Walsh v. TRA Company Ltd

IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR

GENERAL DIVISION

Citation: Walsh v. TRA Company Limited, 2022 NLSC 6

Date: January 19, 2022

Docket: 200101T1035

BETWEEN:

DAVID WALSH and LENORA WALSH

FIRST PLAINTIFF

AND:

TRA COMPANY LIMITED

FIRST DEFENDANT

AND:

FOODLAND LIMITED

SECOND DEFENDANT

AND:

SOBEYS GROUP INC.

THIRD DEFENDANT

AND:

SOBEYS CAPITAL INCORPORATED

FOURTH DEFENDANT

AND:

SOBEY’S LAND HOLDINGS LIMITED

FIFTH DEFENDANT

AND:

JOSEPH GREEN

SIXTH DEFENDANT

Before: Justice Glen L.C. Noel

Page 2

Place of Hearing:

Dates of Hearing:

St. John’s, Newfoundland and Labrador

November 23 – 27, 30; December 1 – 3, 7 –

11; 14 – 18, 2020; and January 4 – 8; March

29 – 31; June 28, 29; July 5 and 6, 2021

Summary:

The Plaintiffs were the sole shareholders of corporations that owned and operated

grocery stores in the Town of Bay Bulls under the Foodland banner and on

Merrymeeting Road in St. John’s as Walsh’s Family Foods. They sold their shares

in the corporations that operated the stores in 1995 and 1996, respectively.

They claim their corporations were not supplied goods by Defendant TRA at the cost

arrangement that TRA had promised them, and that they lost money on the sales of

their shares in the corporations resulting from the Defendants’ failure to pay the

promised trade deals. Their action seeks damages from the Defendants for negligent

or fraudulent misrepresentation.

The Court held:

1. The Walshes have not established the elements necessary to prove negligent

or fraudulent misrepresentations.

2. The Walshes’ claims for negligence, negligent misrepresentation, and

personal losses for fraudulent misrepresentation are statute-barred by s. 5(a)

and (b) of the Limitations Act. The only claim not time-barred (but dismissed

for no liability) is for economic losses arising from fraudulent

misrepresentation governed by s. 6(c) of the Limitations Act.

3. The Walshes failed to establish (i) an independent and separate wrong to them

personally as shareholders, and (ii) the claims for loss of share value are

damages sustained by the Corporations and not a direct loss to them as

shareholders. The common law rule in Foss v. Harbottle precludes their

claims, and denying the claims cannot be considered “too flagrantly opposed

to justice.”

Page 3

4. The Walshes did not sustain any direct personal losses for which they can

recover damages.

5. The Walshes’ expert-opinion evidence is inadmissible, and the admissible

evidence failed to prove the Walshes suffered losses associated with the sale

of their shares in either of the Bay Bulls or Merrymeeting Road Corporations.

The Court dismissed the action against the Defendants with no order as to costs for

the reasons provided.

Appearances:

Paul D. Dicks, Q.C. and

Megan S. Reynolds

Appearing on behalf of the Plaintiffs

Appearing on behalf of the Defendants

Colm St. R. J. Seviour, Q.C.,

Jonathan D. Dale and

Christopher D. Goodridge

Authorities Cited:

CASES CONSIDERED: Walsh v. TRA Company Limited, 2016 NLTD(G)

119; Foss v Harbottle, (1843) 67 E.R. 189, (1843) 2 Hare 461; Walsh v. TRA

Co. [2006] N.J. No. 389, 2006 CarswellNfld 376 (N.L.S.C.(T.D.)); Walsh v.

TRA Co., 2007 NLCA 50; Walsh v. T.R.A. Company Limited, 2015 NLTD(G)

27; H.(F.) v. McDougall, 2008 SCC 53; Queen v. Cognos Inc, [1993] 1 S.C.R.

87; Hercules Managements Ltd v. Ernst & Young, [1997] 2 S.C.R. 165; Lam

v. Chiu, 2012 BCSC 440; R. v. B. (K.G.), [1993] 1 S.C.R. 740; Hennessey v

Eastern Regional Health Authority, 2019 NLSC 239; Midland Resources

Holding Ltd. v. Shtaif, 2017 ONCA 320; WEH Enterprises Ltd. v. Squires,

2010 NLCA 41; Morgan v. Rogers, 2011 NLCA 27; Central & Trust Co. v.

Rafuse, [1986] 2 S.C.R. 147; Ryan v. Moore, 2005 SCC 38; Grant Thornton

LLP v. New Brunswick, 2021 SCC 31; Bauer v. Erben, 2007 NBQR 299;

Brunette v. Legault Joly Thiffault, s.e.n.c.r.l., 2018 SCC 55; NPV

Management Ltd. v. Anthony, 2003 NLCA 41; Danyluk v. Ainsworth

Technologies Inc., 2001 SCC 44; Kosmopoulos v. Constitution Insurance Co.

of Canada, [1987] 1 S.C.R. 2; 642947 Ontario Ltd. v. Fleischer (2001), 209

D.L.R. (4th) 182, 56 O.R. (3d) 417 (C.A.); Salah v. Timothy’s Coffees of the

Page 4

World Iinc., 2010 ONCA 673; Yaiguaje v. Chevron Corporation, 2018 ONCA

472 Groupe d’action d’investisseurs dans Biosyntech c Tsang, 2016 QCCA

1923; Midland Resources Holding Ltd. v. Shtaif, 2017 ONCA 320; Tran v.

Bloorston Farms Ltd., 2020 ONCA 440; McGowan v. Bank of Nova Scotia,

2010 PESC 17, aff’d 2001 PECA 20; 3Com Corp. v. Zorin International

Corp., 2006 CarswellOnt 3333, 148 A.C.W.S. (3d) 819 (C.A.), Catalyst Pulp

& Paper Sales Inc. v. Universal Paper Export Co., 2008 BCSC 515;

Streamside Engineering & Development Ltd. v. Canadian Imperial Bank of

Commerce, [1990] Nfld. & P.E.I.R. 220, 266 A.P.R. 220 (N.L.S.C.(T.D.));

Cuscuna c. Ferrarelli, 2017 QCCS 2475; Rogers v. Bank of Montreal (1985),

30 B.L.R. 41, 64 B.C.L.R. 63 (S.C.); Rogers v. Bank of Montreal, [1987] 2

W.W.R. 364, 9 B.C.L.R. (2d) 190 (C.A.); Scotia Mortgage Corp. v. Lockhart,

2011 CarswellOnt 15667, [2012] O.J. No. 1143 (Sup. Ct. J.); Scotia Mortgage

Corp. v. Lockhart, 2012 ONCA 158; leave to appeal denied, 303 O.A.C. 400

(note), 440 N.R. 394 (note); Martin Marietta Materials Canada Ltd. v. Beaver

Marine Ltd., 2016 NSSC 225; Piccolo v. Piccolo, 2014 ONSC 5280; White

Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23; Walsh

v. TRA Company Limited, 2019 NLSC 131; Bye v. Newman, 2016 BSSC 267;

Hiscott v. Hall, 2015 NLCA 1; Walsh v. TRA Company Limited,

2019 NLSC 167

STATUTES CONSIDERED: Limitations Act, S.N.L. 1995, c. L-16.1;

Limitation of Actions Act, S.N.B 2009, c. L-8.5; Corporations Act, R.S.N.L.

1990, c. C-36; Judicature Act, R.S.N.L. 1990, c. J-4

RULES CONSIDERED: Rules of Supreme Court, 1986, S.N.L. 1986, c. C-

42, Sch. D

TEXTS CONSIDERED: Bruce MacDougall, Misrepresentation, (Toronto:

LexisNexis, 2016)

REASONS FOR JUDGMENT

NOEL, J.:

Page 5

TABLE OF CONTENTS

INTRODUCTION .......................................................................................................................... 8

BACKGROUND .......................................................................................................................... 10

How It Started for the Walshes and TRA Newfoundland.......................................................................11

The Walshes Becoming Independent Foodland Operators.....................................................................11

Merrymeeting Road Store Acquisition ...................................................................................................12

Walshes’ Sale of their Stores and Shares................................................................................................13

The Pleaded Causes of Action and Foundation of the Claims................................................................13

Legal Constraints on the Claims .............................................................................................................14

Documentary and Testimonial Evidence ................................................................................................16

ISSUES ......................................................................................................................................... 17

ANALYSIS................................................................................................................................... 18

1. Did the Defendants negligently or fraudulently misrepresent to the Walshes the terms and

conditions of the Supply Arrangement?.................................................................................... 18

Context of the Two Alleged Misrepresentations ....................................................................................19

Defendants’ Position on the Misrepresentation Allegations...................................................................20

Burden and Standard of Proof.................................................................................................................21

Elements of Negligent Misrepresentation..................................................................................... 21

Duty of Care Based on “Special Relationship” or “Personal Relationship”...........................................22

No Untrue, Inaccurate or Misleading Representations ...........................................................................24

The 1983 Foodland Presentation, Including the Foodland Brochure .....................................................25

David Walsh........................................................................................................................................25

Lenora Walsh......................................................................................................................................26

Joseph Green.......................................................................................................................................27

The Secretly Taped Calls....................................................................................................................29

Russ Tiller...........................................................................................................................................31

Foodland Brochure..............................................................................................................................33

‘Dead-Net’ Costing Commercially Unreasonable ..................................................................................34

John Gardiner......................................................................................................................................34

Darrell Rushton...................................................................................................................................35

Rushton as a Source of Alleged Misrepresentation ............................................................................35

Other Elements of Cognos Test – Negligence and Reliance ..................................................................35

Requirement to Show Damages..............................................................................................................37

Page 6

Elements of Fraudulent Misrepresentation ................................................................................... 37

The Alleged Deceitful Conduct ..............................................................................................................38

Sobeys Equivalent Cost or Pricing Misrepresentation after the Walshes Commenced Foodland

Operations...............................................................................................................................................38

Separateness of TRA and Sobeys Business Operations..........................................................................40

Joseph O’Leary...................................................................................................................................41

1984 Sobeys Supply Agreement.........................................................................................................42

Misrepresentation Claims Ignore Foodland Program Benefits Offered to the Walshes’ Corporations..43

Karl Vokey..........................................................................................................................................44

Off-Invoice Allowance – Supplier’s Invoice Cost with 5% Upcharge Less the Deal .........................44

Additional Price Support to Foodland Operators................................................................................45

The Manual Override of the Supplier’s Invoice Cost on Non-Directs................................................47

Rebates on Direct Products ................................................................................................................49

Walshes’ Acknowledgement of Foodland Program Benefits..............................................................49

Retail-Oriented Differences between Sobeys (corporate stores) and Individual Operators (Foodland

stores)..................................................................................................................................................50

Walshes’ Reliance on the Sobeys Departmental Analyses (SDAs)........................................................52

TRA Financial Records...........................................................................................................................54

2. Are any of the claims out of time and barred by the applicable statutory limitation period?... 55

Limitations Decision...............................................................................................................................55

Grant Thornton LLP v. New Brunswick..................................................................................................58

Application of Discoverability to the Facts ............................................................................................59

By-Cheque evidence ...........................................................................................................................60

Tiller’s 1997 No Net-Net Cost Advice ...............................................................................................62

Mr. Walsh’s Examination on Lunch Meetings in 1998 ......................................................................63

January 29, 1999 Meeting with Counsel and Bill Moulton ................................................................64

Fraudulent Concealment Doctrine Has No Application .........................................................................66

3. Are the claims for losses to the Walshes’ Corporations precluded by the common law rule in

Foss v. Harbottle, and if so, can this be considered “too flagrantly opposed to justice”?........ 67

Sale of Shares in Bay Bull Store.............................................................................................................67

Sale of Shares Respecting Merrymeeting Road Store ............................................................................68

Application of Foss v Harbottle..............................................................................................................69

Piercing the Corporate Veil ....................................................................................................................70

ONCA Decisions in Midland Resources and Tran v. Bloorston ............................................................74

No Independent Wrong to the Walshes as Individuals...........................................................................77

Page 7

Other Authorities Relied on by the Walshes...........................................................................................80

4. Did the Walshes otherwise sustain any direct personal losses for which they can recover

damages?................................................................................................................................... 82

Derivative Claims Not Recoverable .......................................................................................................83

Claim for Mental Anguish ......................................................................................................................84

Corporations Act Remedies Not Availed of by the Walshes..................................................................86

5. What, if any, damages can the Walshes establish through the admissible expert evidence for

alleged losses resulting from having sold their shares at an artificially low price?.................. 86

Admissibility of Expert Opinion of Ashley Power-Stack for the Walshes.............................................87

The Guiding Authorities on Expert Opinion Evidence.......................................................................87

Power-Stack’s Engagement as an Expert............................................................................................88

Trial Ruling on Threshold Qualification of Power-Stack...................................................................90

Cross-examination of Power-Stack on her Analysis Approaches.......................................................93

Defendants’ Case Law on Admissibility of Expert Opinion...............................................................95

Accepted Criticism of the Allowance Analysis by Defendants’ Expert .................................................96

(i) The SDAs as compared to the financial statements of the Walshes’ Corporations .......................97

(ii) The implied margins of the Walshes’ Corporations using Allowance Analysis...........................98

(iii) The Implied Operating Profits of the Walshes’ Corporations......................................................99

Walshes’ Objections to the Admissibility of the Glass Report.............................................................100

Consideration Paid for the Shares.........................................................................................................102

The Joint Consulting Agreement for Merrymeeting Road Sale........................................................103

Other Material Points of Disagreement between the Experts ...............................................................104

a) Grouping of the “Bulk Sales” Department with the “Grocery” Department ...............................105

b) The Issue Relating to Valuation of Past and Future Losses ........................................................106

c) Accounting for Notional Salary...................................................................................................107

d) Approach to Estimating Maintainable EBITDA .........................................................................108

No Losses Established on either Share Sale .........................................................................................110

Bay Bulls...........................................................................................................................................110

Merrymeeting Road ..........................................................................................................................111

COSTS........................................................................................................................................ 111

CONCLUSION........................................................................................................................... 113

Page 8

INTRODUCTION

[1] David Walsh is a persistent and strong-willed gentleman, formerly involved

in the retail grocery business. He refuses to let go of his understanding of the

wholesale grocery supply arrangement he thought and hoped he had secured with

TRA and Sobeys dating back to 1983.

[2] He and his wife Lenora Walsh have been married 53 years. They are both in

their late seventies. They worked extremely hard, and generously supported their

community throughout their working lives. They won numerous awards for their

accomplishments in supermarket customer service. They have endured much as a

loving family, including the loss of their son to brain cancer before the Trial

concluded.

[3] Sobeys is a large successful national grocery wholesaler and retailer with

several corporate arms, including TRA Newfoundland Limited and Foodland

Limited.

[4] The Walshes were the sole shareholders of corporations that owned and

operated grocery stores in the Town of Bay Bulls and on Merrymeeting Road in St.

John’s. They claim their corporations were not supplied goods and product by TRA

at the cost arrangement they were promised. Their action seeks damages from the

Defendants in tort for negligent or fraudulent misrepresentation.

[5]

The matter for determination in this case, as framed by Counsel for the

Walshes in their Closing Trial Submissions, is:

Whether the Walshes lost money on the sales of their shares in two companies as

a result of the Defendants’ failure to pay various trade deals to the Walsh

companies, which owned stores at Bay Bulls and Merrymeeting Road in

St. John’s.

Page 9

[6] Counsel for the Defendants submit the Walshes’ misrepresentation claims

cannot succeed because:

a) the claims are for losses to their corporations, and the law does not permit the

Walshes as shareholders to recover for a wrong to the corporations;

b) they are time-barred under the Limitations Act, S.N.L. 1995, c. L-16.1;

c) their misrepresentation allegations are demonstrably unfounded; and

d) even if their claims are somehow tenable, the Trial evidence confirms that no

damages were incurred by either the Walshes or their corporations.

[7]

It is one of the longest active civil cases before our Court. The Walshes filed

their action over 20 years ago, in 2001. There have been several filed decisions

along the way in conduct of the proceedings. (see Appendix A)

[8] A central figure in all of this is the Sixth Defendant, the late Joseph Green.

He was the General Manager/President of TRA Newfoundland Limited until his

retirement in 1990. He died long before the Trial commenced. His answer to the

Walshes’ allegations did not go without preservation. Mr. Walsh secretly recorded

private conversations with Green, and at the age of 85, Green provided four days of

Discovery testimony. For the Walshes to succeed in their claim, I would have to

find that Green repeatedly lied to Mr. Walsh — a man he revered as a mentor and

best friend.

[9] Mr. Walsh’s preoccupation for all these years has been to expose and share in

“all trade deals” that the buying power of TRA and Sobeys was able to generate. He

claims that is what the Defendants promised, never passed-on, and never shared with

his corporations. If they had, the Walshes’ corporations would have been more

profitable and the value of their shares much higher.

Page 10

[10] On a best-case scenario, their expert opinion evidence, if admissible (which

the Defendants strongly contest), puts the loss at $1,715,000.

