sold piecemeal. Liquidation can either be orderly or

forced.

[334] A going concern premise is used to value a viable business that will continue

operations. The CICBV defines going concern value as:

The value of a business enterprise that is expected to continue to

operate into the future. The tangible elements of going concern value

result from factors such as having a trained work force, an operational

plan, and the necessary licences, systems and procedures in place.

[335] Mr. Harder and all of the expert valuators who testified agreed that it was

appropriate to value the ABG on a going concern basis as that was likely to produce

the higher value.

[336] As well, all agreed that Mr. Harder correctly used a tangible asset backing

methodology in valuing the ABG. An income-based approach was not appropriate

because the cyclical nature of the logging industry and the impossibility of predicting

future income from logging contracts made it difficult to detect any discernible trend

to the ABG’s future earnings. A tangible asset backing approach requires

determination of the net value of the tangible and identifiable intangible assets of the

business, representing the fair market value of those assets less associated

liabilities. It also requires an allowance for loss of the tax shield resulting from the

assumed purchase of shares rather than assets.

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[337] Mr. Harder gave extensive evidence about how he proceeded with his

valuation. The primary assets to be valued were logging equipment, land and

buildings, and road building and logging contracts. By far the most valuable was the

equipment. Mr. Harder relied on the Ritchie Bros. Appraisal for the equipment value

of the pieces it covered. For those items not included in that appraisal, he assigned

values based primarily on net book value. The resulting value for the ABG

equipment in his valuation was $4,889,800. The appraisal of the real estate was

straightforward. Where information was available, he used an EBITDA (earnings

before interest, taxes, depreciation and amortization) analysis to value the logging

and road-building contracts and to assess the earning power of each of the ABG

companies. Mr. Harder calculated a deduction of $724,900 for the tax shield

foregone. He concluded that the shares of the ABG had a fair market value of

$2,635,400.

[338] Mr. Barbour took issue with only two aspects of Mr. Harder’s valuation, but his

criticisms, if accepted, would increase the value of the ABG shares by almost $5

million. First, he attacked Mr. Harder’s reliance on the Ritchie Bros. Appraisal in

assigning a value of $4,889,800 to the equipment in his valuation. He said that Mr.

Harder instead should have relied on an equipment appraisal based on the higher

value premise of fair market value in continued use, such as the Springer Appraisal,

which valued the equipment at $10,790,000. Second, it was his view that the tax

shield foregone, which represented a deduction of $724,900 from the share value in

Mr. Harder’s tangible asset backing calculation, should have been discounted by

50%. In his Report #2, Mr. Barbour concluded that correcting these two errors in the

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tangible asset backing calculation would place the fair market value of the ABG

shares at $7,586,972.

[339] I turn to consider each of the allegations raised against Mr. Harder.

Inappropriate selection of October 31, 2000 as the valuation date

[340] It was common ground that selection of the valuation date can be strategic.

The plaintiff was critical of Mr. Harder for unilaterally choosing October 31, 2000

without consultation with Mr. Marzban, and for failing to obtain updated financial

information as the negotiations proceeded.

[341] I find no support for this allegation. All of the expert valuators, including Mr.

Barbour, supported the choice of October 31, 2000 as the last fiscal year end of the

ABG. Mr. Marzban knew that Mr. Harder had chosen this date when he received a

copy of his engagement letter, and testified that this was the reasonable choice.

The ABG financial statements for 2000 had just become available in mid-January as

Mr. Harder commenced his work.

[342] With respect to obtaining updated financial information before the settlement,

Mr. Harder’s engagement effectively ended when he delivered his memorandum of

April 20, 2001. He had no involvement in the ensuing negotiations, and received no

further instructions. He cannot be held responsible for a failure to update the

valuation in these circumstances, and I find that he did not breach the standard of

care in this respect.

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Reliance on Mr. Brewer for financial disclosure with respect to the ABG, and

failure to obtain all necessary disclosure

[343] Mr. Marzban instructed Mr. Harder to obtain the financial disclosure

necessary to complete his valuation directly from Mr. Brewer. The consensus of the

legal and valuation experts was that it is a common and useful practice to have a

valuator deal directly with the company’s financial officer to obtain such information.

If the valuator encounters difficulties, he or she typically reports these to counsel

who decides if steps should be taken within the legal process to obtain sufficient

disclosure.

[344] This practice is reflected in the standards of the CICBV in place in 2000 and

2001. General Standard No. 120 III and V stated that a valuator must obtain

sufficient evidence to ensure that the valuation report and conclusion are properly

supported. Determining the extent of evidence necessary is described as a matter

of professional judgment. If access to essential information is denied or unavailable,

the valuator must clearly indicate any related qualification or limitation in the

valuation report.

[345] The plaintiff argues that Mr. Harder failed to obtain and review all documents

necessary for his valuation. Instead, he simply accepted information from Mr.

Brewer at face value, and did not treat it with the scepticism appropriate to material

obtained from an advocate for Mr. Newton. Nor did he follow up on outstanding

requests for information with Mr. Brewer, tell Mr. Marzban about these, or mention

them as a limitation in his memorandum of April 20, 2001. The plaintiff alleges that

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Mr. Harder’s timidity arose in part from his fear of Mr. Newton’s association with the

Hells Angels.

[346] The plaintiff provided a long list of documents that she says Mr. Harder

should have obtained from Mr. Brewer or third parties. These include records of the

ABG’s transport business, the shake and shingle business and chipper plant; scaling

records; the Duke Point lease; additional information on market logging; documents

related to the ABG’s attempt to sell its Sewell road-building contract for $250,000 in

August 2000; equipment leases and purchase agreements; and records of financial

institutions related to the ABG refinancing in 2000.

[347] I deal with the documents related to equipment leases later in these Reasons.

With respect to the balance of the plaintiff’s complaints, I am satisfied that the

question of obtaining adequate financial disclosure for a valuation is a judgment call,

left to the discretion of the valuator by his professional body. Mr. Harder agreed that

it can be difficult to obtain information when dealing with the person who controls the

business, as he has all the cards in his hands. He also conceded that Mr. Newton’s

reported association with the Hells Angels was a concern, and he may not have

pushed as hard in the fact-gathering process as a result. Nevertheless, it is

apparent that he obtained hundreds of pages of material from Mr. Brewer, and that

he had sufficient information to permit him to prepare his valuation estimate without

any stated limitations related to missing material. As well, Mr. Newton reported to

the plaintiff and Mr. Hubley that Mr. Harder was overly confrontational in his dealings

with Mr. Brewer. This suggests that any caution on Mr. Harder’s part was not

apparent to the opposing side.

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[348] It is an easy thing for the plaintiff to list other documents that could have been

obtained but, in my view, unless she can demonstrate that information material to

Mr. Harder’s valuation was overlooked, or deliberately withheld to his knowledge,

Mr. Harder’s professional judgment as to the sufficiency of financial disclosure meets

the standard of care.

[349] I find no evidence to support a finding that Mr. Harder had any reason to

suspect that Mr. Brewer deliberately misrepresented or withheld information that was

material to the valuation. The requests to him that were outstanding at the time Mr.

Harder prepared his estimate related to historical market logging data, an analysis of

which equipment was necessary to perform each Bill 13 contract, and a business

plan for financing. Mr. Harder testified that Mr. Brewer told him the first two did not

exist.

[350] At trial, the plaintiff produced only a few of the documents from the list that

she says Mr. Harder should have obtained. She did not produce the business plan

for financing requested from Mr. Brewer. Thus there is no evidence that it contained

information that would have had a bearing on the valuation.

[351] Exhibit 26 is a binder of HSBC documents related to the ABG’s refinancing

applications in 2000. The plaintiff argues that these demonstrate that HSBC

accepted the validity of the AA Appraisal in offering to provide financing of up to $4.7

million to the ABG, and suggest that Mr. Harder should have done so as well. I deal

at length with Mr. Harder’s rejection of the AA Appraisal later in these Reasons. For

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the reasons set out there, I am unable to find HSBC’s acceptance of the AA

Appraisal would have affected his judgment on that issue.

[352] The plaintiff also argues that the HSBC documents contain positive

representations as to the ABG value put forward by Mr. Brewer in his efforts to

obtain financing. These were not put to Mr. Harder during his cross-examination,

and I find it difficult to understand what use he could have made of them in the

context of his valuation. Had he raised them with Mr. Brewer, it is reasonable to

infer that Mr. Brewer’s response would have been similar to his view of the AA

Appraisal: they were made for the purpose of financing, and had no relevance to the

resolution of Mr. Newton’s matrimonial dispute. While they might have been useful

to cross-examine Mr. Newton or Mr. Brewer at a trial, it was not Mr. Harder’ role to

amass documents for that purpose.

[353] The plaintiff produced a document indicating that the ABG attempted to sell

its Sewell road-building contract for $250,000 in August 2000. Mr. Harder valued

that contract at $120,000. He agreed that he was unaware of the proposed sale

price, and said that had he known about it, he would have wanted to consider it. the

plaintiff argues that this demonstrates that his value for that contract was

inappropriately low. I am unable to draw that conclusion. Mr. Barbour accepted Mr.

Harder’s valuation of this and every other logging and road-building contract. As

well, Mr. Harder obtained corroboration as to the historical and future value of each

contract from the majors with whom the ABG held these contracts. Finally, the

Sewell contract did not sell at that price, which leaves it open to infer that it was

over-valued at $250,000.

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[354] The plaintiff produced the Duke Point lease but this provided nothing to

demonstrate that Mr. Harder’s valuation would have been different had he obtained

it.

[355] I conclude that Mr. Harder did not breach the standard of care in the manner

in which he obtained financial disclosure for his valuation.

Failing to use an appropriate equipment appraisal in the valuation, and failing

to provide appropriate advice to the plaintiff with respect to appraisals

[356] The ABG’s equipment was its most significant asset, and the value of its

shares was closely related to the value assigned to that equipment. The equipment

fell into two main categories: over 200 pieces of heavy equipment of significant

value, and around 250 pieces of smaller and less valuable miscellaneous

equipment, such as office and shop equipment and radios.

[357] To complete his valuation, Mr. Harder required a reliable appraisal of this

equipment. The plaintiff argues that he breached the standard of care in rejecting

the AA Appraisal and using instead the lower Ritchie Bros. Appraisal in his valuation.

She says that the Ritchie Bros. Appraisal valued the equipment on a forced

liquidation basis, which was inconsistent with a going concern valuation of the ABG.

She argues that Mr. Harder should have commissioned an appraisal based on the

premise of fair market value in continued use, also known as “value-in-use”.

[358] To properly consider these issues, it is necessary to provide some

introduction to the methodology that underlies equipment appraisals, and to the four

equipment appraisals that were placed in evidence at this trial.

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[359] In assessing the fair market value of equipment, an appraiser has a choice of

several underlying methodologies. For introductory purposes, I adopt the definitions

of these from the textbook by the Machinery and Technical Specialities Committee

of the American Society of Appraisers, Valuing Machinery and Equipment: The

Fundamentals of Appraising Machinery and Technical Assets (Washington, D.C.:

American Society of Appraisers, 2000) at 3-4 (the “ASA Text”):

Fair market value is the estimated amount, expressed in

terms of money, that may be reasonably expected for a property in

an exchange between a willing buyer and a willing seller, with equity

to both, neither under any compulsion to buy or sell, and both fully

aware of all relevant facts, as of a specific date.

…

Fair market value in continued use is the estimated amount,

expressed in terms of money, that may reasonably be expected for a

property in an exchange between a willing buyer and a willing seller,

with equity to both, neither under any compulsion to buy or sell, and

both fully aware of all relevant facts, including installation, as of a

specific date, and assuming that the business earnings support the

value reported. This amount includes all normal direct and indirect

costs, such as installation and other assemblage costs to make the

property fully operational.

…

Orderly liquidation value is the estimated gross amount,

expressed in terms of money, that could be typically realized from a

liquidation sale, given a reasonable period of time to find a purchaser

(or purchasers), with the seller being compelled to sell on an as-is,

where-is basis, as of a specific date.

Forced liquidation value is the estimated gross amount,

expressed in terms of money, that could typically be realized from a

properly advertised and conducted public auction, with the seller being

compelled to sell with a sense of immediacy on an as-is, where-is

basis, as of a specific date.

[footnotes omitted]

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[360] Unfortunately, these terms were not used consistently by the witnesses who

testified in this area. I therefore find it useful to set out an admittedly simplistic

summary of my own understanding of the two main principles that appear to underlie

this gradient of theoretical equipment appraisal premises, based on the evidence at

trial. First, they can be divided into two main categories: value-in-use and value-in-

exchange. The former presupposes that the assets will be sold as part of an

ongoing, operating enterprise. It generally, but not always, produces a higher value.

The latter assumes that the business will be sold and its assets liquidated on a

piecemeal basis. Second, there is a hierarchy of value-in-exchange premises.

Those expected to produce higher values assume the sale of assets will take place

in conditions of longer market exposure and minimal compulsion on the seller.

However, it appears that there is at least a degree of compulsion in any value-in-

exchange premise, insofar as the concept assumes the asset will be sold, rather

than retained.

[361] At the trial, evidence was led about four appraisals of the ABG equipment: the

AA Appraisal, the Ritchie Bros. Appraisal, the GEC Appraisal and the Springer

Appraisal. All used a sales comparison approach. However, it is difficult to make

direct comparisons among them for a number of reasons. They used different

methodological premises and did not define these consistently. They obtained their

comparables from different data banks. They were done on different dates, and did

not cover exactly the same equipment. Some of the appraisers viewed the

equipment, while others did “desk-top” appraisals. I will briefly describe each.

[362] The AA Appraisal was commissioned by the ABG during its refinancing

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process in mid-2000. It was the most recent of a series of bi-annual appraisals

which had been done by American Appraisal Canada, Inc. for the ABG for financing

purposes since 1992. It was prepared by Mr. Joseph Martins, an appraiser

accredited by the American Society of Appraisers (the “ASA”), who had 20 years

experience. Mr. Martins was not, however, presented as an expert to give opinion

evidence at the trial. Instead, he simply testified to what he did.

[363] He said that he appraised 214 pieces of the ABG’s large equipment, viewing

86 of these, as well as the miscellaneous equipment. His appraisal stated that the

equipment was “observed and reported to be in good to very good condition overall”.

He concluded that as of June 2, 2000 it had an orderly liquidation value of

$13,680,000, of which $569,000 was the miscellaneous equipment, and an auction

value of $10,580,000, of which $400,000 was the miscellaneous equipment. The AA

Appraisal, however, defines those terms differently from the ASA Text. Mr. Martins’

definition of “orderly liquidation” is something of a hybrid between the definition of

fair market value and orderly liquidation, and anticipates a sale within 180 days of

market exposure and orderly disposition.

[364] Mr. Martins testified that he equated auction value with forced liquidation. His

report gives this definition and stipulates a 90-day period for disposal under this

premise:

Auction Value which is defined as the estimated gross amount an

asset or group of assets should realize if sold piecemeal at a properly

advertised and conducted auction sale. The assets would be offered

for sale in an “as-is, where-is” condition and location with the buyer

assuming any cost to dismantle and remove.

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[365] Mr. Martins said that he relied on comparables based on historical data from

earlier American Appraisals of the same equipment, and adjusted these down for

depreciation. He then checked that value against information from auction sales and

publications listing new equipment. He said that he also relied on information and

records from Mr. Newton.

[366] The GEC Appraisal was commissioned in October 2000 in the process of

GEC’s consideration of the ABG’s application for financing, because GEC was

sceptical of the values in the AA Appraisal. It was carried out by Mr. Guy Gauthier,

an equipment appraiser with over 40 years experience. Although Mr. Gauthier was

not an ASA certified appraiser, he was qualified as an expert on the appraisal of

heavy equipment at the trial.

[367] Mr. Gauthier testified that he used an orderly liquidation premise to do a

desktop appraisal of 214 pieces of heavy equipment that mirrored as closely as

possible those pieces that had been appraised in the AA Appraisal. He valued the

miscellaneous equipment at $100,000 as a block. He said that he assumed that the

equipment was in good condition. He concluded that the ABG equipment was worth

$5,492,000. Mr. Gauthier said that he relied on comparables from Ritchie Bros., his

own experience, and the “black book” for trucks.

[368] The Ritchie Bros. Appraisal was commissioned by the ABG in early 2001 to

provide an appraisal for use in Mr. Harder’s valuation. It covered 166 pieces of large

equipment, 143 of which were viewed and reported to be in variable condition. It did

not include the miscellaneous equipment. It concluded that this equipment had a

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value of $4,673,200 as at February 7, 2001. The appraisal does not set out a formal

methodological premise, but indicates that the value is based on what would be

achieved at a public auction conducted within 45 days of February 7, 2001, if all

equipment was in good running order and refurbished to Ritchie Bros. sale

standards.

[369] The appraisal was done by Ritchie Bros. staff, using the Ritchie Bros.

Appraisal template. None of the staff involved with the appraisal gave evidence at

the trial. Instead, Mr. Gary Caufield, manager of special projects for Ritchie Bros.,

described the process. The territory manager for Ritchie Bros. inspects the

equipment, photographs it, and makes detailed notes about its condition. This data

is put into the Ritchie Bros. computer base which records prices for similar

equipment sold recently at their auctions. Five employees in the appraisal

department then appraise the equipment independently, using that database. They

are not ASA certified, but have been trained by Ritchie Bros. The resulting five

prices for each piece of equipment are averaged to obtain a final value. Two

managers review these, and adjust the result if there are any major discrepancies.

[370] The Springer Appraisal was commissioned by the plaintiff for this lawsuit. It

was a desk-top appraisal of most of the large equipment covered by the AA

Appraisal, using a premise of fair market value in continued use. Its final value for

the ABG equipment was $10,790,000 as of October 31, 2000. It did not include the

miscellaneous equipment.

[371] Mr. Greg Thornton and Mr. Raymond Springer, both ASA certified appraisers

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practising in the United States, prepared the Springer Appraisal. Both were qualified

as experts at the trial. Mr. Thornton appraised the ABG equipment at

$6,036,300(USD) using a “fair market value” premise. He was the only appraiser

who seemed to treat that concept as an independent premise in the hierarchy of

appraisal premises. Other appraisers and valuators appeared to use “fair market

value” as a general term referable to the final value reached under other

methodological premises. Mr. Thornton described his fair market value concept as a

higher level of trade in the retail market place, with no time limit and no compulsion

to sell. He used comparables from direct sales where they were available, and

otherwise used adjusted auction prices. He assumed that the equipment was in

good to very good condition, based on the AA Appraisal.

[372] Mr. Springer converted Mr. Thornton’s fair market value to fair market value in

continued use, by adding the costs associated with placing the assets in operation.

These included converting Mr. Thornton’s value to Canadian dollars, and adding

$1,000 per unit for transportation costs, 5% for assemblage costs, 5% for

contingencies, and 7% sales tax. The resulting total was $10,790,000.

[373] There are five allegations against Mr. Harder that deal with the equipment

appraisals.

1)

Rejecting the American Appraisal without proper investigation

[374] Mr. Harder was not an equipment appraiser, and so had to rely on the opinion

of a specialist in that field for the value to be placed on the equipment in his

valuation. The standards of the CICBV in force in 2001 provided guidance to

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valuators with respect to relying on other specialists in Specific Valuation Standard

120 VI, which reads:

The valuator must consider the necessity of relying upon the

work of a specialist (e.g. real estate appraiser, engineer, etc.).

Recommendation: If it is deemed appropriate to request the

assistance of a specialist, the valuator should obtain reasonable

assurance concerning the specialist’s reputation for competence and

degree of independence. Explanatory comment only: The

appropriateness and reasonableness of the assumptions and methods

used by the specialist are the responsibility of the specialist.

Ordinarily, the valuator may accept the specialist’s judgement and

work in this regard unless the report of the specialist, the valuator’s

communication with the specialist or the valuator’s knowledge of the

business being valued lead the valuator to believe that the specialist’s

assumptions or methods are unreasonable in the circumstances.

[emphasis in original]

[375] Mr. Harder reviewed the AA Appraisal and rejected it as unreliable early in his

valuation. He testified to a number of reasons for this. The capital equipment list

and the 1999 financial statement of the ABG showed that, before depreciation, the

ABG had paid a little more than $12 million for the equipment that the AA Appraisal

valued at $10,580,000 and $13,680,000. In his experience, logging equipment

suffered economic and functional obsolescence, and it did not make sense that the

original equipment cost would be so close to the appraised cost. He also reviewed

the values for the equipment with which he was familiar, and found some of these

surprisingly high. As well, Mr. Brewer told him that the AA Appraisal values were

very high and had been obtained for financing purposes, and that the GEC Appraisal

was around $5.3 million. Mr. Brewer also told him that Mr. Newton would not accept

the AA Appraisal values. Mr. Harder said that while it did not matter to him whether

Mr. Newton accepted them, since the plaintiff wanted to try to negotiate a settlement

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using the AA Appraisal would not meet his client’s objective from a practical point of

view. He felt there were also a number of practical hurdles to using the AA

Appraisal, such as having to reconcile the equipment to mid-January, and

considering the effect of the 2000 logging season on its condition.

[376] The plaintiff argues that Mr. Harder reached that decision too quickly. She

says that he should have investigated the AA Appraisal more thoroughly before

rejecting it as unreliable. In particular, he should have called Mr. Martins and HSBC,

which relied on the AA Appraisal in offering financing of $4.7 million to the ABG in

August, 2000.

[377] I find that there is no basis for this allegation against Mr. Harder.

[378] First, I find the plaintiff’s position on this point significantly diminished by her

decision to rely on the Springer Appraisal instead of the AA Appraisal in presenting

her case at this trial. Even Mr. Barbour expressed doubts about the reliability of the

AA Appraisal.

[379] Second, the Ritchie Bros. Appraisal, the GEC Appraisal, and the Springer

Appraisal all shed doubt on the validity of the AA Appraisal. The first two, which

were both available to Mr. Harder at the time, placed the value of the ABG

equipment at less than half that of the AA Appraisal, although they were done on the

same premises of orderly liquidation value and auction value. Mr. Gauthier, who

undertook his appraisal because GEC had serious doubts about the AA Appraisal,

observed in an e-mail to GEC about the AA Appraisal at that time:

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I can’t believe these guys would give an opinion with such high

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numbers when everybody knows how weak is the actual market in

Western Canada.

[380] During his testimony, Mr. Thornton was referred to a number of AA Appraisal

values that were as much as two to five times higher than his appraised values of

the same equipment. He said that he had not seen comparables that would justify

such values, and that he would be curious to see where Mr. Martins obtained such

comparables.

[381] Mr. Pearson, the appraiser from whom Mr. Harder sought an informal opinion

at the time, testified that after reviewing part of the AA Appraisal he told Mr. Harder

that it was too high, that the economy in the forestry industry was down, and the AA

Appraisal values could not be achieved in the market.

[382] Mr. De Clark confirmed that the capitalized cost of the ABG equipment

recorded as of October 31, 1999 was $12,881,207, and that some of the equipment

had been on the books for some time. He agreed that it would be unusual if

equipment that was a few years old had a market value close to its recorded

capitalized value. He testified that while he did not review the AA Appraisal in depth,

it was his impression that the appraisal was high on a few pieces.

[383] While the plaintiff maintains that HSBC accepted the validity of the AA

Appraisal, a close examination of their financing documents shows that the loan

officer did not rely on the appraisal itself, but required a transmittal letter from

American Appraisal as a condition precedent for the loan. This permitted HSBC to

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look directly to the appraisal company if a difficulty arose with the ABG. In view of

this, I am unable to find that communicating with HSBC would have altered Mr.

Harder’s view of the reliability of the AA Appraisal.

[384] Mr. Martins’ own testimony suggested that Mr. Harder had been correct to

view the AA Appraisal with scepticism. Mr. Martins conceded that his report

erroneously implied that he had inspected all of the equipment and that it was well

maintained and in good to very good condition, whereas he had inspected only

about 40% of it. He could not explain why he made these misrepresentations, and

agreed that they were not in keeping with his professional standards.

[385] Mr. Martins had not kept a record of the specific comparables he employed.

He said he gave more weight to higher end comparables. When he was shown

contemporaneous comparables for some pieces of equipment that were significantly

lower than his values, he agreed that if he had had those at the time he would have

had to reconsider his appraised values of those pieces. He also conceded that he

did not know an auction company that could have obtained his auction values for the

ABG equipment.

[386] It appeared that Mr. Martins had relied heavily on his company’s past

appraisals of the ABG. He said that he generally started with the 1998 appraisal

values, and depreciated them by about 10%. He also relied on information from Mr.

Newton as to the purchase prices and condition of the equipment, particularly with

respect to the equipment he did not see. It appeared that he may have depended

too heavily on such information, provided by a person who was motivated to obtain

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the highest appraisal possible for financing purposes. For example, he said Mr.

Newton told him that the chipper at Duke Point was worth $350,000. Mr. Martens

valued it at $300,000 on an orderly liquidation value basis. The other three

appraisers valued it in the range of $75,000 to $125,000.

[387] I am unable to find that information from Mr. Martins would have allayed Mr.

Harder’s concerns about the AA Appraisal.

[388] I conclude that Mr. Harder’s decision to reject the AA Appraisal was

reasonable based on the information available to him, and in the context of his

professional guidelines. As an independent valuator retained to provide an objective

opinion on the value of the ABG shares, it was essential for him to have an

appraised value for the equipment that he viewed as reliable. I find that his decision

to look beyond the AA Appraisal was strongly supported by the evidence at trial.

2)

Failing to use an appraisal based on fair market value in continued use

[389] The plaintiff, supported by Mr. Barbour, argues that, having rejected the AA

Appraisal, Mr. Harder should have commissioned an independent equipment

appraisal based on a premise of fair market value in continued use, or value-in-use,

for his valuation, as that is the appraisal methodology consistent with an operating

business valued as a going concern. Had he done so, the appraisal would in all

likelihood have produced a much higher equipment value, in the range of the

Springer Appraisal, and a significantly higher value for the plaintiff’s shares. She

points to Mr. Barbour’s valuation in his Report #2, which relied on the Springer

Appraisal in calculating a share value of $7,586,972.

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[390] I set out the ASA Text definition of fair market value in continued use at

paragraph [359] of these Reasons. Two features distinguish that premise from other

appraisal premises. First, it includes not just equipment costs but also the expenses

incurred in making the equipment operational, such as installation, assemblage, and

transportation. Second, it assumes that the appraised asset value is supported by

the business earnings from those assets. I will refer to this as the “earnings

assumption”.

[391] Mr. Harder argues that his failure to use an appraisal based on fair market

value in continued use was not a breach of the standard of care because the ABG

equipment did not accommodate either of those features. First, its nature did not

justify the additional expenses imposed by a fair market value in continued use

premise. Second, when the earnings assumption was properly tested, the business

earnings of the ABG equipment could not support a value-in-use approach.

[392] With respect to the nature of the equipment, Mr. Harder testified that he did

consider fair market value in continued use as a possible premise for valuing the

equipment, but had difficulty justifying the additional expenses relating to it. First, it

was not clear that all of the ABG’s equipment was consistently in continued use in

the business’ operations. It appeared that the ABG had surplus equipment due to

the cyclical nature of the logging industry and the resulting variation in logging

volumes and marketing contracts. Moreover, he could not see logging equipment

attracting assemblage or installation costs similar to those incurred by a

manufacturing plant or sawmill. Nor was there economic value to assembling the

equipment in one location. The ABG’s logging activities required that various

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combinations of its equipment be moved from job to job. While some transportation

costs might be incurred, a lot of the ABG equipment, such as trucks and boats, was

mobile. Larger pieces were easily transported by a truck or barge. As well, Mr.

Harder questioned whether it was appropriate to add provincial sales tax to the fair

market value of the equipment, as the Springer Appraisal had done, since that is a

matter between the vendor and the government, not the vendor and the purchaser.

[393] Mr. Bowie expressed similar views with respect to the appropriateness of

adding assembly and installation costs. He acknowledged that some consideration

might be given to sales tax and the cost of moving equipment to a logging site, but

said he had not seen such adjustments made to appraised values in a going

concern tangible asset backing valuation in his experience of valuing logging

contractors.

[394] There was no evidence as to likely contingencies that would justify the 5%

increase in the equipment value put forward by the Springer Appraisal.

[395] I am satisfied that the nature of the ABG equipment and the logging industry

made it unlikely that the substantial additional costs imposed by a fair market value

in continued use premise could be justified. Some amount might be added for

transportation costs, but it is difficult to estimate what those would be on the

evidence available. I find Mr. Springer’s approach of simply assessing $1,000 for

each piece of equipment to be too arbitrary. I have no information against which to

apply his alternative estimate of a dollar a mile.

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[396] The second argument raised by Mr. Harder as to the suitability of a value-in-

use premise is more complex. This involves an analysis of whether the business

earnings from the ABG’s equipment could support an appraisal based on fair market

value in continued use such as the Springer Appraisal.

[397] It was common ground that any purchaser of the ABG would want a

reasonable return on the investment, commensurate with the associated risk. Mr.

Bowie, for example, testified that it is basic in any business transaction to relate the

proposed purchase price to the earnings that the business will generate in the future.

This analysis is an essential factor in assessing fair market value on a going concern

basis. He said that there must be a rational reconciliation between the going

concern value and the expected cash flow to the investor. If they cannot be

reconciled, it is necessary to re-examine the approach to the valuation, or the values

attributed to the assets.

[398] The earnings assumption is typically tested by an analysis of the business’

historical financial performance. This is generally done by normalizing corporate

earnings through removal or adjustment of business expenses such as tax, interest,

capital expenditures, and management income, which may vary due to management

decisions or other reasons unique to the company. The result is what Mr. Shultz

referred to as a “purification of the operating cash flow” that permits comparisons

between companies, and an objective assessment of the cash flow available from

business operations independent of management decisions. Various approaches

may be used, including calculation of the discretionary cash flow or normalized

income before taxes, or an EBITDA analysis.

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[399] The Springer Appraisal clearly assumed that business earnings would

support its equipment value of $10,790,000. Mr. Springer testified that this is a

fundamental assumption. He said that he was told that the ABG was an operating

business, and so he chose fair market value in continued use as the appropriate

premise for his appraisal. He did no investigation into earnings, however, and

assumed that the valuator, in this case Mr. Barbour, would test his appraised value

against the business earnings of the ABG to ensure that he had not overvalued the

equipment. He agreed that he advised the plaintiff’s counsel that if his equipment

value was not supported by the business valuator, he would likely have to change

his conclusion to a supportable level. Mr. Springer testified that he has a

professional obligation to do so, and said that generally in such cases the appraiser

works with the valuator to revise the equipment value downwards to the point that it

is reconciled to an appropriate return. This may be done by an adjustment for

external obsolescence, or the valuator may conclude that the business is not a going

concern as originally assumed, and ask for an appraisal on a lower premise of value.

[400] Mr. Springer said that in this case, he heard nothing about Mr. Barbour’s

analysis or conclusions with respect to the earnings assumption.

[401] Mr. Barbour’s valuation is set out in his Report #2, dated August 24, 2006. It

clearly relies on the Springer Appraisal for the equipment value. It does not,

however, address the question of whether that value can be supported by the

business earnings of the ABG. When Mr. Bowie and Mr. Shultz filed reports in

response that pointed this out, Mr. Barbour did not file a report in reply undertaking

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such an analysis. Instead, his views on this issue emerged for the first time during

his cross-examination.

[402] Mr. Barbour agreed that a purchaser of the ABG would want a reasonable

rate of return commensurate with the risk of the investment, that the premise of fair

market value in continued use reflects this in the earnings assumption, and that he

knew that Mr. Springer had made no investigation of the ABG’s earnings. He also

agreed that he did not address the earnings premise directly in his report.

[403] When asked about this omission, Mr. Barbour said that he thought it was self-

evident that the earnings premise was satisfied by the ABG’s earnings in 2000. It

was his view that the ABG had been in a growth position for several years, as

evidenced by its large capital acquisitions in 1998 and 1999, related to the

establishment of the Duke Point Custom Log Sort Ltd., Duke Point Shake & Shingle

Ltd., Alliford Bay Transport Ltd., and the acquisition of the new J.S. Jones Bill 13

contract. As well, it had a significant increase in revenue from $11 million in 1998 to

$29 million in 2000. Mr. Barbour said that, as a result, he did not view the ABG’s

historical earnings as necessarily representative of the return that could be

generated. Instead, he concluded that 2000 was likely its most representative year.

He acknowledged that 2000 also happened to be the ABG’s best year.

[404] Mr. Barbour conceded that two-thirds of the ABG’s total revenue in 2000

came from its Bill 13 and market logging contracts, and that the prediction of future

income from those sources is difficult. He nevertheless maintained that it was not

imprudent to use 2000 alone as the year most representative of the rate of return

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that the ABG could generate, and said that this rate more than satisfied the earnings

assumption inherent in the Springer Appraisal, as well as his tangible asset backing

valuation based on that appraisal.

[405] Asked about the appropriate rate of return, Mr. Barbour said that selection of

that rate is subjective, and unique to each business. He emphasized that the rate of

return must reflect the fact that the ABG valuation has been done on a tangible asset

backing basis, which involves a lower level of risk than an income-based valuation.

He estimated a reasonable rate of return to be in the range of 10 to 12%. During re-

examination, he testified that he calculated the ABG’s after-tax cash flow for 2000 to

be $1.4 million, and dividing that by his share value of $7,800,000 would provide a

reasonable rate of return. By my calculation, that rate is in the range of 17.9%.

[406] Mr. Barbour’s evidence as to whether and when he actually performed any

analysis of the ABG’s historical cash flow to test the earnings assumption was

contradictory and difficult to follow.

[407] He initially testified that he had done an analysis of the ABG’s historical

earnings, but agreed that the only part of Report #2 that related to this analysis was

a calculation of pre-tax cash flow at Tab 9. While this table sets out data for 1998 to

2001, the pre-tax cash flow is only calculated for 2000 and 2001. Mr. Barbour

testified that, although he had the 1998 and 1999 financial statements when he

prepared this, he was missing information on net current capital expenditures for

those years and so could not calculate a pre-tax cash flow for them. He agreed that,

as a result, he could not calculate the historical sustaining capital expenditures or

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the discretionary cash flow for any year except 2000 before he delivered his report in

August, 2006.

[408] On November 10, 2006, after the defendants had delivered their experts’

reports, Mr. Barbour delivered a revised Tab 9. This version corrected an unrelated

error dealing with a deduction for amortization, and also expanded his calculations of

pre-tax cash flow to include 1996 to 1999.

[409] Later in his evidence, however, Mr. Barbour said that this new Tab 9 was not

intended to analyze the historical cash flow of the ABG for the purpose of

capitalizing it. Instead, the calculation was “just information”. He said that, had he

intended to test the earnings assumption, he would have calculated the discretionary

cash flow. In doing so, he would have deducted the sustaining capital expenditures

only, and not the net current capital expenditures as done in his revised Tab 9

calculations.

[410] Challenged as to exactly what analysis he had done to test the earnings

assumption before he wrote his August report, Mr. Barbour gave this somewhat

confusing evidence as to whether he actually did a discretionary cash flow analysis:

A

Q

I used [the Springer Appraisal] numbers, yes, I did.

Right. And you did not look at any historical discretionary cash

flows to determine whether or not that fair market value and [sic]

continued use was supportable?

A

That’s not true. I looked at them and concluded that trying to

calculate a discretionary cash flow on the historical information

was not a suitable methodology to use.

Q

A

My question is you didn’t do it, did you?

I did do it. I came to the conclusion that it -- that it wasn’t

worthwhile to do.

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Q

Haven’t we established that with Exhibit 30 [his original tab 9]

you didn’t do it?

A

I’m sorry, but --

Q

You couldn’t have done it because you didn’t --

You couldn’t even figure out the cash flows for 1999 and 1998,

you didn’t have the necessary information?

A

Q

A

But I did -- I did it with the revised tab 9.

So you did it after?

No, I -- I did the calculation as to what the income was. I came

to the conclusion that the revenue and the cap -- the revenue

was increasing, the capital expenditures were very large and I

quite frankly came to the conclusion that you couldn’t do a

discretion cash flow or shouldn’t do a discretionary cash flow on

the historical information because it was meaningless.

[411] As his testimony progressed, Mr. Barbour expressed regret that he had not

included something in his report that addressed the earnings assumption.

Ultimately, he conceded that his failure to address that issue was a significant

omission, and a breach of s. 9.2E of Standard No. 310 of the CICBV currently in

force, which requires an expert report by a valuator to include “assumptions used

and the procedures followed to determine the reasonableness and appropriateness

of key assumptions”.

[412] On re-examination, counsel invited Mr. Barbour to set out the analysis he

wished he had included in his report with respect to his investigation of the earnings

premise. In response, Mr. Barbour referred to the calculations in his revised Tab 9.

Following objections from the defendants, he was limited to describing the analysis

he did prior to the delivery of his report in August 2006, since the critical issue was

whether he had tested the earnings assumption on which the Springer Appraisal

relied before he based his valuation in Report #2 on that appraisal. Mr. Barbour

then testified that he had analyzed the historical capital expenditures prior to writing

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his report, but this evidence still referred to the calculations in his revised Tab 9 that

were prepared after delivery of that report. The suggestion he had done an earlier

historical analysis was clearly inconsistent with his previous testimony that, prior to

the delivery of his report, he had been unable to calculate pre-tax cash flow, capital

expenditures, and discretionary cash flow for the years prior to 2000.

[413] I find that Mr. Barbour did not undertake any analysis of the ABG’s historical

cash flow to test the earnings assumption underlying the Springer Appraisal before

he delivered Report #2. Instead, he chose to use 2000, the ABG’s best year, as

most representative of the rate of return, based on his observations of capital

expenditures in 1998 and 1999, and the increased revenue in 2000. I find this

approach cannot be supported on an analysis of the ABG’s operations.

[414] First, it fails to give sufficient weight to the cyclical nature of the logging

industry. The capital expenditures on which Mr. Barbour relied were all related to

that industry. The evidence is clear that variability in the industry and its markets

make future revenue unpredictable. This suggests that any approach that relies on

high revenue in one year as indicative of a continuing rate of return in logging-

related operations must be tenuous.

[415] Next, in reaching his conclusions, Mr. Barbour did no analysis to determine

whether the ABG companies that benefited from the increased capital expenditures

were the source of the increased revenue in 2000 as he theorized.

[416] Mr. Harder, on the other hand, conducted a detailed analysis of the

profitability of both the ABG as a whole, and its component companies. He

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acknowledged the shift in the ABG’s operations in the late 1990s, but concluded that

while the overall combination of businesses drove its profitability, its revenue was

essentially based in the volume of timber logged. In 2000, two-thirds of its revenue

came from market logging and Bill 13 contracts.

[417] Moreover, Mr. Harder’s analysis and investigation indicated that while some

of those contracts had been profitable, future revenue from them was not assured

due to declining logging volume, uncertainty about future AAC and the availability of

future market logging contracts, and increased overhead related to environmental

issues. For example, while the Bill 13 contract with J.S. Jones that the ABG had

purchased for $500,000 in 1998 was the most significant source of the ABG’s

revenue in 2000, Mr. Harder’s investigation showed this was anomalous as the ABG

had been permitted to take significant extra volume that year. Future profit expected

from that source was significantly lower. Moreover, that contract terminated at the

end of 2001. Nor did Mr. Harder’s analysis show a significant increase in

sustainable profit from the operations that received the benefit of the other capital

expenditures in 1998 and 1999 such as Alliford Bay Transport Ltd. or the Duke Point

operations.

[418] Mr. Harder’s analysis was confirmed to a degree by Mr. De Clark, who agreed

that prevailing economic and environmental concerns in the industry contributed to

the ABG’s decreased profit margin and cash flow. He described the cash flow as

tight in 1999 to 2001, and said that it did not improve for the most part. He also

testified that the volume of timber cut varied annually, and there was no guaranteed

income at any particular level from the ABG’s Bill 13 contracts. Mr. De Clark

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provided rough estimates of the productivity of the various ABG companies. He said

that the chipper was among the most profitable operations although it had high costs

as well. He estimated that it provided 5 to 10% of the revenue. Alliford Bay

Transport Ltd. produced about 5%. Road building contracts produced about 10%,

and logging contracts 40 to 60%. He believed that Duke Point Custom Log Sort Ltd.

provided 15 to 20% of the revenue.

[419] This evidence satisfies me that any reasonable purchaser would be unlikely

to accept Mr. Barbour’s view that the increased capital expenditures in 1998 and

1999, together with the increased revenue in 2000, were indicative of an acceptable

and sustainable rate of return.

[420] Nor does Mr. Barbour’s approach withstand scrutiny in light of the evidence of

the defendants’ expert valuators, Mr. Bowie, Mr. Schultz, and Mr. Cheevers. Using

different approaches, each undertook an analysis of whether the ABG’s cash flow

provided a sufficient return to justify the Springer Appraisal value. Each concluded it

did not.

[421] Mr. Bowie measured the rate of return related to different equipment values

by calculating the historical discretionary cash flow of the ABG from 1995 to 2000.

He concluded that its historical performance indicated that future annual

maintainable cash flow before income tax and capital expenditures would be in the

range of $1.7 million if averaged over all years. If the ABG’s two worst years of 1995

and 1998 were omitted to provide a more optimistic view, the figure became $2.2

million. Since capital expenditures had been variable, he averaged the net outlay on

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capital assets over those six years, taking into account the tax relief associated with

the purchases. This provided a figure of $1.4 million as the deduction for capital

expenditures. He then deducted corporate income taxes to obtain a discretionary

cash flow in the range of $60,000 to $355,000 annually. The discretionary cash flow

in 2000, the ABG’s best year, was $570,000.

[422] A rate of return is calculated by dividing the discretionary cash flow by the

proposed share value. Thus, if $570,000 is divided by Mr. Barbour’s share value of

approximately $7,587,000, it produces a rate of return of approximately 7.5%. If it is

divided by Mr. Harder’s share value of $2,635,400, it produces a rate of return of

approximately 21%.

[423] Mr. Bowie testified that the rate of return obtained on Mr. Barbour’s share

value would be totally unacceptable to a prospective purchaser. He also pointed out

that anyone purchasing the ABG would have to incur the additional expense of

paying out the shareholders’ loans and outstanding bonus, which would lower the

rate of return further. Mr. Bowie concluded that no prudent investor would purchase

the ABG’s shares for the value put forward by Mr. Barbour.

[424] In cross-examination, the plaintiff’s counsel suggested to Mr. Bowie that he

underestimated the discretionary cash flow by deducting 100% of capital

expenditures. He suggested that only those capital expenditures required to sustain

the level of revenue should be deducted, and it was inappropriate to deduct non-

recurring capital expenses as well.

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[425] Mr. Bowie disagreed. While he acknowledged that the calculation of

discretionary cash flow is very sensitive to the analysis of what is a non-recurring

capital expense and what is a sustaining capital expense, he said that the capital

expenditures in 1998 and 1999, to which Mr. Barbour refers, were not non-recurring

capital expenditures as the plaintiff alleges. They were things such as equipment

and yard preparation that will have to be replaced in the future to maintain the same

stream of income. Those future costs must be built into estimates of future cash

flow by a deduction of sustaining capital expenditure.

[426] The plaintiff’s counsel also suggested to Mr. Bowie that he had

underestimated the discretionary cash flow by about $208,000 by failing to recognize

an income tax write-off available to the purchaser in 2000 for depreciation.

[427] Mr. Bowie responded that his calculation did not ignore that write-off. He said

that he dealt with it instead through tax shield calculations as the write-off for

depreciation is variable, and it is simply a matter of timing. If the purchaser took a

more rapid write-off now as suggested by the plaintiff, he or she would have less to

write off in the future. In his view, a purchaser would be more likely to want an

indication of ongoing discretionary cash flow, not a one-year snapshot with a write-

off for depreciation that is larger than usual.

[428] The plaintiff’s counsel further suggested to Mr. Bowie that, since Mr. Newton

owned 50% of the ABG, and the ABG owns the assets, he was effectively looking at

the transaction from both sides, as a buyer and a seller. The plaintiff’s counsel

pointed out as well that Mr. Newton is very well-informed about the ABG, and

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suggested that these factors indicate that he would not face the same degree of risk

in purchasing the plaintiff’s shares, and would thus accept a lower rate of return.

[429] Mr. Bowie disagreed. He said that a valuator deals with fair market value

assumptions based on a hypothetical purchaser and seller, not on the characteristics

of a particular purchaser. He also observed that, even if the husband might be

satisfied with a lower rate of return, it is doubtful that he would be prepared to pay a

higher share value associated with that.

[430] Mr. Cheevers tested the reasonableness of Mr. Barbour’s share value by

calculating the cumulative normalized income of the ABG before taxes from 1994 to

2000. He concluded that the historical earnings of $1,174,478 did not justify Mr.

Barbour’s share value. Over the entire seven-year period, his calculations produced

a rate of return of 2.2%. Over the last three years, they produced a return of 4.5%.

Mr. Cheevers testified that these rates could not compete with the earnings available

through other investments that did not carry the same risk as the forest industry.

[431] On cross-examination, Mr. Cheevers agreed that his analysis was limited to

information in the ABG’s financial statements. He knew nothing of the ABG’s

operations, and assumed the business had not changed to any significant extent

since 1994. He agreed that it was not appropriate to compare year to year results if

there have been significant changes in the assets or type of business carried out by

a company.

[432] Mr. Shultz undertook an examination of what the ABG’s business earnings

would have to be to support the Springer Appraisal equipment value based on an

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EBITDA analysis. He testified that around October 2000, medium-sized privately

held companies such as the ABG changed hands at multiples of four to six times

EBITDA. He calculated the ABG’s EBITDA from 1996 to 2000, and reached an

average EBITDA of $1,125,000 through a series of averaging approaches. He then

applied multiples of four, five and six, representing rates of return of 25%, 20% and

17% respectively, to that average, to estimate the enterprise value of the ABG under

each multiple. He subtracted the non-capital deliverables from each of the three

totals, and concluded that the remaining balance, which ranged from $382,000 to

$2,632,000, represented the ABG’s deemed equipment value. Those balances

were well below the Springer Appraisal equipment value of $10,790,000, and Mr.

Shultz concluded that values derived from commonly used multiples in similar

transactions could not support that value.

[433] Next, Mr. Shultz used the same EBITDA calculation to determine what the fair

market value of the ABG would have to be to support the equipment values in the

AA Appraisal, the Springer Appraisal, and the Ritchie Bros. Appraisal, as well as the

related EBITDA multiple and rate of return.

[434] He concluded that to support the AA Appraisal value of $12,760,000, the ABG

would have to be valued at $16,879,000, and would have an EBITDA multiple of 15

with a corresponding rate of return of 7%. The value required to support the

Springer Appraisal would be $14,628,000 with an EBITDA multiple of 13 and a rate

of return of 8%. The Ritchie Bros. Appraisal would require an enterprise value of

$9,002,000 and a multiple of 8 associated with a rate of return of 12.5%.

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[435] Mr. Shultz said that, by way of comparison, publicly traded companies in the

forest industry have an average multiple of 5, with a corresponding average return of

20%. He concluded that the range of EBITDA multiples commonly used to value

similar transactions does not provide a rational result. Instead, it produces

equipment values for the ABG that are lower than those that could be achieved by

simply selling the equipment.

[436] He also found that the equipment values in each of the three appraisals were

too high to provide an acceptable rate of return when tested against the ABG’s

average EBITDA. Mr. Shultz accordingly concluded that common sense, as well as

valuation principles, dictated that it was appropriate to abandon fair market value in

continued use as the proper premise, and instead value the equipment on a value-

in-exchange basis, which he viewed as the same as fair market value or auction

value. In essence, Mr. Schultz testified that if the owner is able to sell the ABG

equipment at a Ritchie Bros. auction for $4,500,000, it would be inappropriate to

value it in the lower range of $382,000 to $2,632,000 that would result from his

EBITDA-based value-in-use analysis.

[437] On cross-examination, the plaintiff’s counsel again raised the failure to

differentiate between sustaining and growth capital expenditures in the deduction for

the net capital expenditures in Mr. Shultz’s analysis. Mr. Shultz, like Mr. Bowie, said

that he does not differentiate between these because he assumes that businesses

will always spend money on capital acquisitions to enhance their future profitability,

and it is characteristic to average those expenses over time. Here, the expenditures

were intended to further the ABG’s activities in the logging business and it would not

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be appropriate to take those capital expenditures out of the analysis. They expire

over time and so must be averaged over a period of years.

[438] On cross-examination, Mr. Shultz agreed that an EBITDA comparison would

not be appropriate for dissimilar businesses, and that there are differences between

publicly traded forest companies and the ABG. As a result, he conceded that his

comparison with rates of return from those public companies may be imprecise, but

said that they provide the best EBITDA comparison available as they are in the

same industry, and subject to the economic influences in the same marketplace.

[439] Mr. Shultz agreed that his analysis was based on an assumption that all of

the ABG revenue arose from applying its equipment in various activities related to

the logging industry. He agreed that if that assumption was wrong and the ABG

carried on operations unrelated to logging, then the revenue related to logging

equipment would be correspondingly reduced.

[440] The plaintiff’s counsel suggested to Mr. Shultz that if the ABG had an obvious

trend of increasing profit, it was wrong to use a historical average of EBITDA which

went beyond that period. Mr. Shultz replied that if there was such a trend it would be

appropriate to average the last three years. He said, however, that it was not

appropriate to simply take the best year as indicative of future profit. A valuator

should always average back somewhat for the risk that some future years will not be

as good. In analyzing earnings for any practical purpose in a valuation, it is always

necessary to look at them over a reasonable period and then apply judgment as to

whether that history is a reasonable predictor of the future. In the case of the ABG,

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he did not accept that new operations made it inappropriate to look at historical

earnings. It was not as if an old business had stopped and a new one had started.

He pointed out that 1996 was also a very good year.

[441] The plaintiff’s counsel attacked all three defence experts for normalizing the

ABG management income at $200,000 in their calculations, when it had varied

between $78,000 to $922,000 between 1995 and 2000. The witnesses agreed that

the figure chosen as normalized management income affects the calculation of

discretionary cash flow and EBITDA. They pointed out, however, that they adopted

the $200,000 figure as Mr. Barbour had used it in his calculation of pre-tax cash

flow, and they agreed that it was a reasonable theoretical estimate of management

compensation in a company like the ABG.

[442] I conclude that the earnings assumption is a fundamental element of the

premise of fair market value in continued use, and that the accepted means of

testing that assumption is ascertaining the expected rate of return through an

analysis of the normalized historical cash flow of the business.

[443] Mr. Bowie pointed out that Mr. Barbour’s Report #2 was a comprehensive

valuation report under Standard 110 of the CICBV, and as such is expected to

contain the highest level of assurance as to the accuracy of its conclusion. As well,

section 3.1D of Standard 120 of the CICBV operative in 2006 requires a valuation

report to include sufficient evidence to ensure that its conclusions are properly

supported. Mr. Bowie testified that one would expect such a report to include

disclosure of the earnings assumption, and a comprehensive analysis addressing it.

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[444] I find that Mr. Barbour did not do such an analysis. Instead, he relied on

increased capital expenditures in 1998 and 1999, and high revenue in 2000, to

conclude that the ABG’s performance in 2000 was representative of the expected

rate of return, and that this rate was adequate to support the Springer Appraisal

value. I find that this analysis was a superficial and inadequate test of the earnings

assumption.

[445] The analyses of the three defence experts, each working independently and

each using a different approach, satisfy me that the ABG’s earnings could not

support an equipment value based on a premise of fair market value in continued

use. While the plaintiff demonstrated that any calculation of normalized cash flow is

sensitive to the interpretation and adjustment of a number of variables, that does not

alter my conclusion. It was clear that any adjustments to these experts’ calculations

would have to be significant to bring the ABG’s normalized cash flow to a level that

would justify a value such as that in the Springer Appraisal, based on a value-in-use

premise. Nothing in the evidence about the ABG’s financial performance, including

Mr. Barbour’s testimony, convinces me that such adjustments are possible or

practical.

[446] I conclude that Mr. Harder did not did not breach the standard of care of a

reasonably competent chartered business valuator by failing to obtain an appraisal

based on fair market value in continued use as a basis for his valuation.

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3) Was it reasonable for Mr. Harder to rely on the Ritchie Bros. Appraisal?

[447] The analysis in the last section leads to the conclusion that the premise of

value-in-use, or fair market value in continued use, must be abandoned as the basis

for appraising the ABG equipment, and replaced by an appraisal based on a value-

in-exchange premise. The question therefore arises as to whether it was reasonable

for Mr. Harder to accept the Ritchie Bros. Appraisal as an appropriate value-in-

exchange appraisal for his valuation.

[448] The plaintiff says that it was unreasonable for Mr. Harder to rely on the

Ritchie Bros. Appraisal as it was premised on a forced liquidation scenario

inconsistent with a going concern valuation. It assumed that the equipment would

be auctioned within 45 days by a seller under compulsion, as once he or she

commits to sell at a Ritchie Bros. auction there is no reserve and the seller cannot

bid. As well, the plaintiff says that many characteristics of the auction process, such

as the weather, the date of the auction, and low attendance, have a potentially

negative impact on auction values.

[449] She argues that even if a value-in-use premise cannot be sustained, the

ABG remained a going concern. It was not under any compulsion to sell its

equipment precipitously, and Mr. Harder should have obtained another appraisal

based on a premise appropriate to those circumstances. Since the plaintiff’s

argument focused on the use of a value-in-use appraisal, she did not expressly

address what value-in-exchange premise would be appropriate. I infer that it would

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be an orderly liquidation value, using comparables from dealers rather than auction

prices, and permitting longer exposure to the market.

[450] The plaintiff also took issue with the methodology used by Ritchie Bros. She

argues that the appraisal was not conducted by certified appraisers, and their

comparables were restricted to their own auction sales, which reveal a wide range of

values, demonstrating the volatility of auction prices. As well, she suggests that a

previous relationship between Mr. Newton and David Carswell, one of the Ritchie

Bros. appraisers, raises the question of whether Ritchie Bros. was biased in favour

of Mr. Newton. Finally, she complains that the Ritchie Bros. appraisers were not

called as witnesses.

[451] At the outset, I observe that the inconsistent use of appraisal terminology in

the evidence makes it somewhat difficult to analyze this issue with precision. For

example, Mr. Shultz broadly interpreted value-in-exchange to be the same as fair

market value or auction value. The Springer Appraisal uses fair market value as a

separate premise, while the AA Appraisal equates it with orderly liquidation value,

and others view it as a generic term that covers different appraisal premises. The

Springer Appraisal definition of orderly liquidation value approximates the AA

Appraisal definition of auction value. Both the AA Appraisal and the Ritchie Bros.

Appraisal are said to be based on an auction value premise, but they are millions of

dollars apart. Witnesses active in the marketplace, such as Mr. Caufield and Mr. de

Sousa, eschew such methodological terms in their definitions of fair market value.

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[452] I reject the plaintiff’s suggestion that a past relationship between Mr. Newton

and a representative of Ritchie Bros. led to bias in the Ritchie Bros. Appraisal.

There is no evidence to support such an allegation other than speculation on her

part.

[453] I agree that, from a theoretical perspective, the assumptions underlying the

Ritchie Bros. Appraisal conform to a methodological premise of forced liquidation.

The equipment receives 45 days of market exposure. There is an element of

compulsion since once a seller signs a contract with Ritchie Bros., he or she loses

the opportunity to negotiate or control the purchase price. I also accept that, in the

theoretical framework, the ABG remained a going concern and was not in a situation

of forced liquidation.

[454] It is apparent that Mr. Harder took a practical, rather than theoretical,

approach in relying on the Ritchie Bros. Appraisal. He testified that he was aware of

the assumptions on which the Ritchie Bros. Appraisal was based. He believed it

was appropriate to use it, however, because in his valuation experience with

equipment appraisals and vendors, Ritchie Bros. routinely sold the kind of used

logging equipment owned by the ABG, and their prices represented market value for

such equipment. He said that he used the Ritchie Bros. equipment value in both his

going concern and liquidation calculations because be believed that the ABG

equipment value would not change in those scenarios, as long as there was proper

exposure to the market and a logical and reasonable approach to the sale, both of

which he anticipated a Ritchie Bros. auction would provide.

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[455] Mr. Harder said that although he was not familiar with the database or the

comparables used by Ritchie Bros., he knew the firm to be deep in their experience

and in the volume of sales they did for this kind of equipment. As well, he was

aware that they would actually inspect the ABG equipment. Mr. Harder knew that

the Ritchie Bros. appraisers were not accredited, but said he was not concerned

about this as he believed they did credible work based on their experience in the

industry and the market.

[456] In essence, Mr. Harder looked to the marketplace instead of the theoretical

appraisal premises in choosing to use the Ritchie Bros. Appraisal. He argues that

this was justified because of the unique place Ritchie Bros. occupies in the market

for used logging equipment in British Columbia, and says that their appraisal

provided acceptable information as to the market value of equipment like that owned

by the ABG.

[457] To determine whether that approach met the standard of care, it is necessary

to examine exactly what Ritchie Bros. is and does. That information was provided

primarily by Mr. Caufield, the manager of special projects for Ritchie Bros., and by

Mr. de Sousa, an expert witness who works for Finning Canada. Mr. Bowie, Mr.

Schultz, and Mr. Gauthier also provided evidence about Ritchie Bros.

[458] Mr. Caufield testified that Ritchie Bros. originated as an auction firm in

Kelowna 50 years ago, and is now a public company and the largest auction house

and largest seller of used industrial equipment in the world. Its 25 closest

competitors do less than one quarter of Ritchie Bros.’ sales volume, which was over

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$2.7 billion in 2006. Ritchie Bros. carries out 160 industrial auctions a year at 29

auction sites. Two of those sites are in British Columbia, in Surrey and Prince

George. Each conducts four auctions per year. Ritchie Bros. auctions have no

reserve prices. Its business model, which Mr. Caufield described in detail, is based

on aggressive marketing to the widest possible customer base. Mr. Caufield said

that Ritchie Bros. uses a relatively short market exposure to place as much

equipment as possible in its advertising, and to retain customer attention.

[459] He said that Ritchie Bros. sells used equipment on an as is/where is basis.

The only modifications they make are cosmetic, to maximize the return. Ritchie

Bros. provides no representations, guarantees, or warranties. Nor does it provide

lease-to-buy arrangements.

[460] Mr. Caufield said that typically between 900 and 1,500 people attend its

auctions, and purchasers can also bid by telephone in advance. Eighty-five percent

of the sellers are operating businesses, and only 15% tend to be financial

institutions. Eighty percent of the purchasers are end-users, the rest are dealers.

He said that Ritchie Bros. takes care to provide comfortable and convenient facilities

for its customers, and denied that attendance, and therefore price, can be affected

by such factors as weather, location, or date of the auction.

[461] It was Mr. Caufield’s view that, although Ritchie Bros. sells equipment by

auction on a no-reserve basis, its prices represent retail value, or fair market value

for used equipment sold “as is”. He resisted the term “liquidation” in the context of

Ritchie Bros.’ operations, as he said that connotes receivership or a poorly

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advertised distress sale, which is not what Ritchie Bros. does. He maintained that

its advertising, preparation, and presentation distinguishes it from a liquidation

context.

[462] Mr. Caufield agreed that Ritchie Bros.’ appraisal department does not use a

gradient of theoretical premises. Instead, they rely on comparables derived from

prices obtained at their auctions. Although they sometimes look to other sources, he

said they do not use dealer comparables as those represent asking prices, rather

than sales prices, and so are not relevant. Mr. Caufield testified that Ritchie Bros.

uses the same database if they are asked to value equipment to sell.