[11] I searched long and hard to find a path for the Walshes to succeed. I would

like to be in a position to award them some measure of damages. But unfortunately,

their claim is fraught with legal barriers and evidentiary shortfalls, and the damages

not what the Walshes seek.

[12] They had the finest of counsel in Paul D. Dicks, Q.C. and his extremely

capable junior counsel, Megan S. Reynolds. Despite the very best in legal

representation and an impressive expert witness, the law and established facts do not

support any of the relief the Walshes are seeking.

[13] The law restrains judges from doing what they prefer and their heart desires.

I have to do what the law demands and the evidence reveals. As much as I want the

Walshes to be vindicated and succeed in this lawsuit, I cannot be governed by my

sympathy for them.

[14] Mr. Walsh, in his testimony, said he was not looking for sympathy or

vengeance but justice. It is my duty to explain to him and Mrs. Walsh why justice

requires that I dismiss their action. It is a judgment that I take no comfort in

delivering.

[15] If there is any solace for the Walshes, for reasons that I will provide, I am not

ordering costs against them.

BACKGROUND

[16] To appreciate the legal and factual issues engaged, I will lay out the

chronology and background of the dispute.

Page 11

How It Started for the Walshes and TRA Newfoundland

[17] Mr. Walsh in 1975 joined with three partners to incorporate Southern

Discount Limited and purchase a convenience store business in Bay Bulls. Shortly

thereafter, they built a 5000 square-foot Quonset hut (semi-circular metal building)

and operated a supermarket. Mr. Walsh and his partner Tony Barton bought out

their other partners in Southern Discount.

[18] TRA got its start in Newfoundland in the early 1980s when Sobeys purchased

the assets of an insolvent wholesaler. TRA with its warehousing capability began

supplying product to the Sobeys stores; other Sobeys group banner stores, such as

the Foodland; and some independents that included Southern Discount.

[19] TRA and TRA Newfoundland Limited over the years went through various

corporate amalgamations and renaming within the Sobeys group of companies, and

ultimately amalgamated and continued as Sobeys Capital Incorporated (“Sobeys”).

There is no dispute that the Walshes have named the responsible legal entities (I

refer to TRA and TRA Newfoundland Limited interchangeably in these reasons).

[20] In 1983, Mr. Walsh approached TRA for financial support to buy Tony Barton

out of the Bay Bulls business. Mr. Walsh accepted TRA’s loan of $200,000 to allow

him to buy out Barton for a total of $250,000.

The Walshes Becoming Independent Foodland Operators

[21] Foodland was a tradename owned by Sobeys and was used to expand sales in

the province through the Foodland banner-store concept for small rural

supermarkets. The “Foodland Program” was a retail program provided by TRA.

Page 12

[22] In the fall of 1983, the Foodland Program was presented to Mr. and

Mrs. Walsh. The meeting occurred at TRA’s office in Donovans Business Park.

Mr. Walsh put the timing of this meeting as being in October/November 1983,

shortly after the buyout of Barton.

[23] Green and Russ Tiller of TRA, in the Foodland presentation meeting,

reviewed and provided a brochure to the Walshes titled “The Foodland Program.”

Following the meeting, Mr. and Mrs. Walsh, Green and his wife, and Tiller and his

wife went out for a celebratory dinner.

[24] The Walshes allege it was based on the representations made at the Foodland

presentation meeting, together with discussions that Mr. Walsh had with Darrell

Rushton, Sobeys Vice-President and subsequent President of wholesale operations,

that they decided to become an independent Foodland banner store on January 1,

1984.

[25] Southern Discount was renamed Walsh’s Foodland Limited on February 29,

1984, and operated at Bay Balls as “Walsh’s Foodland.” The Walshes owned the

shares of Davlen Holdings Limited, which held the shares of Walsh’s Foodland

Limited.

Merrymeeting Road Store Acquisition

[26] In 1995, the Walshes incorporated DLW Investments Ltd. with the intent of

purchasing a grocery business in St. John’s. DLW Investments proceeded with this

acquisition in mid-1995, purchasing the Merrymeeting Road store, which it operated

as “Walsh’s Family Foods.” Although not a Foodland banner store, the supply

arrangement also applied to Walsh’s Family Foods.

Page 13

Walshes’ Sale of their Stores and Shares

[27] The Walshes claim they relied on the representations of the Defendants to

their detriment, resulting in the stores becoming unprofitable and forcing them to

sell the stores.

[28] On February 10, 1995, the Walshes sold their shares in Davlen Holdings, the

company that owned the Bay Bulls store, to Sobeys, and on July 16, 1996, sold their

shares in DLW Investments, the company that owned the Merrymeeting Road store

to Colemans. (I will refer to Davlen Holdings and DLW Investments as the

“Corporations”).

The Pleaded Causes of Action and Foundation of the Claims

[29] The Walshes assert three causes of action:

(a) fraudulent misrepresentation;

(b) negligent misrepresentation; and

(c) negligence.

[30] There is no pleaded claim for breach of contract. It was the Corporations, and

not the Walshes, who are alleged to have been promised that TRA would pass along

all trade deals, and/or TRA would charge the Corporations the same costs as the

Sobeys stores.

[31] The Walshes in their Further Amended Statement of Claim formally

abandoned their prior-pleaded claim in contract.

Page 14

[32] The supply arrangement was an agreement between TRA and the

Corporations (the “Supply Arrangement”). The Walshes as individuals and

shareholders were not parties to any agreement or contract with TRA.

[33] The Supply Arrangement consisted of TRA’s provision of products from

TRA’s wholesale operations, called “Non-Directs,” and the supply of products from

suppliers, such as dairy products, potato chips and soft drinks, delivered directly to

the Walshes’ stores and billed to and paid by TRA, known as “Directs.”

[34] For good reason, counsel for the Walshes did not purse the claim in simple

negligence in their Trial Brief or Closing Submissions. Nothing in the evidence

otherwise supports a claim in negligence alone. In earlier proceedings before this

Court (Walsh v. TRA Company Limited, 2016 NLTD(G) 119, at para 33, and referred

to below as the “Limitations Decision”), the Walshes acknowledged that there is no

independent claim in negligence for pure economic loss.

[35] The only ground for liability against the Defendants rests on the alleged

misrepresentations.

Legal Constraints on the Claims

[36] The Walshes’ claims are seriously constrained by the common law rule in

Foss v Harbottle, (1843) 67 E.R. 189, (1843) 2 Hare 461, as well as prior judicial

rulings in this matter.

[37] Foss v. Harbottle stands for the fundamental principle of corporate law that a

corporation and its shareholders are different entities and only the corporation can

sue for a wrong done to it. Shareholders have no cause of action for wrongs done to

their corporation. Shareholders cannot sue for consequential losses to themselves

resulting from damage inflicted on their corporation in which they own shares.

Page 15

[38] Orsborn J struck the entirety of this action in 2006. He concluded, when

viewing the Statement of Claim contextual as a whole, it “is a corporate loss claim

and is not maintainable by individual shareholders” (Walsh v. TRA Co. [2006] N.J.

No. 389, 2006 CarswellNfld 376 (N.L.S.C.(T.D.)).

[39] On appeal, the action was reinstated: Walsh v. TRA Co., 2007 NLCA 50

(“Reinstatement Decision”). The Court of Appeal in the Reinstatement Decision

was not prepared to find that the Walshes’ action could not succeed, given that they

had pled certain personal duties owed to them and had alleged, in part, to have

sustained personal damages. The Court held:

25.

… The Walshes are not, in the allegations underlined in the excerpts from

the statement of claim set out in paragraph 2 above, asserting a right to recover, in

their capacity as shareholders, their share of any damages to which the corporation

might be entitled if the pleaded allegations are made out. They have alleged a

special relationship, misrepresentation arising out of that relationship, reliance on

those misrepresentations and, as a consequence, they claim, they have personally

suffered damages. Whether they will be able to lead evidence to demonstrate such

a personal relationship, in addition to or as opposed to a corporate relationship

between the Walsh Companies on the one hand and the Sobey Companies and

Green on the other hand, must await trial of the issues. They are not to be precluded

from having the opportunity to establish such a relationship, and presenting their

argument as to entitlement at law, by the court anticipating that a Foss v. Harbottle

defence will be presented and will be successful.

[40] In 2015, in an application to strike the pleaded damages for “losses resulting

from having sold their shares at an artificially low price,” Whalen CJ recognized the

two legal pre-conditions to any claim advanced by the Walshes (at para. 32):

(a) an independent relationship or duty existing between them and the wrongdoer;

and

(b) the damages represent a loss separate from that of their Corporations that is

causally linked to the personal wrong done to the Plaintiffs: Walsh v. T.R.A.

Company Limited, 2015 NLTD(G) 27 (the “2015 Pleadings Decision”).

Page 16

[41] Whalen CJ went further and held (at para. 43) that the Walshes’ alleged losses

resulting from having sold their shares at an artificially low price “are damages

suffered by the Corporations and not the Plaintiffs.” Notwithstanding this finding,

Whalen CJ was not prepared to hold on a striking of pleadings application that the

Walshes had no chance of success.

[42] In particular, Whalen CJ relied on appellate authorities for the proposition that

treating the Corporations and the Walshes as one entity and refusing to permit their

claim for the impugned damages may lead to a result “too flagrantly opposed to

justice.”

[43] Finally, McGrath J in the Limitations Decisions held that the Walshes’ claims,

except for economic losses arising from fraudulent misrepresentation, are governed

by a two-year limitation period, subject to the discoverability principle.

Documentary and Testimonial Evidence

[44] The parties worked cooperatively and assembled a Common Book of

Documents consisting of 13 Volumes, 332 Tabs, 4133 pages. This allowed for the

convenience in the management of documentary exhibits at Trial and efficient use

of court time in Trial spanning over the course of six weeks. The parties were not

restricted from tendering other documents in evidence.

[45] The parties agreed that documents under Category 1 in the Common Book

would be entered as consent exhibits and form part of the Trial record for the truth

of their contents. Category 2 documents do not form part of the Trial record, unless

a witness identified and spoke to the document, at which point it was entered as an

exhibit through the first witness speaking to it. Documents noted as Category “X”

in the Common Book were subject to the right of a party to object to admissibility.

[46] The Walshes presented their evidence through Mr. Walsh’s seven days of

testimony followed by Mrs. Walsh, and two former employees of TRA, Russ Tiller

Page 17

and Joseph O’Leary. The Walshes called Ashley Power-Stack (her testimony lasted

four days) as an expert in business valuations, and in particular, share valuations.

[47] Testimony from the Defendants came primarily from Karl Vokey (seven days

duration) and two others, John Gardiner and Darrell Rushton, who through their

roles with TRA or Sobeys had knowledge of the Supply Arrangement with the

Walshes’ Corporations. The Defendants tendered Susan Glass as an expert in

business valuation and damage quantification, and Glass testified for three days.

[48] Counsel left no stone unturned in preparing their submissions for my deciding

the issues. I not only had the benefit of their detailed Trial Briefs but also lengthy

written Closing Submissions of the Plaintiffs and the Post-trial Brief of the

Defendants, together with closing oral submissions. At my request, counsel

provided a complete transcript of the Trial proceedings.

ISSUES

[49] The issues for my determination are:

1. Did the Defendants negligently or fraudulently misrepresent to the Walshes

the terms and conditions of the Supply Arrangement?

2. Are any of the claims out of time and barred by the applicable statutory

limitation period?

3. Are the claims for losses to the Walshes’ Corporations precluded by the

common law rule in Foss v. Harbottle, and if so, can this be considered “too

flagrantly opposed to justice”?

Page 18

4. Did the Walshes otherwise sustain any direct personal losses for which they

can recover damages?

5. What, if any, damages can the Walshes establish, through the admissible

expert evidence, for alleged losses resulting from having sold their shares at

an artificially low price?

ANALYSIS

1. Did the Defendants negligently or fraudulently misrepresent to the

Walshes the terms and conditions of the Supply Arrangement?

[50] There is a fundamental difference of understanding between the parties on

what the Supply Arrangement was intended to mean and include.

documentation exists detailing the specific terms of the Supply Arrangement.

No

[51] Mr. Walsh is an honest man. He believes firmly that TRA and Green misled

him and Mrs. Walsh and deceitfully concealed from them the true cost of goods that

their Corporations were paying compared to the Sobeys stores. Mr. Walsh has a

misguided understanding of the Supply Arrangement. His perception of the

Defendants’ mistreatment of his Corporations is unsupported by the preponderance

of evidence.

[52] Mrs. Walsh’s credibility is beyond reproach. She presented as a quiet person

who candidly acknowledged this dispute has consumed their lives. She spoke of

them losing friendships over the years because Mr. Walsh would not stop talking

about it. She put considerable time and hours into the stores, but she had limited

knowledge and involvement in the Supply Arrangement the Corporations had with

TRA.

Page 19

Context of the Two Alleged Misrepresentations

[53] Mr. Walsh’s motivation and purpose for pursuing the Foodland Program was

to avail of TRA’s buying power, which was increased by having Sobeys within the

buying group. TRA was able, because of its bulk purchasing power and

warehousing capabilities, to purchase significant volumes (e.g. carloads) of grocery

products at the lowest possible prices. This enabled TRA to pass on preferred

supplier pricing costs to the Walshes’ Corporations, spoken to in the evidence as the

“Supplier’s Invoice Cost.” By themselves, the Walshes’ Corporations were limited

to purchasing products on smaller volumes at higher supplier prices.

[54] The Walshes claim their Corporations were enticed to enter the Supply

Arrangement with TRA on two promises that turned out to be either negligent or

fraudulent misrepresentations. First, they claim their net cost for products purchased

through TRA would include the full benefit of all supplier discounts (“trade deals”)

— the ‘all trade deals off’ representation. Second, they would receive the same

product cost arrangement as the Sobeys stores, that being TRA’s cost plus five

percent — the ‘Sobeys equivalent cost’ representation. They allege the Sobeys

stores received substantial trade deals that TRA did not pass on to their Corporations

to reduce the cost of product.

[55] The trade deals fell into three board categories:

1. TRA invoiced the Walshes’ Corporations the Supplier’s Invoice Cost plus a

5% upcharge less the off-invoice supplier deal or allowances on products from

TRA’s warehouse (the “Off-Invoice Allowance”).

2. Suppliers paid rebates to TRA on the products delivered directly to the

Walshes’ stores (“Rebates on Directs”).

3. Suppliers paid various allowances after they had issued the invoices, including

by-cheques, volume discounts, co-op advertising, and other rebates (referred

Page 20

to collectively as “Rebates on Non-Directs.” The Defendants also refer to

these as Incremental Supplier Funding received by Sobeys stores, as reflected

in the Sobeys Departmental Analyses (“SDAs”). Some of the witnesses at

times referred to this as “inside monies.”

[56] It is not in dispute that the Walshes’ Corporations received the benefit of the

Off-Invoice Allowance. They claim they never received their full entitlement to

Rebates on Directs and Rebates on Non-Directs.

Defendants’ Position on the Misrepresentation Allegations

[57] The Defendants submit the totality of evidence refutes the misrepresentation

allegations. The contention that the Corporations were to receive ‘all trade deals off’

would mean TRA promised to provide “dead net” costs (costs of product net of all

trade deal) — a commercially absurd proposition. No other TRA customer,

including the Sobeys stores, received such a deal. Witnesses for TRA and Sobeys

testified that if TRA supplied the Walshes on such a basis, TRA would have lost

money.

[58] On the ‘Sobeys equivalent cost’ representation, the Defendants submit firstly,

the evidence establishes that TRA invoiced the Corporations at exactly the same

product prices as TRA charged the Sobeys stores; and secondly, there is no evidence

that the Walshes’ Corporations were promised Incremental Supplier Funding

received by Sobeys stores.

[59] The Defendants further summit the misrepresentation allegations ignore the

substantial financial and price support TRA provided to the Walshes’ Corporations

as part of the Foodland Program benefits.

Page 21

Burden and Standard of Proof

[60] The Walshes have the burden of proving their misrepresentation allegations

on a balance of probabilities. The standard of proof is no different for negligent or

fraudulent misrepresentations. While I have to remain mindful of the seriousness of

the fraudulent allegations when assessing the evidence, the standard of proof does

not change: H.(F.) v. McDougall, 2008 SCC 53, at para. 40.

Elements of Negligent Misrepresentation

[61] I will review the elements and evidence pertaining to negligent

misrepresentation, and then consider fraudulent misrepresentation.

[62] The Supreme Court of Canada set out the elements of negligent

misrepresentation in Queen v. Cognos Inc, [1993] 1 S.C.R. 87, at para. 34, as

follows:

(1) there must be a duty of care based on a "special relationship" between the

representor and the representee;

(2) the representation in question must be untrue, inaccurate, or misleading;

(3) the representor must have acted negligently in making said misrepresentation;

(4) the representee must have relied, in a reasonable manner, on said negligent

misrepresentation; and

(5) the reliance must have been detrimental to the representee in the sense that

damages resulted. In the case at bar, the trial judge found that all elements were

present and allowed the appellant's claim.