[463] I acknowledge that Mr. Harder did not call any of the Ritchie Bros. employees

who actually did the Ritchie Bros. appraisal. However, I draw no adverse inference

from that, as the appraisal is an exhibit and the process is largely an averaging

analysis of the Ritchie Bros. data bank, which leaves little scope for personal

judgment.

[464] Mr. Caufield was an admitted advocate for Ritchie Bros., and I would be

reluctant to base my findings with respect to the validity of Mr. Harder’s approach on

his evidence alone. However, his account of Ritchie Bros.’ position in the used

equipment market was corroborated by the evidence of Mr. Tony de Sousa.

[465] Mr. de Sousa testified as an expert in market conditions for used logging and

road-building equipment in British Columbia. He has spent 30 years with Finning

Canada, a large international company that sells and services new and used

equipment, predominantly the Caterpillar brand. Mr. de Sousa has worked in

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logging equipment sales in British Columbia for a number of years, and is presently

Finning’s general manager of equipment services, including all used equipment for

western Canada.

[466] Mr. de Sousa was retained as an expert in an unusual manner. His expertise

came to light through a casual conversation with a friend who was an articled

student in the law firm of Mr. Harder’s counsel. He had not testified as an expert

witness before. He nevertheless impressed me as an objective witness with

considerable practical knowledge of the used equipment market in western Canada.

[467] Mr. de Sousa described Ritchie Bros. as a “huge, huge” competitor of Finning

Canada in used equipment sold on an as is/where is basis, and said that its revenue

in that field far exceeds Finning’s. He testified that Ritchie Bros. plays such a large

part in the used equipment market in western Canada that its auctions are a very

reliable resource as to trends and prices in that market. Finning encourages its staff

to attend Ritchie Bros. auctions to pick up market trends and intelligence about the

competition. He said that in many cases a Ritchie Bros. auction sale is the market at

that point in time. He views both Ritchie Bros. and Finning as retailers selling to

end-users, and says that Ritchie Bros.’ auction prices are very close to Finning’s

prices for equipment sold on an as is basis.

[468] Mr. de Sousa did not deal with equipment values in terms of appraisal

premises. In his view, fair market value is the price at which a seller will sell and a

buyer will buy. He did not view auction sales as equivalent to forced liquidation,

saying that the term liquidation applies only when there are no options. He said that

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Finning’s exposure for equipment is typically three months, after which they either

adjust the price, or take the piece to an auction.

[469] Mr. de Sousa described significant differences in used equipment

comparables drawn from dealers, compared to those from auction sales. He said

that these preclude reliably matching and comparing dealer and auction prices.

Dealers’ prices are generally higher because they sell used equipment with value-

added options such as reconditioning, extras, financing, warranties, or contracts for

repair and maintenance, all of which are not typically available through auctions. As

well, an auction price is a done deal, whereas a dealer price is often a wishful list

price, and says nothing about the final purchase price.

[470] Mr. de Sousa agreed that there is no innate compulsion when shopping at a

dealership, and a dealer’s setting can be more convenient than an auction. As well,

he acknowledged that auction results can be volatile, and are influenced by the

number of bidders. He disagreed, however, that that volatility necessarily means

that auction prices are not competitive with dealer prices, because both work under

the same market forces, and because dealer prices will have some value-added

component.

[471] Mr. de Sousa testified that Finning does not buy equipment at Ritchie Bros.

auctions to “flip it” for a higher price, since Ritchie Bros.’ prices are generally market

value. Finning only buys used equipment at Ritchie Bros. when they can sell it for

more by adding value to it. Finning occasionally sells through Ritchie Bros. where it

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has made a mistake in the market, and cannot make a profit by adding value to the

used equipment.

[472] Mr. Harder’s reliance on Ritchie Bros. was supported by Mr. Bowie. He

testified that, as a valuator, he would be very comfortable relying on a Ritchie Bros.’

Appraisal for the ABG equipment, as the type of equipment owned by the ABG is

commonly bought and sold at Ritchie Bros, and the firm has a good feel for prices in

that field. He said that while they use an auction format, Ritchie Bros.’ sales are not

a forced liquidation. Their auctions are known as a forum where sales take place

without duress. Mr. Bowie testified that Ritchie Bros.’ auction values could

reasonably be expected to reflect market value or orderly liquidation value for such

equipment.

[473] Mr. Bowie said that he would find a Ritchie Bros. Appraisal of the ABG

equipment met the requirements of Specific Valuation Standard 120 VI of the CICBV

set out at paragraph [374] of these reasons, which sets the standard by which a

valuator assesses the adequacy of a report from a specialist on which he relies.

[474] Mr. Bowie did not view using the Ritchie Bros. Appraisal as inconsistent with

a going concern valuation as, in his view, it represented market value, which is what

the equipment would sell for absent a distress situation. For the same reason, Mr.

Bowie did not have difficulty with Mr. Harder’s decision to use the Ritchie Bros.

Appraisal in both a liquidation valuation and a going concern valuation.

[475] Mr. Shultz had limited personal experience with Ritchie Bros. However, he

offered the view that by virtue of its sales volume, Ritchie Bros. is the closest thing to

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a stock market for used equipment, and satisfies the definition of fair market value.

He disagreed that a sale at a Ritchie Bros. auction represents forced liquidation.

[476] Although language difficulties sometimes interfered with the clarity of his

evidence, Mr. Gauthier testified that a Ritchie Bros. auction with merchandise

exposed to the market for 45 days is not a forced liquidation. He said there are

three markets for used equipment based on quality, standards, and guarantees

under which the equipment is sold. The first is dealers in new equipment who offer

used equipment certified to manufacturers’ specifications. The second is used

equipment sales offering equipment with added value. The third is an auction where

repairs are done for appearance only, and the equipment is sold on an as is basis

with no guarantee. Prices generally follow that scale, but Mr. Gauthier said that in

western Canada the auction market is very strong. Mr. Gauthier testified that he

relied heavily on Ritchie Bros.’ comparables in doing the GEC appraisal on an

orderly liquidation value premise.

[477] Mr. Harder points to footnote 8 in Chapter 1 of the 2000 Edition of the ASA

Text at 19 as support for the view that auction prices may represent orderly

liquidation value in some circumstances:

The term auction usually refers to forced liquidation value, but there

are exceptions to this general rule; for example, in certain industries,

an auction is the standard industry method for disposing of assets, in

which case it may be equal to orderly liquidation value, assuming a

normal exposure time (and may be equal to fair market value under

certain conditions). The essential difference between orderly

liquidation value and forced liquidation value is one of exposure time.

[emphasis in original]

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This view is repeated at page 7 of the AA Appraisal. Mr. Martins acknowledged that

orderly liquidation value can be achieved at a properly advertised and conducted

auction sale.

[478] I conclude that the plaintiff has failed to establish that Mr. Harder’s use of the

Ritchie Bros. Appraisal as representative of the fair market value of the ABG

equipment was unreasonable. I find that Ritchie Bros. auctions do not fit easily into

the theoretical auction or forced liquidation appraisal premises. While aspects of its

auctions are consistent with those premises, I am satisfied that its sales volume,

clientele, and marketing process give it a unique place in the market for used logging

equipment sold on an as is basis in British Columbia, and support the view that its

auction prices can reasonably be taken to be representative of fair market value for

such equipment. There is nothing to suggest that the ABG equipment would be sold

with value-added features, or as anything other than used equipment available on an

as is basis.

[479] The selection of a suitable equipment appraisal by a valuator is essentially a

question of professional judgment. I am not convinced that it was unreasonable for

Mr. Harder to adopt a practical, as opposed to theoretical, approach in deciding that

the Ritchie Bros. Appraisal represented fair market value. In reaching that

conclusion I place considerable weight on Mr. Bowie’s view that the use of a Ritchie

Bros. appraisal for the ABG equipment would satisfy the professional standards of

the CICBV. As well, the multiple interpretations and results of the theoretical

appraisal premises in the appraisal evidence led at this trial suggests that the

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theoretical approach can produce inconsistent and widespread results, and does not

preclude a practical approach that is based on a local market.

[480] I find that Mr. Harder’s reliance on the Ritchie Bros. Appraisal was not a

breach of the standard of care of a reasonably competent valuator.

4)

Failing to properly reconcile differences in equipment values

[481] The plaintiff argues that Mr. Harder neglected to adequately reconcile the

differences in the capital asset list of the ABG compared with the asset list in the AA

Appraisal and the Ritchie Bros. Appraisal.

[482] I have found that it was appropriate for Mr. Harder to reject the AA Appraisal.

There is accordingly no basis for finding him at fault for not performing a

reconciliation related to that appraisal.

[483] Mr. Harder did reconcile the ABG capital asset list of October 31, 2000 with

the Ritchie Bros. Appraisal in reaching a final value for the equipment as of October

31, 2000. First, he deducted any equipment covered by the Ritchie Bros. Appraisal

that had been purchased since that date. His reconciliation of the remaining

equipment with the ABG asset list revealed about 253 pieces that had not been

appraised by Ritchie Bros. The vast majority of these were the miscellaneous

equipment, although there were some larger pieces as well.

[484] Mr. Harder reviewed each of these assets with Mr. Brewer and Mr. Newton at

their meeting on February 9, 2001, and they reached “agreed upon values” for most.

In many cases, these were the net book value. For others, Mr. Harder reached his

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own adjusted value based on the information they provided. This exercise produced

a final value of $435,595 for the 253 items.

[485] Mr. Harder testified that he did not find it necessary to adjust his final

equipment value upward to recognize depreciation between October 30, 2000 and

February 1, 2001 as logging stopped over the winter and the equipment had had

little use during those months.

[486] These adjustments produced Mr. Harder’s final equipment value of

$4,889,800 in his valuation.

[487] I can find no basis on which to criticize this process. Mr. Bowie confirmed

that it is common to accept either net book value or some other estimate of value in

such cases. Significantly, Mr. Barbour adopted Mr. Harder’s values for the

miscellaneous equipment in calculating his final equipment value for his valuation. I

note that the miscellaneous equipment was not valued at all by the Springer

Appraisal, and was valued at considerably less than Mr. Harder’s value by the GEC

Appraisal.

[488] The plaintiff complains that Mr. Harder did not discuss these adjustments with

her and she did not authorize them. In my view, these adjustments fell within the

realm of Mr. Harder’s professional judgment and expertise, and were not a matter on

which he had to seek instructions.

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[489] I can find no basis for concluding that Mr. Harder breached the standard of

care of a reasonably competent chartered business valuator in the manner in which

he reconciled the equipment list to provide a final value.

5)

Failing to provide appropriate advice to the plaintiff about a third

equipment appraisal

[490] The plaintiff says that, given the discrepancy between the AA Appraisal and

the Ritchie Bros. Appraisal, she did not receive adequate advice from Mr. Harder

about the purpose and importance of a third appraisal based on a higher

methodological premise than that used by Ritchie Bros., so that she could assess

her possible range of outcomes. She says that, had she received such advice, she

would have obtained a third appraisal which would undoubtedly have been higher

than the Ritchie Bros. Appraisal, and would have significantly increased the value of

her shares. She acknowledges that Mr. Newton would likely have refused to settle

based on that higher value, and she would therefore have proceeded to trial with the

higher valuation.

[491] The plaintiff’s position is based on Mr. Barbour’s view, expressed in Report

#2, that the standard of practice required a valuator faced with divergent appraisals

to advise the client and her counsel that a third party equipment appraisal based on

value-in-use methodology was “required and essential”. Mr. Barbour’s opinion has

been rendered obsolete to some extent by my findings that a value-in-use

methodology could not be supported by the ABG’s earnings, and that Mr. Harder

was entitled to rely on the Ritchie Bros. Appraisal. It nevertheless does raise the

issue of Mr. Harder’s role in consideration of a third appraisal.

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[492] Mr. Bowie agreed with Mr. Barbour to a limited extent. He concurred that a

valuator should raise an independent appraisal as an option with a client who is

unhappy with an existing appraisal, if the valuator has no other credible and

independent information on which to rely. He did not agree that it was essential to

recommend a value-in-use methodology for any new appraisal.

[493] Mr. Shultz testified that a valuator may or may not discuss another appraisal

and its likely result with the client and her counsel in these circumstances. It was his

view that the valuator’s mandate is not to strain for a high value, but to give a value

that he can support and with which he is comfortable.

[494] As an independent expert retained to provide an objective valuation, I find

that Mr. Harder was not subject to a broad duty to fully advise and inform the plaintiff

with respect to strategic decisions to advance her best options in her matrimonial

dispute. I therefore do not accept that he was obliged to advocate a third appraisal,

or advise her that it was “required and essential”, when he was satisfied with the

Ritchie Bros. Appraisal. I find that the standard of care required that he simply raise

the option of another appraisal with the plaintiff, if she was unhappy with the Ritchie

Bros. equipment value, and leave it to her to decide whether she wished to pursue it.

[495] I am satisfied that Mr. Harder did so at the meeting with the plaintiff and Mr.

Hubley on March 15, 2001. I accept Mr. Hubley’s recollection of that meeting, which

confirms that Mr. Harder raised an alternative appraisal and its likely price with the

plaintiff. While Mr. Harder has little recollection of the meeting, I accept his evidence

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that his note of “$12,000 to $15,000 plus disbursements” on that day refers to the

estimated cost of a third appraisal obtained from Mr. Pearson.

[496] The plaintiff says that Mr. Harder knew that GEC had appraised the ABG

equipment for $5.3 million, and that Mr. Pearson had advised him that, if he did an

appraisal, his value would be somewhere between the AA Appraisal and the Ritchie

Bros. but closer to Ritchie Bros. She says that Mr. Harder should have shared this

information with her in discussing a third appraisal.

[497] I accept that Mr. Harder did not give the plaintiff that information. However, I

am not convinced that this represented a breach of the standard of care, given my

finding as to the narrow ambit of his obligation. For the reasons set out later in this

judgment, I find the responsibility to fully inform and advise the plaintiff about another

appraisal lay with Mr. Marzban as her advocate. In my view, it was sufficient for Mr.

Harder to alert the plaintiff to the possibility of a third appraisal and await some

indication from her that she wished to pursue this course.

[498] The plaintiff gave no such indication. I am satisfied that she knew that a

higher equipment value would increase the value of her shares, and that Mr. Hubley

had told her that she could challenge Mr. Harder if she was unhappy with his

approach. I find that she discussed the option of a third appraisal at some length

later with Mr. Hubley. However, she did not evince any interest in pursuing this, or

even raise the obvious query with him or Mr. Harder as to what the likely result of

another appraisal would be.

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[499] Mr. Harder testified that when he wrote his memorandum of April 20, 2001 he

was still uncertain as to whether the issue of getting another appraisal had been

resolved. He accordingly made it clear in that memorandum that his valuation was

based on the Ritchie Bros. equipment value. I find that the plaintiff proceeded to

negotiate the settlement knowing that it was based on the Ritchie Bros. Appraisal,

and aware that she could have obtained a third appraisal had she wished to do so.

[500] Finally, I am not satisfied in any event that Mr. Harder knew that Mr.

Pearson’s view was that his appraisal would be somewhere between the AA

Appraisal and the Ritchie Bros. Appraisal but closer to Ritchie Bros. Neither he nor

Mr. Harder had a complete recollection of their dealings. Both agreed that Mr.

Harder had only sent Mr. Pearson a part of the AA Appraisal, and none of the

Ritchie Bros. Appraisal.

[501] Mr. Harder said Mr. Pearson told him that the AA Appraisal was high. He did

not recall him saying anything about the Ritchie Bros. Appraisal.

[502] Mr. Pearson testified that he told Mr. Harder that the AA Appraisal was too

high, and his value would be closer to Ritchie Bros. It is not clear to me how he

could have made that statement, however, when he had not seen the Ritchie Bros.

Appraisal. Moreover, by coincidence, Mr. Barbour consulted Mr. Pearson in 2004

for an opinion on this case. He sent Mr. Pearson complete copies of both

appraisals, and asked for a “gut feeling” report on why two auction values would be

so different. Mr. Pearson, having forgotten his earlier dealings with Mr. Harder,

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wrote back to Mr. Barbour advising that the Ritchie Bros. Appraisal was “nearer the

mark”.

[503] Given the fact that Mr. Harder did not send Mr. Pearson the Ritchie Bros.

Appraisal, the divergent evidence of Mr. Harder and Mr. Pearson as to whether

Ritchie Bros. was mentioned in their conversation, and the similarity of Mr.

Pearson’s account of his opinion to Mr. Barbour, I believe that Mr. Pearson may be

mistaken in believing that he gave his opinion on the two appraisals to Mr. Harder,

and in fact gave it to Mr. Barbour instead.

[504] I find that Mr. Harder met the standard of care of a reasonably competent

business valuator in raising the option of a third appraisal with the plaintiff and

awaiting her instructions as to whether she wished to explore this.

Failing to take into account equity held by the ABG in leased equipment

[505] The plaintiff argues that Mr. Harder breached the standard of care by failing to

obtain and review the ABG equipment leases and purchase agreements to evaluate

the equity it had in leased assets. As a result, he undervalued the equipment.

[506] The evidence indicated that logging companies commonly buy equipment by

arranging leases with a purchase option. There are two types of leases. Capital

leases are similar to a financing arrangement, and provide a right to apply payments

to the purchase price if the lessee decides to buy the equipment. Thus, equity

accumulates, and the ultimate buy-out value is less than the market value.

Operating leases are straight rental agreements. No equity accumulates, and at the

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end of the term the lessee may return the equipment or negotiate a buy-out. The

buy-out price is typically set at estimated market value as of the buy-out date.

[507] It is common ground that the ABG was leasing some equipment during 2000

and 2001.

[508] Mr. Barbour testified that Mr. Harder should have been cognizant of the

potential equity in that equipment, and should have reviewed the leases to

determine if such equity existed. If so, that should have been included in the

equipment value. He says that Mr. Harder’s failure to do this led him to

underestimate that value.

[509] Mr. Harder testified that he was aware of the potential equity in leased assets

and asked Mr. Brewer about this. Mr. Brewer told him that the AA Appraisal did

include leased equipment, but it was there by mistake as the ABG had no ownership

interest in that equipment. Mr. Harder said that he then checked this information by

reviewing the ABG financial statements, since the generally accepted accounting

principles (“GAAP”) require disclosure of capital leases that give economic

ownership to the lessee in the financial statements. He found that no leases were

disclosed, and so concluded that any leases were operating leases and did not need

to be included in the equipment value. He did not investigate further by asking Mr.

Brewer to produce the leases.

[510] Mr. Hubley confirmed that, from a tax perspective, it is beneficial for a

company to record its capital leases in its financial statements. He said he would

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have expected the ABG to record them since they were trying to raise capital during

this time, and inclusion of the leases would enhance their reported assets.

[511] Mr. Bowie agreed that GAAP require that capital leases be reflected in

financial statements. He said that if they are not, it is reasonable for a valuator to

conclude that the company has no capital leases. While it may have operating

leases, he would not expect significant equity in those. He said that he would not be

surprised if a valuator preparing a report at the level of an estimate did not do any

further investigation into this.

[512] Mr. Shultz agreed with Mr. Barbour that it is reasonable for a valuator to

review equipment leases to ascertain off-balance sheet equity, and said that he

would ordinarily do this. Nevertheless, he said that in this case the fact the financial

statements were prepared in accordance with GAAP by a professional accountant

permitted Mr. Harder to accept Mr. Brewer’s advice that they were operating leases,

particularly in the context of a review engagement. Mr. Shultz conceded, however,

that this view was informed to a degree by the fact that he did not know whether the

amount involved was significant.

[513] Mr. Cheevers said that when valuing a company, he looks to see how the

company records its lease payments in its financial statements since there may be

equity built into them. He said that if capital lease payments are recorded as an

operating expense, this has a tendency to understate income and make it necessary

to examine what is recorded as the cost of capital assets. He agreed that at a

minimum he would look at the lease contracts to understand the terms.

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[514] As mentioned earlier in these reasons, General Standard III of Standard 120

of the CICBV states that determining the evidence necessary to support a valuation

is a matter of professional judgment, to be exercised in light of the nature of the

valuation and the use to which the report will be put. Mr. Harder was to provide an

estimate, which represents a middle level of assurance. The expert evidence

discloses two acceptable approaches to exploring the issue of equity in leased

equipment when the valuator has access to financial statements prepared in

accordance with GAAP. Mr. Harder did not ignore the possibility of equity in leased

equipment. He chose one of those approaches. In my view, that was a reasonable

exercise of his judgment, and cannot be said to fall below the acceptable standard.

Failure to discount the tax shield foregone

[515] It was common ground that the calculation of the tax shield foregone is a

necessary step in a tangible asset backing calculation. The tax shield foregone is an

artificial calculation that represents the difference in tax implications attendant on the

purchase of a company’s assets as opposed to the purchase of its shares. When

assets are purchased, the recorded cost of the assets in the transaction is their fair

market value. When shares are purchased, the recorded cost of the assets is their

depreciated value. Thus, a purchaser of assets has a better tax position as he or

she will be able to depreciate the assets on a higher cost base. As a result, a

purchaser of shares is entitled to a reduction in their value to compensate for their

less favourable tax position. The tax shield foregone is the present value calculation

of the tax saving that would be obtained by a purchaser of assets, and is deducted

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from the tangible asset value to place the purchaser of shares in the same position

as a purchaser of assets.

[516] Mr. Harder calculated the tax shield foregone at $724,900, and entered that

as a deduction in his tangible asset backing calculation.

[517] It was Mr. Barbour’s opinion that Mr. Harder should have discounted that

deduction by 50%, as there was no indication that Mr. Newton was contemplating an

imminent sale of the ABG shares to a third party. Mr. Barbour conceded that he was

not aware of any authority for this proposition in either the valuation or legal field.

Nevertheless, he said it was maintainable because the courts in matrimonial

disputes commonly discount latent income taxes by up to 50% where the disposition

of an asset is not imminent. Since the tax shield foregone is based on a proposition

that there will be a future sale, the timing of which is uncertain, he says that a similar

discount should apply by analogy.

[518] Plaintiff’s counsel also argued that Mr. Harder failed to consider the fact that

Mr. Newton was both the buyer of the plaintiff’s shares, and also an owner as a 50%

shareholder in the ABG. He would never have bought the assets of the ABG due to

the tax consequences, and so did not have the leverage of an ordinary buyer to

choose between buying assets or shares. He says it was therefore inappropriate to

deduct the tax shield foregone.

[519] I do not accept these arguments. The weight of the expert evidence clearly

indicates that the deduction of the tax shield foregone in its entirety is an inherent

step in the tangible asset backing calculation of the fair market value of corporate

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shares. The concept makes no assumption as to a future disposition. It is based on

a compensatory notion related to the manner in which the present sale is taking

place. Nor does it make any assumption as to who the purchaser is. Fair market

value by definition deals with a hypothetical arms length transaction.

[520] In Tearle v. Tearle (January 24, 1985), Vancouver 5936/D140458 at 20 - 21,

[1985] B.C.W.L.D. 666 (P.C.) (S.C.) [Tearle], Rowles L.J.S.C., as she then was,

provided the following summary of tax liabilities in the division of matrimonial assets:

In respect to Mr. Maxwell's argument, I question whether it is

possible to set forth any absolute rule as to what tax liabilities should or

should not be taken into account by the Court when determining a

division of assets between spouses, because the circumstances of

each particular case must surely be considered. Generally, however, it

appears to me that:

(a) those taxes which are taken into account by valuators in

arriving at a fair market value of an asset are an integral

consideration in ascribing a value to an asset, and on that basis

would be allowed by the Court;

(b) Tax liabilities which are likely to arise as an immediate

consequence of a division of assets made under the Family

Relations Act may be taken into account by a Court in adjusting

the division of assets between spouses, assuming that those

taxes do not overlap with those considered in arriving at the fair

market value;

(c) There is no obligation on the Court to take hypothetical or

speculative future tax liabilities into account in either arriving at

a value to be ascribed to an asset, or in adjusting a division of

assets between spouses.

In my view, the tax shield foregone clearly fits into paragraph (a) of that analysis.

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[521] I reject Mr. Barbour’s view that Mr. Harder breached the standard of care of a

reasonably competent chartered business valuator in deducting the entire tax shield

foregone in the course of his tangible asset backing valuation.

Inappropriately acting as an advocate in the plaintiff’s matrimonial dispute

[522] This allegation arises from paragraph 38 of the Statement of Claim. The

plaintiff argues that Mr. Harder became inappropriately involved in negotiating her

matrimonial dispute with Mr. Brewer, a role that was properly Mr. Marzban’s. She

points to Mr. Harder’s notes of late March and April 2001, which include references

to offers and advice on negotiations.

[523] It is difficult to understand how this allegation could be related to any specific

outcome that would influence the plaintiff’s decision to settle rather than go to trial. I

nevertheless make the following observations and findings.

[524] While it appears that the plaintiff and Mr. Newton believed that Mr. Brewer

and Mr. Harder were negotiating throughout their discussions, I am not satisfied that

this was the case. Up to the end of March 2001, there is little to suggest that their

discussions dealt with anything more than fact-finding and exchanging the

information necessary for Mr. Harder’s valuation. On March 30, Mr. Harder did

convey an offer from Mr. Brewer to the plaintiff with some comments. There are also

documents in which Mr. Harder records dealing with “offers” thereafter. However, in

mid-April he declined Mr. Hubley’s request to become involved in the negotiations.

His memorandum of April 20, 2001 was clearly designed to assist the plaintiff in

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settlement negotiations, but Mr. Harder’s duties ended at that point. He had no

involvement in the subsequent negotiations that led to the settlement.

[525] I am not convinced that Mr. Harder was directly involved in settlement

negotiations. He did testify that, having provided advice on the negotiations, he

might have had to consider at a later date whether he could continue to act as an

independent expert if the matter proceeded to trial. I do not see that admission

leading to liability in this action. I find Mr. Harder was not in breach of the standard

of care with respect to this allegation.

Conclusion with respect to Mr. Harder and BDO Dunwoody LLP

[526] I conclude that Mr. Harder and BDO Dunwoody LLP did not breach the

standard of care of a reasonably competent chartered business valuator and

partnership in providing advice and services to the plaintiff. The action against them

is dismissed.

THE ALLEGATIONS AGAINST MR. HUBLEY

[527] The plaintiff argues that Mr. Hubley breached the standard of care of a

reasonably competent chartered accountant by providing erroneous advice as to the

value of her shares in the ABG. She says that he also failed to advise her properly

with respect to the importance of investigating the large discrepancy between the AA

Appraisal and the Ritchie Bros. Appraisal, and the implications of using the Ritchie

Bros. Appraisal in the valuation. As well, she says that he breached the standard of

care when he agreed to negotiate the settlement of her matrimonial dispute. She

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alleges that he was not qualified to undertake such a negotiation and, as a result,

gave her erroneous and inadequate advice, and made concessions that were

inconsistent with what a court would have done had the matter proceeded to trial.

[528] At paragraphs [310] to [316] of these reasons, I described the difficulties in

identifying the precise allegations against Mr. Harder and Mr. Hubley in the

pleadings. Those problems have been particularly acute in the case of Mr. Hubley,

as the Statement of Claim contains no particulars pertaining to him alone. As well, I

have found that the plaintiff could not have obtained a better settlement. She is

accordingly limited to the allegations that Mr. Hubley’s actions or inaction led her to

accept the settlement instead of proceeding to trial.

[529] Taking a generous view of the Statement of Claim and the manner in which

the case against Mr. Hubley was presented and defended, I have concluded that the

following list, cross-referenced to the paragraph numbers in the Statement of Claim,

fairly represents the allegations against him:

1.

Allegations arising before Mr. Hubley undertook the negotiations:

a)

b)

providing negligent advice with respect to the range of values of

the plaintiff’s interest in the ABG [para. 33(a)];

failing to advise the plaintiff appropriately with respect to the

discrepancies in the Ritchie Bros. and AA Appraisals, and the

implications of using the Ritchie Bros. Appraisal in the valuation

[paras. 27(h), 33(d)]; and

c)

providing erroneous advice with respect to spousal support

[para. 27(a)].

2.

Negligent advice and representation in the negotiations [para. 36]:

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a)

b)

c)

d)

e)

undertaking the negotiation when he was not qualified to do so

[para. 38];

providing erroneous advice with respect to tax issues during the

negotiations [para. 33(a)];

failing to make adequate inquiry and investigation regarding

Westwood [paras. 27(i) and (j)];

failing to advise the plaintiff with respect to the benefits of

obtaining documents from third parties [27(e)];

failing to advise the plaintiff as to the appropriate valuation date,

and failure to obtain updated financial information [para. 27(l)];

and

f)

providing advice that led the plaintiff to settle her matrimonial claim

instead of proceeding to trial [para. 36].

The evidence with respect to the standard of care

[530] While there are a number of decisions dealing with the standard of care of

chartered accountants, most involve accountants in the role of auditors. I find that

these are not apposite to Mr. Hubley’s role here as advisor and negotiator. I

accordingly rely on the evidence of Mr. Barbour and Mr. Schultz, as well as the

standards of the ICABC where appropriate, to establish the standard of care that

governs Mr. Hubley.

[531] Mr. Barbour’s Report #3 deals with the standard of practice of a chartered

accountant. I have stated some of my concerns about that report and Mr. Barbour’s

evidence at paragraphs [322] to [326] of these Reasons, and will not repeat them

here. I add the following observations that are relevant to his evidence concerning

Mr. Hubley.

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[532] Although Mr. Barbour has been a chartered accountant and member of the

ICABC for over 30 years, he has practised as a chartered business valuator since

1988, and as a specialist in investigative and forensic accounting since 2000. Thus,

he has had little recent experience working purely as a chartered accountant.