Page 22

Duty of Care Based on “Special Relationship” or “Personal Relationship”

[63] To hold that the Defendants were in a “special relationship” with the Walshes,

two factors need to be present:

a) the Defendants ought reasonably to have foreseen that the Walshes would rely

on their representations, and

b) the Walshes’ reliance would, in the particular circumstances of the case, be

reasonable: Hercules Managements Ltd v. Ernst & Young, [1997] 2 S.C.R.

165, at para. 24.

[64] The Court of Appeal’s Reinstatement Decision provides additional direction

on the nature of the relationship with the Defendants that the Walshes must establish.

The Walshes must demonstrate “a personal relationship, in addition to or as opposed

to a corporate relationship between the Walsh Companies on the one hand and the

Sobey[s’] Companies and Green on the other hand.” [emphasis added]

[65] The Walshes have failed to demonstrate a special or personal relationship

between them and the Defendants. While the Walshes came to form good

friendships over time in their dealings with TRA Newfoundland, and especially

Green, the representations made to the Walshes arise solely from a corporate

relationship and not to them as individuals. The Walshes as individuals did not

contract with TRA; the Supply Arrangement was strictly between Corporations and

the alleged promises were made to the Walshes’ companies.

[66] On a broader basis, the Walshes allege the Defendants, knowing that the

Walshes placed their trust in them during the course of their relationship from 1983

to 1996, owed them a duty of care to be open and honest with them on matters

relevant to their operations. I find the duty of openness and honesty was to the

Corporations, and the Defendants did not breach any duty of care to the Walshes as

individuals.

Page 23

[67] TRA and Foodland’s affiliation with Southern Discount evolved out of a

corporate relationship.

[68] Southern Discount, in becoming a Foodland affiliate in late 1983, was

progressing from its status as an independent stand-alone store to becoming a

member of TRA’s Foodland Program. Southern Discount had a prior commercial

relationship with TRA. It continued its commercial dealings with TRA under the

Foodland banner. The relationship was not with the Walshes personally.

[69] The Foodland presentation was made to the Walshes in their capacities as

Southern Discount representatives, not as individuals. TRA had no commercial

interest in dealing with the Walshes as individuals. It was the business of Southern

Discount that was the subject of the Foodland presentation.

[70] In contrast with the commercial discussions involving Southern Discount

becoming a Foodland affiliate, Mr. Walsh did have personal dealings with TRA

when it came to buying out his partner, Tony Barton. The financing of Barton’s

buy-out was a commercial transaction between Mr. Walsh individually and

personally with TRA, whereas the Sothern Discount–TRA connection was a

corporate relationship.

[71] The Walshes’ friendship with Green is of no assistance in establishing a

“special” or “personal relationship.” When Green first made the representations to

the Walshes to become part of the Foodland Program, they were not close friends

but became so over the course of the business relationship. I accept Mr. Walsh’s

evidence that the respect he had for Green was a significant factor for the Walshes

in joining the Foodland Program. He came to look up to Green as a trusted advisor

and considered him like a father. That does not diminish that Green, in his capacity

as TRA’s point person, was at all times dealing with the Walshes in a commercial

capacity as representatives of their companies and not personally as individuals.

[72] The Supply Arrangement did not engage the Walshes in their personal

capacities. TRA invoiced the Walshes’ Corporations and not the Walshes

Page 24

personally. The Walshes had no personal liability to pay invoices if their

Corporations failed to pay.

[73] It follows that there exists no duty of care owed by TRA and Green to the

Walshes in their personal capacities. The Walshes’ claims fail on this essential

threshold requirement.

[74] If I am wrong and the Defendants did owe a duty of care to the Walshes as

individuals separate from their Corporations, their claims still fail on the other

elements of the Cognos test.

No Untrue, Inaccurate or Misleading Representations

[75] I must focus carefully on the actual representations. The Supply Arrangement

constitutes the contract, but the terms of the contract arose from pre-contractual

representations and discussions. The representations that induced the Walshes into

the contract were not untrue, inaccurate, or misleading.

[76] TRA and Sobeys, however, could have perhaps avoided this costly litigation

if they had taken care to document the Supply Arrangement, and had been more

forthcoming and open with Mr. Walsh that he was not getting and was never going

to get “net-net cost” of product as he envisaged. The lack of openness does not lead

to legal liability but goes to costs, as I will discuss when dealing with costs.

[77] Mr. Walsh perceived, in his mind and heart, that the representations that were

made to him and Mrs. Walsh were untrue, inaccurate, and misleading. The weight

of the evidence refutes the assertions and perception that the Walshes erroneously

held.

Page 25

[78] The Walshes must establish the Defendants made the representations and that

the representations were false. Whether there has been a representation of fact is

determined on an objective basis on all of the evidence: Bruce MacDougall,

Misrepresentation, (Toronto: LexisNexis, 2016) at 83, 85, and 128.

[79] The Walshes rely on three principal sources of TRA representations: (i) the

1983 Foodland presentation meeting, including the Foodland brochure;

(ii) Mr. Walsh’s discussion with Darrell Rushton; and (iii) representations as to

TRA’s pricing to the Sobeys stores after the Walshes’ Corporations entered into the

Supply Arrangement.

[80] Mr. Walsh’s recollections are challenged not only by TRA witnesses,

Rushton, Green and John Gardiner, but also by Tiller called as a witness for the

Walshes.

[81] Mrs. Walsh could offer only vague remembrances of what Green and Tiller

discussed with them in the Foodland presentation. Her evidence is understandably

of limited probative value in corroborating Mr. Walsh’s recollections of the

misrepresentations.

The 1983 Foodland Presentation, Including the Foodland Brochure

David Walsh

[82] At the Foodland presentation meeting Mr. Walsh attended with Mrs. Walsh,

Green and Tiller went over the benefits to the Walshes of becoming a part of the

Foodland Program. They would be joining one of the biggest buying groups in

Canada. Mr. Walsh recalled being told, as the retailer, they would look after the

customers, and the wholesaler, and TRA, in turn, would look after them. By joining

the Foodland Program, Mr. and Mrs. Walsh would be independent operators

carrying the Foodland banner in their franchised area from Trepassey to Bay Bulls

on the Southern Shore.

Page 26

[83] Mr. Walsh testified that that their “net cost” for products purchased through

TRA would be the same as Sobeys and that they would receive the full benefit of all

supplier discounts. In exchange, the Walshes were required to pay TRA’s net cost

plus the same 5% upcharge that was charged to the Sobeys stores. Mr. Walsh

described in his cross-examination that there was “no doubt whatsoever that we were

receiving exactly the same as Sobeys.”

[84] Mr. Walsh’s understanding on “net costing” goes beyond the ability of the

Walshes’ Corporations to purchase from TRA at carload prices (volume discounts)

without buying carload volumes and the ability to get the “Off-Invoice Allowance.”

Mr. Walsh understood “net costing” to mean all deals and allowances would be

“netted down” on the TRA invoice.

[85] There would be no way for TRA to show on the upfront issued invoice for

product supplied to the Walshes’ Corporations trade deals from suppliers that were

subsequently accredited to TRA or Sobeys (the “inside monies”). However, I accept

the submissions of the Walshes that TRA had the ability to track, account for, and

provide the benefit of ‘all trade deals,’ if that was in fact what the Walshes’

Corporations were promised.

[86] Mr. Walsh did not state in his direct evidence the specific trade deals

promised, but he acknowledged in cross-examination that his Corporations received

many of the trade deals listed in his pleadings.

[87] He could not recall the discussion of By-cheques at the Foodland presentation.

Prior to selling his shares, he assumed he was receiving the full amount of Rebates

on Directs.

Lenora Walsh

[88] The Foodland presentation meeting came as a surprise to Mrs. Walsh. She

was working as a nurse at the time and preoccupied with raising the Walshes’ young

Page 27

children as well as her nursing career. She had very limited involvement with

Southern Discount or the grocery business up to 1983. On the day of the meeting,

she had worked an entire nursing shift, had returned home and was preparing dinner

for her children when Mr. Walsh informed her that they would be going for a

meeting at TRA’s offices that evening. She had not previously discussed the

opportunity to join the Foodland Program with Mr. Walsh.

[89] Although Mrs. Walsh heard what was said at the meeting, she acknowledges

she “didn’t know what it all meant.” She recalls hearing that they were to pay “cost”

plus the 5% upcharge less the deals. When asked about whether that was TRA’s

cost, Mrs. Walsh’s recollection was that they were told that they would be paying

the same as Sobeys. She did not recall whether TRA’s invoice cost was discussed

nor whether the concept of ‘net-net’ pricing was discussed. She had no knowledge

of what deals existed in the grocery store business at the time of the meeting.

[90] Mrs. Walsh indicated that Tiller went through the Foodland brochure with

Mr. Walsh, but that she was not paying close attention to all of it.

[91] She remembers the parties were excited about what they discussed at the

meeting, and “how happy Dave was about it.”

[92] When I turn to consideration of Green’s and Tiller’s evidence on the Foodland

presentation, I find no support for the contention that the Defendants made the ‘all

trade deals’ representation to the Walshes or that the Defendants represented the

Walshes’ Corporations were to receive Sobeys’ costs.

Joseph Green

[93] Green was first the General Manager, and subsequently the President of TRA,

for the period of 1979 to 1990. He had primary responsibility for the Foodland

Program and its upcharge and royalty operators.

Page 28

[94] Green died in 2014. Pursuant to the Rule 46.11(2) of the Rules of Supreme

Court, 1986, S.N.L. 1986, c. C-42, Sch. D, Sobeys gave the Walshes notice to enter

Green’s Discovery testimony as Trial evidence. Rule 30.13(1)(c) permits any part

or all of a deposition, so far as admissible under the rules of evidence, where the

deponent is dead, to be entered as evidence for any purpose by any party. There is

no evidentiary rule precluding the admission of Green’s material evidence.

[95] I accept Green’s evidence and find that after many years retired from TRA he

had no reason to lie and did not lie or mislead Mr. Walsh in any way.

[96] When Green was discovered in April 2010, he had no specific recollections

of the Foodland presentation meeting, but he was able to confirm what he would

have told the Walshes about the Foodland Program and Supply Arrangement.

[97] On the Off-Invoice Allowance, Green confirmed TRA would supply goods at

supplier invoice cost, plus the 5% upcharge, less any invoice deal.

[98] TRA collected Rebates on Directs paid by suppliers and TRA then paid 50%

to the stores. He explained in his Discovery testimony how all direct products that

went to the stores were invoiced through TRA to achieve higher volume percentage

rebates from suppliers than individual stores could get on their own. TRA shared

the rebates evenly between the stores.

[99] By-cheques were not offered to the Walshes or any Foodland stores. The

money received from supplier By-cheques was used by TRA as price support for

Foodland stores; specifically on staple items that had no up-charge; on items

advertised and sold by the stores at below cost as a loss leader; and on special in-

store promotions and giveaways.

Page 29

The Secretly Taped Calls

[100] Mr. Walsh secretly recorded 18 persons. Mr. Walsh taped Green in three

telephone calls, which occurred on May 28, 1999; May 30, 1999, and June 18, 1999.

These calls were transcribed.

[101] Despite Counsel for the Walshes giving notice at a Pre-trial Case Management

meeting of their intent to object to the entry of transcripts of these calls, they did not

raise objection at Trial to the admissibility of the transcripts as evidence.

[102] I admit the taped and transcribed conversations on the “principled approach”

to the admission of evidence. Generally, hearsay statements — out-of-court

statements offered to prove the truth of the contents – are not admissible. What was

said in the conversations between Mr. Walsh and Green meets the principled

approach requirements of relevancy, necessity, and reliability: Lam v. Chiu, 2012

BCSC 440, at para. 8; and R. v. B. (K.G.), [1993] 1 S.C.R. 740. The statements are

highly probative and there is no prejudice to the Walshes in the sense of unfairness

by misuse, overconsumption of time, or distraction and confusion of issues.

[103] I attach significant weight to Green’s statements. The calls occurred prior to

the Walshes commencing litigation. Green was long-retired from TRA, with no

residual connections to TRA and Sobeys. Green was wholly unaware that Walsh

was taping him. Mr. Walsh challenged Green to tell the truth and Green confirmed

each time, “I’m telling you the truth, Dave.”

[104] Mr. Walsh’s purpose in making and taping the calls was to confirm the

particulars of the 1983 Foodland presentation and to get Green to admit the ‘all-trade

deals off’ version of the Supply Arrangement. Mr. Walsh failed in this effort.

[105] Green confirmed what was promised was the Off-Invoice Allowance or

“TRA’s invoice cost.” Walsh asked for clarification on invoice cost and Green said,

“invoice cost is the supplier’s invoice cost.” He explained Mr. Walsh and every

Page 30

other Foodland upcharge store received “the supplier’s invoice cost, less the off case

deal.” Mr. Walsh asked, “okay, so all I got was the off-invoice allowance?” Green

replied, “yes, the off case allowance, yes.” When Mr. Walsh specifically put to

Green that he was to receive “all the deals,” Green categorically denied this:

A. No, I didn’t say you got all …

Q. Oh you did, Joe.

A. All the off invoice deals, Dave, off invoice deals.

[106] Mr. Walsh, who later attended all of Green’s Discoveries, confirmed that

Green was consistent “to the grave” with his version of the Foodland presentation.

Mr. Walsh testified that Green had a “fantastic memory.”

[107] In the conversations with Green, Mr. Walsh did not challenge him on the other

central allegation that the Walshes make that they were promised they would get

Sobeys’ cost.

[108] It is simply untenable that Green would turn on Mr. Walsh and lie to him as

Mr. Walsh alleges. I asked Mr. Walsh during his testimony why a man that he

revered turned on them. This was his reply:

A. Well, I guess the only answer I can give you, that Joe Green was

Newfoundland’s answer to Sybil.

Q. To?

A. Sybil, the movie where they had multiple personalities. The man—there was a

side of him that I know now that was the hardest working, kindest man, considerate

man you ever met in your life, and the other side that [you] didn’t know, he was

cunning and baffling, and you believe him. …

[109] I cannot accept Mr. Walsh’s explanation. Green had no reason to lie to

Mr. Walsh. Green spoke the truth in his taped conversations with Mr. Walsh, and

Page 31

the truth of his statements undermines Mr. Walsh’s own memory of the Foodland

presentation.

Russ Tiller

[110] Neither did Tiller’s evidence lend support to Mr. Walsh’s recollections.

[111] Tiller was a former TRA management employee that the Walshes called as a

witness. He was with TRA in 1983 and 1984, until Green asked him to leave the

company. Subsequently, he had supply arrangements with TRA in Nova Scotia for

his own business operations.

[112] Tiller had good recall of the Foodland presentation and was familiar with the

Foodland Program, having presented it to others on many occasions. I find his

evidence was balanced. He had previously given Discovery testimony and

Mr. Walsh had also secretly taped his conversation with him.

[113] Tiller related that the meeting included a “page-by-page” review of the

Foodland brochure.

[114] He emphasized to the Walshes that TRA had the ability to buy in bulk

(carloads of grocery items) and provide the Walshes with volume-purchasing

advantage, including lowest available prices from suppliers and the security of

supply. He explained to them how the Off-Invoice Allowance would involve the

supplier published timeframe deals off the supplier’s invoice.

[115] He was unsure how By-cheques came up in the discussions, but Green did say

the Walshes would get credit for By-cheque deals and it was something he would

further discuss with Mr. Walsh. He related By-cheques at the time were not a big

part of the business in Newfoundland.

Page 32

[116] Tiller’s understanding of the “Trade Deals are Passed On” section of the

Foodland brochure was that it was confined to the off-invoice deals.

[117] Sobeys’ internal costing, merchandising, and trade deals were not the subject

of the Foodland presentation.

[118] Nevertheless, his evidence on the ‘Sobeys equivalent cost’ representation

helps explain why the Walshes came away with a different understanding than he

and TRA had on what Sobeys’ cost meant. They were told they would get the “same

price as Sobeys.” Tiller understood this to mean “the same going-out cost.” The

invoice price for both Sobeys stores and the Walshes’ store was the same. The term,

‘net cost’ or ‘net-net cost’ was never used.

[119] Tiller confirmed he did not dwell on cost that much because “it’s like opening

a can of worms” and “someone’s definition of cost was different than somebody

else’s.” He wanted to avoid the part on cost. He “went by as quickly as possible”

knowing it could not “be avoided forever.” He confirmed whatever cost meant he

understood it could not mean “TRA’s net cost” for supplying product to Foodland

operators.

[120] Tiller was aware that one of Mr. Walsh’s goals in wanting to join the Foodland

Program was to compete with Bidgoods’ store, a supermarket within driving

distance of customers for the Walshes’ Bay Bulls store. Tiller made the odd

comment in his testimony, about Mr. Walsh wanting to compete against somebody

like Bidgoods that “he’s smarter than I thought he was initially.” Throughout all of

Mr. Walsh’s testimony, I never once doubted his resolve and astuteness in going

after what he wanted to achieve.

[121] Rather than glossing over and avoiding the discussion on cost (whether

competing with Bidgoods was a realistic possibility or not), I would have expected

Tiller to give Mr. Walsh a more fulsome explanation of how supplier cost and trade

deals worked in the industry. Mr. Walsh then would probably not have come away

Page 33

from the presentation with the impression that he was getting the same cost treatment

as Sobeys.

[122] Tiller was unsure of how much concentration or explanation either he or

Green put on the issue of Rebates on Direct at the Foodland presentation. He

recalled there had been previous discussion with Mr. Walsh about Rebates on Direct

when he was operating as Sothern Discount. I take from Tiller’s evidence there was

general discussion with Mr. Walsh prior to the Foodland presentation about the

ability of TRA to generate volume discounts from suppliers and manufacturers of

both direct and non-direct products.

[123] The most Tiller could say was that during his short time with TRA the

Walshes’ Bay Bull store would have received from TRA a percentage of the Rebates

on Directs like others.

Foodland Brochure

[124] I can see in reference to the “Trade Deals Are Passed On” section of the

Foodland brochure, how the Walshes would be left with some confusion that they

would be receiving ‘all trade deals off.’ But putting the brochure in the context of

the evidence does not bear out the ‘all trade deals off’ or the ‘Sobeys equivalent cost’

misrepresentations.

[125] The brochure reads:

TRADE DEALS ARE PASSED ON

• Manufacturer and suppliers deals are passed on to the retailer

• Allowances are deducted from the invoice

• “Buy in” Opportunities are provided before the deal or promotion

termination…

Page 34

[126] The wording does not state all deals or allowances are passed on or deducted.

The brochure makes no reference to Sobeys price equivalency.

[127] My conclusion on the Foodland presentation evidence is that TRA, through

Green and Tiller, promised the Walshes the Off-Invoice Allowance deals and some

portion of monies from By-cheques and Rebates on Directs. Tiller and Green could

have done better explaining to the Walshes what was in their contemplation, so

Mr. Walsh would not have had the confusion and unrealistic commercial expectation

about the Supply Arrangement.

‘Dead-Net’ Costing Commercially Unreasonable

[128] Effectively, what Mr. Walsh contends the Walshes were promised — ‘dead-

net costing’ — is commercially unreasonable. I accept the evidence of both John

Gardiner and Rushton that it would not have been economically viable for TRA to

fulfil Mr. Walsh’s expectation of ‘all-trade deals off’ at a 5% upcharge.

John Gardiner

[129] Gardiner joined TRA Newfoundland in 1986 as Vice-President of Operations

and succeeded Green as President of TRA in 1989. He described the concept of

“dead-net costing” to mean stripping out any and all subsidies (trade deals) a product

could possibly garner on receipt in the warehouse or after performance sales to get

it to the absolute lowest cost to TRA. He testified, “it would be ludicrous” to expect

TRA to promise the Walshes’ companies would be charged on a dead-net cost basis.

He explained TRA’s operating cost would be in the six-and-a-half to seven percent

range, so at dead-net cost on a 5% upcharge TRA would be selling products at a loss.

TRA did not have a dead net cost arrangement with any of its retailers.

Page 35

Darrell Rushton

[130] Rushton likewise confirmed TRA “wouldn’t have a wholesaler or warehouse

business,” if it supplied the Walshes’ Corporations based on product costs net of all

TRA’s trade deals, allowances, and other product subsidies.

Rushton as a Source of Alleged Misrepresentation

[131] The Walshes’ pleadings (at para. 18) identify Rushton as a principal source of

misrepresentations. Rushton was just short of turning 83 when he testified. He was

with Sobeys for 43 years until his retirement in 2000. He was articulate, and after

all these years, still had reasonable recall of his interactions with Mr. Walsh.

[132] Mr. Walsh’s evidence is somewhat confusing as to the timing of meetings

with Rushton. He is clear Rushton was not present during the Foodland presentation

meeting. In answer to a question on re-direct, he said he talked to Rushton “a bit

before” his meeting with Green and Tiller, and Mrs. Walsh was not present. They

both confirmed that Mr. Walsh on some unknown date gave Rushton a ride to the

airport, and Rushton told him he was doing the “right thing” joining the Foodland

Program.

[133] Walsh gave no testimony to support Rushton made the ‘all trade deals off’ or

‘Sobeys equivalent cost’ representations. Rushton confirmed he had no discussions

with Mr. Walsh about trade deals other than the capability of buying at container-

load prices.

Other Elements of Cognos Test – Negligence and Reliance

[134] The remaining elements of the Cognos test only come in play if the Walshes

had satisfied the Defendants owed them a duty of care and made false or misleading

representations. The Walshes must prove the Defendants acted negligently in

Page 36

making the alleged misrepresentations and that the Walshes were reasonable in their

reliance on the negligent misrepresentations.

[135] The standard of care expected (Cognos at para. 56) on the Defendants is “a

duty to exercise such reasonable care as the circumstances require to ensure that

representations made are accurate and not misleading.”

[136] While TRA could have done better explaining and documenting terms of the

Supply Arrangement, the evidence does not meet the burden of establishing on a

balance of probabilities that the Defendants were negligent in failing to take

reasonable care in dealing with the Walshes.

[137] The Walshes’ reliance on the alleged misrepresentations was not reasonable

in all the circumstances. Mr. Walsh simply heard what he wanted to hear and believe

that he was getting all the deals and same pricing treatment as Sobeys stores. The

evidence put forth by the Defendants demonstrates that was not commercially

attainable or reasonable.

[138] The evidence also demonstrates that a reasonable and prudent person in Mr.

Walsh’s circumstances, while operating the stores and buying from TRA, would

have taken steps to inquire if he was receiving all the trade deals.

[139] Numerous TRA invoices to the Walshes’ companies entered as evidence state

“Less Deal” and not “Less Deals.”

[140] Mr. Walsh had some knowledge of By-cheques and Rebates on Direct at the

time of the Foodland presentation. It was only after he sold his shares and started

working with a competitor grocery retailer, Colemans, that he became more

knowledgeable of the extent that all trade deals or “inside monies” could generate.

Gardiner and Ruston confirmed that Mr. Walsh never asked them whether he was

receiving all trade deals or “inside monies.”

Page 37

[141] The Supply Arrangement offered to the Walshes was not what Mr. Walsh

honestly believed he had secured and wished he had with TRA. In the non-exclusive

Supply Arrangement that the Walshes had with TRA, it was incumbent on

Mr. Walsh to raise with TRA and insist he get all trade deals and the same cost

equivalency as Sobeys. He could have walked away from the business arrangement

he had with TRA and become affiliated or deal with another wholesaler, or attempted

to negotiate a more economically favorable Supply Arrangement with TRA.

Instead, he chose to sell his shares in the Walshes’ Corporations.

Requirement to Show Damages

[142] I will deal with the final element of Cognos, that the Walshes show damages

resulted, when addressing damages under Issue 3.

Elements of Fraudulent Misrepresentation

[143] To establish fraudulent misrepresentation, or deceit, the Walshes must prove

the following five elements: Hennessey v Eastern Regional Health Authority, 2019

NLSC 239 at para. 34; and Midland Resources Holding Ltd. v. Shtaif, 2017 ONCA

320, at para. 162.

(i)

a false representation of fact by the defendant to the plaintiff;

(ii) knowledge the representation was false, absence of belief in its truth,

or recklessness as to its truth;

(iii) an intention the plaintiff act in reliance on the representation;

(iv) the plaintiff acts on the representation; and

(v) the plaintiff suffers a loss in doing so…

Page 38

[144] It is apparent that there is substantial consistency in the elements of negligent

misrepresentation and fraudulent misrepresentation. The principal difference is the

intention of deceit, which is required to ground fraudulent misrepresentation.

The Alleged Deceitful Conduct

[145] The Walshes in their Closing Submissions maintain that TRA and Sobeys

took active and deliberate steps to conceal from the Walshes the nature, extent, and

value of the Trade Deals they received and deliberately, deceitfully, and fraudulently

misrepresented that the Walshes’ stores were paying the same net costs for products

as the Sobeys stores. They allege that, in response to inquiries about competitors

selling at lower prices, TRA employees, including Green and Gardiner, consistently,

deliberately, knowingly, and fraudulently misrepresented that the Walshes’ stores

were paying the same product costs as TRA/Sobeys. And finally, the Walshes rely

on the 1984 Sobeys Supply Agreement as evidence of a fraudulent scheme to

artificially inflate the Sobeys invoices to make it appear that Sobeys was paying the

same as the Foodland stores.

[146] Mr. Walsh in his testimony accused the TRA senior personnel of creating “a

Ponzi scam that would make the Mafia blush.” In his younger days, Mr. Walsh

fought in the boxing ring and he had no trouble facing anybody coming at him, but

he said, “I was not prepared for my corner to be doing a number on me.”

[147] There was no “Ponzi scam” and Mr. Walsh’s corner did not turn on him. The

Walshes have failed to prove deceitful conduct on the part of the Defendants.

Sobeys Equivalent Cost or Pricing Misrepresentation after the Walshes

Commenced Foodland Operations

[148] I have addressed that the ‘all trade deals off’ representation was not made to

the Walshes, and now turn to the representation that TRA deceitfully misrepresented

Page 39

to the Walshes that they were receiving the same equivalent cost or pricing as the

Sobeys stores, after the Walshes’ Corporations entered into the Supply Arrangement.

[149] The Walshes alleged in their Trial Brief that TRA/Sobeys went to great

lengths to hide “all trade deals” were not passed on to the Walshes’ Corporations,

including generating false invoices. Their Further Amended Statement of Claim (at

para. 28) pleads that the Defendants took active and deliberate steps to prevent the

Walshes from ascertaining the actual and/or nature of the various trade deals, and

this amounted to “fraudulent concealment” and “an abuse of high level of trust.”

The Walshes led no evidence to establish the creation of false invoices, nor any

evidence of fraudulent concealment, nor an abuse of trust on the part of the

Defendants.

[150] Mr. Walsh testified that five or six years after commencing as a Foodland

operator, he questioned Bidgoods’ ability to undersell him on popular selling items,

Tetley Tea and Fraser Farms Meatballs. This occurred at a time when he said, “I

was making a few dollars, we were doing half decent, as I thought, and I wanted to

build on.”

[151] He challenged Pat O’Keefe, TRA’s new head buyer, on the Tetley and Fraser

Farms pricing issue at the TRA offices. Green joined the discussion and showed

Mr. Walsh that the Foodland price book and the Sobeys price book were the same.

[152] Gardiner related in his evidence how he similarly showed Mr. Walsh the

Sobeys price book and the Foodland price book, which were the same.

[153] The Closing Brief of the Walshes notes that TRA failed to produce any Sobeys

invoices or price books in the Defendants’ document production or as Trial exhibits.

However, Mr. Walsh admitted that TRA management showed him the Sobeys price

book and the invoices were the same for Sobeys stores as Foodland operators.

Despite the absence of corroborating documentary proof, I am satisfied on the

testimony at Trial that the Sobeys stores were invoiced on the same basis as

Page 40

Foodland stores (with the exception of staple items — milk, sugar and flour, which

the Foodland stores were not charged the 5% upcharge).

[154] There was therefore no false or deceitful representation of fact made to the

Walshes.

[155] Likewise, TRA and its management did not have knowledge the

representation was false, absence of belief in its truth, or recklessness as to its truth.

[156] The evidence fails to support a finding that the Defendants took active and

deliberate steps to conceal the true nature of its cost arrangement with the Sobeys

stores from the Walshes.

Separateness of TRA and Sobeys Business Operations

[157] Notwithstanding their connection as part of the buying group, TRA and

Sobeys businesses were separate operations. TRA, as the warehouse operator and

supplier for the Sobeys stores, had no influence on Sobeys’ management, operations,

merchandising, and prices. The Sobeys stores were not part of the Foodland

Program, and did not receive the benefits of the Foodland Program.

[158] Green consistently indicated that he was not involved with the Sobeys stores

and did not have knowledge of or a role in their operations or business. When asked

about the deals Sobeys stores were getting, he stated, “I don’t know … I was not

associated with Sobeys stores.” In discussing rebates, he said, “I was never involved

with Sobeys’ business. I don’t know what they did.” And he testified further, “I

had no arrangement with Sobeys, I didn’t do any dealings with Sobeys on anything

really.”

Page 41

[159] Gardiner similarly had no involvement with the Sobeys stores management or

operations, and had no knowledge of the SDAs.

[160] Rushton had no involvement with the operations of the Sobeys stores. Asked

about TRA’s ability to influence the cost of product sold in Sobeys stores, he stated

it was up to Sobeys “to do whatever they felt was necessary to compete” with

competitor stores. He had no knowledge of SDAs and no reason to have access to

any of the retail operations information.

Joseph O’Leary

[161] TRA hired Joseph O’Leary in 1979 as a buyer, and he became the Director of

Purchasing for TRA Newfoundland in the early 1980s. He worked with TRA until

1990 reporting to the General Manager, Green. The Walshes called O’Leary as a

witness.

[162] His evidence confirms that TRA invoicing (on non-staple products) was the

same for Foodland operators as the Sobeys stores. He made the interesting

observation in support of the Walshes’ position that the invoices did not accurately

represent the true cost of product for the Sobeys stores. He stated: “Because it can

show that you are getting the same price as Sobeys. There’s a front door and there’s

a back door, but what goes in the front door is not the same as what goes in the

backdoor.”

[163] I accept the invoicing would not show additional monies in other deals and

allowances potentially available and that were in fact paid over to Sobeys. There is

nothing nefarious or fraudulent about the manner of TRA’s invoicing. O’Leary

acknowledged in cross-examination that TRA’s management was not colluding and

contriving to produce a method of invoicing to deceive Mr. Walsh.

Page 42

1984 Sobeys Supply Agreement

[164] Mr. Walsh testified in relation to the agreement between Sobeys Stores

Newfoundland, Lofoods Newfoundland (a Sobeys subsidiary), as Buyers, and TRA

Newfoundland, as Seller, from 1984 (the “1984 Sobeys Supply Agreement”).

Significantly, it post-dates the 1983 Foodland presentation, and it did not pertain to

the Foodland stores or other TRA banner stores.

[165] Mr. Walsh did not see the 1984 Sobeys Supply Agreement while he was

operating as a Foodland, only acquiring it after he sold his stores.

[166] The Walshes submit firstly, it is proof of the type and nature of rebates that

TRA was supposed to pay the Walsh stores. Secondly, it demonstrates that

TRA/Sobeys must have had the capacity to track products purchased and the amount

and types of Trade Deals, discounts and rebates available on which the percentages

could be calculated.

[167] The Walshes point to the strong language that “Under no circumstances will

by cheque allowances be used to net out the product cost,” as evidence that the By-

cheque amounts were known and calculable at the time of sale. Otherwise, there

would be no need to specify that they not be used to net out the product cost.

[168] The Walshes go further and argue the strength of the language is evidence that

TRA and Sobeys were likely concerned that its invoices might become known to its

other customers, and see that Sobeys was charged less than the Foodlands, contrary

to the TRA representations. They allege this is evidence of a fraudulent scheme to

artificially inflate the Sobeys invoices to make it appear that Sobeys was paying the

same as the Foodland stores.

[169] I am unable to accept the Walshes’ position on their view of what the 1984

Sobeys Supply Agreement proves. In his direct evidence, Mr. Walsh confirmed, “our

Foodland Program compared perfectly with this.” He confirmed that the Sobeys

Page 43

stores upcharge was 5% and By-cheques were not to be provided to buyers. What

it does reflect is substantial benefits were accruing to TRA as the wholesaler for

Sobeys, thus providing TRA with more discretionary funds to administer to the

Foodland Program.

[170] Respecting the quarterly rebate in Clause 7, Gardiner and O’Leary testified

this payment to Sobeys was to offset freight charges Sobeys incurred. Sobeys

incurred its own fright charges in transporting goods from TRA’s warehouse to the

Sobeys stores. Foodland stores received the benefit of no transportation charge to

their stores.

Misrepresentation Claims Ignore Foodland Program Benefits Offered to

the Walshes’ Corporations

[171] The claims of fraud, deceit, and concealment are erroneously premised on the

understanding that the Walshes’ Corporation would be treated the same as Sobeys

stores not just on the Off-Invoice Allowance, but also in every respect on the manner

of allocation of Trade Deals and for netting down the cost of product. This is an

erroneous misconception, and seriously ignores the Foodland Program price support

and other benefits the Walshes’ Corporations received.

[172] The Foodland benefits reflect an alternate financial support program for the

Foodland stores, including the Walshes’ Corporations. The evidence confirms their

Corporations received substantial forms of additional price support in a different

manner than the Sobeys stores.

[173] The Defendants tendered evidence as to the Supply Arrangement and other

aspects of the Foodland Program from Green, Rushton, Gardiner, and most

extensively Karl Vokey.