[533] Report #3 is largely devoid of a factual basis, and deals with a hypothetical

generic chartered accountant engaged to assist a party in a matrimonial dispute. It

nevertheless embarks on a selective critique of the conduct of that generic

accountant that is clearly based on a fuller but unexpressed view of the facts related

to this case. It is difficult to understand why Mr. Barbour was unwilling to include

those assumed facts in his report, as required by the Rules of Court.

[534] During Mr. Barbour’s testimony, it became apparent that a number of his

unexpressed factual assumptions were not representative of what actually occurred

in this case. For example, Mr. Barbour testified that he believed Mr. Hubley used

Mr. Harder’s liquidation value in negotiating the settlement, instead of his going

concern valuation. When cross-examined on the basis for that belief, it was clear

that this was mere surmise on his part. Mr. Barbour ultimately conceded that he did

not know exactly what Mr. Hubley was retained to do, what instructions he received

from the plaintiff, or what he actually did do. As a result, much of Report #3 is

unrelated to the pleadings or the facts, and his views are of limited assistance to the

plaintiff in her claim against Mr. Hubley.

[535] Mr. Schultz was called by Mr. Hubley to give expert evidence as to the

standards and practices of a chartered accountant. While he is both a chartered

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accountant and chartered business valuator, he brings considerable expertise to his

commentary on the duties of chartered accountants, as he has held a number of

positions with the ICABC during his career, including serving as the President of that

organization in 1988-89. He remains a member of its Standards Appeal Board. Mr.

Shultz’s report is based on a lengthy statement of assumed facts, most of which

have been established in the evidence at the trial.

[536] These observations lead me to place more weight on the evidence of Mr.

Schultz where the opinions of the experts diverge.

Allegations arising before the negotiations

[537] Before dealing with the allegations in this section, I make the following

findings with respect to the context in which they occurred.

[538] I find that from the outset of his dealings with the plaintiff, Mr. Hubley made it

clear to her that he had no experience in matrimonial matters, and that he was not a

lawyer or a valuator. I find that the plaintiff understood that.

[539] I find that from May 2000 to the end of April 2001, Mr. Hubley’s role was

essentially limited to providing support to the plaintiff, and seeing her into the hands

of appropriate legal and valuation professionals. Once Mr. Harder and Mr. Marzban

were retained, I find Mr. Hubley became what Mr. Marzban referred to as the

“communication hub” between them and the plaintiff, and they often dealt with her

through Mr. Hubley. I find that this pattern developed with the plaintiff’s knowledge

and consent, for reasons of convenience since she and Mr. Hubley were both in

Nanaimo, and because she was comfortable with Mr. Hubley. I find, however, that

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Mr. Hubley continually reinforced and explained to the plaintiff the distinction

between his limited role, and those of Mr. Harder and Mr. Marzban.

1)

Providing negligent advice with respect to the value of the plaintiff’s

shares

[540] The plaintiff, supported by Mr. Barbour, says that Mr. Hubley breached the

standard of care in preparing the spreadsheet of share values to show her in May

2000. Mr. Barbour says that Mr. Hubley’s calculations were neither a liquidation

approach nor a going concerning calculation, and he erred in deducting full latent

income taxes in his calculations, making his range of $900,000 to $2 million for the

ABG shares too conservative. The plaintiff argues that this erroneous calculation

gave her a misleading and lasting impression as to the likely value of her shares,

and contributed to her decision to settle her claim unwisely in that range in October

2001.

[541] The evidence does not support this allegation. Mr. Barbour’s opinion shows

no understanding of the limited purpose for which the spreadsheet was prepared, or

the context in which Mr. Hubley explained it to the plaintiff. In Mr. Hubley’s words, it

was a “quick and dirty” conservative estimate based on hypothetical numbers that he

prepared for the limited purpose of demonstrating to the plaintiff that the ABG

equipment value was directly related to the value of her interest in the company.

[542] The plaintiff testified that she knew that these values were hypothetical, and

that she grasped their limited purpose. In the ensuing months, Mr. Hubley

consistently advised her that there was insufficient financial information to reliably

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assess the value of the ABG until Mr. Harder finished his valuation. The plaintiff

testified that she chose her target number for the negotiations based on the

information from Mr. Harder.

[543] I conclude that there is no basis for a finding of liability arising from Mr.

Hubley’s preparation of this document.

2)

Failure to advise appropriately with respect to the equipment appraisals

[544] The plaintiff alleges that Mr. Hubley failed to properly advise her about the

importance of obtaining a third appraisal. She argues that instead of accepting the

Ritchie Bros. Appraisal and Mr. Harder’s valuation based on it, Mr. Hubley should

have ensured that she obtained an independent appraisal to develop her best

position before deciding what to do in the negotiations.

[545] At the time the issue of the third appraisal arose, Mr. Hubley was in a

supportive role. He believed that Ritchie Bros. was a reputable firm, and he knew

that Mr. Harder found their appraisal acceptable. He was not a valuator, and had no

reason to doubt Mr. Harder’s view, apart from the fact that the plaintiff was unhappy

with the Ritchie Bros. Appraisal equipment value.

[546] I have earlier found that Mr. Hubley and the plaintiff discussed the option and

cost of a third appraisal with Mr. Harder at a meeting on March 15, 2001. I find that

on March 26, 2001, Mr. Hubley and the plaintiff had a more extensive discussion

about a third appraisal. I am satisfied that at this meeting they discussed the fact

that Mr. Newton and Mr. Brewer were unhappy with Mr. Harder’s numbers based on

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the Ritchie Bros. Appraisal, and whether another appraisal would advance the

negotiations. I accept that Mr. Hubley told the plaintiff that if she felt she was not

being treated fairly, she could take the matter to court. I find that Mr. Hubley later

discussed with the plaintiff Mr. Harder’s memorandum of March 30, 2001, in which

he confirmed that Mr. Newton and Mr. Brewer were not keen on having a third

appraisal.

[547] Neither Mr. Barbour nor Mr. Schultz provided opinion evidence on the

standard of practice expected of a chartered accountant in these circumstances.

[548] In my view, Mr. Hubley had no obligation in his supportive role to do more

than raise the option of another appraisal with the plaintiff, and let her decide

whether she wanted to pursue it. The plaintiff knew that a higher appraisal would

increase her share value, and that Mr. Harder had obtained a quote on the likely

cost from another appraiser. It was left open for her to ask Mr. Hubley to make

further inquiries if she wished to pursue this.

[549] An examination of the entirety of the plaintiff’s conversations with her advisors

about a third appraisal satisfies me that she decided against that course because

Mr. Newton was opposed to it, and she did not want to upset him, or delay or derail

the prospect of a settlement by putting forward a new and higher value for her

shares. In my view, that finding is supported by the fact that in April the plaintiff

complained to Mr. Hubley that Mr. Harder’s valuation was too high and that she was

concerned that she would not be able to settle with Mr. Newton because of that.

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[550] I conclude there is no basis for a finding of liability against Mr. Hubley on this

ground.

3)

Providing erroneous advice about spousal support

[551] The plaintiff says that she did not pursue a claim for spousal support, or

discuss it with Mr. Marzban, because Mr. Hubley told her that she was not entitled to

it due to her age. She also alleges that during the negotiations Mr. Hubley conceded

her claim for spousal support in order to reach a settlement. I choose to deal with

both issues in the present context for reasons of convenience.

[552] If Mr. Hubley gave the plaintiff advice about support, he would clearly be in

breach of the standard of care of a reasonable accountant. Advice with respect to

spousal support lies within the province of the legal advisor.

[553] Mr. Hubley denied that the conversation alleged by the plaintiff took place.

He said that he did not give her any advice on spousal support, and told her to deal

with her lawyers on this issue. He acknowledged that at one point he did have a

general conversation about support with her, and mentioned that one of his partners

had been through a divorce and did not pay spousal support. He then directed her

to deal with her lawyer on the issue of support.

[554] The plaintiff denied that conversation took place.

[555] Contrary to the plaintiff’s evidence, I find it clear that spousal support

remained a live issue, properly in the hands of her legal advisors, throughout her

matrimonial dispute, and that she knew this to be so. From the outset, Mr. Newton

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was firm that he would not pay support. I find that Mr. Lobay advised the plaintiff of

her entitlement to spousal support, particularly at the time she signed the

postponement of support. I find that both he and Mr. Marzban advised her that her

right to support could only be determined once the division of assets was known.

The issue of support was therefore put to one side until the assets had been dealt

with. Mr. Marzban included a claim for support in the plaintiff’s counterclaim.

[556] I find that on April 20, 2001 the plaintiff made a note recording a query about

alimony directed to Mr. Marzban, and on June 25, 2001 she made a note at a

meeting with Mr. Hubley indicating her intention to contact Mr. Marzban about

support. I am satisfied that these notes clearly show that she was aware that her

claim for spousal support remained outstanding.

[557] There is nothing in Mr. Hubley’s evidence or his extensive record of the

settlement negotiations to suggest that he and Mr. Brewer dealt with spousal support

during their negotiations. The agreement they reached in August 2001 contained no

provision with respect to support. The mutual release of spousal support appeared

later, in the draft agreement prepared by Mr. English, and Mr. Marzban raised it with

the plaintiff at their meeting on October 2, 2001.

[558] I conclude that the plaintiff has failed to establish that Mr. Hubley took any

action that limited her entitlement to spousal support or affected her decision not to

pursue it.

Newton v. Marzban

Negligent advice and representation during the negotiation of the settlement

1) Undertaking the negotiation without proper qualifications

Page 172

[559] I accept Mr. Hubley’s evidence that on April 23, 2001 the plaintiff instructed

him to undertake the negotiation of her interest in the ABG because she was

concerned that Mr. Harder and Mr. Brewer were too confrontational, and because

she felt that Mr. Hubley understood the logging industry and was thus in a better

position than Mr. Marzban to counter the issues being put forward by Mr. Brewer. I

find that Mr. Hubley agreed to her request on the condition that it be restricted to a

commercial negotiation. I accept his evidence that he told the plaintiff that he could

not deal with her entitlement to personal assets or other legal issues that might arise

in the negotiations, and that she must look to Mr. Marzban for advice on those

matters.

[560] I find that, as an accountant, Mr. Hubley was qualified to undertake a

commercial negotiation of the value of corporate shares. As mentioned previously,

the rules of the ICABC permit accountants to act as advocates, as long as they do

not practise law. Mr. Hubley had the appropriate background and experience, and

was to conduct negotiations with Mr. Brewer, who was also an accountant. He was

familiar with the parties and the history of their dispute, and had their trust.

[561] The plaintiff argues, however, that Mr. Hubley should not have undertaken

this negotiation as the matrimonial setting introduced issues beyond his commercial

expertise that he was not qualified to assess, and on which he could not provide

proper advice. She says that his inadequate and erroneous advice during the

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negotiations led her to accept the settlement instead of proceeding to trial, where

she would have obtained a better result.

[562] Mr. Barbour and Mr. Schultz agreed that accountants may negotiate

commercial matters, but both warned that in such situations the distinction between

legal and financial advice is not always clear. There is inevitable overlap.

[563] Mr. Barbour accordingly offered the opinion that a chartered accountant

should not conduct a negotiation in a matrimonial context due to the risk that lack of

familiarity with matrimonial law will lead him or her to misjudge the issues, and

provide erroneous advice.

[564] Mr. Shultz, on the other hand, said that an accountant in these circumstances

may offer valuable assistance to counsel, but to meet the standard of practice and

avoid the acknowledged risk described by Mr. Barbour, the accountant should

ensure that the client has engaged a lawyer from the outset. He of she should also

make it clear to the client, ideally in writing, that the final advice on all matters

respecting her rights, obligations, and potential trial outcomes must come from that

legal advisor.

[565] I give Mr. Shultz’s evidence greater weight for the reasons discussed earlier,

and accept his view of the standard of practice. Did Mr. Hubley meet that standard?

[566] I find that throughout his dealings with the plaintiff, Mr. Hubley ensured that

she had legal representation and advice. She was initially represented by Mr.

Lobay. When she wished to change counsel, Mr. Hubley helped her find and retain

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Mr. Marzban, an expert in the field of matrimonial law. He also consulted

periodically with Mr. Voith on the plaintiff’s instructions. In deciding whether to

accept the settlement, the plaintiff received advice from both Mr. Marzban and Mr.

English, who had also been retained by Mr. Hubley.

[567] I find that Mr. Marzban knew that the plaintiff had instructed Mr. Hubley to

negotiate on her behalf, and that he condoned this. I am satisfied, however, that Mr.

Marzban did not relinquish his role as the plaintiff’s legal advisor during the

negotiations, a finding that I discuss in more detail later in these Reasons. I am

satisfied that the plaintiff understood the distinctive roles of her advisors, and that

she knew that she must deal with Mr. Marzban on legal issues. I accept that Mr.

Hubley reinforced that during the negotiations, advising her to consult with Mr.

Marzban on legal matters that arose, and that he believed that she was doing so. I

find that Mr. Hubley also remained in contact with Mr. Marzban periodically during

the negotiations to report on their status and obtain his advice.

[568] Finally, it is clear that all parties understood that any settlement reached

through the efforts of Mr. Hubley and Mr. Brewer would be the subject of review and

advice from Mr. Marzban and Mr. Mortimer before it was finalized. While Mr. Hubley

did not put this in writing as suggested by Mr. Schultz, I view that as a matter of

prudence for his own protection, rather than a breach of the standard of care.

[569] I accordingly conclude that Mr. Hubley met the standard of care of a

reasonable accountant by ensuring that the plaintiff had appropriate legal

representation when he undertook the negotiation of her interest in the ABG. In

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making that finding, I appreciate that the negotiation later expanded to include the

parties’ personal assets at the request of Mr. Brewer, and that these lay outside the

ambit of a commercial negotiation. However, as set out at paragraph [291] of these

Reasons, the disposition of these assets was never controversial nor detrimental to

the plaintiff. As well, Mr. Hubley advised her that she must seek advice from Mr.

Marzban on those issues, and understood the plaintiff was doing so. The plaintiff

agreed that Mr. Hubley did not give her any advice about them. I accordingly find

that the expansion of the negotiations to include those personal assets did not

constitute a breach of the standard of care.

[570] The plaintiff’s remaining allegations with respect to the negotiations suggest

that, although Mr. Hubley and the plaintiff had appropriate legal assistance available,

Mr. Hubley nevertheless strayed into giving advice, or taking positions, inconsistent

with matrimonial law during the negotiations. The plaintiff says that, had she been

properly advised on these matters, she would not have settled but would have

proceeded to trial.

[571] Before I turn to those allegations, I make the following findings with respect to

the negotiations to provide a context for my consideration of them.

[572] It is common ground that the plaintiff chose her initial goal of $1.75 million for

the negotiation, including her shareholder’s loan and bonus, without consulting Mr.

Hubley. While I found her testimony about Mr. Harder’s memorandum of April 20,

2001 inconsistent and confused, I am satisfied that the valuation set out in that

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memorandum, and her earlier discussions with Mr. Hubley about it, were the basis

for her choice of that figure.

[573] I find that although Mr. Hubley gave the plaintiff no advice on that choice, he

viewed it as an appropriate goal. He had no reason to doubt the validity of Mr.

Harder’s valuation. The sum of $1.75 million incorporated a share value toward the

top end of Mr. Harder’s going concern calculation, which was the target that Mr.

Hubley told the plaintiff he would like to get. I find that, from Mr. Hubley’s

perspective, that figure represented the value of the ABG as a going concern. There

is no foundation for the plaintiff’s view that Mr. Hubley relied on a liquidation value

for the ABG in negotiating the settlement.

[574] I am satisfied that when Mr. Brewer took the position that personal assets

must be a part of the negotiation as well, the plaintiff revised her goal to $2 million on

her own initiative, and instructed Mr. Hubley to try to obtain that number. He gave

her no advice on the reasonableness of that figure, and assumed she was receiving

advice from Mr. Marzban on her entitlement to those assets.

[575] I find that Mr. Hubley approached the negotiations from the perspective of

achieving the plaintiff’s global target, rather than using an item by item approach. I

am satisfied that he negotiated in a principled and methodical manner. I accept that

the negotiations were difficult, and at times appeared destined for failure. While I

have not heard Mr. Newton’s or Mr. Brewer’s account of the negotiations, on the

available evidence I am satisfied that Mr. Hubley was firm and creative in his

dealings with them. I reject the plaintiff’s suggestion that Mr. Hubley was intimidated

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by Mr. Newton. While Mr. Harder testified about a comment Mr. Hubley made to this

effect, I found Mr. Hubley credible in denying that. Moreover, his tenacity during the

negotiations does not support such a conclusion.

[576] I find that Mr. Hubley had lengthy and detailed discussions with the plaintiff

throughout the negotiations, and kept her fully advised of developments. I am

satisfied that any concessions he made on her behalf were made with her

knowledge and consent in an attempt to achieve her goal. It is difficult to understand

the plaintiff’s inability to recall these extensive discussions.

[577] Mr. Hubley’s negotiation resulted in a settlement that valued the plaintiff’s

interest in the ABG at $1.6 million, $150,000 less than her target, and $400,000

more than Mr. Newton’s last offer made at the end of March 2001. The global

settlement amount was $1,771,000. Approximately 80% of the unpaid balance was

secured.

[578] I turn to the remaining allegations concerning the negotiations.

2)

Erroneous advice with respect to tax issues during the negotiations

[579] The plaintiff alleges that Mr. Hubley’s ignorance of matrimonial law led him to

make two significant and unwarranted concessions during the negotiations to

accommodate Mr. Newton’s wish to minimize his future tax liabilities in the event he

sold the ABG. The first was an agreement that the plaintiff would apply her capital

gains exemption entitlement of $420,000 to the share transfer price to increase Mr.

Newton’s adjusted cost base of the ABG shares. The second was a deduction of

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$220,000 from the share price, representing 25% of the potential future capital gain

of $880,000 remaining after the taxable transfer of $420,000. This was intended to

compensate Mr. Newton for his potential tax burden if he sold the shares for

$880,000 in the future.

[580] The plaintiff says that this was contrary to the treatment of tax issues in

matrimonial law, and represented a loss of $320,000 to her. She argues that

decisions such as Tearle, set out at paragraph [520] of these Reasons, make it clear

that a court dealing with the division of assets in a matrimonial matter will only order

a full deduction of tax liabilities arising from the future sale of an asset if the sale is

imminent and foreseeable. She says that Mr. Newton had no imminent plan to sell

the shares, and a court would not have ordered a deduction of $220,000 from the

purchase price. Nor would it have required her to give up her capital gains

exemption. Had she known this, she would have rejected the settlement and

proceeded to trial.

[581] Mr. Barbour and Mr. Shultz agreed that an accountant giving advice in a

matrimonial dispute should tell the client that there should be no deduction of latent

personal income taxes that reflect an uncertain future transaction in determining the

value of shares as a family asset.

[582] However, I find this allegation misconceives the context in which these tax

concessions took place. Mr. Hubley was conducting a commercial negotiation,

aimed at obtaining a global amount. Mr. Brewer made it clear from the outset that

taxes were a significant issue for Mr. Newton, as he felt he was picking up all of the

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tax liability on the transaction, and fairness required some concession. I am

satisfied that this position appeared entrenched, and that Mr. Hubley had a

reasonable belief that a concession on taxes was essential if a settlement was to be

achieved.

[583] While unfamiliar with latent income tax considerations in matrimonial law, Mr.

Hubley knew that the plaintiff was not obliged to make these concessions in a

commercial context. As an accountant, he was aware that under s. 73 of the

Income Tax Act the plaintiff could transfer her shares on a tax-deferred basis at

original cost, and did not have to give up her capital gains exemption. It was also

clear that she did not have to agree to a deduction of $220,000 from the share price.

She could hold firm on these points but, if she did, it appeared unlikely that Mr.

Newton would agree to a settlement.

[584] I am satisfied that Mr. Hubley fully discussed these matters with the plaintiff,

and that she agreed to make the tax concessions in order to achieve a settlement.

The substance of their meetings about these concessions is set out in Mr. Hubley’s

notes.

[585] The tax concessions thus became one of many things adjusted in the course

of the negotiations in an attempt to achieve an ultimate resolution as close as

possible to the plaintiff’s goal. In these circumstances, it is difficult to understand

what role there was for advice on how the courts would treat tax issues in the

division of family assets. The plaintiff is correct that the concessions were not

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necessary, but I find that she knew this, and chose to make them anyway in order to

reach a settlement.

[586] I find that there is no basis for a finding of liability against Mr. Hubley on this

ground. It was ultimately for Mr. Marzban, as the plaintiff’s legal advisor, to address

these tax concessions in the matrimonial context when he provided advice with

respect to the final settlement.

3)

Failure to investigate Westwood

[587] The plaintiff says that Mr. Hubley failed to adequately investigate Westwood

prior to the settlement. She says that had he done so, they would have discovered

that Mr. Newton was earning significant amounts through Westwood by

misappropriating corporate opportunities from the ABG, and she would not have

agreed to a settlement excluding Westwood. Instead, she would have proceeded to

trial, taking the position that Westwood was a family asset.

[588] Both Mr. Barbour and Mr. Shultz agreed that the determination of what is a

family asset, and related advice, are matters for legal counsel in a matrimonial

dispute. However, Mr. Barbour takes the view that an accountant engaged to assist

in a family matter should have sufficient investigative and forensic accounting

experience to be aware of the possibility that a spouse may not disclose all assets,

and that Westwood might be a family asset. He says that such an accountant could

also provide assistance to counsel in examining the business of Westwood and its

relationship to the ABG, and in suggesting financial information that should be

obtained to investigate the nature and income of Westwood.

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[589] I find that there was a clear and appropriate division of roles between Mr.

Hubley and Mr. Marzban with respect to Westwood, in that Mr. Hubley sought advice

from and provided information to Mr. Marzban when Westwood became a concern,

but left it to Mr. Marzban, as legal counsel, to decide what investigative steps should

be taken.

[590] I accept Mr. Hubley’s evidence that when he became aware of Westwood, he

spoke to Mr. Marzban, who told him that following a particular date after separation,

the parties were on their own to do their own thing. In the context of the

negotiations, Mr. Brewer was adamant that Mr. Newton would not accept a

settlement that included Westwood. I find that Mr. Hubley accepted this and advised

the plaintiff accordingly, based on the information that Mr. Marzban had given him.

Mr. Hubley remained concerned that Westwood might reduce the ABG’s financial

strength, and thus endanger the security of future payments to the plaintiff under a

settlement in order to speed payment. He therefore attempted to negotiate the

inclusion of Westwood’s cash flow in that part of the plaintiff’s monthly payments

related to cubic meters logged. However, he was unsuccessful in this.

[591] When the plaintiff clandestinely obtained documents from the ABG offices

about Westwood in April and July, 2001, Mr. Hubley reviewed them and passed

them on to Mr. Marzban. Mr. Shultz’s opinion was clear that informational

requirements lie entirely in the hands of the lawyer, who has the legal skills to

identify the importance of such documents, and the procedural means of demanding

and obtaining them. I find that Mr. Hubley properly concluded that the plaintiff was

working with Mr. Marzban with respect to obtaining information about Westwood.

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[592] I find no breach of the standard of care by Mr. Hubley with respect to

Westwood. He was aware of the potential that Westwood could subvert the

plaintiff’s interests. He passed on all information about Westwood to Mr. Marzban,

and sought his advice about it. The fact that Westwood was excluded from the

settlement negotiated by Mr. Hubley remained an issue for the plaintiff to discuss

with Mr. Marzban prior to the finalization of that settlement.

4)

Failure to advise the plaintiff to obtain documents from third parties

[593] The plaintiff alleges that Mr. Hubley failed to advise her of the benefits of

obtaining documents from third parties such as HSBC, GEC, American Appraisal,

Ritchie Bros., J.S. Jones, Westwood and the RBC for the purpose of assessing the

value of the capital assets of the ABG, and her interest in Westwood.

[594] Mr. Shultz’s opinion, set out in the last section, applies here as well.

Informational requirements are the province of the lawyer. In my view, Mr. Hubley’s

only obligation with respect to obtaining documents was to report to Mr. Marzban if

he became aware that relevant documents existed in the hands of a third party, or

were being withheld by Mr. Newton or Mr. Brewer. I find that he did so in the case of

Westwood and that no other circumstances arose during the negotiations that

demanded action by him.

[595] I find no breach of the standard of care by Mr. Hubley with respect to this

allegation.

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5)

Failure to advise the plaintiff as to the appropriate valuation date and

update financial information

[596] The plaintiff is critical of Mr. Hubley for failing to advise her to obtain updated

financial and appraisal information as the negotiations stretched to almost a year

from the valuation date of October 31, 2000. In particular, she argues that she lost

the opportunity to claim 50% of the 2001 bonus declared by the ABG, noted to be

$947,500 in the financial statements of October 31, 2001.

[597] In my view, this is not a reasonable criticism. The weight of the expert

evidence indicates that the choice of the valuation date is for counsel. Mr. Hubley’s

instructions were to negotiate a settlement based on Mr. Harder’s valuation. It was a

difficult negotiation, but he achieved consistent progress toward the plaintiff’s stated

goal. I am satisfied that moving the goalposts by advising the plaintiff to seek

updated financial information was not reasonable from his perspective. Moreover, I

find that the plaintiff was sufficiently familiar with the ABG and its practice of

declaring annual bonuses to raise this matter herself had she wished to do so.

[598] I find no breach of the standard of care by Mr. Hubley with respect to this

allegation.

6)

Providing advice that led the plaintiff to settle her matrimonial claim

instead of proceeding to trial

[599] I find that this allegation again misconceives Mr. Hubley’s role. He was

negotiating a commercial matter with a specific goal chosen by the plaintiff. He

freely conceded that he had no knowledge of what claims the plaintiff had under

matrimonial law, how a court would assess them, and how her potential outcomes at

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trial would compare with the settlement he had negotiated on her behalf. He agreed

that one should know what things are worth before one gives them up, and that one

would need to know the potential outcome at trial to judge the merit of the

settlement. He correctly believed, however, that Mr. Marzban would be the person

who would advise the plaintiff on such matters.

[600] There is no evidence that Mr. Hubley gave the plaintiff advice as to whether

she should accept the settlement or proceed to trial, or advice that could have

reasonably affected that decision. I find that he told her repeatedly during the

negotiations that she could go to trial if she was not happy with the way things were

proceeding, and that she must speak to Mr. Marzban about that option. I am also

satisfied that, at the conclusion of the negotiations, Mr. Hubley simply told the

plaintiff that the result was the best he could obtain for her in the negotiations, and

asked her to let him know if she agreed to it.

[601] I conclude that there is no basis for a finding of liability on this ground.

Conclusion

[602] I conclude that Mr. Hubley, Bestwick & Partners, and Gord Hubley Ltd. did not

breach the standard of care that governed their professional services to the plaintiff.

Accordingly, the action against them is dismissed.

THE ALLEGATIONS AGAINST MR. MARZBAN

[603] The allegations against Mr. Marzban are set out in paragraphs 22 through 27

of the Statement of Claim. Particulars of the alleged breaches are set out in

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paragraph 27. There is some internal overlap among these allegations. I find it

appropriate to deal with them under the following headings, which are cross-

referenced to the appropriate paragraph in the Statement of Claim:

1)

2)

Failing to provide advice with respect to Mr. Newton’s breach of

fiduciary obligations in relation to Westwood [para. 27(i)];

Allegations regarding steps taken and advice given related to

financial disclosure from Mr. Newton and the ABG, including:

(a)

(b)

(c)

(d)

failing to obtain a Form 89 Financial Statement from Mr.

Newton [paras. 27(b) and (j)];

failing to obtain a satisfactory List of Documents from Mr.

Newton [para. 27(d)];

failing to conduct an examination for discovery of Mr.

Newton [para. 27(f)]; and

failing to obtain documents from third parties, in

particular, appraisers, financial institutions, and

Westwood [paras. 27(e) and (j)];

3)

Failing to conduct adequate inquiry and provide appropriate

advice as to the basis for the valuation of the ABG including:

(a)

failing to advise or investigate with respect to the large

discrepancies in the appraisals of the assets of the ABG

[para. 27 (Mr. Newton)]; and

(b)

failing to advise and investigate as to whether the ABG

was viable as a going concern [para. 27(j)];

4)

5)

Wrongly delegating his role as counsel in the settlement

negotiations to Mr. Harder and Mr. Hubley [para. 27(g)];

Failing to advise the plaintiff of the risks of settling without taking

the steps outlined above and failing to advise her on the

fairness of the terms of the settlement [paras. 27(m) and (n)]

including:

(a) failing to fully advise the plaintiff of her rights and

obligations under matrimonial law, including spousal

support and the scheme for division of family assets

under the FRA [para. 27(a)]; and

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(b)

failing to provide appropriate advice as to valuation

dates, and failing to obtain updated financial and

appraisal information before settling [para. 27(l)]

(6)

Failing to prepare for trial [para. 27(p)].

[604] That list omits three allegations. Paragraph 27(c) alleges that Mr. Marzban

was negligent in obtaining a second s. 57 declaration. This was an oversight of no

consequence and was not seriously pursued by the plaintiff at trial. Paragraph 27(k)

alleges that Mr. Marzban failed to take steps to remove Mr. Brewer as Mr. Newton’s

agent and advisor. The plaintiff conceded that she could not quantify the impact of

Mr. Brewer’s presence on the events leading to her decision to settle. I accordingly

conclude that there is no basis on which liability could attach to Mr. Marzban and I

decline to consider this allegation further. Paragraph 27(o), which alleges that Mr.

Marzban failed to advise the plaintiff about the implications of the consent order

entered to conclude her action, is only relevant to mitigation, an issue I have not

found it necessary to address.

The Law with respect to the standard of care

[605] In Millican v. Tiffin Holdings Ltd. (1964), 49 D.L.R. (2d) 216 at 219 (Alta.

T.D.) [Millican], aff’d [1967] S.C.R. 183, Riley J. provided this often-cited list of a

lawyer’s obligations:

(1) To be skilful and careful.

(2) To advise his client on all matters relevant to his retainer, so far as

may be reasonably necessary.

(3) To protect the interests of his client.

(4) To carry out his instructions by all proper means.

(5) To consult with his client on all questions of doubt which do not fall

within the express or implied discretion left to him.

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(6) To keep his client informed to such an extent as may be reasonably

necessary, according to the same criteria.

This passage has frequently been cited with approval in this province, see for

example Zink v. Adrian, 2005 BCCA 93; Chaster v. LeBlanc, 2007 BCSC 1250;

and Nichols, supra.

[606] Halfyard J. in Van Duzen v. Lecovin, 2004 BCSC 1333 at para. 36 set out

the standard of care applicable to a reasonably competent family law practitioner:

Would a lawyer who possessed reasonable knowledge of family law,

and who had reasonable ability to use that knowledge in the practice of

family law litigation, have done what the defendant omitted to do, or

have avoided doing what the defendant did do?

[607] Particularly relevant to this case are a lawyer’s duty to inform a client on all

relevant matters, and to warn of risks that accompany a proposed course of action.

The former was described by Southin J., as she then was, in Giradet v. Crease &

Co. (1987), 11 B.C.L.R. (2d) 361 at 370 (S.C.):

In my view, it is part of the duty of a solicitor not only to give good

advice but also to make his reasons clear to the client. That does not

mean writing the client page after page of legal jargon which, to most

clients, is unintelligible. But a client has a right to know why. How else

can she make an informed judgment on the matter at hand?

[608] The duty to warn was discussed by Thackray J., as he then was, in Graybriar

Investments Ltd. v. Davis & Co. (1990), 46 B.C.L.R. (2d) 164 at 179-180 (S.C.).

He adopted this statement of the duty to warn from Major v. Buchanan (1975), 9

O.R. (2d) 491, 61 D.L.R. (3d) 46 at 69 (S.C.):

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… a solicitor has the duty of warning a client of the risk involved in a

Page 188

course of action, contemplated by the client or by his solicitor on his

behalf, and of exercising reasonable care and skill in advising him. If

he fails to warn the client of the risk involved in the course of action

and it appears probable that the client would not have taken the risk if

he had been so warned, the solicitor will be liable.

[609] The extent of these duties varies with the sophistication of the client:

Ormindale Holdings Ltd. v. Ray, Wolfe, Connell, Lightbody & Reynolds (1982),

36 B.C.L.R. 378 at 389 (C.A.).

The expert evidence with respect to the standard of care

[610] The parties led evidence from two experts in matrimonial law, David W.

Buchanan, Q.C., and F. Ean Maxwell, Q.C. Both are senior practitioners with over

35 years at the bar, and have extensive experience in family law. Both provided

credible and helpful evidence as to the standard of practice of matrimonial lawyers.

Both knew Mr. Marzban, but I found nothing in their testimony to suggest that this

affected their objectivity.

[611] Mr. Buchanan’s evidence was tempered somewhat by the fact that since the

early 1990s he has expanded his practice beyond family law, and it now occupies

only 25 to 30% of his time. Mr. Maxwell, by comparison, remains fully engaged in

the family law field.

[612] The usefulness of Mr. Maxwell’s evidence was limited somewhat by the fact

that some of the assumed facts on which he relied do not accord with my findings of

fact. He assumed that Mr. Hubley gave the plaintiff legal advice with respect to both

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Westwood and spousal support. He viewed Mr. Hubley, and perhaps Mr. Harder, as

usurping Mr. Marzban’s role. He assumed that, because Mr. Marzban was not

directly involved in the settlement negotiations, his retainer became limited to a role

that was close to simply giving independent legal advice on the settlement. My

findings of fact are at variance with each of these assumptions.

[613] Despite those observations, the testimony of both experts as to the practice of

a reasonable family lawyer was consistent in many respects. My findings as to the

standard of care applicable to Mr. Marzban in the balance of this section are based

primarily on their evidence.

Mr. Marzban’s Role

[614] To provide context for my analysis of the allegations against Mr. Marzban, I

make the following findings of fact with respect to his role in this matter.

[615] Mr. Marzban is an acknowledged expert in family law. He conceded during

argument that, as a result, a higher standard of care attaches to his actions:

Ristimaki v. Cooper, [2006] O.J. No. 1559 at para. 59(b) (C.A.); Bockhold v.

Lawson Lundell Lawson & McIntosh (1999), 10 C.B.R. (4th) 90 at para. 58

(B.C.S.C.).

[616] I find that at his first meeting with the plaintiff on October 25, 2000, Mr.

Marzban verbally entered into a general retainer to resolve her matrimonial dispute.

I am satisfied that this meeting was devoted primarily to gathering information about

the parties and their dispute. As well, Mr. Marzban, the plaintiff, and Mr. Hubley

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agreed that Mr. Marzban could communicate with the plaintiff through Mr. Hubley for

reasons of convenience. The plaintiff gave Mr. Marzban instructions to obtain a

better offer from Mr. Newton, and if none was forthcoming to proceed with financial

disclosure. I find that the history of the dispute and the plaintiff’s instructions to Mr.

Marzban gave him a reasonable basis on which to infer that she preferred to attempt

to settle her claim rather than proceed to trial.

[617] I find that by the end of the meeting Mr. Marzban had made the following

assessment of the matter. He felt that the case was relatively simple. It involved

routine matrimonial issues that he had dealt with many times. Equal division of the

family assets was likely. The ABG was the linchpin and valuing it was key to any

resolution. The value of the rest of the family assets was relatively small.

Entitlement to spousal support could not be determined until the outcome of the

division of family assets was known, and the factors in s. 15.2 of the Divorce Act

could be examined in that context. From the plaintiff’s perspective, the only outcome

that made sense was to be bought out of the ABG by Mr. Newton.

[618] I find that to have been a reasonable characterization of the plaintiff’s claim as

it presented itself in October 2000.

[619] Mr. Marzban took preliminary steps to advance the plaintiff’s claim by filing

pleadings and sending demands to Mr. Mortimer for a Form 89 Financial Statement

and a List of Documents from Mr. Newton. Thereafter, however, he did not follow

what he referred to as a “litigation model” as he believed that the plaintiff preferred to

pursue a settlement at that stage. Instead, he chose to retain Mr. Harder to value

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the ABG and delegated the responsibility for financial disclosure for the purpose of

the valuation to Mr. Harder.

[620] Little could be done by the plaintiff or her advisors to move her claim forward

before Mr. Harder completed his valuation, and Mr. Marzban had limited dealings

with her from December 2000 until April 2001. He planned to chart a course of

future action with the plaintiff once the valuation was received, and anticipated

obtaining her instructions to try to negotiate a settlement and, if no agreement could

be reached, to take the matter to trial.

[621] Within days of receiving Mr. Harder’s memorandum of April 20, 2001,

however, the plaintiff instructed Mr. Hubley to attempt to negotiate a settlement of

her interest in the ABG. Mr. Marzban did not meet with the plaintiff to discuss Mr.

Harder’s valuation, or her choice of Mr. Hubley as her negotiator, before the

negotiations commenced.

[622] While the plaintiff’s instructions to Mr. Hubley required Mr. Marzban to step

back from the negotiations, I find that they did not limit the other aspects of his

retainer as her legal counsel, charged with seeing her matrimonial dispute through to

its final resolution. I did not understand Mr. Marzban to be seriously arguing against

that view. In any event, the law is clear that the onus rests with the lawyer to

establish any limit on his retainer, and any ambiguity will be construed in favour of

the client: ABN Amro Bank v. Gowling, Strathy and Henderson (1994), O.R. (3d)

779 at para. 18 (Gen. Div.).

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[623] I find that Mr. Marzban has not established that his retainer was limited in any

way except that he did not directly conduct the settlement negotiations. He

remained the plaintiff’s legal advisor throughout the negotiations, provided advice as

requested, and took steps in the legal proceeding as the plaintiff instructed.

Moreover, it was clearly understood that any agreement negotiated by Mr. Hubley

would be subject to Mr. Marzban’s review and advice before it was finalized.

[624] When Mr. Hubley and Mr. Brewer reached an agreement in August 2001, Mr.

English, with Mr. Marzban’s concurrence, drafted the settlement agreement and the

related security documents. Mr. Marzban reviewed these and met with the plaintiff

and Mr. Hubley on October 2, 2001 to discuss them. He did not have extensive

communications with the plaintiff after their first meeting, and so most of his advice

to her was given at this final meeting. It therefore provides the focus for many of her

allegations. At the end of that meeting, the plaintiff indicated that she would accept

the settlement rather than proceed to trial.

[625] As a general observation, it has been difficult to make reliable findings about

the communications between Mr. Marzban and the plaintiff, due in part to the

unreliability of the plaintiff’s evidence, but also because Mr. Marzban has little

recollection of them, and failed to document the advice he provided. He has no

written record of the legal advice he provided during his retainer other than a letter

setting out the advice required by s. 9 of the Divorce Act.

[626] I am aware that there is authority that, where there is a conflict between the

versions of events given by the client and the lawyer, all other things being equal,

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the client’s version is to be preferred. However, in this case all other things are not

equal as I have made adverse findings with respect to the plaintiff’s credibility. That

proposition accordingly does not apply: Morton v. Harper Grey Easton (1995), 8

B.C.L.R. (3d) 53 at paras. 34-35 (S.C.). I therefore approach the task of determining

what transpired between the plaintiff and Mr. Marzban on the traditional basis that

the onus rests with the plaintiff to establish on a balance of probabilities that Mr.

Marzban failed to provide advice and services that met the standard of care of a

reasonably competent family lawyer.

[627] I turn to the individual allegations against Mr. Marzban.

Failing to provide advice with respect to Mr. Newton’s fiduciary obligations to

the ABG arising from his activities with Westwood

[628] Westwood was the only controversial item in the identification and valuation

of Mr. Newton’s personal assets. It emerged in April 2001, when the plaintiff and her

advisors became aware that Mr. Newton had incorporated a new company, which

ultimately became Westwood, to use as a vehicle to do what he described as a

“management contract” for J.S. Jones, a logging company with which the ABG

already had a Bill 13 contract.

[629] The plaintiff argues that the presence of Westwood raised three questions

that required investigation. First, had Mr. Newton breached his fiduciary duty to the

ABG by diverting opportunities to Westwood because of the matrimonial dispute

and, if so, was it open to the plaintiff to consider oppression remedies or derivative

proceedings on behalf of the ABG under ss. 270 and 271 of the Company Act,

R.S.B.C. 1996, c. 62? Second, given the similarity in the nature of the businesses,

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was it likely that Westwood was improperly using assets of the ABG, and could

therefore be characterized as a family asset in which the plaintiff had an interest?

Third, was Mr. Newton earning an income stream from Westwood that should have

been considered in assessing the plaintiff’s right to spousal support?

[630] The second and third questions raise issues of disclosure and are dealt with

in the next section of these Reasons. With respect to the first question, the plaintiff

says that Mr. Marzban breached the standard of care by failing to advise her that,

since Mr. Newton was a director of the ABG, his activities with Westwood may be in

breach of his fiduciary duty to the ABG, and corporate remedies could be pursued by

her as a director and/or shareholder of the ABG or on behalf of the ABG.

The standard of care

[631] Mr. Maxwell testified that a prudent solicitor would advise a client on “issues

of fiduciary duty” in these circumstances, but it was his view that the plaintiff would

not get leave to commence a derivative action. Any action would have to be brought

by the ABG. He also offered the view, however, that he knew of no law that

someone in Mr. Newton’s situation had to offer a personal service through a specific

corporation. Unless he was bound by some agreement to work solely for the ABG,

Mr. Maxwell said that Mr. Newton was free to log where he wished.

[632] Mr. Buchanan set the standard somewhat lower. It was his view that

matrimonial lawyers may not be fully familiar with the law on fiduciary duties of

officers and directors of a company. He said that if circumstances demonstrated

that the new company was using employees and assets of the old, however, that he

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would expect a family lawyer to know enough to advise the client about a “breach of

fiduciary duty”.

[633] Neither expert provided details as to what advice would be given by a

reasonable family lawyer with respect to the perceived breach and what would be a

proper course of action. Both agreed, however, that circumstances such as those

presented by Westwood should produce a high degree of suspicion, and a

reasonably competent family lawyer would recognize the need to investigate the

potential depletion of the ABG by Westwood.

[634] Given the divergent and somewhat limited opinions of Mr. Buchanan and Mr.

Maxwell with respect to the standard of practice and advice expected of a family

lawyer regarding fiduciary duties and corporate remedies, I conclude that the

primary requirement at an early stage of suspicion is to recognize the importance of

investigation. If this reveals facts that may support a breach of fiduciary duty, further

advice may be given by the family lawyer, or assistance may be sought from a

lawyer expert more familiar with corporate law.

Did Mr. Marzban breach the standard of care?

[635] Mr. Marzban conceded that he did not give the plaintiff advice about Mr.

Newton’s fiduciary obligations. He did, however, recognize the importance of

investigating Westwood. He said that he approached that investigation from the

perspective of whether it was a family asset, and whether it produced income that

would be relevant to the plaintiff’s claim for support. It was his view that s. 65 of the

F.R.A. gives the courts sufficient discretion to provide a remedy to the plaintiff by

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way of reapportionment of family assets if Mr. Newton was using Westwood to

devalue the ABG.

[636] I find that this satisfied the standard of care when Westwood emerged as a

concern. In my view, it was reasonable at this stage for Mr. Marzban, as a family

lawyer, to approach the issue from the perspective of s. 65 of the F.R.A., and to

undertake an investigation of Westwood. His steps in that regard are described in

the next section.

Issues related to financial disclosure and the discovery process

[637] The plaintiff argues that Mr. Marzban failed to provide appropriate advice with

respect to her rights to financial disclosure and discovery, and failed to obtain full

financial disclosure with respect to the ABG and Mr. Newton, in particular, his

interest in Westwood. First, with respect to the ABG, she complains that Mr.

Marzban delegated the responsibility for obtaining financial disclosure to Mr. Harder

without her knowledge or instructions. Second, with respect to Mr. Newton and

Westwood, she says that Mr. Marzban should have obtained a Form 89 Financial

Statement and a List of Documents, and conducted an examination for discovery of

Mr. Newton. Third, she says that Mr. Marzban failed to obtain third party documents

that would have shed more light on the financial picture of the ABG and Westwood.

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The standard of care

[638] I find that the following principles, established by the evidence of Mr. Maxwell

and Mr. Buchanan, represent the standard of care of a reasonable family lawyer with

respect to obtaining financial disclosure.

[639] The lawyer will understand that obtaining financial disclosure is an essential

step in providing proper advice in a matrimonial dispute; that it is his or her obligation

to ensure that disclosure is obtained to a satisfactory level; and that there are a

variety of tools to achieve disclosure. It is standard practice to issue demands for a

Form 89 Financial Statement and for a List of Documents in matrimonial litigation.

However, it is generally recognized that these do not guarantee full disclosure, and

may be unreliable for a variety of reasons.

[640] Despite those general principles, the extent to which disclosure is obtained is

variable. Which tools are selected will depend on the circumstances of the case.

Some cases settle without full disclosure. The question of how far to pursue the

discovery process of a litigation model is influenced by considerations such as cost,

timing, and whether that model may jeopardize settlement efforts.

[641] A reasonably competent lawyer will ensure that a client is aware of his of her

right to financial disclosure, and should consult with the client as to the general

approach to be taken, insofar as the choice has repercussions for expenses or

settlement negotiations. Beyond that, Mr. Maxwell and Mr. Buchanan did not say

whether instructions are required for each step in the discovery process. In my view,

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they are not. The selection of the most appropriate discovery tool in a given case is

a matter for the lawyer’s professional judgment.

[642] Before concluding a settlement, however, a reasonably competent lawyer

must assess the extent of disclosure obtained, and discuss with the client whether it

is necessary to proceed further with the discovery process before settling. Should

the client give instructions to settle without satisfactory disclosure, the lawyer must

warn the client of the risks of such a course of action. If the client insists on settling,

prudence suggests a letter from the lawyer confirming the instructions to settle in the

face of that warning would be wise.

[643] It is reasonable for a lawyer to retain a valuator to assist with financial

disclosure regarding corporate assets, and to have that person obtain information

directly from the company’s accountant. If the valuator has sufficient information to

provide a valuation estimate, it is reasonable for the lawyer to infer that the valuator

is satisfied that he has received sufficient financial disclosure for the valuation.

However, that may not be the same as adequate financial disclosure for legal

purposes. Thus, a lawyer cannot delegate disclosure to the valuator completely. He

or she retains an overriding obligation to ensure that disclosure is adequate from a

legal perspective before any settlement is reached, and to reintroduce legal tools if it

is not.

Was Mr. Marzban in breach of the standard of care?

[644] I find that as of October 25, 2000 the plaintiff was aware of her right to

financial disclosure based on her earlier dealings with Mr. Lobay. The key issue was

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the value of the ABG. The identity and value of the parties’ other assets were not

controversial. It was clear that the plaintiff was hoping to settle her claim. I find that

it was in this context that the plaintiff gave instructions to Mr. Marzban to proceed

with financial disclosure if no reasonable offer was forthcoming from Mr. Newton.

[645] Mr. Marzban testified that he took the discovery process one step at a time,

and kept his options open. He did not believe that a litigation model was the best

way to go, given that the plaintiff wished to try to negotiate a settlement. As a result,

he did not pursue the demands for a Form 89 Financial Statement or a List of

Documents. Instead, he decided that the most efficient and effective means of

obtaining financial information about the ABG was through Mr. Harder. Mr. Harder

was a qualified valuator in whom Mr. Marzban had confidence. He knew from their

earlier dealings that Mr. Harder would advise him if he encountered difficulty with

disclosure, and Mr. Marzban could then take what legal steps were necessary.

[646] I find that Mr. Marzban’s delegation of financial disclosure regarding the ABG

to Mr. Harder was a matter of professional judgment and a reasonable step that met

the standard of care. While the plaintiff complains this was done without her

knowledge and instructions, her affidavit sworn April 27, 2001 makes it clear that she

was aware of what she describes as the “extensive disclosure” obtained by Mr.

Harder.

[647] Mr. Marzban received no indication from Mr. Harder of any problems with

financial disclosure. I accept that he was entitled to assume that financial disclosure

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of the ABG had been satisfactory from Mr. Harder’s perspective when he received

the valuation estimate in Mr. Harder’s memo of April 20, 2001,

[648] I find, however, that before the plaintiff settled her claim, the standard of care

required Mr. Marzban to ensure that Mr. Harder had obtained a sufficient level of

financial disclosure with respect to the ABG from a legal perspective, or to warn the

plaintiff that disclosure had been limited to Mr. Harder’s inquiries, and that legal

avenues of discovery had not been pursued with respect to the ABG.

[649] Turning to the sufficiency of disclosure from Mr. Newton, as stated earlier, the

only controversial item was Westwood, and whether it was a family asset, or

provided an income stream for Mr. Newton that would strengthen the plaintiff’s claim

for spousal support. The plaintiff says that Mr. Marzban should have taken steps to

answer those questions by pursuing a Form 89 Financial Statement and a List of

Documents, and by conducting an examination for discovery of Mr. Newton.

[650] I am satisfied that Mr. Marzban recognized the potential significance of

Westwood to the plaintiff’s claim in April 2001 when he advised her to bring an

application for documents related to it and another company incorporated by Mr.

Newton. I find that this was a reasonable investigative step, as it approached

Westwood directly, rather than through Mr. Newton, and it could be conveniently

combined with another application the plaintiff wished to bring to obtain joint signing

authority on the ABG cheques.

[651] Mr. Marzban prepared an affidavit for the plaintiff accordingly, but testified

that he received instructions not to proceed with the application as settlement

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negotiations had resumed. He could not recall who had given him those

instructions.

[652] The plaintiff denied providing those instructions. I do not find her denial

credible. Her evidence on this point was internally inconsistent. The timing of these

instructions coincided with the commencement of Mr. Hubley’s negotiations. It was

the plaintiff, not Mr. Hubley, who dealt with Mr. Marzban with respect to the

application. I accept Mr. Hubley’s evidence that, although he reviewed the affidavit

with the plaintiff, he did not know what was done with it. I infer that the plaintiff gave

Mr. Marzban these instructions because she had achieved her goal of using the

legal process to get Mr. Newton back to the table, as described in Mr. Hubley’s e-

mail to Mr. Harder of April 14, 2001, and she did not want to upset the prospect of a

settlement by proceeding with the application.

[653] Mr. Maxwell testified that he assumed that a client who instructed a lawyer

not to proceed with a motion in these circumstances would have been fully advised

by the lawyer as to the options, issues, applicable law, and what might be obtained

through the application.

[654] Neither Mr. Marzban nor the plaintiff testified to the advice he gave her in the

course of preparing this motion, or in accepting her instructions not to proceed with

it. Nor does Mr. Marzban have any notes of such advice. His thought process about

the application is set out at paragraph [184] of these Reasons. However, there is no

evidence that he shared those views with the plaintiff. I accept Mr. Marzban’s

evidence that he told the plaintiff that they did not know what Mr. Newton was doing

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in terms of his income, and that this would be a factor if she proceeded. I also

accept Mr. Hubley’s evidence that Mr. Marzban advised him that following a

particular date after the separation, the parties could do their own thing, and that Mr.

Hubley told the plaintiff this. The timing of these discussions is unclear.

[655] In July, the plaintiff obtained further documents with respect to Westwood.

These indicated that Westwood was in substantial arrears to a subcontractor doing

heli-logging for it at Pitt Lake under its arrangement with J.S. Jones, and that J.S.

Jones was providing funds to cover the outstanding account. The plaintiff brought

these documents to Mr. Hubley, who sent them on to Mr. Marzban. Mr. Hubley’s

and Mr. Marzban’s time records show a lengthy telephone call between them and

the plaintiff that day. There is no evidence as to what was discussed during that call,

or whether any advice or instructions were given.

[656] To summarize, I find that Westwood had potential significance to both the

plaintiff’s claim for spousal support and to the division of family assets. I am

satisfied that Mr. Marzban was aware of this, and that he attempted to bring an

application to obtain documents with respect to Westwood, but was instructed not to

proceed with this by the plaintiff because negotiations had commenced. I find that in

the face of those instructions, Mr. Marzban was reasonably entitled to assume that

the plaintiff did not wish to follow a litigation model, and that further steps to achieve

financial disclosure could be held in abeyance until the outcome of the negotiations

was known. Nevertheless, despite the plaintiff’s apparent ambivalence toward

investigating Westwood, I am satisfied that the standard of care clearly required Mr.

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Marzban to warn her before a settlement was concluded of the risk of settling

without knowing more about it.

[657] The plaintiff complains that Mr. Marzban also breached the standard of care

with respect to financial disclosure by failing to obtain documents from third parties

such as American Appraisal Canada, Inc., Ritchie Bros., the financial institutions that

dealt with the ABG refinancing in 2000, and J.S. Jones. She says that these would

have shed more light on the financial circumstances of the ABG and Westwood.

[658] Mr. Buchanan testified to the potential value of obtaining financing

applications from financial institutions, as they may contain comments enhancing the

value of the ABG which could serve to counter attempts by Mr. Newton or Mr.

Brewer to minimize its value.

[659] Mr. Marzban testified that he was aware of the recent refinancing, and he

anticipated that the related documents would contain positive statements made by

Mr. Newton in that process. It was his view, however, that such documents would

be of little assistance in convincing the opposing party of the company’s value during

the settlement negotiations.

[660] I agree. While these statements might have possible value in cross-

examination if the matter proceeded to trial, it would have been premature and costly

to seek them while exploring settlement. I find it reasonable that a family lawyer

would not embark on applications to obtain documents from third parties while

serious settlement negotiations are proceeding. The decision not to do so, however,

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would again attract the duty to fully advise and warn the client before she settles her

claim that there may be useful information that has not been obtained.

[661] In summary, I have found that Mr. Marzban did not breach the standard of

care by failing to pursue avenues of financial disclosure in a context where serious

settlement negotiations were proceeding. However, his decision not to do so clearly

imposed on him a duty to advise the plaintiff before she settled that he had not

obtained full financial disclosure in accordance with her instructions, and to warn her

of the risks of settling without it. I defer my consideration of whether that duty was

discharged by Mr. Marzban to my discussion of the advice he provided at the

meeting of October 2, 2001 later in these Reasons.

Failing to conduct adequate inquiry and provide appropriate advice as to the

basis for the valuation of the ABG

[662] The plaintiff argues that once Mr. Harder delivered his valuation estimate on

April 20, 2001, Mr. Marzban should have met with him to review it. In particular, he

should have explored with Mr. Harder the large discrepancy between the AA

Appraisal and the Ritchie Bros. Appraisal, and ensured that the ABG was valued as

a going concern. She says that Mr. Marzban should then have met with her to fully

inform her of her options with respect to a third appraisal before the negotiations

commenced.

[663] These allegations raise the difficult issue of the extent to which a lawyer may

rely on the expertise of a specialist engaged to assist him or her. On the one hand,

the very reason for retaining such experts is the lawyer’s limited knowledge in the

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expert’s field. On the other hand, the lawyer remains the expert who tests the

specialist’s opinion and assesses its usefulness in the legal context of the client’s

claim.

The Standard of Care

[664] The evidence of Mr. Maxwell and Mr. Buchanan satisfies me that the

standard of care permits a matrimonial lawyer to rely heavily on the expertise of a

valuator in assessing the value of corporate assets. The lawyer, however, retains a

duty to supervise the valuator, and to understand and test the valuation. This should

include ensuring that the factual assumptions and the valuation premises on which it

is based accurately reflect the actual circumstances of the case. As set out in the

last section, the lawyer also has a duty to ensure that the financial disclosure

obtained by the valuator is sufficient from a legal perspective. Such knowledge is

essential to judging the extent to which the valuation advances the client’s claim,

and whether further steps are required. It is also necessary to permit the lawyer to

provide proper advice to the client.

[665] That general standard of care becomes better defined on the facts of each

case. Based on the evidence of Mr. Buchanan and Mr. Maxwell, I am satisfied that

communicating with the valuator takes on an enhanced significance where the

lawyer knows that there is a significant discrepancy between appraisals of a

significant asset; that the valuator has chosen to rely on the lower value but has also

raised the option of another appraisal; and that the opposing party is resistant to

another appraisal. A reasonably competent family lawyer presented with this

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situation will discuss these circumstances with the valuator in order to properly

advise the client of the options, particularly in the context of putting forward the best

position in negotiations or at trial. I am satisfied that such discussions with the

valuator should reasonably cover the reasons for the reliance on the lower appraisal,

information pertaining to a third appraisal, and details of the position of the opposing

party.

[666] I find that the decision of whether to obtain another appraisal ultimately rests

with the client. A reasonably competent lawyer will therefore meet with the client to

discuss the valuator’s views, and advise of the options. If the lawyer is aware that

the opposing party will not welcome another appraisal, the discussions will include

an assessment of the risk that such a step may disrupt settlement negotiations and

push the matter to litigation.

Did Mr. Marzban breach the standard of care?

[667] Mr. Marzban testified that he was in touch with Mr. Harder and Mr. Hubley

periodically during the valuation, and he was aware that the ABG equipment value

was central to the value of the ABG. He also knew that Mr. Newton had rejected an

earlier financing appraisal as the basis for the valuation, and that Mr. Harder and Mr.

Brewer had agreed to get an independent appraisal from Ritchie Bros. He was

aware that there was a substantial difference of millions of dollars between the two

appraisals, and that Mr. Harder had told the plaintiff that if she was not satisfied with

the Ritchie Bros. equipment value, she could get another appraisal. He understood

that Mr. Newton and Mr. Brewer were not interested in that prospect.

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[668] Mr. Marzban testified that he believed that he discussed Mr. Harder’s

valuation with Mr. Hubley. However, he could not recall the details of those

discussions. He agreed that he did not meet with Mr. Harder or with the plaintiff to

discuss the valuation before the settlement negotiations commenced. Nor did he

undertake any inquiry into the disparate appraisal values, or the possibility of

obtaining a third appraisal. Mr. Marzban said that he did not take these steps

because he saw the equipment value as a valuation issue, and he relied on Mr.

Harder’s expertise in basing the valuation on the Ritchie Bros. Appraisal. He was

concerned that if he suggested another appraiser, this would be seen as interfering

with the independence of Mr. Harder’s valuation.

[669] Mr. Marzban also testified, however, that he knew that the die was not cast

with the Ritchie Bros. Appraisal. He said that if the matter did not settle and they

went to court, there would be plenty of time to obtain another appraisal if Mr. Harder

believed that this was warranted, or get another valuation altogether. Mr. Marzban

indicated that he might then obtain copies of the appraisals himself and review them.

I find it difficult to understand the wisdom of postponing these steps when the

equipment value was as important to the plaintiff’s position in the settlement

negotiations as it would be at a trial.

[670] It was common ground that the valuation of the ABG was the most significant

aspect of the plaintiff’s claim. Moving forward in her matrimonial dispute had been

held in abeyance until Mr. Harder’s valuation was received. I find that Mr. Marzban

was in breach of the standard of care in failing to meet with Mr. Harder to discuss his

valuation, the facts and premises on which it was based, the discrepancy between

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the appraisals, the reasons for relying on the Ritchie Bros. Appraisal, and the option

of obtaining another appraisal. As well, I find that his failure to meet with the plaintiff

after the valuation and before the commencement of the settlement negotiations to

discuss the valuation, its implications for the negotiations and the likely outcomes at

a trial, and the option of another appraisal, was a further breach of the standard of

care.

Wrongly delegating his role as counsel in the settlement negotiations to

Mr. Harder and Mr. Hubley

[671] The plaintiff claims that Mr. Marzban breached the standard of care by

delegating his role as matrimonial counsel to advise on and directly handle

settlement negotiations to Mr. Harder and Mr. Hubley.

[672] There is no basis for this allegation insofar as it concerns Mr. Harder. There

is no evidence Mr. Marzban delegated any part of the negotiations to Mr. Harder,

and I have earlier found that Mr. Harder did not negotiate on behalf of the plaintiff.