Page 44

Karl Vokey

[174] Vokey first joined TRA in 1988 after completing university. He was directly

involved and oversaw the pricing as provided to the Walshes’ Corporations and other

Foodland stores. He testified in his capacity as the Senior Vice-President, Grocery

Merchandising and National Resourcing with Sobeys.

Off-Invoice Allowance – Supplier’s Invoice Cost with 5% Upcharge Less the

Deal

[175] Vokey spoke in considerable detail on the workings of the Off-Invoice

Allowance. It started with the Supplier’s Invoice Cost. Suppliers would publish a

price list typically once a year of the product case cost based on the volume-buying

bracket of TRA and Sobeys. TRA would work with brokers and agents or suppliers

directly to achieve the most favorable case price. The case cost would then be

entered in TRA’s computer system.

[176] As a starting point, Foodland and other upcharge customers of TRA would be

availing of the optimal case cost in the system. They could purchase on a one-case

order.

[177] The “deal,” or sometimes referred to as the “published deal,” was a temporary

per-case reduction of the Supplier’s Invoice Cost that would be in effect for a limited

period of time. It directly and immediately reduced the amount that TRA had to pay

the supplier for the product.

[178] TRA communicated and circulated monthly the pricing available to the

Foodland operators in a “Regular Price Book.” It would show the product cost

(Supplier’s Invoice Cost) and any applicable Off-Invoice Allowance.

Page 45

[179] The Off-Invoice Allowance was thereby tied to each individual case of

product purchased during the deal period. TRA accounted for the Off-Invoice

Allowance at the time of TRA’s receipt of the product in the warehouse. Generally,

suppliers promoted the product through the published deal and did not require retail

performance.

[180] For other rebates, deals, and allowances, suppliers often required retail

performance activity measured through, among others, product display, carrying

periods, and competitive consumer pricing. On such rebates and allowances, unlike

the Off-Invoice Allowance, TRA had to track and make an after-purchase

reconciliation.

[181] In addition to the benefit of Foodland and Sobeys having the lowest upcharge

of any of TRA’s customers, TRA provided additional price support to Foodland

operators, in which the Walshes’ Corporations participated. TRA did not provide

this additional price to the Sobeys stores.

Additional Price Support to Foodland Operators

[182] The purpose for providing the additional price support, and one of the key

aspects of the Foodland Program, was to ensure Foodland operators remained

competitive on a per-item basis without having to incur specific losses on sales that

would otherwise have been loss leaders.

[183] There were certain staple and high-demand items that were price sensitive and

commonly sold at a loss to drive consumer demand and sales on higher-margin

items. Promotional activity played a significant part of it.

[184] The forms of the additional price support was retail-focused, and included the

following: TRA’s Every Day Low Price Program (the “EDLP Program”), the

Weekly Flyer Program, Store Credits, and discretionary price reductions.

Page 46

[185] The EDLP Program was designed to make products perceived to be price-

sensitive for consumers (local grocery shoppers) available to Foodland stores on a

monthly basis. It made certain high-volume products, in the range of 1500 – 2000

items, available to the Foodland Stores at a further discounted price. The prices

available to the Walshes’ Corporations through the EDLP Program were lower than

the prices for those same products as set out in the Regular Price Book, and

represented a discounting of price beyond the Off-Invoice Allowance. TRA

communicated the EDLP Program to Foodland operators by way of an additional

price book (the “EDLP Price Book”).

[186] TRA prepared weekly flyers for the Foodland stores to increase consumer

activity in the stores. At the relevant timeframe, flyers were the number one tool for

communicating and promoting products to consumers.

[187] The Weekly Flyer Program, as well as the EDLP Program, both played into

the 80-20 rule that Vokey and certain others spoke to in their testimony. The 80-20

rule is the general principle that 20% of a store’s product would result in 80% of the

stores sales, and that the pricing on these staple 20% products was extremely

competitive.

[188] Consistent with the objective of keeping individual operators whole on loss

leaders, TRA provided additional price support to the Foodland stores to help

maintain the margins achieved by the Foodland stores on products while on special.

[189] The Weekly Flyer Program included the provision of a third price book, called

the “Merchandising Planner.” The Merchandising Planner, which supplemented

the Regular Price Book and the EDLP Price Book, showed the products that would

be in the flyer for a specific week and the special pricing available to the Foodland

Stores during the applicable period. The products in the Merchandising Planner

under “Special Cost” frequently had prices discounted beyond the prices as reflected

in the Regular Price Book.

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[190] The Merchandising Planner set out the precise amount of additional price

“allowance” or subsidization (beyond any applicable Off-Invoice Allowance) that

was being provided on each product. Vokey, Gardiner, and Tiller confirmed the use

of “allowance” as used in the Merchandising Planner to show the Foodland operators

the “Landed Store Cost” of the product from the Regular Book Cost is not to be

confused with the Off-Invoice Allowance. Mr. Walsh acknowledged he had the

opportunity to buy as much of a particular item at a lower cost as he wanted, and sell

at a higher cost after the flyer expired.

[191] TRA gave Store Credits (not including those credits for damaged product or

incorrect shipments) to account for situations where a Foodland operator sold staple

and/or price-competitive items at what would otherwise have been a loss. The

principal difference between Store Credits as compared to the additional price

support through the EDLP and Flyer Program is that the Store Credits actually

resulted in credits from TRA to the Walshes’ Corporations in reference to their

purchases and were initiated by the Foodland operator itself.

[192] Tiller and Vokey said Store Credits on staple competitive items sold at a loss

could amount to hundreds of dollars per week payable by TRA to individual

Foodland operators. TRA tendered documentary evidence of credits of this nature

payable to the Walshes’ stores. An example of a Store Credit to the Walshes’

Corporations was subsidization of the unit cost of a carton of milk sold at less than

what they paid because of market conditions.

[193] There were additional discretionary reductions of the Off-Invoice Allowance

on occasions, including reimbursement for special event promotions and more

significantly, the manual override of the Supplier’s Invoice Cost on the supply of

Non-Direct products.

The Manual Override of the Supplier’s Invoice Cost on Non-Directs

[194] All of the evidence from people familiar with TRA’s pricing system,

including Tiller, testified to the fact that, at the material time, the Supplier’s Invoice

Page 48

Cost was entered into TRA’s system, customers were put into pricing groups based

on their applicable upcharge, and invoices were automatically generated according

to those pricing groups. Similarly, the evidence established that the only way to

provide additional price support to a customer of TRA was to do a manual price

override in TRA’s system.

[195] Business records entered at Trial showed this form of additional price support

being provided to the Walshes’ Corporations, as discussed more fully below.

[196] Gardiner spoke to the mechanics of the price override, in the context of the

Merchandising Planner, which as recognized by Mr. Walsh, included the provision

of additional price support. TRA’s computer program system would generate the

regular product price, and for TRA to override the price in the system it would

involve a manual override in the Merchandising Planner. Tiller also noted there was

no other way to do it cost-effectively within the TRA system.

[197] Vokey spoke to the price override in reference to specific and numerous

invoices to the Walshes’ Corporations.

[198] In the absence of a price override, the invoices were generated automatically

in reference to the “Unit Cost” as denoted on the invoice, which Vokey confirmed

would be “after the 5% upcharge was applied” and “before the application of the off

invoice deal,” with the invoice then noting “Less Deal” to signify the reduction of

an applicable Off-Invoice Allowance. All of these prices would have been

communicated by way of the Regular Price Book.

[199] In the context of a price override, meaning additional price support, whether

further to the EDLP Program, the Weekly Flyer Program, or purely discretionary

price support, the invoices would have had to be subject to a price override. In that

situation, the system-generated invoices would simply reflect a lower “Unit Cost”

and would not directly indicate that additional price support had been provided.

Page 49

[200] A number of invoices for a competitive staple product and loss leader,

Carnation Milk, were referred to as examples of the provision of additional price

support, by way of the manual price override, with prices below the Supplier’s

Invoice Cost. Vokey explained the invoices did not reflect “Less Deal” on the

invoice itself, but that the unit price that TRA sold to the Walshes’ Bay Bulls store

was considerably less that the Supplier’s Invoice Cost. Even though TRA did not

produce or tender the actual supplier’s invoices for the Carnation Milk within the

relevant time, I accept the evidence of Vokey as confirmation that TRA substantially

subsidized the unit cost of this product for the invoiced period.

Rebates on Direct Products

[201] In addition, TRA provided the upcharge Foodland operators, including the

Walshes’ Corporations, with a quarterly cheque of at least 50% of the rebates

received by TRA on account of the purchases by the applicable store.

[202] On the payment of Rebates on Directs, Gardiner testified TRA looked at each

store individually to ensure they were competitive in their market on staple items,

such as dairy milk and bread prices.

Walshes’ Acknowledgement of Foodland Program Benefits

[203] Mr. Walsh acknowledged in his cross-examination that the Walshes’

Corporations were receiving additional price supports and other services from TRA

beyond the standard Off-Invoice Allowance. He recognized various forms of price

support “on a daily basis” by way of the EDLP Program, the Weekly Flyer Program,

Store Credits, and other discretionary price support.

[204] He confirmed TRA provided the Foodland operators, including the Walshes’

Corporations, with extensive retail counselling services, at the store department

level, at no charge. TRA provided retail accounting services at a modest cost. TRA

provided monthly budgeting services, seminars and semiannual meetings for

Page 50

Foodland operators. TRA had a Foodland Advisory Committee that provided

guidance on store-level profitability, store-level costs, and other aspects relating to

store sales.

[205] Mr. Walsh also acknowledged TRA provided Walsh’s Foodland with

financing for the development of the new store in Bay Bulls, and at no charge,

budgeting and engineering consulting services for the design and construction of the

store.

[206] And finally, as Vokey noted, there was a Foodland council made up of

Foodland operators that would liaise and meet regularly with TRA management.

[207] It would not have been commercially reasonable for TRA to provide all of

these additional price supports and administrative supports to the Walshes’

Corporations for the 5% upcharge.

[208] TRA did not provide additional forms of price support to Sobeys stores

because of the different commercial realities faced by the corporate stores as

compared to individual operators.

Retail-Oriented Differences between Sobeys (corporate stores) and

Individual Operators (Foodland stores)

[209] There is a fundamental commercial difference between the manner Sobeys

stores operated, in a corporate store environment, as compared to how independent

Foodland operators functioned, such that the receipt of Incremental Supplier

Funding was necessarily accounted for in a different way.

[210] In a corporate store environment, such as that of Sobeys stores, the Sobeys

prices to consumers, and particularly on promotional activities, would have a lower

Page 51

margin before the subsequent receipt of, and separate accounting for, Incremental

Supplier Funding.

[211] For Foodland operators, TRA actually provided the price support for

promotional activities and highly competitive staple items by way of a reduction in

the purchase price of items invoiced. Foodland operators were able to maintain

positive (or zero) margins on promotions that would have yielded lower (or negative)

margins in the Sobeys corporate environment.

[212] Unlike Sobeys, TRA did not measure the internal cost of its additional price

support as provided to the Foodland operators in reference to the amount of

Incremental Supplier Funding subsequently received.

[213] The Walshes claim their Corporations were promised that they would receive

an equivalent level of price reduction to account for all of TRA’s subsequently

received allowances. Most importantly, I have found that TRA did not make such a

promise. If I had found TRA made that promise to the Walshes’ Corporations, TRA

had the ability to separately track and determine the amounts of Incremental Supplier

Funding, as Sobeys did. That, however, was not the way TRA administered the

Foodland Program and accounted for its sources of price support to the Walshes’

Corporations.

[214] Gardiner corroborated Vokey’s evidence that TRA received funding from

suppliers to support the additional price support provided to Foodland operators, and

the TRA financial statements did not separately account for the price support or

funding received. Tiller indicated revenue from By-cheques would not be enough

to make it worthwhile for TRA, and “we went wherever we could go to get the

money” to keep Foodland operators competitive and move product.

[215] The additional price support to the Walshes’ Corporations was made possible

largely through TRA’s subsequent receipt of Incremental Supplier Funding. TRA

was also able to provide additional price support to Foodland operators from other

revenue streams of TRA, including the higher upcharge TRA charged to other

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customers. As well, TRA made product available for Foodland stores, which TRA

had purchased and warehoused, at its own expense, during since-expired deal

periods.

[216] The Incremental Supplier Funding was provided to TRA at some point after

TRA’s acquisition of the product and was provided to TRA either (i) on volume

purchases of the buying group, including Sobeys, or (ii) TRA’s specific retail and

promotional activities (such as the Weekly Flyer Program and promotional activity

of stores operated under TRA’s Foodland, Riteway and Quikway banners). The

Canada Packers Agreement is documentary evidence of promotion-based

Incremental Supplier Funding that was exclusive to TRA.

[217] Sobeys would have separately negotiated and received their own promotion-

based Incremental Supplier Funding for retail-oriented subsidies from suppliers,

where TRA had no ability to influence Sobeys’ retail or promotional practices.

Walshes’ Reliance on the Sobeys Departmental Analyses (SDAs)

[218] Mr. Walsh’s emphasis on the importance of the SDAs is misplaced. His first

time receiving and seeing the SDAs was in 2003, long after the relevant timeframe

and two years following commencement of the litigation. He testified when he

reviewed the document, he “had the puzzle solved.” He stated: “This finally fit into

my way of thinking that I knew that they could not deny the facts that were here, and

I knew now why they could show me Sobeys prices and Foodland prices as being

the same.”

[219] What the SDAs show is the clear distinction between a corporate environment

and an independent operator environment and confirmatory evidence of the

substantial additional price support to the Walshes’ Corporations.

[220] Vokey was the only witness who had personal knowledge of the SDAs. He

started working with SDAs after he commenced working in the retail division with

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Sobeys in 1995 or 1996. He had not seen the SDAs while working with TRA, and

neither did Green, Gardiner, or Rushton.

[221] Vokey noted that the SDAs contain the consolidated information for all of

the Sobeys stores in Newfoundland and Labrador before then providing the same

categories of information for the individual Sobeys stores.

[222] I will describe in some detail what the SDAs capture, as it is necessary for my

subsequent discussion of the expert opinions.

[223] The information in the SDAs is broken down by departments, and a review of

the SDAs show headings for departments such as “Grocery Sales,” “Canteen Sales,”

“Meat Sales,” “Fish Sales,” and a variety of other departments, with similar

information below each department. Importantly, for each department, the SDAs

show “Sales,” “Store Margin,” “Allowances,” and “Total Gross Profit.”

[224] Vokey explained:

a) The “Sales” line in the SDAs show the retail sales for each Sobeys department

to Sobeys’ customers during the applicable timeframe, both in terms of actual

dollars and sales of that department as a percentage of total sales;

b) The “Store Margin” line is the difference between what Sobeys sold the

product for to its customers less what Sobeys paid for the product on their

invoices, and is shown both in dollars and as a percentage of the sales within

the applicable department;

c) The “Allowances” line reflects the additional allowances that were separately

negotiated by Sobeys with suppliers for their retail activity and were paid

Page 54

directly to Sobeys by those suppliers, and is shown both in dollars and as a

percentage of the sales within the applicable department; and,

d) The “Gross Profit” line is a summation of the “Store Margin” and

“Allowances” lines, again reflected both in dollars and as a percentage of sales

within the applicable department.

[225] Vokey confirmed that all of the trade deals received by Sobeys are captured

fully in the “Allowance” line of the SDAs.

[226] He explained Foodland operators, including the Walshes’ Bay Bulls store, had

total gross margins on grocery sales, on average, higher or equivalent to Sobeys

stores. This was because Sobeys accounted separately for “Store Margin” and

“Allowances” to get to their “Gross Profit” margin, while TRA furnished the

additional price support through the cost of goods on the invoice.

TRA Financial Records

[227] The Walshes take issue with why TRA’s business records do not show with

specificity the net amount of additional price support provided to the Walshes’

Corporations, as compared to the net amount of Incremental Supplier Funding

received by TRA on account of purchases made by the Walshes’ Corporations.

[228] In short, there was no obligation on TRA to account for the Incremental

Supplier Funding (the all-trade deals) in the manner Sobeys did. TRA’s operations

in the late 1980s and early 1990s did not internally track the Incremental Supplier

Funding for its financial statements. Tiller’s evidence was that they went whenever

they could to find the funding. Unlike Sobeys, TRA did not have the same

meticulous tracking and accounting of subsequently received supplier funding.

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[229] The exercise of determining the additional price support provided to the

Walshes’ Corporations would involve an invoice-by-invoice comparison on a case-

by-case weekly basis. There is no justification for requiring the Defendants to incur

that level of forensic detail in light of the accepted Trial testimony.

[230] TRA did pass on Incremental Supplier Funding through additional price

support to the Walshes’ Corporations. I am unable to determine with any degree of

specificity the amount of Incremental Supplier funding passed on to the Walshes’

Corporations. Nevertheless, I am satisfied on the testimony of the Defendants’

witnesses, which was not refuted by any of the witnesses for the Walshes, that the

additional price support in the form of reduced cost of goods was substantial.