[673] With respect to Mr. Hubley, the plaintiff argues that Mr. Marzban should have

conducted settlement negotiations himself, and instead wrongly delegated this

activity to Mr. Hubley, without discussing the risks and repercussions of this course

of action with her.

The standard of care

[674] Based on the evidence of Mr. Buchanan and Mr. Maxwell, I find that the

negotiation of a matrimonial settlement is generally the province of the family lawyer.

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However, a client may choose to instruct another person, including an accountant, to

negotiate on his or her behalf. If the client takes that course, a reasonably

competent family lawyer has a duty to discuss that choice with the client, and advise

him or her of the potential risks of a non-lawyer undertaking negotiations, as well as

what other options are available. As well, the lawyer should ensure that a client who

pursues negotiations with a non-lawyer has an understanding of his or her statutory

entitlements under matrimonial law, the option of litigation, and the significance of a

decision to settle.

[675] Where a client instructs a non-lawyer to negotiate a settlement, the lawyer’s

retainer is implicitly limited by those instructions. A prudent lawyer should confirm

this in writing.

[676] Where a family lawyer does not conduct negotiations, but retains a role in

which he or she is to advise the client as to the reasonableness of any settlement

reached, the lawyer must remain sufficiently involved in the negotiation process to

provide appropriate advice at its conclusion.

Was Mr. Marzban in breach of the standard of care?

[677] I am satisfied that Mr. Marzban did not delegate the settlement negotiations to

Mr. Hubley. Mr. Hubley undertook them because the plaintiff instructed him to. As a

result, Mr. Marzban’s retainer was implicitly limited to the extent that he did not

directly negotiate the settlement. While he did not confirm this limitation to his

retainer in writing, I find that to be a matter of prudence rather than a breach of the

standard of care, particularly since it arose from the plaintiff’s own instructions.

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[678] I find that Mr. Hubley’s assumption of the role of the negotiator did not amount

to a delegation to him of Mr. Marzban’s role as the plaintiff’s counsel. I have earlier

found that Mr. Marzban remained engaged as the plaintiff’s legal advisor throughout

the negotiations. He was available to perform legal services and provide legal

advice to her and Mr. Hubley during the negotiations and, most importantly, with

respect to any settlement reached. I find that the plaintiff understood this. She

testified that she knew that she could consult Mr. Marzban about legal matters, and

she provided him with instructions with respect to steps to be taken in the action.

His continuing role as her legal advisor was reinforced by Mr. Hubley, who advised

her to contact Mr. Marzban when legal issues arose, and who kept Mr. Marzban

apprised of the status of the negotiations.

[679] There is no evidence that Mr. Marzban met with the plaintiff to discuss her

choice of Mr. Hubley as the negotiator and its ramifications. It is clear that there was

some communication between Mr. Marzban, Mr. Hubley and the plaintiff about this,

however, as Mr. Marzban knew Mr. Hubley had undertaken the negotiations, and all

were aware that any settlement reached would be subject to his review and advice.

It is also evident that Mr. Marzban did consider whether Mr. Hubley’s role in the

negotiations was to the plaintiff’s benefit. He was aware that the negotiation at the

outset was limited to the commercial issue of the value of her interest in the ABG,

and said that he saw Mr. Hubley’s involvement as a positive development, due to his

accounting and tax knowledge. He also believed that negotiations between the

accountants would be less positional than between the lawyers. Mr. Marzban said

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that the addition of the parties’ personal assets to the negotiation at a later stage did

not concern him as entitlement to these was not controversial.

[680] I agree that late April 2001 would have been an opportune time for Mr.

Marzban to meet with the plaintiff. The concurrence of the delivery of Mr. Harder’s

valuation and her decision to have Mr. Hubley negotiate on her behalf made this a

useful point at which to discuss not only these developments, but the parameters of

her claim generally and the future course she wished to take. Nevertheless, I am

not convinced that the fact that Mr. Marzban did not meet with her to discuss Mr.

Hubley’s role in the negotiations was a breach of the standard of care, as I am

satisfied that, in the circumstances I have described, the plaintiff faced little risk in

having Mr. Hubley undertake the negotiations. Mr. Marzban’s continuing role as her

counsel indicated that she would receive advice on her statutory entitlements, the

option of litigation, and the significance of the decision to settle when he met to

discuss any settlement with her. Moreover, the plaintiff was not bound to accept any

settlement negotiated by Mr. Hubley.

Failure to fully advise and warn the plaintiff at the meeting on October 2, 2001

[681] On October 2, 2001, Mr. Marzban met with the plaintiff and Mr. Hubley in

Nanaimo for almost two hours to discuss the settlement agreement that Mr. Hubley

had negotiated and Mr. English had prepared. As noted above, this final meeting

provided the main opportunity for him to advise the plaintiff with respect to her claim,

the settlement, and her options.

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[682] The plaintiff argues that Mr. Marzban’s advice was incomplete and did not

meet the standard of care of a reasonably competent matrimonial lawyer. She

provides a long list of inadequacies. She says that Mr. Marzban simply told her that

she could do better or could do worse than the negotiated settlement if she went to

court. He did not give her information as to the range of possible outcomes at trial in

monetary terms, or discuss the costs of a trial. Nor did he explain the scheme of or

her entitlements under the F.R.A. and the Divorce Act.

[683] She argues that he did not advise her that, if the case proceeded to trial, the

court would not be committed to accepting Mr. Harder’s fair market value for the

ABG, but could value the company on the basis of “fair value”, which might be

higher. Nor did he suggest that the ABG’s financial information should be updated

before settling, or raise whether she could claim an interest in the ABG’s 2001

profits, given that Mr. Harder’s valuation was based on financial information that was

almost a year old.

[684] She also says that Mr. Marzban did not have sufficient information to advise

her properly about spousal support, or whether Westwood was a family asset, or

about its potential role in a claim for reapportionment or spousal support. Yet he

failed to tell her that she could proceed with discovery on those issues, or warn her

about the risks of settling her claim without doing so.

[685] Finally, she says that while Mr. Marzban reviewed the settlement terms with

her, he did not discuss the concessions made by Mr. Hubley during the negotiations

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with respect to taxes, interest, the Start-up Loan, or Mr. Newton’s draws, in the

context of what the likely outcome at trial might be on those issues.

The standard of care

[686] In assessing the adequacy of the advice given by Mr. Marzban at the October

2 meeting, I am guided by the law described earlier in these Reasons with respect to

the clear duty of a lawyer to inform the client on all relevant matters, and to warn of

the risks that may accompany a proposed course of action. The extent of these

duties varies with the sophistication of the client.

[687] I make the following observations of the plaintiff in that regard. I find that

although she was not a sophisticated businesswoman, she was familiar with the

operations of the ABG and the logging industry due to her involvement in both since

1987. I am satisfied that, based on her earlier dealings with Mr. Lobay, she knew

from an early stage of her matrimonial dispute what the parties’ assets were, that

she was entitled to a half interest in them, and that she had a potential claim for

spousal support. I find that the list she prepared for her first meeting with Mr. Lobay

showed that she was also alive to more subtle issues, such as security and interest

on the outstanding balance of any settlement reached. I find the plaintiff was not

naïve about Mr. Newton’s wish to settle for as little as possible. I am satisfied that

she was fully advised of the details of the concessions made on her behalf during

the negotiations by Mr. Hubley. I also find that the plaintiff knew that if she found the

settlement unacceptable, she could reject it and proceed to trial.

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[688] The extent of the duties to fully inform and warn was reinforced and

developed in the context of this case by Mr. Buchanan and Mr. Maxwell. Based on

their evidence and the authorities, I find the applicable standard of care in advising a

client on a settlement in the circumstances faced by Mr. Marzban on October 2,

2001 to be as follows.

[689] Family law practitioners acknowledge that the results of a trial in a

matrimonial case are difficult to predict. Nevertheless, settlement of a claim is a

significant decision for a client, and before the decision to settle is made, a

reasonably competent lawyer should ensure that the client is as fully informed as

possible about his or her entitlement under the F.R.A regarding assets, and under

the Divorce Act regarding support, on the facts known at the time.

[690] The starting point for advice on the reasonableness of a settlement is a

prediction, to the extent possible, of what might reasonably be the monetary value of

the possible outcomes at trial, based on the law, the assets and their value, and the

position of the other party. The lawyer’s advice should include an assessment of the

risks and financial and personal costs of going to trial; assessment of the strengths

and weaknesses of the case; the likelihood of an equal or unequal division of family

assets and the many variables that contribute to such a result; and the suggestion

that it is often better to settle for a little less than risk an uncertain result at trial.

[691] If the lawyer’s knowledge of the facts underlying the claim is incomplete, or if

there are other sources of uncertainty that preclude detailed advice as to probable

outcomes, the client should be advised of this. He or she should also be told if there

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are steps that could be taken to rectify those deficiencies, and warned of the risks of

settling without taking those steps. As well, the costs of further discovery and its

likely impact on the proposed settlement should be discussed.

[692] When dealing with a closely held family company, a reasonably competent

family lawyer should advise the client that there is a risk that the outcome may be

something other than a compensation order directing one party to buy the other’s

interest in the company at fair market value under ss. 65 and 66 of the F.R.A. The

client should be advised that a judge may order that the parties each continue to

hold their shares in the company, thus remaining in business together, although the

courts are reluctant to do this. The client should also be aware that if one spouse

buys the other’s interest, the court may direct a significant discount of the value of

the seller’s interest, representing the advantage of cash in hand. As well, the client

should be warned that there may be a delay in realization of the payment of any

judgment.

[693] With respect to spousal support, providing appropriate advice on the likely

amount and duration of support requires knowledge of the parties’ incomes and

expenses, as well as the facts relevant to an analysis of the factors set out in ss.

15.2(4) and (6) of the Divorce Act. Where there are significant assets, a reasonably

competent family lawyer will find it difficult to advise on the outcome of a claim for

support until there has been a reasonably final determination of the division of

assets. As the law stood in 2001, if the client was likely to receive assets of

sufficient value to make her self-sufficient and to diminish the concern that she had

experienced economic hardship from the breakdown of the marriage, she would be

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properly advised that her claim for support may be tenuous at best, or not

maintainable at all.

[694] A reasonably competent family lawyer should recognize that income tax

repercussions are typically a significant issue in the negotiation of a settlement. He

or she must be satisfied that they have been properly addressed and discussed with

the client before concluding a settlement, and obtain expert advice on these issues if

necessary. The lawyer should also advise the client that the courts have some

discretion with respect to the treatment of tax issues and thus the result may be

difficult to predict. The lawyer should be aware that the tax treatment of a family

asset by the court may vary, depending on whether it is to be imminently sold or

retained, and should investigate the likelihood of an imminent sale before advising

on the reasonableness of a settlement that includes a tax concession based on a

prospective sale.

[695] With respect to valuation dates and recommending updated financial

information, the choice of the valuation date is a strategic decision for the lawyer to

make in consultation with the valuator and the client. It is common practice to use

the last year-end of a business. However, if the resolution of a claim is delayed for a

long period, and there is no agreement as to the valuation date, the lawyer may

consider obtaining updated financial information. This should be discussed with the

client and weighed against the possible impact on the proposed settlement, as well

as considerations of expense, delay, and the reliability of interim financial

statements.

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[696] Ultimately, it is for the client to decide whether to settle or not, having been

fully advised of the options and risks.

Did Mr. Marzban breach the standard of care?

[697] I begin with two general observations about the significance of the meeting on

October 2, 2001.

[698] First, Mr. Marzban had limited communication with the plaintiff during the

course of his retainer after their first meeting on October 25, 2000. In part, this was

due to the manner in which events unfolded. Initially, he was waiting until the

valuation was completed. Then, he decided to await the completion of the

negotiations before advising her on her claim and its likely outcomes. As well, it was

Mr. Marzban’s view that he had a wide discretion to conduct the plaintiff’s case as he

saw fit, and seek her instructions only on major decisions. At his examination for

discovery, when he was asked about the lawyer’s duty to carry out instructions as

expressed in Millican, he replied in part:

But basically I think you need instructions to pursue litigation, you need

instructions to settle the case. But in between those two there are all kinds of

things that we don’t need instructions on and don’t think necessarily, I don’t

think necessarily have to follow clients’ instructions on how we do a certain

thing.

[699] While there are a number of matters left to a lawyer’s professional judgment

in the course of representing a client in a matrimonial matter, in my view the

standard of care espoused by the authorities and by Mr. Buchanan and Mr. Maxwell

at this trial does not reflect so broad an area of discretion. In any event, these

matters led to a situation in which this final meeting provided the first opportunity for

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the plaintiff to receive advice from Mr. Marzban, not just about the settlement, but

about her claim and her potential outcomes in general. I accordingly find that Mr.

Marzban had a clear obligation at this meeting to provide comprehensive advice on

these matters, and to ensure that the plaintiff was fully informed as to her options.

[700] Second, the plaintiff had given Mr. Marzban instructions to obtain financial

disclosure at their first meeting in October 2000. Mr. Marzban later elected to forego

financial disclosure, however, as it was his view that the plaintiff’s interest in

settlement obviated the need to pursue a traditional litigation model. That view was

reinforced by the plaintiff when she instructed him not to proceed with the application

concerning Westwood in April 2001. While this approach may have been justified, I

find that the standard of care clearly required Mr. Marzban to tell the plaintiff at the

October 2, 2001 meeting that, contrary to her earlier instructions, financial disclosure

had been limited to the information obtained by Mr. Harder in the course of his

valuation. Mr. Marzban was also obliged to warn her that he had insufficient

information to advise her fully about her claim. As well, he was required to advise

her of the steps that could be taken to obtain more information, and to warn her of

the risks to settling without doing so.

[701] I have found it difficult to determine the extent of the advice Mr. Marzban

provided at this meeting due to the paucity of detailed evidence from the

participants.

[702] The plaintiff’s account of the meeting was limited. She recalled reviewing the

settlement agreement with Mr. Marzban clause by clause, but said that she could

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not recall what he or Mr. Hubley said, although she did recall a comment that she

could do better or could do worse. She agreed that she did not raise any concerns

about the agreement, and said that she settled on those terms because her advisors

told her they were good. She acknowledged that she released her claim to spousal

support, and said that this was because she understood that she was not entitled to

it. As set out at the beginning of this section, she says that a number of things were

not covered by Mr. Marzban at this meeting.

[703] Mr. Hubley testified that he did not pay close attention during the meeting as it

was focused on legal issues, and he did not think he could lend anything to the

discussion. He did recall that Mr. Marzban raised the question of spousal support

with the plaintiff, and that she was happy with the agreement at the end of the

meeting.

[704] Mr. Marzban testified that he did most of the talking during the meeting. He

said that he had reviewed the agreement the day before, and developed an analysis

of the merits of the settlement. However, he had a limited recollection as to how

much of that analysis he shared with the plaintiff during the meeting. He said that he

probably did not express a lot of the “legal type of things”, but did not define what he

meant by that. He had no notes of the advice he gave her. Nor did he confirm his

advice in writing following the meeting. He did, however, recall some parts of their

discussion.

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[705] I will first set out Mr. Marzban’s testimony as to his analysis of the plaintiff’s

claim. I will then describe what he recalls about the advice he actually gave to the

plaintiff at the meeting.

[706] Mr. Marzban’s analysis of the plaintiff’s claim as of October 2, 2001 was as

follows. The valuation of the ABG was central to the value of her claim. If she went

to trial, he believed that the best case scenario would be the acceptance by the court

of Mr. Harder’s value for her shares, and Mr. Newton simply writing a cheque to her

for that amount. However, he had a number of concerns that the result would be

less positive. First, he was aware that valuations do not provide one right answer

but instead leave the court with a range of possibilities. Second, he had a serious

concern that there would be some discount of the plaintiff’s 50% interest in the ABG

to acknowledge the benefit of cash in hand, on the authority of Blackett v. Blackett

(1989), 40 B.C.L.R. (2d) 99 (C.A.). Alternatively, the court could order that the

company be sold. The worst case scenario would be an order that the plaintiff and

Mr. Newton both keep their shares in the ABG. She would then be left with no cash,

and still be in business with him. As a result of these concerns, Mr. Marzban said he

could not advise the plaintiff that if she went to court she would receive Mr. Harder’s

value for her shares.

[707] Moreover, Mr. Marzban viewed Mr. Newton as “holding all the cards”, as he

was the only one able to keep operating the company. He believed that the

plaintiff’s only options were to see the company liquidated, with attendant costs

diminishing its value, or have Mr. Newton finance a buy-out from her, knowing that

he wanted to pay her as little as possible.

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[708] Mr. Marzban said that these factors led him to believe that the only advice he

could give the plaintiff with respect to the settlement was that she could do better or

she could do worse if she went to trial. He acknowledged that he had not reviewed

any documentary evidence, done an examination for discovery of Mr. Newton, or

interviewed other witnesses, but said none of that would change the fundamental

uncertainty with respect to what might happen with the ABG at trial, or change his

opinion that the plaintiff could do better or worse.

[709] Mr. Marzban was also concerned that proceeding to litigation would cause

delay. He expected that the trial would be hard fought, and that the January 2002

trial date would be postponed if the plaintiff did not accept the settlement. If the trial

turned into “world war three” with extensive expert evidence, he estimated it might

cost between $100,000 and $300,000, and there would be ongoing stress, and

possibly additional delays in obtaining payment for any judgment if the plaintiff had

to take execution proceedings.

[710] With respect to spousal support, Mr. Marzban believed that it was very

difficult to predict the outcome at a trial due to a variety of factors. The amount of

cash the plaintiff might receive from the division of assets would have a major impact

on her right to support. If she received a large enough sum to reduce her need and

to allow her to become self-sufficient, and if Mr. Newton had to borrow money to pay

a judgment, an award of support was less likely. On the other hand, if Mr. Newton

was receiving significant income from Westwood, this could strengthen her claim for

support. The plaintiff’s personal characteristics, including her age, work history,

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opportunities, and the fact she had no children, all indicated to him that if she

received an award for support it would not be of long duration.

[711] Mr. Marzban testified that it is not his practice to make a recommendation to a

client about a settlement. Instead, he gives a range, and advises whether the offer

is within that range. He leaves the decision to the client.

[712] I turn to Mr. Marzban’s account of what he actually recalled telling the plaintiff

at the meeting.

[713] Mr. Marzban testified that at the outset Mr. Hubley went through the terms

that had been negotiated. He also mentioned four “grinders”: interest, paying back

draws, a Westwood management fee, and legal and expert fees. Mr. Marzban

understood that Mr. Hubley was still working on these as negotiation points.

[714] I find that Mr. Marzban is mistaken in that recollection. I accept Mr. Hubley’s

evidence, as well as the documentary evidence describing the negotiations and the

agreement reached on August 23, that the only issue still outstanding between Mr.

Hubley and Mr. Brewer as of October 2, 2001 was the plaintiff’s continuing practice

of taking draws from the ABG. It appears that Mr. Hubley must have been

recounting these items as “grinders” during the negotiations, and Mr. Marzban did

not understand that the information was historical, rather than current.

[715] I accept that Mr. Marzban reviewed the settlement agreement with the

plaintiff. He testified that he spoke to her about “the property terms”. He told her

that at the end of the day all he could say was that the settlement was in the range,

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and if she chose to litigate she might do better or might do worse. He said that he

dealt with the range globally, and did not discuss individual items. Nor did he

discuss his opinion in monetary terms with the plaintiff. I accept that he did not

recommend the settlement to the plaintiff, leaving it for her to decide whether to

accept it.

[716] After refreshing his memory by reviewing the settlement agreement, Mr.

Marzban added that he also recalled discussing interest, security, Westwood and

support.

[717] He said that they discussed support and the fact that it was not included in

the settlement. The plaintiff indicated that she knew it to be a non-issue from Mr.

Newton’s perspective. He recalled telling her that depending on the outcome on the

asset side, she may or may not get support if she went to trial. He said that he did

not discuss the likely amounts or duration of support with her. Nor did he discuss

the parties’ circumstances in the context of the factors in ss. 15.2(4) and (6) of the

Divorce Act.

[718] With respect to Westwood, he said that he asked the plaintiff why it was

excluded from the settlement, and pointed out that they really did not know anything

about it. He suggested that if it was excluded it must mean that Mr. Newton was

doing some logging through it. Mr. Marzban said that the plaintiff responded that

Westwood was a non-starter with Mr. Newton. He would not move on it and she

accepted that. The subject was dropped.

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[719] Mr. Marzban testified that he raised the fact that there was no interest

payable under the agreement for two years, and Mr. Hubley told him this was a

“grinder” that he was still working on. I earlier found Mr. Marzban mistaken in that

view, but I accept that he did point out to the plaintiff the exclusion of interest from

the settlement.

[720] With respect to income tax issues, Mr. Marzban said that he knew that the

plaintiff was to receive $1.6 million for her interest in the ABG, and that the

settlement included an allowance for tax to Mr. Newton that was more favourable

than he would receive in a commercial deal, but said that he did not know the details

of this or discuss it with the plaintiff. Nor did he discuss with her how the courts deal

with taxes in matrimonial disputes.

[721] With respect to draws from the ABG, Mr. Marzban said that he knew that

these had been an issue throughout. Both the plaintiff and Mr. Newton had

withdrawn money from the ABG and she did not want to pay it back unless Mr.

Newton did too. Mr. Marzban provided no details of a discussion about this at the

meeting, other than to say he believed it remained a negotiating point or “grinder”.

[722] Finally, Mr. Marzban said that he did not raise the possibility of updating the

financial information of the ABG, or whether the plaintiff had a claim to a share of the

ABG profits in 2001 at the fiscal year-end of October 31, 2001.

[723] I accept the veracity of Mr. Marzban’s limited recollection of his discussion

with the plaintiff. I found him credible and straightforward in giving his account of the

meeting, and in acknowledging the limits of his recollection. I accept that the

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meeting lasted two hours and he did most of the talking. I infer that he clearly told

the plaintiff more than he can recall. Since Mr. Marzban viewed the ABG as the

linchpin of the plaintiff’s claim, I am satisfied that some part of his advice must have

dealt with his concerns as to the uncertainty surrounding how a court might dispose

of the ABG at a trial. Mr. Marzban said, however, that he probably did not talk to the

plaintiff about “the legal type of things”. I am unable to interpret that comment in a

way that permits me to make a reliable finding as to exactly what he told the plaintiff

about the ABG, or other issues, beyond that which he recalls.

[724] Having accepted Mr. Marzban’s evidence about the advice he gave to the

plaintiff on October 2, 2001, I am left to measure that against the standard of care

set out earlier in this section. I find that the plaintiff has established that this advice

did not meet that standard.

[725] The plaintiff’s claim focused on three main issues: the value of the ABG, the

role of Westwood, and her entitlement to spousal support. I find that the standard of

care clearly required Mr. Marzban at some point during his retainer to advise her

about those claims in the context of the statutory scheme that governed them, being

Part 5 of the F.R.A. dealing with division of family assets, and s. 15.2 of the Divorce

Act dealing with support. Such advice was essential to provide the plaintiff with a

reference point by which to judge the settlement and her potential outcomes at a

trial.

[726] There is no evidence that Mr. Marzban provided such advice. He agreed that

he did not have such a discussion with the plaintiff at their first meeting. He said that

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at that point he assumed that the statutory framework had been discussed during

Mr. Lobay’s retainer, and her claim appeared straightforward. It was understood that

there would be an equal division of assets. Support could not be determined until

the outcome of that division was known. He said that he therefore decided it was

sensible and cost-effective to leave the discussion of the statutory context until they

had a value for the ABG, and knew if it led to a negotiated settlement or litigation.

[727] There is nothing in the evidence about the meeting on October 2, 2001 to

support a finding that this anticipated discussion took place at that time. While I

appreciate that the plaintiff may have received earlier advice from Mr. Lobay, I do

not accept that this removed Mr. Marzban’s obligation to ensure that she understood

the legal framework within which she should consider the settlement and her

options. Any advice from Mr. Lobay had been given over a year before, and the

situation had evolved. In particular, Westwood had emerged as a concern since Mr.

Lobay’s retainer.

[728] I find that Mr. Marzban breached the standard of care in failing to advise the

plaintiff about the statutory framework underlying her matrimonial claim.

[729] Turning to the advice given with respect to Westwood, I have found that it

raised potential issues as to whether it was a family asset, whether Mr. Newton was

earning sufficient income from it to have an impact on the plaintiff’s claim for spousal

support, and whether his activities with Westwood were devaluing the ABG, thereby

creating a potential claim for reapportionment under s. 65 of the F.R.A.

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[730] Mr. Marzban agreed that he did not talk to the plaintiff about Westwood as a

potential family asset in the context of the F.R.A. Nor did he discuss its relevance to

a possible claim for reapportionment, or to her claim for spousal support. Mr.

Marzban agreed that as of October 2, 2001 he did not know enough about

Westwood to fully advise the plaintiff about these matters. However, he did not tell

the plaintiff this, or give her advice as to how more information about Westwood

could be obtained through the discovery process. Nor did he give her a specific

warning as to the risk of settling her claim without a further investigation of

Westwood. I acknowledge that he did raise with the plaintiff the fact that they had

limited information about Westwood, and that there might be something there. As

well, I am satisfied that the plaintiff knew that Mr. Marzban could obtain more

information about Westwood if she wished, due to the earlier application he had

prepared and the affidavit she swore. I accept that she was dismissive of his query,

however, and indicated that she accepted Mr. Newton’s position that it would not be

part of the deal.

[731] While I appreciate that the plaintiff’s apparent lack of interest suggested that

further advice was not welcome or necessary, I find that the standard of care

nevertheless required Mr. Marzban to ensure that, before she acquiesced to Mr.

Newton’s position, she was fully advised of Westwood’s potential importance to her

claims; to warn her that he did not have enough information to advise her properly

about it; to advise her of the steps he could take to obtain further information; and to

warn her of the risk of settling without taking those steps. There is no evidence that

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Mr. Marzban provided such advice or warning. I find that his failure to do so was a

breach of the standard of care.

[732] Turning to the advice given with respect to the ABG, I reject the plaintiff’s

view that the standard of care required Mr. Marzban to advise her about the

distinction between fair market value and “fair value”. The plaintiff cited Sartori v.

Sartori (1993), 13 O.R. (3d) 710 (Gen. Div.); Safarik v. Ocean Fisheries Ltd. No. 1

(1993), 12 B.C.L.R. (3d) 342 (C.A.); and Fletcher v. Fletcher, 2003 BCSC 1498 in

support of this argument. In my view, those cases do not suggest that “fair value” as

used in Sartori is a term of art in matrimonial law. It is simply a descriptive phrase

that covers the general discretion of the court to deal with unfairness, for example

under s. 65 of the F.R.A., and the court’s powers to weigh and reject evidence in

general, including valuation evidence. The other two cases add nothing more.

Moreover, neither Mr. Buchanan nor Mr. Maxwell provided evidence that supported

a view that the concept of “fair value” is a term routinely used in the matrimonial law

of British Columbia, or that the standard of care requires a family lawyer to advise a

client about the distinction between that concept and fair market value.

[733] The essence of Mr. Marzban’s advice to the plaintiff about the ABG was that

she could do better or could do worse, and that the settlement fell within the possible

range of outcomes. While that may have been a realistic “bottom line” in the

circumstances of this case, I find that, standing alone, it does not meet the standard

of care that requires the lawyer to fully inform a client about options and risks. Such

global advice provided no reference points to permit the plaintiff to assess her

options and risks in her particular circumstances. It failed to address the question

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central to her decision whether to go to trial or settle – how much better or worse?

The standard of care requires, to the extent possible, reference to outcomes in

monetary terms or in reference to other likely factual findings at trial.

[734] I appreciate that Mr. Marzban did tell the plaintiff more than this general

statement but, for the reasons described earlier, I am unable to determine how much

more. I appreciate that the onus of proof rests with the plaintiff, but even on his own

account, Mr. Marzban did not discuss with her a number of matters that had a

potential impact on the value of the ABG if she went to trial.

[735] He did not discuss potential outcomes in monetary terms, although Mr.

Harder’s going concern and liquidation values provided reference points by which to

assess the value given to the ABG in the settlement, and the possible outcomes at

trial. As well, I find that the standard of care required Mr. Marzban to raise with the

plaintiff the tax concessions made to Mr. Newton in the settlement, and the way in

which a court would be likely to treat these in the matrimonial context, in relation to

the value of her interest in the ABG.

[736] The discussion of the lower end of the range for the ABG would undoubtedly

include the risks and uncertainties of what a court might do with the ABG, described

by Mr. Marzban in his evidence about his analysis of the plaintiff’s claim. Given that

this was his main concern on October 2, 2001, I infer that he must have discussed

as least some of these with the plaintiff, but I am unable to determine exactly what

advice he provided. The risks of an order that both parties stay in business together,

or of a discount from the plaintiff’s interest for the benefit of cash in accord with the

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principles in Blackett, were not easily quantified. I find that the standard of care

required Mr. Marzban to discuss these matters with the plaintiff sufficiently to enable

her to understand the reasons for the uncertainties, and the risks of proceeding to

trial instead of accepting the settlement.

[737] As well, since this was the first time that Mr. Marzban had spoken to the

plaintiff about the valuation, I find that the standard of care required him to advise

her that he had accepted Mr. Harder’s financial disclosure and his valuation without

question or independent inquiry, and that if she felt his value was too low, she did

not have to accept his valuation or the Ritchie Bros. Appraisal as the basis for the

settlement. It remained open for her to reject the settlement and have another

appraisal and valuation done that might produce a higher number. I find that no

advice of this nature was given.

[738] The plaintiff also complains that Mr. Marzban did not review with her the

concessions made during the negotiations with respect to the draws, the start-up

loan, and interest, and advise her how those matters might have been treated at a

trial. I agree that a reasonable family lawyer should undertake such a discussion

when reviewing a proposed settlement with a client. Here, Mr. Marzban did raise the

absence of interest for the first two years of the agreement, but there is no evidence

that he advised the plaintiff that she would receive interest on a judgment following a

trial. I find that Mr. Marzban did not discuss the draws with her, although he knew

this had been an issue throughout the dispute. Nor did he discuss the Start-up

Loan.

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[739] Turning to the issue of spousal support, I find that Mr. Marzban properly

raised the concern that the settlement did not include it, and advised the plaintiff that

she may or may not get support if she proceeded to trial, as it would depend on what

happened with the assets. Despite that uncertainty, I find the standard of care

required him to discuss with her the statutory scheme underlying her entitlement to

support, particularly ss. 15.2(4) and (6) of the Divorce Act, how her right to support

and the division of assets were inter-related, and the factors that might have some

bearing on the amount and duration of an award for support if she were to receive it.

Mr. Marzban conceded that no such discussion took place.

[740] Finally, I find that the standard of care required Mr. Marzban to discuss with

the plaintiff the pros and cons of going to trial as opposed to settling. On the

negative side, this discussion should have included the potential costs, stresses, and

delays presented by a trial, the uncertainty of the result, and the question of whether

execution proceedings would be required to enforce a judgment against Mr. Newton,

resulting in further costs and delay. On the positive side, Mr. Marzban would be

expected to advise the plaintiff that, if the settlement was rejected, the January trial

date would likely be adjourned, presenting the prospect of enhancing her claim by

updating financial information of the ABG after its pending fiscal year-end on

October 31, 2001, possibly obtaining another valuation and equipment appraisal,

and conducting discovery of Mr. Newton. While some of these points formed part of

Mr. Marzban’s own analysis, on the evidence available, I am unable to find that the

plaintiff was fully informed about these matters on October 2, 2001.

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[741] I conclude that Mr. Marzban breached the standard of care in failing to fully

advise and inform the plaintiff with respect to the fairness of the settlement, and to

warn her of the risks of settling her claim without obtaining financial disclosure.

Failing to prepare for trial

[742] The plaintiff argues that Mr. Marzban was negligent in failing to prepare for

the January 2002 trial date. She says that, had she rejected the settlement, the trial

would have had to be adjourned as he was not ready. She had been clear that she

did not want further delay, and says he failed to meet the standard of care in

preparing for trial while the settlement negotiations were ongoing.

[743] Both Mr. Buchanan and Mr. Maxwell agreed that a reasonable family lawyer

begins by doing whatever possible to resolve a claim by settlement. Mr. Buchanan

offered the view that “a bad settlement is better than a good lawsuit”. Mr. Maxwell

testified that, as long as the parties seek resolution through negotiations, trial

preparation is superfluous and results in unnecessary costs. It is a fine balance to

judge the benefit of spending money on trial preparation and the probability of

settlement. Ultimately, it depends on the client’s instructions.

[744] Mr. Marzban testified that while he could have done more to prepare for trial,

it made no sense in the context of negotiations. He agreed that if the plaintiff had

rejected the settlement on October 2, 2001, it was unlikely that the matter could

have proceeded to trial as scheduled in January 2002. In all probability, the trial

would have been adjourned for up to a year.

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[745] I find that, in the circumstances, it was not unreasonable to postpone trial

preparation until the outcome of the settlement negotiations was known. I

appreciate that the degree of trial preparation, its costs, and its impact on the

negotiations were matters that should have been discussed with the plaintiff and left

to her choice, and there is no evidence that Mr. Marzban discussed these with her.

However, the alleged breach is a failure to prepare for trial, not a failure to consult or

advise her with respect to this. Moreover, there is no evidence that Mr. Marzban’s

lack of trial preparation and its effect on the January 2002 trial date was discussed at

the meeting of October 2, 2001, or influenced the plaintiff’s decision to accept the

settlement.

[746] I accordingly find no breach of the standard of care with respect to this

allegation.

Conclusion with respect to allegations of breach of the standard of care

[747] I conclude that Mr. Marzban was in breach of the standard of care of a

reasonably competent matrimonial lawyer in the following respects:

a) he failed to meet with Mr. Harder and the plaintiff after the valuation was

complete and before the negotiations commenced to discuss the valuation,

the existing appraisals, and the option of a third appraisal;

b) he failed to advise the plaintiff of her rights under the statutory scheme of

the F.R.A. and Divorce Act; and

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c) he failed to fully advise and inform the plaintiff with respect to the fairness

of the settlement, and to warn her of the risks of settling her claim without

taking further steps to obtain financial disclosure.

CAUSATION

[748] In order to succeed in her action for negligence, the plaintiff must establish

that Mr. Marzban’s breaches of the standard of care caused her to suffer damages.

The Law

[749] The traditional test for determining causation in negligence cases is the “but

for” test, which requires the plaintiff to prove on a balance of probabilities that his or

her loss would not have occurred but for the negligence of the defendant: Athey v.

Leonati, [1996] 3 S.C.R. 458 at para. 14; Resurfice Corp. v. Hanke, [2007] 1

S.C.R. 333 at paras. 21-22.

[750] At the end of her evidence in chief, the plaintiff testified that there were many

things that she did not understand when she settled her claim because of the

inadequate representation and advice she received from the defendants. These

included the distinction a court would draw between fair value and fair market value;

the fact that because the ABG was a going concern it should not have been valued

on a liquidation basis; the significance of obtaining a third appraisal; the treatment of

tax considerations in a matrimonial context; and her ability to claim spousal support.

She said that had she been advised of her rights with respect to these matters, she

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would not have settled her claim, and instead would have proceeded to trial and

obtained a materially better result.

[751] In short, it was clearly the plaintiff’s view that, but for the inadequate advice of

Mr. Marzban, she would not have settled her claim. Because she did settle, she

believes that she lost the opportunity to obtain a judgment at trial that would be

materially better than the settlement.

[752] This approach is also reflected in her pleadings with respect to causation and

damages at paragraphs 25 and 26 of the Statement of Claim:

28.

Ms. Newton says that the services and advice provided or

omitted to be provided by Mr. Marzban which resulted in her decision

and instructions to settle her matrimonial proceedings on the terms and

conditions aforesaid were in breach of the JML Retainer and duty of

care owed to Ms. Newton, and in the circumstances, Ms. Newton has

suffered loss and damage.

29.

Had Ms. Newton been properly represented and advised by Mr.

Marzban, Ms. Newton would not have settled the matrimonial

proceedings on the terms and conditions aforesaid and Ms. Newton

would have received the benefit of materially more favourable

settlement terms or a materially more favourable outcome after a trial

of the matrimonial proceedings and execution on the judgment.

[753] Paragraph 28(a) then sets out the particulars of her damages:

(a)

the difference between the value of the terms and conditions

Ms. Newton accepted in settlement of her claims in the

matrimonial proceedings with Mr. Newton set out in the

Settlement and the value Ms. Newton would have received had

further settlement negotiations ensued based on proper advice

and services by Mr. Marzban or judgment having been obtained

and executed upon after a trial of the matrimonial proceedings.

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[754] Despite this apparent endorsement of the traditional test for causation in her

evidence and pleadings, the plaintiff took the position in her argument that the

circumstances of this case justify a departure from that approach. She put forward

an analysis that introduced statistical probability as a basis for causation. She

maintained that if she could show that Mr. Marzban’s negligence caused the loss of

a real and substantial opportunity to achieve a better result at trial, causation was

established and the evaluation of that chance became part of the assessment of

damages.

[755] In support of that argument, the plaintiff relied on Hagblom v. Henderson,

2003 SKCA 40. In that case, the appellant, who had been a client of the respondent

lawyer, argued that the lawyer’s negligence in failing to call an expert witness on his

behalf at a trial caused him to lose the case. Jackson J.A., on behalf of the Court,

agreed that the lawyer was negligent and found that, had the expert been called, the

client would have had a 75% chance of raising a successful defence. She thus

awarded 75% of the damages sought.

[756] At paras. 121-132 of the judgment, Jackson J.A. discussed the lack of clarity

in tort law as to whether loss of chance is considered at the stage of causation, or in

the assessment of damages. Her review of the authorities revealed that some

decisions dealing with legal malpractice have recognized that a plaintiff/client may

succeed in an action where, through the lawyer’s negligence, the client had lost a

case that there had been some chance of winning. She stated her conclusions at

paras. 131 and 132:

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[131] As I have fixed Mr. Hagblom's loss at 75%, it is more probable than not

that Mr. Hagblom would have succeeded. Thus, we do not need to decide the

issue as to whether loss of a chance enters the analysis at the causation

stage because the traditional test, as stated by the second trial judge, applies.

The issue is whether, on a balance of probabilities, but for the negligence of

Mr. Henderson, Mr. Hagblom lost something of value greater than a 50%

chance of success. It is not, however, necessary to say, as the second trial

judge said, that the fault must have caused the loss of the trial.

[132] If it were necessary to determine the appropriate causative test,

I note that the Court in Allied Maples Group Ltd. v. Simmons &

Simmons [See Note 142 below] held that once the plaintiff proves as a

matter of causation that he or she had a real or substantial chance, as

opposed to a speculative one, causation is proven and the evaluation

of the chance becomes part of the assessment of the quantum of

damage. [See Note 143 below] It should be evident by this that the

issue which is left for another day is whether a court may assess

damages even though the percentage of the loss is 50% or less.

[757] I am unable to accept the plaintiff’s argument that a similar loss of chance

analysis applies to the issue of causation in this case. There is a fundamental

difference between the circumstances before me and those in Hagblom. In

Hagblom, the court found a direct causal link between the lost chance to win the

case and the lawyer’s negligence. The lawyer had breached the standard of care by

failing to call a critical witness who would have significantly improved the strength of

the client’s case, and his chance of winning at trial. In such a case, the probability of

success is an inherent part of the causation analysis, because to prove that the

defendant lawyer has caused a loss, the plaintiff/client must prove that, but for the

lawyer’s negligence, he or she had a chance to realize a benefit from an opportunity.

The probability of success is both an essential part of the causation analysis and an

aspect of the quantification of damages. Both issues require an assessment of the

strength of the plaintiff’s claim at a “trial within a trial”. The probability of a

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successful outcome, and thus the value of the opportunity, must be assessed before

the question of causation is answered.

[758] That is not the situation here. Unlike Hagblom, the plaintiff does not plead

that there was a direct link between Mr. Marzban’s negligent advice and loss of a

chance to get a better result at trial. She does not plead that his advice had any

impact on the outcome of a future trial. Instead, she says that his negligence

caused her to settle her claim, and her loss is the opportunity to proceed to trial at

all.

[759] The plaintiff pleads the “materially better outcome at trial” as the measure of

damages, not as an issue of causation. The probability attached to the lost chance

of that better outcome is an inherent part of the quantification of damages, which will

be assessed in a “trial within a trial” if causation is found. That exercise will seek to

determine what the likely outcome of her matrimonial trial would have been. As Mr.

Marzban is not alleged to have taken any actions that reduced her opportunity to

obtain a better result at a trial, the plaintiff is entitled to put forward the best case she

could at the hypothetical trial, within the constraints of the evidence before me and

the findings I have made to that point at this trial.

[760] I conclude that, with respect to causation, the plaintiff must prove on a

balance of probabilities that if Mr. Marzban had provided advice that met the

standard of care, she would not have accepted the settlement.

[761] In considering that issue, I am mindful that I must resist the tendency to view

the plaintiff’s decision to settle with “the acuity of vision given by hindsight”:

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Karpenko v. Paroian, Courey, Cohen & Houston (1980), 117 D.L.R. (3d) 383 at

398 (Ont. H.C.J.). I adopt the view of Groberman J. in Sports Pool Distributors

Inc. v. Dangerfield, 2008 BCSC 9 at para. 97, that in cases of professional

negligence a bare assertion that a client would have behaved differently if he or she

had received proper advice should be viewed with some scepticism. Like Mr.

Justice Groberman, I endorse this observation of Southin J.A. in Hong Kong Bank

of Canada v. Touche Ross & Co. (1989), 36 B.C.L.R. (2d) 381 at 392 (C.A.):

It is always easy for a witness to say what he would have done and for

a judge to say he accepts that assertion. But such evidence is, in

truth, not evidence of a fact but evidence of opinion. It should be

tested in the crucible of reason.

Introduction

[762] In putting forward her position on causation, the plaintiff tended to rely on the

information that she says she would have obtained had she received appropriate

advice from Mr. Marzban. There are two inter-related problems with that approach.

First, it is not the result of a potential future investigation, but the plaintiff’s state of

mind at the time the advice was given or not given, that is the governing factor in

determining the effect of Mr. Marzban’s acts on her decision to settle. Second, it

necessarily leads to speculation about the actions and state of mind of third parties.

For example, the plaintiff says she would not have settled if she had been told by Mr.

Marzban that further information could be obtained about Westwood through

discovery procedures. However, predicting what information would have been

revealed raises questions as to what advice Mr. Mortimer would have given to Mr.

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Newton, what answers Mr. Newton would have provided, and what further

investigation might have ensued. There is little to suggest that the plaintiff knew the

answers to such questions at the time she decided to settle.

The context for the plaintiff’s decision to settle

[763] The plaintiff’s decision to settle did not take place in a vacuum. Multiple and

inter-related factors formed the backdrop to her matrimonial dispute and her

dealings with the defendants, Mr. Newton, and Mr. Brewer. These included the

economics of the logging industry, the financial circumstances of the ABG, Mr.

Newton’s circumstances, the plaintiff’s relationship with him, and a number of

personal considerations and characteristics.

[764] Near the beginning of these Reasons, I described the cyclical state of the

logging industry, and the environmental, regulatory, and economic factors that

created challenges and uncertainty with respect to future productivity and profitability

in that industry in 2000 – 2001. Given the plaintiff’s long-standing connection with

logging and the ABG, I am unable to accept her evidence that she was unaware of

such concerns. I find that on July 17, 2001, Mr. Hubley expressly discussed them

with her in the course of reviewing his memorandum to Mr. Brewer, which dealt with

the importance of security for the plaintiff under the proposed settlement and

included this statement:

The economics of the forestry industry

We are both very aware of the state of affairs within the logging

industry. The threats from the US on our exports as well as

environmental, European and Asian market problems have all lead to

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the increased risk in this business. These along with the fact that we

have too much productive capacity within the logging industry for the

wood available leads me to conclude that the risk is significant with

respect to the economic environment, without considering the actual

financial position of the companies.

I appreciate Lyle [sic] single mindedness and commitment to have

Christine paid. I do not believe that we have questioned his integrity in

paying the debt. I think that the major reason for asking for the

security of the company is to reduce the risk from those events that

take place outside of Lyle’s control.

[765] I accept Mr. De Clark’s evidence that the ABG’s performance was affected by

these forces, and that its cash flow was tight from 1999 to 2001. I find that the

plaintiff was aware of this. Mr. De Clark testified that she and Mr. Newton typically

paid any annual bonus they received back into the ABG to assist with the cash flow.

The plaintiff clearly had significant concerns about the viability of the ABG in the

months immediately after the separation when the company’s financing was

precarious. The terms of the new financing obtained from GEC for $4 million in

October 2000 committed the ABG to bringing its debt load down substantially,

reducing its cash flow. While I appreciate that the plaintiff may not have been aware

of the details of this commitment, Mr. Brewer raised the tenuous financial state of the

ABG as a continuous theme during the negotiations.

[766] Moving to the role of Mr. Newton, since he did not testify I must ascertain the

part he played in the plaintiff’s decision-making process from statements that he and

his agent, Mr. Brewer, made to other witnesses. As noted previously, I do not rely

on those statements for their truth, but for the state of mind they created in the

plaintiff and her advisors.

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[767] Mr. Newton presents as something of an enigma. He was clearly a capable

logger and the operational force behind the ABG. I am satisfied that his abilities and

experience were the primary reason for its success. Early in the negotiations, he

made this clear to the plaintiff, describing the ABG as “a pig in a poke” that

depended heavily on his abilities. I accept that without Mr. Newton’s efforts the ABG

was unlikely to continue its operations.

[768] In the absence of direct evidence, I am not prepared to make a definitive

finding as to Mr. Newton’s association with the Hells Angels. However, it is clear

that the plaintiff and the defendants believed that he had joined that organization. I

am satisfied that the plaintiff was concerned that this association would jeopardize

the ABG, and put her interest in the company at risk. She swore to this in the

affidavit prepared by Mr. Marzban in April 2001. She testified at this trial that she

was aware that the organization could be a front for criminal activity, and that several

members of the Hells Angels were working at the ABG. Her concerns were

heightened when Mr. Hubley told her that Mr. Newton’s association with the Hells

Angels was one of the reasons why the RBC had pulled its financing. Mr. Marcelo

Bohm, a Vice-President of GEC, testified that at the time GEC provided financing to

the ABG in October 2000, he was not aware that Mr. Newton was associated with

the Hells Angels. He said that if he known this, GEC would not have done business

with the company. While this was not known to the plaintiff at the time, I find his

statement reinforces the legitimacy of her concern that Mr. Newton’s association

with the Hells Angels could have serious negative consequences for the ABG.

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[769] Mr. Newton’s inability to pay a substantial settlement or judgment was a

constant theme throughout the negotiations. The plaintiff knew that he had limited

assets beyond the ABG. The company’s financing arrangements with GEC and

HSBC placed significant limitations on both of them as to what they could do with the

income and the assets of the company. The plaintiff had been a signatory to

documents related to the financing, and these made it clear that both she and Mr.

Newton had been required to provide assignments and postponements of their

shareholder’s loans as security, as well as unlimited personal guarantees. Further,

HSBC stipulated that they could not remove more than $200,000 annually in

remuneration from the ABG, including salaries and bonuses.

[770] Mr. Brewer and Mr. Newton repeatedly referred to the these constraints

during the negotiations, and took the position that the settlement must be on a

liquidation basis because Mr. Newton could not afford to pay Mr. Harder’s value and

continue to operate the ABG. He periodically raised the threat of liquidating the ABG

if a settlement satisfactory to Mr. Newton could not be reached. The evidence was

somewhat unclear as to how this threat was intended or interpreted. At times, it

appears to have raised a scenario in which Mr. Newton simply walked away from the

ABG. At other times, it was raised in the context of a formal application to wind up

the company. I accept that during the negotiations the plaintiff and Mr. Hubley did

not treat liquidation as a serious threat. I find, however, that it would have become a

concern if negotiations failed. The plaintiff and Mr. Newton were clearly not able to

operate the ABG together. She could not operate the company and did not want to

buy it from him. He did not want to continue working for her benefit. While it was

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not financially beneficial to either of them to wind up the company, I am satisfied that

this was a realistic possibility if Mr. Newton decided that the plaintiff’s demands for

the value of her shares were beyond his means.

[771] The dynamics of the personal relationship between the plaintiff and Mr.

Newton after separation were complex, and fluctuated from overt hostility on the part

of Mr. Newton to renewed intimacy. The plaintiff testified that she was still in love

with him, and left him only because of his decision to join the Hells Angels. I accept

that, during the early months of the separation, Mr. Newton exerted considerable

pressure on her to settle through hostility and threats. I find that he became less

aggressive as time passed, however, and by mid-2001 he and the plaintiff were on

amicable terms again to the point of having resumed intimate relations.

[772] The plaintiff testified that she remained fearful of Mr. Newton to a degree

throughout. Yet she was able to successfully negotiate some significant issues,

such as security, directly with him. Her evidence as to whether her ongoing fear of

him influenced her decision to settle was contradictory. She told Mr. Hubley that she

wanted a settlement in part because she wanted to stay on good terms with Mr.

Newton and not upset him. Given the mercurial nature of their relationship, I find it

difficult to say whether this was due to fear or fondness. Two years after the

settlement, the plaintiff filed an action against Mr. Newton alleging that he had

misrepresented his assets and financial position to her, and had influenced her or

controlled her to his advantage at the time of the settlement. She also claimed that

she had settled because of threats and pressure from him. That action had not

proceeded at the time of this trial.

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[773] Turning to the plaintiff’s personal characteristics and considerations, I find

that, from the outset, she had a strong preference to resolve her matrimonial dispute

though settlement. I accept that initially this may have been driven, at least in part,

by Mr. Newton’s hostility. I also accept Mr. Hubley’s evidence that when the hostility

moderated in 2001, the plaintiff’s attitude toward settlement fluctuated at times, but

her most consistent theme remained that she wanted to settle as long as it was fair,

because she wanted to stay on good terms with Mr. Newton, and to receive

compensation sooner rather than later.

[774] I find that during the negotiations, instead of forcefully pursuing her goal of $2

million, the plaintiff was prepared to make a number of concessions in order to reach

a settlement of $1.771 million. I am satisfied that Mr. Hubley periodically reminded

her during that process that if she was unhappy with the way the negotiations were

going, she could always go to court, and that she should speak to Mr. Marzban

about this. However, the record indicates that the plaintiff showed little interest in

pursuing litigation as long as Mr. Newton was prepared to negotiate. Her

instructions to Mr. Marzban to proceed with the application in April, to set a trial date

at the end of May, and to deliver a notice of trial in July, were all given at times when

the negotiations appeared to be faltering. When they resumed, she had no further

communications with Mr. Marzban about these or other measures to advance the

litigation.

[775] I find that during her matrimonial dispute the plaintiff was prone to acting

independently and impulsively in making significant decisions, without seeking or

following advice from the defendants or other advisors such as Mr. Lobay. Contrary

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to strong and repeated advice from Mr. Lobay, she signed a postponement of

spousal support. She also instructed him to prepare a settlement in June 2000 that

would have given her $650,000 over 10 years for her interest in the ABG, despite

advice from him and Mr. Hubley that the value of her interest in the ABG may be

considerably higher than that and she should first obtain financial disclosure. After

she had signed that agreement, she unexpectedly changed her mind and decided

not to go ahead with it. Later, in October 2000, she refused to follow Mr. Marzban’s

advice that she should not solicit a further offer from Mr. Newton without financial

disclosure. In December 2000, when she received an offer in response of

approximately $909,000 over 50 months for her interest in the ABG, she rejected

this without seeking advice from Mr. Marzban or Mr. Hubley.

[776] While I appreciate that during 2000 she may have been somewhat influenced

by pressure from Mr. Newton, I find similar impulsive conduct demonstrated in April

2001. At that time, she immediately instructed Mr. Hubley to commence

negotiations upon receiving Mr. Harder’s valuation. She instructed Mr. Marzban not

to proceed with the application with respect to Westwood. She chose her financial

goal in the negotiations without advice from any of the defendants.

[777] I find that this behaviour strongly suggests that the plaintiff had her own

agenda, which over-rode the advice she received from the defendants. Her limited

recollection of their advice reinforces that view, and leaves it open to infer that their

input had little impact on her chosen course of action.

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[778] I accept Mr. Hubley’s evidence that by April 2001 the plaintiff was frustrated,

nervous, and concerned with the uncertainty and delay in resolving her dispute, and

had a strong wish to bring the matter to an end. I find that exemplified in his

testimony that she advised him then that Mr. Newton had told her he and Mr. Brewer

were upset with Mr. Harder’s numbers, and that she was worried that Mr. Harder’s

valuation was too high, and she would not get a good settlement if they had to sell

the company because Mr. Newton had no incentive to carry it on.

[779] Finally, while the plaintiff equivocated about this, I find that her frustration and

eagerness for an early settlement were motivated in part by financial constraints.

She and Mr. Newton had enjoyed a high standard of living during the marriage, and

she no longer had unlimited access to funds from the ABG to support this. She did

not seek employment after the separation, but continued to receive a monthly draw

of $5,000 from the ABG. However, she acknowledged that during the summer of

2001 she was spending several thousand dollars a month on items such as spas,

travel, and fitness. In the 18 months between the separation and the settlement, in

addition to those monthly draws, she had withdrawn about $88,000 from the ABG,

cashed in the Midland Walwyn Shares worth $65,000, and borrowed $30,000 from

her sister. As well, her mother had paid Mr. Marzban’s retainer because the plaintiff

did not have the funds to do so.

[780] In summary, I accept that the plaintiff’s objectives were to obtain an early and

fair settlement of her claim that did not upset Mr. Newton. In attempting to achieve

that, however, I find that she was faced with a number of uncertainties that were

beyond her control and that could operate to her disadvantage, particularly if the

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resolution of her matrimonial dispute was delayed. These included economic

concerns and threats to the ongoing viability of the ABG, not just in financial terms,

but also related to Mr. Newton’s association with the Hells Angels and whether he

had an ongoing commitment to the ABG. There was also the question of whether

Mr. Newton would or could pay any substantial settlement or judgement.

[781] I find that it was clear to her that these uncertainties limited her options in

reaching a satisfactory resolution with respect to her interest in the ABG. She did

not want to remain in business with Mr. Newton. She could not buy and operate the

business herself. Its ongoing profitability depended largely on his efforts. If she put

forward a position that was unreasonable from his point of view, she might force him

to take steps to wind up the company. In the words of both Mr. Harder and Mr.

Marzban, Mr. Newton “had all the cards in his hands”.

[782] I am satisfied that, while the plaintiff wanted a fair settlement, these

considerations made it clear to her that negotiating an arrangement whereby she

was bought out of the ABG by Mr. Newton, on terms that permitted payment over

time with security on any outstanding balance, would be the most pragmatic

outcome for her, even if the settlement amount was something less than fair market

value. I find that she was aware that a trial might lead to a higher award, but that

option was unattractive to her due to the additional delays, costs, and uncertainty

that it represented.

[783] I find that the plaintiff’s relationship with Mr. Newton also influenced her

approach to resolving their matrimonial dispute. I am satisfied that her wish to

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remain on good terms with him played a role in her acceptance of his position on

several significant issues without inquiry or advice from the defendants. She knew it

was open for her to pursue a third appraisal, but she declined to do so because Mr.

Newton was not keen on it. When Mr. Marzban raised the exclusion of spousal

support and Westwood from the settlement as potential issues at their final meeting,

the plaintiff was dismissive of his concerns, indicating that Mr. Newton said these

were off the table and she was content with that. While I appreciate that the plaintiff

says that she conceded these matters because of inadequate advice from Mr.

Marzban, I find that this does not explain her willingness to so readily accept Mr.

Newton’s position without soliciting advice on the wisdom of such a course. I am

satisfied that, while the plaintiff wished to obtain as high a settlement as possible,

she knew where Mr. Newton had drawn the line on such issues, and she made a

deliberate decision not to step over that line and risk losing the settlement and his

good will.

[784] I conclude that these contextual factors played a significant role in the

plaintiff’s decision to settle her claim, regardless of any advice given or not given by

Mr. Marzban.

Mr. Marzban’s failure to meet with Mr. Harder and the plaintiff about the

valuation and appraisals

[785] This is effectively the issue of a third appraisal. The plaintiff says that had Mr.

Marzban fully explored this option with Mr. Harder, and then advised her properly of

the purpose, importance and need for a third appraisal, she would have elected to

postpone the negotiations to obtain a more favourable equipment appraisal based

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on a higher methodological premise, like the Springer Appraisal. She hypothesizes

that since Mr. Newton made it clear that he would only negotiate on the Ritchie Bros.

values, there would have been no settlement. Instead, she would have proceeded

to trial with a significantly higher valuation, and obtained a materially better result at

trial than the settlement of $1.771 million.

[786] I have found that Mr. Marzban breached the standard of care in failing to

meet with Mr. Harder and the plaintiff to discuss the valuation before negotiations

commenced. With Mr. Harder, he should have discussed the factual assumptions

and premises on which the valuation was based, and explored the reasons for the

discrepancy between the AA Appraisal and the Ritchie Bros. Appraisal, the reasons

for Mr. Harder’s reliance on the latter, and the option of obtaining another appraisal.

The standard of care also required that he discuss the information he obtained from

Mr. Harder with the plaintiff, and advise her about the impact of the valuation on her

likely outcomes, and the option and implications of commissioning a third appraisal,

including its costs and likely impact on the pending negotiations.

[787] Determining exactly what information would have passed between Mr.

Marzban and Mr. Harder at such a meeting is necessarily speculative to a degree.

Based on the evidence and my previous findings, I conclude it would reasonably

have included the following.

[788] Mr. Harder would have confirmed his view that he had valued the ABG as a

going concern. He would have explained why he rejected the AA Appraisal as

unreliable, and why he accepted the Ritchie Bros. Appraisal as the fair market value

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of the ABG equipment for the purpose of his valuation, in the same manner as his

evidence at this trial.

[789] I find it unlikely that Mr. Marzban would have challenged Mr. Harder’s opinion

on those matters, but I accept that he would have canvassed with him the option of a

third appraisal as a means of improving the plaintiff’s position. This would have

revealed that a third appraisal could be obtained from Universal Appraisal, Mr.

Pearson’s firm, for $12,000 to $15,000 plus disbursements. Based on my earlier

findings, Mr. Harder would not have provided information about the likely result of a

Universal Appraisal appraisal. However, Mr. Brewer had told Mr. Harder that GEC

had appraised the ABG equipment for $5.3 million (the reason for that figure instead

of the actual appraisal amount of $5.5 million is unclear), and I find it likely that Mr.

Harder would have told Mr. Marzban this. I anticipate that their discussion would

also have covered Mr. Harder’s ongoing role and the fact that, as an independent

expert, he would have to be satisfied with any third appraisal. There would also be

an inquiry as to what additional fees he would charge if he was required to redo his

valuation on the basis of a new appraisal. I find that Mr. Harder would also have

conveyed that while Mr. Newton and Mr. Brewer would not oppose another

appraisal, they viewed it as irrelevant and would only negotiate using the Ritchie

Bros. values.

[790] Further information that might have been provided to Mr. Marzban by Mr.