[231] Having carefully considered the evidence of each witness and the evidence as

a whole, I find the Walshes have not established the elements necessary to prove

negligent or fraudulent misrepresentations.

2. Are any of the claims out of time and barred by the applicable statutory

limitation period?

Limitations Decision

[232] The Defendants previously brought a Summary Trial Application on the

limitations issue in this matter. Although McGrath J held in the Limitations Decision

that she was unable to make a finding respecting the application of the

discoverability principle on the evidence before her. [She did confirm the applicable

limitation periods for the pleaded causes of action and claimed damages.

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[233] The applicable limitation periods are:

Cause of Action

Heads of Damage

Personal Losses

Economic Losses

Mental

Anguish

Loss of

Reputation

Loss of

Income

Selling of

shares at

artificiall

y low

Loss of Ability

to work in

industry

proces

Per section 5(b) of the Limitations Act, the limitation period for negligent

misrepresentation and all associated claims for damage is two years.

Negligent

Misrepresentation

[234] McGrath J held (at para. 50) that both the economic losses and the personal

losses occurred at the time the Bay Bulls store was sold in February 1995, and the

Merrymeeting Road store was sold in July 1996. The Statement of Claim was not

issued until April 6, 2001. As a result, other than the fraudulent misrepresentation

claim for economic losses from the sale of the Merrymeeting Road store, the

Walshes must rely upon the concept of discoverability to postpone the running of

time so that their claims are not time-barred.

[235] Section 14(1) of the Limitations Act allows the postponement of the running

of the limitation period for actions stipulated therein, including an action “for

personal injury.” Section 13(1) expressly provides that the common law rules

respecting the time at which a cause of action arises continue to apply. Accordingly,

McGrath J concluded (at para. 49) that even for actions that do not fall within section

14(1), the common law rules of discoverability apply.

[236] While the common law rule on discoverability and the statutory definition of

discoverability in the Limitations Act do not contain identical wording, the same

interpretive approach applies: WEH Enterprises Ltd. v. Squires, 2010 NLCA 41; and

Morgan v. Rogers, 2011 NLCA 27.

[237] Under the common law rule, “a cause of action arises for purposes of a

limitation period when the material facts on which it is based have been discovered

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or ought to have been discovered by the plaintiff by the exercise of reasonable

diligence” (Central & Trust Co. v. Rafuse, [1986] 2 S.C.R. 147, at 224; and Ryan v.

Moore, 2005 SCC 38, at paras. 2 and 22).

[238] The wording in Section 14(1) reads: “the limitation period fixed by this Act

does not begin to run against a person until he or she knows or, considering all the

circumstances of the matter, ought to know that he or she has a cause of action.”

[emphasis added]

[239] McGrath J’s ruling stated:

56

As such, while section 14 of the Limitations Act does not expressly import

the requirement that the plaintiff exercise reasonable diligence, it is clear that, in

considering all circumstances of the matter under section 14, a court must take into

account whether the plaintiff ought to have discovered that he or she had a cause of

action by exercising reasonable diligence. …

[240] The Walshes have the legal burden of establishing an entitlement to a

postponement.

[241] McGrath J dismissed the Defendants’ Application for Summary Trial because

(at para. 142) she was unable on the whole of the evidence before her to find the

facts necessary to decide when the Walshes knew or ought to have known of their

cause of action. She also found that it would be inappropriate and otherwise unjust

to decide the limitations issue on a Summary Trial Application. She pointed out (at

para. 136) a trial judge would have the benefit of Mr. Walsh’s direct examination

and a fulsome cross-examination and re-direct. She had concerns (at para. 137) that

Mr. Walsh’s post-Discovery anxiety and stress “may have caused him to mix up

dates.”

[242] McGrath J’s comments on discoverability are entirely consistent with the

recent decision of the Supreme Court of Canada’s in Grant Thornton LLP v. New

Brunswick, 2021 SCC 31.

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Grant Thornton LLP v. New Brunswick

[243] Grant Thornton makes clear the particular degree of knowledge required to

discover a claim. This decision was released after the conclusion of the oral

submissions the parties made before me in July 2021. Counsel for the Defendants

wrote to me on September 27, 2022, with the concurrence of counsel for the

Walshes, to bring the decision to my attention for consideration on the issue of

discoverability. The parties did not seek to make further submissions.

[244] Although the Supreme Court was dealing with the specific language and

interpretation of the New Brunswick legislation, Limitation of Actions Act, S.N.B

2009, c. L-8.5 (the “LAA”), the comments of Moldaver J, concurred unanimously by

all six other judges hearing the appeal, have import for my analysis and findings.

[245] Grant Thornton held that the discoverability provision of the LAA codifies the

common law rule of discoverability. That is similar to what the Newfoundland and

Labrador Court of Appeal has held on the statutory discoverability provision of the

Limitations Act: (WEH Enterprise, at para. 13; and Morgan, at para. 16).

[246] As established by both the common law rule and the statutory discoverability

provision, “the limitation period is triggered when the plaintiff discovers or ought to

have discovered through the exercise of reasonable diligence the material facts on

which the claim is based” (Grant Thornton, at para 40).

[247] Grant Thornton also considered the particular degree of knowledge required

to discover a claim. Moldaver J proposed the following approach (at para. 42): “a

claim is discovered when a plaintiff has knowledge, actual or constructive, of the

material facts upon which a plausible inference of liability on the defendant’s part

can be drawn.”

[248] Grant Thornton goes on to explain (at para. 46) that: “The plausible inference

of liability requirement ensures that the degree of knowledge needed to discover a

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claim is more than mere suspicion or speculation.” The standard does not require

“certainty of liability,” “perfect knowledge,” or “perfect certainty.” A plaintiff does

not need to know the exact extent or type of harm it has suffered.

[249] McGrath J (at para. 74) in the Limitations Decision recognized, “[i]t is also

not necessary that a plaintiff have knowledge of all evidence that may tend to prove

their claim or make it more probable that the claim will be successful. The Walshes

needed knowledge of the material facts to plead and support the claim against the

Defendants.

Application of Discoverability to the Facts

[250] I turn to the question of determining when the Walshes discovered their claim

against TRA and Sobeys. The focus is particularly on Mr. Walsh’s knowledge, as

he was the directing mind of their Corporations and in the forefront of the

investigative inquiries on whether TRA passed on all the deals.

[251] What did Mr. Walsh know and when, or through reasonable diligence ought

to have known, from which a plausible inference can be made that TRA did not pass

on all the trade deals resulting in a loss to the Walshes’ Corporations and their

ultimate sale price.

[252] I note Hoegg JA in Morgan (at para. 26) expressed when dealing specifically

with section 14 of the Limitations Act that: “While the concept of knowledge

encompasses awareness and appreciation, it would be preferable to use the actual

word "know" as found in the statute.” I will therefore remain cognizant that I have

to apply the actual wording of section 14 to my factual findings on the requisite

degree of Mr. Walsh’s knowledge. That is, when did he know or, considering all

the circumstances of the matter, ought to known that he had a cause of action?

[253] The Defendants contend Mr. Walsh knew the facts relevant to his cause of

action against TRA on or before January 29, 1999. A finding that the limitation

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period began to run in January 1999 (or any point prior to April 6, 1999) means that

the only cause of action and claim for relief left is the claim for economic losses

arising from fraudulent misrepresentation.

[254] The Walshes submit the evidence supports their entitlement for postponement

of the two-year limitation period to June 1999. Before then, they say Mr. Walsh was

on a fact-finding exercise triggered by suspicion that culminated in the possession

of sufficient knowledge on which to commence legal action. In 1998, he began to

make inquiries after he discovered that a competing independent supermarket was

able to make money while he was not. I will explore the evidence on the Walshes’

Corporations profitability later, which reveals that the Corporations were able to

make money but not to the extent Mr. Walsh expected.

[255] They say it was not until Mr. Walsh confronted his trusted advisor, Green, in

a conversation in June 1999 that Green finally admitted the truth: that the Walshes’

stores had not received the benefit of the Trade Deals. They propose that while

Mr. Walsh may have had suspicions before then, they were nothing more than

suspicions.

[256] I find on assessing the testimony and totality of the evidence before me that

Mr. Walsh had ample knowledge of the material facts by at least January 1999 to

draw a plausible inference of liability on TRA’s part.

By-Cheque evidence

[257] The chronology of Mr. Walsh’s knowledge of material facts, or what counsel

for the Defendants refer to as “the Walshes’ consciousness of their cause of action”

begins with their awareness of By-cheques.

[258] By-cheques were one of the specific trade deals pleaded in the Walshes’

Further Amended Statement of Claim in paragraph 21(m), specifically averred to as

“published by cheque allowance.”

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[259] The Defendants point out the evidence directly contradicts Mr. Walsh’s

position that he did not know about By-cheques until within two years of issuance

of the action. He stated in cross-examination, “I wasn’t aware of anything about By-

cheques when I was in business.” The Walshes’ witnesses, Tiller and O’Leary both

testified that they were involved in By-cheque discussions with Mr. Walsh,

respectively in 1983 and by no later than 1992.

[260] I find By-cheque allowances were a material fact that Mr. Walsh had

knowledge of more than two years before commencing the action. It is

understandable why Mr. Walsh may have been confused about his first knowledge

of By-cheques based on what Tiller and O’Leary told him about By-cheques. Tiller

told him that By-cheques were “a very small part of the business,” and O’Leary

confirmed that By-cheques “weren’t the large portion of the business” at the time he

talked to Mr. Walsh.

[261] Notwithstanding Mr. Walsh’s first knowledge of By-cheques, he continued to

doggedly pursue the fact of receipt of By-cheque allowances. Mr. Walsh confirmed

in cross-examination that he discussed By-cheques with Green at a lunch meeting in

December 1998. In one of the taped conversations with Green on June 18, 1999,

Mr. Walsh said:

… the closest time you ever come to telling me the truth of it, Joe, is when we had

a bite of lunch at Auntie Crae’s there in December. I mean you started telling me I

wasn’t getting the By-cheques and that. That’s when I started getting on to it.

[262] Mr. Walsh’s apparent explanation for not commencing his claim in December

1998 when he knew he was not getting By-cheques directly credited to Off-Invoice

deals is that Green told him “the By-cheques were so small that you’re worrying

about nothing.”

[263] I cannot accept Mr. Walsh’s explanation (and lack of requisite knowledge) for

not commencing the action until April 2001 in light of the other pertinent testimony

on discoverability.

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Tiller’s 1997 No Net-Net Cost Advice

[264] Tiller provided evidence in relation to the Walshes’ knowledge in 1997 that

the Defendants were not providing their Corporations with the deals and allowances,

which the Walshes allege they were promised.

[265] Tiller was examined on a telephone conversation with Mr. Walsh on July 1,

2000, that Mr. Walsh taped without Tiller’s knowledge. In that call, Tiller made it

clear that he had told Mr. Walsh three years previously, that Walsh did not receive

net cost pricing from TRA. The transcribed conversation included this exchange:

RT

Well, if you stop and think about it, how would he – how could an outfit geared up to

service hundreds of customers like TRA ever ever in a dogs ages be able to come up with

a system that would treat you any different than all the others.

DW

RT

Yeah

And manage it properly, so you know in your own heart and soul you weren’t getting it.

DW

RT

Yes.

Sure, I told – now don’t get me wrong now, but I told you this three years ago,

remember?

DW

RT

DW

RT

DW

RT

Yes.

That you weren’t getting it.

Yes.

Not invoice cost – not TRA cost.

Not TRA’s cost.

TRA’s net/net cost.

[266] The timing of the exchange was the subject of examination, cross-

examination, and re-direct at Trial. Mr. Walsh had suggested that the references to

“three years ago” was really “three months ago.” However, Tiller was explicit that

the call occurred three years prior to the date of the telephone discussion. In re-

direct, he testified:

Q. Is when the conversation might have occurred, whether it was three months ago

or you seemed to suggest at Discovery it was three months ago?

A. No, it was three years.

Q. It was three years?

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A. Yeah.

Q. Okay. Okay.

A. You know, and he couldn’t get it. They weren’t going to give him cost.

Q. That was your --

A. On a retail program.

[267] On further inquiry from me, Tiller confirmed it was three years ago from the

date of the July 2000 call, and not three months. Such cogent viva voce evidence is

what I had the benefit of hearing and assessing that McGrath J did not in the

Summary Trial.

Mr. Walsh’s Examination on Lunch Meetings in 1998

[268] There is additional evidence from 1998 that indicates Mr. Walsh had material

knowledge of grounds necessary to commence the action.

[269] Mr. Walsh and Mrs. Walsh had a lunch meeting at the Albatross Hotel in

Gander on September 29, 1998 following attendance at a wake with Green, Pat

O’Keefe of TRA, and others. Mr. Walsh confirmed on cross-examination that, at

this lunch, Green stated that Foodland was not the same anymore because the CEO

of Sobeys, Doug Stewart, was not sharing as much of the deals anymore. Mr. Walsh

confirmed he later told O’Keefe (in a telephone call Walsh taped) that if Green had

not made those comments, he would not have gotten wise to some issues.

[270] Mr. Walsh discussed the Albatross Hotel lunch comments with TRA’s head

buyer, Brian Forristall on October 12, 2002. The transcript of the call was entered

as an exhibit through Mr. Walsh. Mr. Walsh is recorded as saying: “Now, I knew

the difference then, right, because I was after finding. Sure he (Green) never passed

the deals on.” Mr. Walsh stated at Trial, in this conversation with Forristall, he was

pretending he knew more than he did. I find Mr. Walsh’s perception of his memory

from that call is misinformed.

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[271] In a lunch with Green and O’Keefe at the Avalon Mall on October 28, 1998,

Walsh said Green expressed he was “really upset” that TRA and Sobeys would not

let Foodlands make money anymore.

[272] Mr. Walsh confirmed that by December 1998 he was aware of the 1984

Sobeys Supply Agreement and that By-cheques were not to be passed along.

[273] Mr. Walsh therefore knew by December 1998 that the Walshes’ Corporations

were not receiving all the deals in the same manner as Sobeys, but he was working

to “complete the puzzle.” The legal requirement for commencement of the action is

not completion of the puzzle. Mr. Walsh had the ‘pieces of the puzzle’ or so-called

material facts he needed to frame the action. Completion of the puzzle can wait for

the tendering of the evidentiary pieces to prove the elements of the causes of action.

January 29, 1999 Meeting with Counsel and Bill Moulton

[274] If I am wrong about the requisite knowledge Mr. Walsh had acquired by

December 1998, he most certainly had sufficient knowledge for discoverability on

January 29, 1999.

[275] Mr. Walsh tracked down Bill Moulton, who was with Newfoundland

Margarine and Red Rose Tea, and had him come to his house for a meeting on

January 29, 1999. Mr. Walsh’s purpose was to learn how the supply of goods from

the manufacturer to the wholesaler worked, and in particular, to learn about the

costing of goods. Mr. Walsh’s lawyer at the time, Gerry O’Brien, Q.C., who

ultimately issued the Statement of Claim, attended that meeting. Asked about why

O’Brien was present, Mr. Walsh testified:

Q. And you wanted Mr. O’Brien to attend because you wanted Moulton to tell

both of you how the suppliers provide money to the wholesalers?

A. How suppliers provided money?

Q. Yeah.

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A. I wanted to know about the costing and how it worked.

Q. Yeah.

A. And Mr. O’Brien was there for lunch as he was many times.

Q. Yeah.

A. With us.

Q. But you wanted Mr. O’Brien to hear what Mr. Moulton had to say, correct?

A. Mr. O’Brien was a friend besides a lawyer and, sure, I was, I never denied the

fact that I was suspicious in 1998. …

[276] In that discussion, Moulton related to Mr. Walsh numerous aspects of trade

deals that were available to wholesalers in the marketplace. Moulton made notes of

the meeting and gave them to Mr. Walsh. The notes speak to the amount of product

bought on deal, what would show up on an invoice and how “hidden dollars” are

dealt with. Mr. Walsh testified under cross-examination by Seviour, Q.C. as to

Moulton’s information as follows:

Q.

And by the last part of 1998, it’s fair to say that you were feeling there was

something not right about all of this?

A.

Q.

That’s right.

And when you say something was wrong, you mean something was

wrong with the pricing, which TRA had provided to your companies?

A. I don’t know if that was exactly what I had, but I just knew—I had a gut

feeling maybe, maybe since for a long, long time, but I could never put my finger

on it. And even up then, I couldn’t put my finger on it, but Joe was upset and I

didn’t know, I didn’t know how they were doing it, I didn’t know they were, they

were pricing us the same as Sobeys to fool us. I didn’t know that.

Q.

A.

But when you say that you thought –

Mr. Seviour, that was proven when we met with Bill Moulton. I mean, I

said there’s no hidden dollars with Sobeys. I said, we got exactly the same prices

as Sobeys. I mean, this was put together pretty slick. I mean, you want to have an

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awful lot of wholesale experience to be able to tie to on a cover what they were

doing. (emphasis added)

Fraudulent Concealment Doctrine Has No Application

[277] The Walshes rely on the doctrine of fraudulent concealment. I question the

residual necessity of this equitable doctrine in light of the now well-established legal

requirements to engage the discoverability principle. Nevertheless, since the

Walshes seek reliance on the doctrine, I find it is of no assistance to them.

[278] The doctrine allows for the postponement of a limitation period, in the context

of the Defendants’ deliberate concealment of material facts that would have

prevented the Walshes from reasonably knowing they had a cause of action : Bauer

v. Erben, 2007 NBQR 299, at para. 111. It would indeed be unjust to permit the

Defendants to benefit from their ability to conceal matters long enough to fall within

the limitation period.

[279] I have determined that the Defendants did not conceal the material facts that

would trigger the running of the limitation period from the Walshes. When

Mr. Walsh confronted Green and Tiller, they revealed to him that he was not

receiving the alleged entitlements and what he believed TRA had promised the

Walshes.

[280] The relationship the Walshes built with Green over the years, through their

association with TRA and time thereafter, was unquestionably one of mutual

friendship and trust. , not knowing he was being taped, had the opportunity to

mislead and conceal the truth, but he never lied to or gave Mr. Walsh the ammunition

he was attempting to marshal against the Defendants.

[281] I am satisfied that Mr. Walsh knew or ,considering all the circumstances of

the matter, ought to have known he had a cause of action against the Defendants on

or before January 29, 1999.

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[282] The Walshes therefore discovered their claim more than two years before

commencing it on April 6, 2001. The Walshes’ claims for negligence, negligent

misrepresentation, and personal losses for fraudulent misrepresentation are all

statute-barred by s. 5(a) and (b) of the Limitations Act. The only claim not time-

barred (but dismissed for no liability) is for economic losses arising from fraudulent

misrepresentation governed by s. 6(c) of the Limitations Act.

3. Are the claims for losses to the Walshes’ Corporations precluded by the

common law rule in Foss v. Harbottle, and if so, can this be considered

“too flagrantly opposed to justice”?

[283] Even if I had found TRA made the misrepresentations alleged, the application

of Foss v. Harbottle and the settled law would not allow the Walshes to recover

damages for sale of their shares in their Corporations.

Sale of Shares in Bay Bull Store

[284] The evidence establishes the following:

(a) The Walshes were the shareholders of Davlen Holdings, which in turn held

all of the shares of Walsh’s Foodland that operated the Bay Bulls store.

(b) When faced with the prospect of TRA opening an additional Foodland store

on the Southern Shore in 1994, the Walshes decided to leave the Foodland

Program and to deal with another grocery supplier – Lewisporte

Wholesalers/IGA.

(c) The deal with IGA collapsed because IGA sought control over the Bay Bulls

store, which David Walsh was unprepared to relinquish.

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(d)When the deal with IGA collapsed, the Walshes agreed to sell their shares in

Davlen Holdings to Sobey’s Land Holdings Limited, and their house at Bay

Bulls to TRA. This sale occurred on February 10, 1995. The price paid for

the Walshes’ shares in [Davlen Holdings] was structured on a tax-efficient

basis to be $1.625 million.

[285] The price included $125,000 that was attributable to the sale of the Walshes’

Bay Bulls house for $250,000.

[286] Davlen Holdings and Walsh’s Foodland Limited were dissolved effective

May 1, 1998.

Sale of Shares Respecting Merrymeeting Road Store

[287] The Walshes were the shareholders in DLW Investments Ltd., which owned

and operated the Walsh’s Family Foods store at Merrymeeting Road, St. John’s.

[288] In 1996, the Walshes offered to sell their shares in the Merrymeeting Road

business to TRA and to Colemans. The offer states: “THIS SALE IS OUR

RETIREMENT PLAN.”

[289] TRA declined the Walshes’ offer.

[290] The Walshes agreed to sell their shares in DLW Investments to Colemans.

They entered into an Agreement for Sale of Shares among the Walshes, Colemans

and DLW Investments. The sale occurred on or about July 16, 1996, at an aggregate

consideration of $1,285,000, made up as follows:

a) $100,000 purchase price;

b) repayment of shareholder’s loans in the amount of $735,000;

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c) consulting fees in the aggregate of $450,000 under a seven-year Joint

Consulting Agreement.

[291] DLW Investments was dissolved on September 30, 1997.

Application of Foss v Harbottle

[292] The well-settled law is that:

(i) a shareholder cannot advance a cause of action in respect of a wrong to a

corporation. There must be an independent wrong done to the shareholder;

and,

(ii) a shareholder cannot recover damages which were sustained by a

corporation. A shareholder’s damage must be direct and independent from

the injury suffered by the corporation.

[293] The two prerequisites to an individual, personal claim by a shareholder were

most recently confirmed by the Supreme Court of Canada in Brunette v. Legault Joly

Thiffault, s.e.n.c.r.l., 2018 SCC 55. Justice Rowe (at para. 29) stated:

In Houle,¹this Court reaffirmed that shareholders cannot institute proceedings in

relation to faults committed by a third-party defendant against a corporation as the

right to do so belongs to the corporation itself: pp. 177-80. The Court recognized,

however, that in certain circumstances shareholders may possess their own right of

action against the same defendant: pp. 180-87. In such cases, the shareholders must

establish (1) that the defendant breached a distinct obligation owed to the

shareholders, and (2) that this breach resulted in a direct injury suffered by the

shareholders, independent from that suffered by the corporation: ibid., at pp. 182

and 186; see Biosyntech, [2016 QCCA 1923], at para. 30.

¹Banque nationale du Canada c. Houle, [1990] 3 S.C.R. 122

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[294] Brunette is confirmation of the common law rule, and is binding authority

notwithstanding the fact that Brunette was itself decided in the context of Quebec

civil law. I take particular note that Justice Rowe (as he then was) concurred in the

Court of Appeal reasons for the Reinstatement Decision.

[295] In this province, our Court of Appeal in NPV Management Ltd. v. Anthony,

2003 NLCA 41, recognized the two distinct prerequisites. The Court held that a

shareholder’s claim for loss of share value failed to satisfy either of the two

prerequisites, and noted (at para. 43) that: “Reduction in the value of shares falls

clearly within the ambit of a derivative action, and outside the scope of a personal

action.”

[296] The two prerequisite principles were applied consistently throughout this

litigation in the Reinstatement Decision and Whalen CJ’s 2015 Pleadings Decision.

Orsborn J at a much earlier stage in the proceedings applied the principle that a

corporate loss claim is not maintainable by individual shareholders.

[297] The Walshes are stuck with this Court’s prior finding that their claim for

losses resulting from having sold their shares at an artificially low price “are

damages suffered by the Corporations and not the Plaintiffs.” Issue estoppel

prevents the Walshes from re-litigating that same question decided previously in the

proceedings between the parties, when it was a final decision on the issue: Danyluk

v. Ainsworth Technologies Inc., 2001 SCC 44, at para. 25.

Piercing the Corporate Veil

[298] Whalen C J, in the 2015 Pleadings Decision, relied on the three authorities in

holding that the Court might have an equitable discretion to allow the Walshes to

pierce the corporate veils: (Kosmopoulos v. Constitution Insurance Co. of Canada,

[1987] 1 S.C.R. 2; 642947 Ontario Ltd. v. Fleischer (2001), 209 D.L.R. (4th) 182,

56 O.R. (3d) 417 (C.A.); and Salah v. Timothy’s Coffees of the World Iinc., 2010

ONCA 673). He held they had “a possible chance of success” in that a Judge of this

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Court could find that refusing to permit their claim for loss of share value would lead

to a result “too flagrantly opposed to justice.”

[299] Counsel for the Defendants submit that to the extent there may have ever been

a residual discretion of the type referred to by Whalen CJ, the law has since been

clarified to confirm that no such discretion exists.

[300] The decisions of the Ontario Court of Appeal in Yaiguaje v. Chevron

Corporation, 2018 ONCA 472, the Quebec Court of Appeal in Groupe d’action

d’investisseurs dans Biosyntech c Tsang, 2016 QCCA 1923; and, most importantly,

the Supreme Court of Canada in Brunette were all decided after Whalen CJ’s

decision. These cases, the Defendants point out, affirm that the Court does not have

a residual discretion to deviate from the two necessary conditions for the

advancement of a shareholder action.

[301] Three years after the 2015 Pleadings Decision, the Ontario Court of Appeal

in Chevron rejected the argument that the reference to the “too flagrantly opposed

to justice” passage from Kosmopoulos (at para. 12) conferred any equitable

discretion on the court to pierce the corporate veil in the circumstances of that case.

[302] In Chevron, the appellants (plaintiffs) were the indigenous peoples of the

Republic of Ecuador who had their traditional lands polluted from oil exploration

and extraction. They obtained a foreign judgment in the Ecuadorian courts against

a subsidiary of Chevron Corporation, and sought to execute the judgment against

Chevron Canada after unsuccessful attempts to do so against Chevron and its

subsidiaries in the United States. The court (at para. 8) called it a “tragic case” and

recognized the appellants’ “frustration in obtaining justice is understandable.”

[303] The appellants in Chevron urged the court to ignore the corporate separateness

of Chevron Corporation and Chevron Canada. They argued the courts have an

equitable ability to pierce the corporate veil whenever it appears just. The court

concluded that is not the law in Ontario, and stated (at para. 10) that the appellants

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provided “no principled basis for piercing the corporate veil other than the assertion

that we should do so in the interests of justice.”

[304] It must be noted, however, the court in Chevron acknowledged (at para. 79)

that the equities of the case were far from clear. The United States courts had found

the Ecuadorian judgment against Chevron Corporation was the result of “massive”

fraudulent behavior by counsel for the appellants in the Ecuadorian proceedings.

[305] Also, after the 2015 Pleadings Decision, the Quebec Court of Appeal, in

Biosyntech, rejected a proposed class action that would have had a group of

shareholders bring an action after they lost the value of their shares. The

shareholders alleged the directors of the corporation committed a number of faults

that led to the corporation’s bankruptcy and asset sale. It appears from my reading

of the case that among the four pleaded faults (at para. 12) there was no specific

allegation of fraud on the part of the directors.

[306] In speaking to the distinction between a corporation and its shareholders, the

court in Biosyntech noted (at para. 24) that “[s]uch distinction, at least in the

corporate context, is hardly exclusive to Quebec civil law. The principle is known

in Common Law jurisdictions as the rule in Foss v. Harbottle.”

[307] Biosyntech referred (at para. 29) with approval to our Court of Appeal’s

decision in NPV as authority for the principle that a shareholder cannot bring an

action for loss of share value.

[308] Moreover, I am bound by the 2018 Supreme Court of Canada’s decision in

Brunette. It considered a claim of the two individual plaintiffs that were trustees of

a company called Fiducie, which was the sole shareholder of a holding company,

9143-1304 Québec Inc. that itself controlled corporations comprising Groupe

Melior.

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[309] The plaintiffs in Brunette claimed that the defendants, a group of lawyers and

accountants, committed a number of professional faults in setting up the tax structure

of Groupe Melior and, in doing so, breached their duty to advise Fiducie. They

alleged that the tax structure set up by the defendants was not compliant with

legislation and that it exposed the corporations to unexpected tax liability. The faults

they alleged led to the bankruptcy of most of the Groupe Melior corporations, the

bankruptcy of the holding company, and the total loss of value of Fiducie’s assets.

[310] Again, I observe there was no pleaded claim in fraud or fraudulent

misrepresentation. While Groupe Melior’s vice-president had committed fraud

worth $1.8 million against the corporations, the plaintiffs did not plead fraud or

fraudulent misrepresentation against the named defendants.

[311] Justice Rowe in Brunette, with specific reference to Houle and to

Kosmopolous, expressly dispelled any suggestion that there is a residual discretion

allowing plaintiffs to pierce the corporate veil they created in order to recover

corporate losses. He stated, (at para. 27) “just as shareholders cannot be liable for

faults committed by the corporation, so too are they barred from seeking damages

committed against it.” He noted (at para. 30): “Houle did not create an exception to

the general rule barring shareholders from recovering damages in relation to faults

committed against the corporation.”

[312] There is considerable merit to the Defendants’ submission that subsequent

case law leaves no residual discretion to depart from the two necessary conditions

for the advancement of a shareholder action. In light of my conclusion below that

the Walshes have not established the first prerequisite, an independent actionable

wrong, it is unnecessary for me to make a broader pronouncement on the law. I

confine my ruling to the narrow issues left for trial determination by the Court of

Appeal Reinstatement Decision and the 2015 Pleadings Decision.

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ONCA Decisions in Midland Resources and Tran v. Bloorston

[313] Dicks, Q.C. attempted to meet the Foss v. Harbottle argument of the

defendants by focusing in oral submissions on two Ontario Court of Appeal

authorities: Midland Resources Holding Ltd. v. Shtaif and Tran v. Bloorston Farms

Ltd., 2020 ONCA 440. These authorities do not aid the Walshes in their claims.

[314] Midland Resources involved claims for fraudulent misrepresentation and

conspiracy. The parties were shareholders in two successive corporate ventures to

develop small oil and gas fields in Russia. The first venture was through Magellan

Energy Limited. It became apparent Magellan was not the legitimate public

company some of the shareholders had thought it was. It turned out to be a sham

public corporation promoted by two of the defendants. The shareholders reorganized

their venture using a new company, Koll Resources Limited, to continue it.

[315] The court in Midland Resources characterized the claims (at para. 116) as

personal in nature, seeking damages for tortious harm directly caused to the plaintiff

shareholders. The plaintiffs alleged the individual defendants engaged in deceit and

conspiracies to induce them to part with their money and invest in Magellan and

Koll. The court concluded (at para. 117) the rule in Foss v. Harbottle does not

preclude a shareholder from maintaining a claim for harm done directly to it.

[316] The appellate court held there was no error in the trial judge’s findings on the

“unusual facts” of this case that Midland, the shareholder, did suffer a direct injury

or loss by the defendants’ fraudulent conduct. The defendants’ conduct caused

Midland to invest monies in Magellan. Midland claimed for the loss of that

investment. The court said (at para 119): “That distinguishes the present case from

the typical ‘indirect loss’ case in which a shareholder seeks to recover the loss of

share value because the manner of operations of the corporation depressed the

market price for its stock.”

[317] The Walshes are seeking loss of share value because the alleged

misrepresentations of the Defendants affected the operations of their Corporations

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and depressed the value of their shares. To hold such loss as “too flagrantly opposed

to justice” would require me to stretch the concept of justice to contortions not

recognizable by settled law, and without equitable factual grounds for doing so. If I

had found the Defendants made fraudulent representations and engaged in a

fraudulent concealment as alleged, the Walshes would perhaps be in a much better

and convincing position to support the position that refusing to permit their claim

for loss of share value would lead to a result “too flagrantly opposed to justice.”

[318] I cannot do justice to the parties by ignoring fundamental legal principles that

I am bound to apply.

[319] The more recent decision of the Ontario Court of Appeal, relied on by counsel

for the Walshes, in Tran simply confirms the limit of the rule in Foss v. Harbottle.

The court made clear (at para. 32):

… a wrong done to the corporation that results in diminished share value does

not ground a personal cause of action for the shareholder. The party with the

cause of action for the wrong is the corporation. The loss in share value is simply

reflective of the loss incurred by the corporation as a result of the wrong done to it,

and would be remedied if the corporation took action to recover its loss from the

wrongdoer.

[emphasis added]

[320] In Tran, the court found (at para. 3) the wrong was not done to the corporation,

but to the shareholder personally.

[321] The plaintiff was a tenant under the lease with the defendant, and only the

plaintiff had a cause of action for its wrongful termination. The plaintiff operated a

restaurant through an incorporated company in the leased premises. The lower court

found that the incorporated company had no cause of action against the defendant

because it was not the tenant under the lease. The restaurant closed when the

landlord locked the plaintiff tenant out. She sued to recover for the loss of the value

of her shares in the company operating the restaurant because her shares became

worthless.

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[322] Dicks, Q.C. relies particularly on this passage from Tran (at para. 65) and

argues this fits squarely with the Walshes’ claim:

When a shareholder sues because of a wrong done to her, and in the absence of a

wrong to the corporation that gives the corporation a cause of action, allowing the

shareholder's action for any properly recoverable damages respects the separate

legal identity of the corporation. The shareholder is pursuing her own cause of

action, not a cause of action that belongs to a separate legal person (the

corporation). Moreover, a claim for loss of share value is a claim for damage to the

shareholder's property (the shares), not a claim for anything that belongs to the

corporation. Shares in a corporation are property of the shareholder, not of the

corporation.

[323] The distinguishing aspect of the Walshes’ claim is that the alleged wrong was

to the Walshes’ Corporations. The plaintiff’s corporation in Tran had no cause of

action and could not bring the action.