Harder becomes more speculative. It is difficult to envisage what conversation might

have taken place about methodological premises, given the fact that Mr. Harder

viewed the Ritchie Bros. Appraisal as providing the fair market value of the ABG

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equipment. I find it clear, however, that Mr. Harder would not have recommended

seeking a third appraisal on a premise of fair market value in continued use, given

his view that the nature of the ABG equipment did not justify such an approach. It is

possible that Mr. Harder and Mr. Marzban may have discussed the impact of using

an equipment appraisal in the range of $5.3 million on Mr. Harder’s valuation. On

my admittedly rough and inexpert calculation it appears that an appraisal in that

amount would add $410,000 to the capital asset value used by Mr. Harder in his

tangible asset backing calculation. That would then have to be adjusted downward

by the deduction of the tax shield foregone. The plaintiff’s half interest in the ABG

would accordingly increase by something less than $205,000 on these figures.

[791] While more remote, it is possible that Mr. Marzban may have had a

preliminary discussion with Mr. Pearson after he spoke to Mr. Harder, and learned

that if Universal Appraisal did an appraisal, it would be based on an orderly

liquidation value premise. While it is conceivable that Mr. Pearson might have

advised that a Universal Appraisal appraisal would likely lie between the AA

Appraisal and the Ritchie Bros. Appraisal, but closer to Ritchie Bros., that is even

more remote, given my earlier findings. I nevertheless conclude that Mr. Marzban

would be aware, as a result of these inquiries, that there was some indication that a

third appraisal would be higher than the Ritchie Bros. Appraisal, although not

significantly so.

[792] I find it unlikely that Mr. Marzban would have embarked on further

investigation into a third appraisal before meeting with the plaintiff to share this

information and obtain her instructions.

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[793] I find nothing in the hypothetical information from Mr. Harder that I have set

out that would have led Mr. Marzban to suggest that the plaintiff should seek an

appraisal done on a premise of fair market value in continued use. My earlier

findings on that topic indicate that such an approach would have been misguided,

and ultimately would not have advanced her position. Instead, it appears likely they

would have considered retaining Universal Appraisal do another appraisal. They

would have discussed the likelihood that this appraisal would be higher than the

Ritchie Bros. Appraisal, and the uncertainty as to how much higher. They would

have considered its costs, and the related costs of having Mr. Harder or another

valuator review and approve it, and then provide a new valuation.

[794] I find it likely that they would have discussed the impact of having another

appraisal on the settlement negotiations, and decided that it would clearly delay

them, and in all likelihood bring them to a halt completely, given the apparently

entrenched position of Mr. Newton and Mr. Brewer that they would only negotiate on

the Ritchie Bros. values. I am satisfied that this would have led to a discussion of

whether obtaining a third appraisal of unknown value and going to trial would

advance the plaintiff’s position overall, in the context of the uncertainty of the result

and the attendant delays and costs. A trial date had not yet been scheduled. Mr.

Marzban would have told the plaintiff that a trial might cost between $100,000 and

$300,000 if it was hard-fought and required extensive expert testimony. They would

have discussed the uncertainty of the result when a judge is faced with a range of

valuations, the fact that Mr. Newton would put forward the Ritchie Bros. Appraisal;

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that the AA Appraisal, while high, was likely to be discredited; and that the result of a

third appraisal at this point was unknown.

[795] Has the plaintiff established on a balance of probabilities that this information

would have led her to reject the prospect of negotiating a settlement based on Mr.

Harder’s valuation, and instead obtain a third appraisal, knowing that the likely

outcome of that course was to proceed to trial? I find that she has not.

[796] I am satisfied that the postulated discussions between Mr. Harder, Mr.

Marzban and the plaintiff contain a limited amount of significant information that was

not already known to the plaintiff. I find that she already knew from her

conversations with Mr. Hubley and Mr. Harder that she had the option of obtaining a

third appraisal, its estimated cost, and that Mr. Newton viewed it as irrelevant and

would only negotiate on the Ritchie Bros. Appraisal values.

[797] The plaintiff claimed that no one ever told her that that Mr. Newton’s

opposition did not preclude her from obtaining a third appraisal and proceeding to

trial with a valuation based on it. She said that while she knew that she could have

another appraisal done, and she knew she could go to trial, she never understood

the relationship between these two steps. She maintained that the defendants

insisted that they would use Ritchie Bros. and she did not pursue a third appraisal

because she thought she did not have a choice.

[798] I am unable to accept that. There is no evidence that any of the defendants

told the plaintiff that she had to use the Ritchie Bros. Appraisal. Mr. Hubley and Mr.

Harder clearly left it open to her to provide instructions to obtain a third appraisal if

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she wished. Moreover, the plaintiff knew that a higher appraisal would increase the

value of her shares; this was the only reason to commission another appraisal. She

knew that Mr. Newton would not accept a settlement based on a new and higher

appraisal. She knew that in that case the only way to resolve her dispute would be

to proceed to trial. I find that, regardless of any inadequacies in the advice offered

by Mr. Marzban, the plaintiff understood that the purpose of obtaining a third

appraisal was to proceed to trial with an enhanced claim.

[799] I accordingly find that the only significant new information that would have

emerged from the postulated discussions between Mr. Marzban, Mr. Harder and the

plaintiff were first, that another appraisal could be done on a theoretical premise of

orderly liquidation value, and second, that the result would likely be higher than the

Ritchie Bros. Appraisal, although perhaps not substantially higher.

[800] I am not convinced that the information about the theoretical appraisal

premise would have resonated with the plaintiff and been a decisive factor in

convincing her that a third appraisal was necessary. The prospect of another

appraisal increasing the value of her claim would be a more meaningful piece of

information, and the significant question is whether she would have decided to

abandon the opportunity to negotiate a settlement in the range of Mr. Harder’s

valuation in order to obtain a third appraisal with a higher but uncertain result, and

proceed to trial, with the attendant delays, costs and uncertainties.

[801] The plaintiff has not convinced me that she would have done so. While a

third appraisal tempted with the prospect of an increased claim, I find that the

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plaintiff would have been aware that pursuing that course would likely have

foreclosed any hope of resolution though a settlement. She would also have known

that it introduced additional uncertainties, notably, the result of the appraisal itself,

Mr. Newton’s reaction to an increased claim, and the ultimate outcome at trial. I am

not satisfied that, in the context I described in the previous section, this additional

information would have led the plaintiff to abandon the prospect of a settlement in

order to obtain another appraisal and go to trial.

[802] I am satisfied that the plaintiff made a considered decision to negotiate a

settlement instead of exploring a third appraisal after discussing this possibility with

Mr. Hubley and Mr. Harder, primarily because Mr. Newton was opposed to that

course, and she preferred to reach a certain and early settlement with him using the

Ritchie Bros. values.

[803] I conclude that the plaintiff has failed to prove on a balance of probabilities

that Mr. Marzban’s breach of the standard of care in this regard caused her to

pursue settlement instead of proceeding to trial with a case based on a third

appraisal.

Failure to fully and adequately warn and advise the plaintiff on October 2, 2001

[804] I have found that Mr. Marzban breached the standard of care at the October

2001 meeting in failing to advise the plaintiff about her claims involving Westwood,

the ABG and spousal support in the context of the statutory scheme that governed

them. I have also found that while he advised the plaintiff with respect to the

settlement in global and general terms, he failed to fully inform her about her

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options, risks, and the range of likely outcomes at trial by reference to monetary

amounts and other relevant facts that had a bearing on her claim. Nor did he review

the concessions she had made during the negotiations in the context of the likely

outcomes at trial on those items. Where uncertainties in the law or facts, or limited

financial disclosure, precluded such advice, I have found that he was obliged to

explain this to her, and to inform her about any steps that could be taken to rectify

these limitations. That discussion should have included the costs of taking such

steps and the impact they might have on the potential settlement, as well as the

risks of settling without seeking the missing information. Finally, he should have

discussed with her the risks and benefits of proceeding to trial instead of accepting

the settlement.

[805] I find the following to be a reasonable representation of the advice that the

plaintiff should have received on October 2, 2001.

[806] First, with respect to Westwood, it would have included an explanation of the

effect of ss. 56 through 59 of the F.R.A., to the effect that a s. 57 declaration

operates as a triggering event, giving each party a half-interest in family assets, and

that after such a declaration each party may acquire his or her own assets. These

will not be considered family assets so long as there has been no direct or indirect

contribution to their acquisition by the other spouse or from the family assets. Thus,

if Westwood was using the assets of the ABG, this may support an argument at trial

that Westwood is a family asset and that the plaintiff is entitled to a half-interest in it.

She would not have such a claim, however, if Westwood was paying the ABG fair

market value for any assets it used.

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[807] The advice about Westwood would also have included an explanation of the

import of ss. 65 and 66 of the F.R.A., the factors in s. 65(1), and the fact that the

plaintiff could argue for a reapportionment of the value of the ABG in her favour if

she was able to establish that Mr. Newton was devaluing the ABG by

misappropriating opportunities from it to Westwood.

[808] She would also have been advised that Westwood might be providing an

income stream for Mr. Newton which could strengthen a claim for spousal support

under the Divorce Act, although any claim for support remained uncertain as it was

dependent on the division of assets.

[809] Finally, the plaintiff would have been told that Mr. Marzban had insufficient

information about Westwood to give reliable advice about these potential claims, and

warned of the risks of settling her claim without exploring Westwood further through

obtaining a List of Documents and a Form 89 Financial Statement, and conducting

an examination for discovery of Mr. Newton. This discussion would have included

the fact that Mr. Newton was clearly opposed to such a course, a description of the

costs and delay attendant on undertaking these steps, speculation on what

information might be obtained, and the likelihood that switching to a litigation model

at this stage would destroy the present settlement opportunity, and perhaps negate

the possibility of any future settlement. This would in turn lead to discussion of the

costs and uncertainties of proceeding to trial.

[810] With respect to the ABG, the discussion would again reference ss. 65 and 66

as the starting point, and the plaintiff’s statutory right to a half interest in the

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company. The only information available as to what that represented in monetary

terms was Mr. Harder’s memorandum of April 20, 2001. She would be advised that

Mr. Marzban was relying entirely on Mr. Harder for both the financial disclosure

related to the ABG and for its value, and that he had not undertaken any

independent inquiry into these matters.

[811] Mr. Marzban would ensure that the plaintiff understood that the settlement

valued her interest in the ABG at $1.6 million, including her shareholder’s loan of

$408,775, and her share of the 2000 bonus which was $182,300. Thus, her shares

alone were valued at just over $1 million. Dealing with the likely range of outcomes

at a trial, she would be told that Mr. Harder’s valuation valued her shares at $1.3

million, and that the top end of the range for her interest in the ABG based on his

numbers was $1.89 million, including her shareholder’s loan and 2000 bonus.

[812] The plaintiff’s concessions with respect to taxes would be raised in the

context of the value of the ABG, and an inquiry made as to whether Mr. Newton

would sell the ABG in the foreseeable future. On the evidence at trial, I find it likely

that the plaintiff would have answered in the negative. She would then have been

advised that if she proceeded to trial and Mr. Newton had no imminent or

foreseeable plan to sell the ABG, the court would be unlikely to order a deduction of

$220,000 from her share of the ABG, although this was a discretionary matter and

that outcome was not certain. She would also be advised that a court would not

order her to give up her capital gains exemption, which had a value of $100,000 to

her.

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[813] In that Mr. Marzban had not discussed the valuation with the plaintiff before

this meeting, she would be advised that in assessing both the settlement and her

best outcome at trial, she was not bound to rely on Mr. Harder’s valuation, and could

commission another appraisal and valuation if she was unhappy with his numbers or

the settlement. I find that this discussion would follow the lines set out in the

preceding section of these reasons. This would lead again to a discussion of the

implications of abandoning the settlement and proceeding to trial.

[814] Moving from the high end of her expected outcomes, the plaintiff would be

warned that, despite Mr. Harder’s valuation and her right to a half interest in the

ABG, it could not be said with certainty that a court would order Mr. Newton to buy

her shares at half of Mr. Harder’s value. Valuation is an art rather than a science,

and does not produce a single precise number. As well, the court has considerable

discretion in dealing with the disposition of a family company. Nothing could be

done to reduce these sources of uncertainty in predicting the outcome at a trial.

[815] She would be told that even if Mr. Newton was ordered to purchase her

shares, a court may discount the amount she received to represent the value of cash

in hand under the principles in Blackett. This could occur if Mr. Newton

demonstrated that this outcome placed an unfair burden on him, both in terms of

paying for the shares and in assuming all future uncertainty with respect to the

prospects of the company. The amount of such a discount was discretionary and

difficult to predict.

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[816] There would also be discussion about the risk that Mr. Newton would apply to

wind up the ABG. She would likely be advised that liquidation of a company will only

be ordered in exceptional circumstances in a matrimonial action, based on the

authorities at that time that are usefully summarized in the later case of Balic v.

Balic, 2006 BCCA 335 at paras. 19-26, leave to appeal ref’d (2007) 366 N.R. 400

(Note). However, she would also be advised that the threat of liquidation remained,

as Mr. Newton could bring an application to wind up the ABG under the Company

Act independently of the matrimonial proceeding. The plaintiff would have been

advised that if he was successful, the liquidation calculations done by Mr. Brewer

and Mr. Harder suggested that her interest in the liquidated value of the ABG would

fall in a range of $450,000 to $730,000.

[817] Finally, the plaintiff would be advised that while the courts are reluctant to

order ex-spouses to keep their shares in a family company and remain in business

together, this possibility had to be acknowledged. Such a result represented the

worst possible outcome, as it would mean that the plaintiff recovered nothing for her

shares, and she would remain in business with Mr. Newton. In all likelihood they

would end up in further litigation, seeking to wind-up the ABG or turning to some

other corporate remedy under the Company Act.

[818] Having discussed the range of possible outcomes in as much detail as the

facts and law permitted, I accept that the plaintiff could be advised that, with respect

to the value of the ABG, she could do better or she could do worse than the

settlement that had been negotiated.

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[819] Turning to the claim for spousal support, the plaintiff would have been

advised of the statutory scheme underlying her claim, including the factors set out in

s. 15.2(4) and (6) of the Divorce Act. There would have been some inquiry into her

circumstances in the context of those factors. The relationship between the division

of assets and spousal support would have been explained, and she would have

been told that an outcome that gave her substantial assets would likely preclude an

award of spousal support, based on the line of authority emanating from Newsom.

The proposed settlement was in the range that made a claim for support tenuous,

and thus the fact it included a release of her claim for support was not a reason to

reject it. The resulting conclusion would be the same as that given by Mr. Marzban:

the outcome of a claim for spousal support at trial was uncertain, and would depend

on the division of family assets.

[820] With respect to the other concessions made during the negotiations, the

plaintiff would be reminded that the settlement did not provide for interest on the

outstanding balance for two years, and advised that she would receive interest on

any judgment if she proceeded to trial. With respect to draws from the ABG, the

plaintiff would be reminded that the total withdrawn by Mr. Newton was uncertain,

but had been charged against his shareholder’s loan account. The settlement

permitted her to keep her draws of $88,000 by virtue of the retirement allowance,

and receive her full shareholder’s loan as well. If the plaintiff viewed this as unfair,

approval of the settlement would have to be postponed while Mr. Newton’s draws

were investigated further.

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[821] With respect to the Start-up Loan of $87,500, the plaintiff would have been

advised that there was little likelihood of success in recovering this at trial by way of

an argument for reapportionment since the loan had been made almost 14 years

ago, and Mr. Newton had done the lion’s share of work in building the ABG, in

accord with the principles set out in Lodge v. Lodge (1993), 79 B.C.L.R. (2d) 360.

[822] Finally, I find that a significant portion of the discussion would have centred

on weighing the pros and cons of proceeding to trial. On the negative side, this

would include discussion of the estimated costs of $100,000 to $300,000, further

delays because the trial date of January 2002 was not sustainable, uncertainty of the

outcome, and the stress and other personal costs attendant on a trial. As well, the

possibility that execution proceedings would be required to enforce any judgment

against Mr. Newton, resulting in further costs and delays, would be contrasted with

the security offered by the settlement.

[823] On the positive side, the plaintiff would be advised that, if she rejected the

settlement, the adjournment of the trial presented the prospect of enhancing her

claim. Discovery procedures would provide further financial disclosure, particularly

with respect to Westwood. If she wished, she could seek another appraisal and

valuation. The valuation could incorporate the results and profit of the ABG’s

pending October 31, 2001 year-end in her claim.

[824] Finally, the plaintiff would be told that it is often better to settle for a little less

than risk an uncertain result at trial.

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[825] The plaintiff says that if she had been advised in this manner, she would have

rejected the settlement, instructed Mr. Marzban to undertake financial disclosure and

discovery, and ultimately would have recovered substantially more at trial than she

received under the settlement.

[826] I will deal only briefly with the role played by the advice about spousal

support, and the concessions made during the negotiations other than those dealing

with income tax. I am satisfied that Mr. Marzban’s failure to provide more complete

advice with respect to these matters had no bearing on the plaintiff’s decision to

settle.

[827] While support was not fully discussed, his final advice could be no more than

it was: the claim was uncertain and its strength could not be assessed until the asset

division was known. I find that this was unlikely to dissuade the plaintiff from

accepting a settlement that omitted spousal support. Moreover, the plaintiff knew

that she had a claim to spousal support, yet was prepared to accept Mr. Newton’s

position that he would not pay support. I find it unlikely that fuller advice on the

factors in s. 15.2 would have led to a different result in these circumstances.

[828] Similarly, I find that the failure to fully address the concessions made with

respect to interest, draws, and the Start-up Loan was of no consequence. The last

had no prospect of success. The plaintiff paid little attention to the first, testifying

that she knew that there was no interest under the agreement and that this was

more a concern to Mr. Hubley than to her. She was fully aware of the situation

concerning the parties’ draws from the ABG, willingly accepted the retirement

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allowance to cover her draws, and knew that she could challenge Mr. Newton’s

draws but had decided not to do so.

[829] I am satisfied that the postulated advice raised two main issues that might

reasonably have led the plaintiff to reject the settlement. The first was the

uncertainty surrounding Westwood’s potential effect on her claim and the prospect of

learning more about this through discovery procedures. The second was the

opportunity of obtaining a judgment in excess of $1.6 million for her share in the

ABG if she proceeded to trial. In considering the impact that this advice might have

had on the plaintiff’s decision to settle or go to trial, it is necessary to determine how

much of it was actually new to her.

[830] Dealing first with Westwood, the plaintiff testified that Mr. Newton just told her

that it was a management contract or a labour-only contract. As a result, she was

unconcerned with its effect on the ABG and did not pursue it with the defendants.

[831] I am unable to accept that. In April 2001, the plaintiff obtained documents

that demonstrated that a numbered company of Mr. Newton’s, that soon changed its

name to Westwood, had offered to purchase a Bill 13 contract and logging

equipment from a logging company in Campbell River for $1.227 million at the end

of March 2001. Mr. Hubley’s e-mail to Mr. Harder on April 14, 2001, quoted at

paragraph [165] of these Reasons, described her as “livid” about this. It expressed

her concerns that Mr. Newton was using the ABG assets to secure financing for this

venture, and diverting assets and value away from the ABG, as well as her

conviction that he was using the negotiations only as a front to allow him to do what

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he wanted and reduce her value in the ABG. Mr. Harder’s memorandum of April 20,

2001 drew similar concerns about Westwood to her attention. Paragraph 9 of the

affidavit she swore on April 27, 2001 stated:

It has now come to my attention that the Plaintiff is also taking actions which

will prejudice my position in these proceedings. Specifically, he has

apparently incorporated numbered companies, 607498 B.C. Ltd. (“B.C. Ltd.”)

and 612096 B.C. Ltd. (“B.C. 2 Ltd.”), [Westwood], which he is using to divert

income from the Company, or operate using assets of the Company. Exhibit

“B” is a copy of an invoice from B.C. Ltd. to Duke Point Shake and Shingle

Ltd. relating to rental of a truck

[832] I conclude that from the time she first became aware of Westwood, the

plaintiff knew that it involved more than a management contract and was concerned

that Mr. Newton may be using it to devalue her interest in the ABG.

[833] Further, it is clear that as of April 2001 the plaintiff knew that Mr. Marzban

could and should obtain information about Westwood and its activities in relation to

her claim. He advised her to bring an application to obtain documents related to

Westwood, and she instructed him to do so. I have earlier found that, despite her

concerns about Westwood, she instructed Mr. Marzban not to proceed with this

application as settlement negotiations had resumed.

[834] During the negotiations, Mr. Brewer, on behalf of Mr. Newton, steadfastly

maintained that Westwood would not be included in any settlement. The plaintiff

says Mr. Newton also told her that he had set up Westwood in such a way that she

would not have access to it.

[835] In July 2001, the plaintiff obtained further documents related to Westwood

and its dealings with J.S. Jones. I find her evidence that she did not read these,

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other than noting that they concerned Westwood, incredible given her earlier level of

suspicion and the fact that they included two substantial cheques related to

Westwood’s operations. While she brought these to the attention of Mr. Hubley and

Mr. Marzban, there is no evidence as to what advice or instructions were given or

not given as a result.

[836] Just before concluding the settlement, the plaintiff made some notes in which

she assigned a value of $50,000 to Westwood, and stated that her lawyer could

obtain information about Westwood’s contract with J.S. Jones. While she was

unable to provide any explanation for these notes, I find that they demonstrate an

understanding that Westwood had some significant value, and that Mr. Marzban

could obtain information about it if she wished.

[837] I conclude that as of October 2, 2001, the plaintiff knew that Westwood may

be devaluing her interest in the ABG. She knew that Mr. Newton was resistant to

giving her access to it. She knew that Mr. Marzban could obtain information about it

if she wished. What that information might be was uncertain. As well, I am satisfied

that at the meeting on October 2, 2001 Mr. Marzban raised the exclusion of

Westwood from the settlement as a concern, and indicated that this may mean there

was something to Westwood. I find that the plaintiff responded by dismissing his

concern, saying that she accepted Mr. Newton’s position that it was not part of the

deal.

[838] I conclude that, despite her concern that Westwood was in some way

devaluing her interest in the ABG, at some point the plaintiff decided to accept Mr.

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Newton’s position that Westwood would not be a part of any settlement. I find that

this decision rested on the contextual considerations I set out earlier, particularly her

wish to remain on good terms with Mr. Newton, and her preference to reach a

settlement rather than go to trial. The plaintiff has failed to convince me that any

deficiencies in Mr. Marzban’s advice about Westwood would have altered that

decision.

[839] I have reached a similar conclusion with respect to the plaintiff’s option of

proceeding to trial and presenting an enhanced claim for her share of the ABG. I

find that at the time she settled her claim, the plaintiff knew that she might obtain

more for her interest in the ABG if she went to trial, but the uncertainties as to

outcome and her personal considerations led her to accept the settlement instead.

[840] Although the plaintiff testified that she did not know that Mr. Harder had

valued her shares at $1.3 million until much later, I am unable to accept that. She

had received a copy of Mr. Harder’s valuation that clearly set this out. She had

discussed his values with Mr. Hubley. She testified that she chose her goal in the

negotiations based on Mr. Harder’s information.

[841] As well, I find that the plaintiff knowingly agreed to a significant deduction of

$220,000 from the value of her shares during the negotiations in order to achieve a

settlement. I am satisfied that she knew that this was not necessary and that she

understood that she could instead stand firm on her target of $2 million and go to

trial if she wished. I have earlier found that Mr. Hubley fully explained her options as

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to this deduction, and reminded her many times that if she did not like the way things

were going, she could go to trial.

[842] I have also found that the plaintiff knew that a third appraisal could enhance

the value of her claim at a trial, but she decided not to follow that course.

[843] I have found as well that the plaintiff was sufficiently familiar with the ABG that

she knew of its pending year-end and the associated practice of declaring an annual

bonus. However, I am satisfied that the prospect of waiting for those financial

results which, based on the previous year, would have been available in January

2002, and then essentially starting over again in valuing her claim, held little

attraction for the plaintiff. This would have involved redoing the valuation for a trial

date in late 2002, a costly and impractical option, given her goals.

[844] In short, I find that on October 2, 2001 the plaintiff was aware that there were

means of presenting a larger claim for her interest in the ABG at a trial but,

regardless of the advice given or not given by Mr. Marzban, had decided not to

pursue them. Further, the advice required by the standard of care as to the risks

and lower end of the range of outcomes would have made it clear to her that, even if

she presented a higher valuation at trial, the result remained uncertain, as did Mr.

Newton’s ability to pay a judgment.

[845] I find that the plaintiff’s decision to accept the settlement at the meeting on

October 2, 2001 was influenced primarily by the array of personal considerations

and uncertainties that characterized her matrimonial dispute. I am satisfied that in

reaching that decision she had considerably more knowledge about Westwood, the

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value of the ABG, and her claim to spousal support than she admitted at this trial. I

find that, while she wanted to attain the best outcome possible, it was clear to her

that this would be achieved through a settlement by which Mr. Newton purchased

her interest in the ABG on terms that provided certainty and security. I accept that

the plaintiff was prepared to push Mr. Newton to attain as high a settlement as

possible, but I find that she knew his limits and was not prepared to go beyond them

and force the matter to trial. I am satisfied that her comment to Mr. Hubley in April

that she was concerned that if she sought too high a figure she would not get a

settlement leaves no doubt about this. I am satisfied that she agreed to the

settlement presented on October 2, 2001 because it fulfilled her requirements, and

that any inadequacies in Mr. Marzban’s advice to her about the ABG at that time had

no bearing on that decision.

Conclusion with respect to causation

[846] I conclude that the plaintiff has failed to establish on a balance of

probabilities that Mr. Marzban’s failure to meet the standard of care caused her to

accept the settlement and forego the option of proceeding to trial. The claim against

Mr. Marzban and Jenkins Marzban Logan in negligence is accordingly dismissed.

As the claim in contract is not dependent on a finding of causation, I find those

defendants liable to the plaintiff for breach of contract.

Newton v. Marzban

Page 271

DAMAGES

Damages for breach of contract

[847] It is well established that a plaintiff who has failed to prove that he or she

suffered any damages from a breach of contract will nevertheless be entitled to an

award for nominal damages. There appear to be three reasons for such an award:

deterrence, closure, and expedience. S.M. Waddams, The Law of Contracts,

looseleaf, 5th ed. (Toronto: Canada Law Book, 2005) at para. 10-10 provides this

rationale for nominal damages:

The judgment has the effect of a declaration of legal rights and may

deter future infringements or may enable the plaintiff to obtain an

injunction to restrain a repetition of the wrong. The obtaining of

nominal damages will also, in many cases, entitle a plaintiff to costs …

[footnotes omitted]

[848] The plaintiff is accordingly entitled to an award for nominal damages.

[849] In considering an appropriate amount, I note that Mr. Justice Hinkson in a

recent decision involving lawyer’s negligence considered the authorities and

concluded that an award of nominal damages in the amount of $1,000 for breach of

contract was justified: Chaster (Guardian ad litem of) v. LeBlanc, 2007 BCSC

1250 at paras. 219-222 [Chaster]. That case had some similarities to this in that it

involved allegations that the lawyer’s conduct led the client to accept to accept an

improvident settlement. I see no reason to differ from the assessment of Hinkson J.

[850] The plaintiff will accordingly recover $1,000 as damages for breach of

contract from the defendants Dinyar Marzban and Jenkins Marzban Logan jointly.

Newton v. Marzban

Page 272

Damages for negligence – is a provisional assessment appropriate?

[851] Since I have found that the plaintiff has failed to prove causation, it is not

necessary for me to assess damages for negligence. I appreciate that it can

nevertheless be productive in some cases to provide a provisional assessment in

the event that there is an appeal of the trial decision and the findings of fact are

useful in that context.

[852] I have considered whether it is appropriate to embark on such an assessment

in this case and have decided that it is not for the following reasons.

[853] The damages pled are the difference between the settlement amount and the

judgment that the plaintiff would have obtained and executed upon had she

proceeded to trial. The assessment of that difference is made by conducting a “trial

within a trial”, effectively determining the outcome of the plaintiff’s matrimonial trial

on the basis of the evidence led and findings made at this trial.

[854] In some cases of lawyer’s negligence, the record is complete and the process

straightforward. The judge tries the hypothetical action on an unspoken assumption

that the evidence before him or her is the whole of the evidence that would have

been before the judge on a real trial, and assesses damages with some certainty:

Startup v. Blake and MacIsaac & Co., 2001 BCSC 8 at paras. 96-107; Chaster, at

paras. 202-217.

[855] Where the record is incomplete due to the passage of time or other

evidentiary difficulties, the process becomes more difficult. That is the case here.

Newton v. Marzban

Page 273

Significantly, there is no evidence from Mr. Newton. As the opposing party on the

“trial within a trial”, his position and testimony would be critical to a reliable

determination of the likely outcome of that hypothetical matrimonial trial. As well,

few of the documents that the plaintiff says should have been obtained by the

defendants have been produced at this trial, and financial disclosure with respect to

Westwood and aspects of the ABG thus remains incomplete.

[856] The seminal case of Kitchen v. Royal Air Force Association, [1958] 2 All

E.R. 241 at 251-252 (C.A.) makes it clear that such difficulties do not relieve the

court from assessing damages. Nevertheless, I find that there is little to be gained

by embarking on an unnecessary and highly speculative assessment of damages in

this case.

[857] In reaching that conclusion, I am influenced in part by the fact that during this

trial the plaintiff gave indications that she may proceed with an action against Mr.

Newton to enforce the terms of the settlement agreement and her rights under the

Divorce Act. If she does so, it is my view that such issues are most appropriately

determined at a trial in which Mr. Newton has the opportunity to fully participate, and

should not be the subject of a provisional assessment of damages here.

CONCLUSION

[858] The action against the defendants Gordon F. Hubley, Bestwick & Partners,

Gord Hubley Ltd., D. Jeffrey Harder, and BDO Dunwoody LLP is dismissed.

Newton v. Marzban

Page 274

[859] The plaintiff will recover nominal damages of $1,000 for breach of contract

from the defendants Dinyar Marzban and Jenkins Marzban Logan.

[860] The parties may schedule a time with the Registry to address costs if

necessary.

“K. Neilson J.”