[324] The reasoning in Tran (at para. 67) also addressed the second necessary

requirement permitting claims for loss of share value — the loss suffered must be

direct and independent from that suffered by the corporation. The circumstances in

Tran illustrated when a claim for diminution in share value is not simply a claim for

loss that is reflective of the loss suffered by the corporation. The claim for

diminution in share value resulted from a relationship with the wrongdoer that was

independent of any relationship the corporation had with the wrongdoer. Only the

plaintiff, and not the corporation, was in a contractual relationship with the

defendant.

[325] The court concluded (at para. 68): “Accordingly, the rule in Foss v. Harbottle

does not preclude a claim for diminution of share value when the shareholder has

her own cause of action because of a wrong done to her, and the corporation, which

suffered a loss but not because of a legal wrong done to it, has no cause of action.”

[326] Lastly, Tran acknowledged (at para. 37) “[w]hen the same or overlapping

facts constitute actionable wrongs against both the corporation and shareholder, a

shareholder’s claim for diminution in share value may or may not be permissible.”

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No Independent Wrong to the Walshes as Individuals

[327] What remains paramount is that the Walshes must establish an independent

wrong to them as individuals. They have failed to do so.

[328] The Walshes confuse and conflate obligations owed to their Corporations as

obligations owed to them in their personal capacities. They fail to appreciate the

distinct legal existence of the Corporations.

[329] The Walshes misapprehend the legal distinction between the Walshes as

individuals and their Corporations, and they misconstrue the nature of the

contractual relationship. In Paragraph 3 of the Closing Submissions, the Walshes

say that they (the Walshes) were promised net cost of products that would be

discounted with the full benefit of all supplier discounts, and that they (the Walshes)

were to pay such net cost plus an upcharge to TRA as Sobeys paid. They specifically

refer to this as the “Contract.” At paragraph 404, they incorrectly describe the

Contract as “the Plaintiffs’ contract with TRA/Sobeys in late 1983.”

[330] They cannot establish an independent wrong to them as individuals because

of these irrefutable facts:

i. There was no contractual relationship with the Walshes;

ii. The Walshes were never a Foodland affiliate;

iii. They, as individuals, had no entitlement to trade deals;

iv. Any benefits of the alleged contractual arrangement between TRA and the

Walshes’ Corporations would have been for the Corporations, not the

Walshes; and

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v. The Walshes did not purchase any goods from TRA or any of the

Defendants.

[331] All of the misrepresentations alleged concern the asserted rights of the

Corporations, not the Walshes personally. They are all representations as to what

the Corporations were expecting to receive.

[332] It is readily apparent from the Walshes’ Closing Submissions the struggle

their counsel had, after all of the tendered evidence, to point to any evidence that

established a separate duty of care owed to the Walshes as individuals. Their counsel

cannot be faulted for that — despite voluminous document product, years of

litigation, and a lengthy Trial — there is no evidence to prove the existence of the

pleaded claim of a “special relationship” or “personal relationship.”

[333] The action survived dismissal at the pleadings stage but cannot survive

dismissal after fulsome scrutiny of the evidence. The Walshes were fully entitled to

the Court’s assessment of their claims on the evidence tendered.

[334] The Walshes’ confusion about the distinction between duties owed to a

corporation and duties owed to shareholders is not uncommon in litigation involving

attempts to circumvent the rule in Foss v. Harbottle and to pierce of the corporate

veil.

[335] In Brunette, Rowe J, explained the confusion in obligations:

37 It is clear from the foregoing that the appellants confuse the obligations owed

by the respondents to the Groupe Melior corporations with those allegedly owed to

Fiducie and to Mr. Maynard. … The problem is that an obligation owed by the

respondents to Groupe Melior does not necessarily give rise to an independent

obligation owed to Fiducie.

39 It is, of course, true that injury to the corporations in Groupe Melior may have

consequences for those holding their shares. Fiducie is the sole shareholder of 9143-

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1304 Québec inc.; this corporation controlled in whole or in part, the corporations

of Groupe Melior. …

40

… a legal obligation owed to Fiducie [is] distinct from those owed to the

Groupe Melior.

[336] Similarly, in McGowan v. Bank of Nova Scotia, 2010 PESC 17, aff’d 2001

PECA 20²the plaintiffs were the sole shareholders of a farm machinery company

called McGowan Tractor. McGowan Tractor did its banking with the defendant

bank, where it had a line of credit. The plaintiffs alleged that the bank manager told

the plaintiffs that McGowan Tractor had 30 days to pay off its line of credit, and

continuously threatened them with enforcement proceedings.

[337] McGowan Tractor paid off its line of credit, but McGowan claimed he

suffered serious health problems brought on by the stress of operating the company

under the uncertain circumstances. McGowan Tractor’s financial circumstances

continued to decline, and the plaintiffs sold their shares for $1.00, and thus lost

almost all their equity.

[338] The plaintiffs blamed the company’s failure and their personal loss on the

actions of the bank. They asked the court “to lift the corporate veil of McGowan

Tractor” and to enable them to recover damages against the bank. They claimed the

bank breached its contract with McGowan Tractor and the plaintiffs, and further, the

bank owed a duty of care to the plaintiffs and breached that duty.

[339] Like the Walshes, the plaintiffs in McGowan sought to pierce the corporate

veil that they themselves had created, and argued the defendant owed them a separate

duty of care. The trial court and the appellate court dismissed their claims.

²Leave to appeal to the Supreme Court of Canada dismissed McGowan v Bank of Nova Scotia (2012), 1026 A.P.R.

358 (note), 330 Nfld. & P.E.I.R. 358 (note) (SCC).

Page 80

[340] The Court of Appeal in McGowan held that the defendant Bank did not owe

the shareholders a duty of care because the relationship at issue was with the

company, not the shareholders. McQuaid JA stated (at para. 42), “[i]t would be

unjust and unfair to impose upon the [bank] a duty of care to the shareholders of the

company with respect to actions which [the bank] took against the company and not

the [McGowans] personally.”

[341] McQuaid JA furthermore explained (at para. 43) even if there was proximity

of relationship to make it foreseeable on the part of the bank that if it caused harm

to McGowan Tractor it would result in harm to the McGowans as shareholders,

policy reasons would nevertheless negate the duty of care. To impose a duty of care

otherwise would necessarily pierce the corporate veil and violate the long-standing

rule at common law.

Other Authorities Relied on by the Walshes

[342] The Defendants in their Post-trial Brief distinguish the case law authorities

that the Walshes put forward in their Trial Brief to support the assertion that a duty

of care was owed to them in their personal capacities. I accept the Defendant’s

position that the cases demonstrate the inappropriate conflation of duties that are

asserted to be owed to the Walshes as individuals, when they could only have been

owed to their Corporations.

[343] The Walshes refer to 3Com Corp. v. Zorin International Corp., 2006

CarswellOnt 3333, 148 A.C.W.S. (3d) 819 (C.A.), as a persuasive authority and

applicable to the facts of this action. The plaintiffs were the corporations that had

received the misrepresentations (not the shareholders), and it was the corporations

(not the shareholders) that were awarded damages. All that can be said about 3Com

is that it was a negligent misrepresentation action regarding deals, but it does nothing

to advance the Walshes’ causes of action and does not, in any way, advance their

argument that a special duty was owed to them in their personal capacity.

Page 81

[344] The Walshes refer extensively to Catalyst Pulp and Paper Sales Inc. v.

Universal Paper Export Co, 2008 BCSC 515, as a persuasive precedent that there is

a duty of disclosure in contracts.

[345] The issue in the present action is not whether there is a duty as between

contracting parties. The issue is whether a duty is owed to shareholders of a

corporation that has allegedly entered into a contract.

[346] Catalyst Pulp is not on point and is of no assistance to the Walshes’ action.

As with 3Com, the plaintiff in Catalyst Pulp was the corporation that had received

the misrepresentations (not the shareholders) and it was the corporation (not the

shareholders) that was awarded damages.

[347] The Walshes rely on Streamside Engineering & Development Ltd. v.

Canadian Imperial Bank of Commerce, [1990] Nfld. & P.E.I.R. 220, 266 A.P.R. 220

(N.L.S.C.(T.D.)) and state in their Trial Brief that liability was established because

the bank made no effort “to develop an accurate understanding of the principal

shareholder of the plaintiff company.” This case too supports the Defendants’

position that any duty of care was owed to the Corporations, and that the Defendants

were dealing with the Walshes in their capacity as representatives of those

Corporations.

[348] In Streamside at paragraph 4, the court noted under the heading Issues, “The

gist of Streamside’s claim, is an allegation of negligent misrepresentation by the

Bank, following a specific request, made by Streamside in the normal course of

business.” The plaintiff in that case was the corporation. The rule in Foss v.

Harbottle was not engaged.

[349] The Walshes also refer to Cuscuna c. Ferrarelli, 2017 QCCS 2475, a decision

of the Quebec Superior Court that invoked the court’s jurisdiction pursuant to

statutory oppression remedies to resolve a shareholder dispute. The plaintiff

shareholder successfully alleged that the other shareholder had acted

inappropriately, thereby diluting the value of her shares. The court found that this

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was a direct loss. There is no support in Cuscuna to allow a plaintiff shareholder to

advance a claim of the corporation and recover corporate losses.

[350] Based on my review of all the presented authorities and evidence before the

Court, the Walshes have not established (i) an independent and separate wrong to

them personally as shareholders, and (ii) the claims for loss of share value are

damages sustained by the Corporations and not a direct loss to them as shareholders.

The common law rule in Foss v. Harbottle precludes their claims, and denying the

claims cannot be considered “too flagrantly opposed to justice.”

4. Did the Walshes otherwise sustain any direct personal losses for which

they can recover damages?

[351] Even if the Walshes could establish some basis for legal liability, they did not

sustain any direct personal losses entitling them to recover damages.

[352] The other pleaded damages consist of general damages for “loss of the ability

to work in the food retail industry,” “loss of reputation,” “mental anguish,” and a

special damages claim for “loss of income.”

[353] The Defendants note in their Post-Trial Brief that these claimed losses were

not at issue before Whalen CJ. However, the 2015 Pleadings Decision reflects (at

para. 1) that the claim for “loss of income” was considered as a claim for special

damages.

[354] At paragraph 39, Whalen CJ wrote, “[t]he Plaintiffs cannot, however, show

that the claim for ‘losses resulting from having sold their shares at an artificially low

price and loss of income’ is based upon a loss separate from their Corporations’

losses.” He stated, “it is clear that the losses, then, are really those of the

Corporations.” [emphasis added]

Page 83

Derivative Claims Not Recoverable

[355] Whether the claim for loss of income is a loss to the Corporations, as the 2015

Pleadings Decision found, the loss of income claim and the claims for general

damages are nevertheless derivative claims that are not recoverable.

[356] Losses that are connected to a loss sustained by a company are derivative

claims and not recoverable by individual shareholders. Rogers v. Bank of Montreal

(1985), 30 B.L.R. 41, 64 B.C.L.R. 63 (S.C.)³is the leading case on this point.

[357] In Rogers, the plaintiffs were shareholders of a company called Abacus. They

alleged that the defendants conspired to harm them personally as a result of the

defendants demanding that Abacus immediately repay a loan contemporaneous with

the appointment of a receiver, which drove Abacus into bankruptcy and caused

personal loss of their substantial share value. Damages claimed included (at para.

27 :

Loss of salary and position as an employee; Damages to business reputation; and

damages to livelihood as a result; Loss of dividends that arise from shares; Loss of

joint control; Loss of costs; Losses and costs resulting from legal actions

commenced by others as a result of the demise of Abacus.

[358] Regardless of whether a duty of care might have been owed to the individual

plaintiffs, the court in Rogers instead recognized that all of the alleged wrongful

conduct could only have been directed at the company itself. Upon recognition of

the nature of the alleged wrongdoing, it did not matter if a duty was owed to the

shareholders.

[359] The court in Rogers had the same struggle I am having in identifying the

activities that the Defendants directed against the Walshes personally as opposed to

³Upheld on Appeal, Rogers v. Bank of Montreal, [1987] 2 W.W.R. 364, 9 B.C.L.R. (2d) 190 (C.A.).

Page 84

their Corporations. The trial judge noted (at para. 49), “I strove on more than one

occasion to discover from plaintiffs’ counsel what the activities were that the

defendants directed against the plaintiffs personally as opposed to activities directed

against the company.” He concluded (at para. 113), “All hurt to the plaintiffs was

derived from the hurt to Abacus, or consequent upon it.”

[360] All of the claimed damages for personal losses flow from the alleged

wrongdoing against the Walshes’ Corporations, and would not have been sustained

but for the alleged harm inflicted to the Corporations.

Claim for Mental Anguish

[361] The Walshes’ claim for mental anguish, which is focused on Mr. Walsh, is

also unavailable.

[362] The Walshes did not tender any medical evidence at Trial to establish any

diagnosis, the severity of the symptoms, the causal connection, or the treatment

necessary.

[363] There was a limited amount of medical evidence entered at Trial solely for the

purpose of a memory aid. In discussing the basis of their admission during Trial, I

specifically ruled the records could be used as an aid for memory in the examination

of Mr. Walsh but not for truth of their contents.

[364] The Walshes’ Closing Submissions include various references to Mr. Walsh’s

medical records. To the extent that they are referenced for medical opinions, those

references are improper given the basis of the admission of those records.

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[365] Furthermore, damages for mental anguish consequent upon the litigation

process, as opposed to being allegedly caused by the wrong itself, are not

recoverable.

[366] In Scotia Mortgage Corp. v. Lockhart, 2011 CarswellOnt 15667, [2012] O.J.

No. 1143 (Sup. Ct. J.)⁴, the Ontario Superior Court of Justice, citing another case

from that court, held: “stress relating to participation in litigation is not

compensable.”

[367] Any mental anguish sustained by the Walshes was a consequence of the

litigation. Prior to his Discovery by Defendants’ counsel in January of 2005,

Mr. Walsh was not under medication. He had a serious mental episode following

the discovery process, over his concern and fear of having forgotten or mixed up

dates. He required both hospitalization and medication. His reaction to the stress

was not a consequence of the wrongs alleged.

[368] During his direct-examination, Mr. Walsh was asked whether he had “any

psychological problems in 2005,” to which Mr. Walsh responded that he had

significant stress following his Discovery as he thought that he “did an awful job.”

[369] Mrs. Walsh was also asked to speak to the effect of the litigation on

Mr. Walsh, and she confirmed he was upset after the Discovery, that he could not

sleep and went to see his doctor. She stated, “[h]e thought he had perjured himself

that he had said a wrong date or something.”

[370] I have no doubt that this litigation has taken a serious toll on both Mr. Walsh

and Mrs. Walsh. I observed the physical and mental strain on them as they gave

their testimony in always a polite and courtesy manner. We had to take breaks (at

times when Mr. Walsh just wanted to keep going) during Mr. Walsh’s seven days of

4

Affirmed Scotia Mortgage Corp. v. Lockhart, 2012 ONCA 158, leave to appeal denied, (2012) 303 O.A.C. 400

(note), 440 N.R. 394 (note).

Page 86

testimony, so he could take a short walk and monitor his blood sugar levels.

Mrs. Walsh came to the Trial most days, except on days when their son was in

hospital and needed care.

Corporations Act Remedies Not Availed of by the Walshes

[371] The Defendants submit that the Walshes could have pursued, but did not

pursue, their Corporations’ claims by way of a derivative action under the

Corporations Act, R.S.N.L. 1990, c. C-36. They point to particular provisions of the

Corporations Act, including sections 333(1), 331(4), 369(1), and 370(c).

[372] The Walshes did not go the route of a statutory derivative action. A derivative

action claim is not before the Court. I made no comment on whether that was the

proper procedure for the Walshes to have followed for adjudication on the substance

of their claims.

[373] For the foregoing reasons, the Walshes did not sustain any direct personal

losses for which they can recover damages.

5. What, if any, damages can the Walshes establish through the admissible

expert evidence for alleged losses resulting from having sold their shares

at an artificially low price?

[374] The admissible expert evidence establishes the Walshes cannot prove they

sustained damages resulting from the sale of their shares in the Corporations.

[375] The loss the Walshes claim is the difference between what the shares in each

of the Walshes’ Corporations would have been worth if each Corporation had

received the deals to which they were allegedly entitled and the actual sale price of

the shares.

Page 87

Admissibility of Expert Opinion of Ashley Power-Stack for the Walshes

[376] Ashley Power-Stack is a Chartered Professional Accountant and a Chartered

Business Valuator. The Walshes tendered Power-Stack as an expert in business

valuations and share valuations.

[377] Power-Stack opined that the total loss of sale proceeds to the Walshes was

$1,715,000, consisting of $300,000 for Bay Bulls and $1,415,000 for Merrymeeting

Road. Her calculation of value for Bay Bulls was $1,800,000 and Merrymeeting

$2,225,000 less the sale proceeds the Walshes received. Power-Stack averaged the

values calculated for the Gross Margin Analysis and the Allowance Analysis to

arrive at her opinion on the total loss.

[378] The Defendants did not challenge the technical expertise of Power-Stack, but

objected to the admissibility of her report dated December 13, 2019, on the basis

that the opinion was not impartial, independent, or free of bias, which are additional

prerequisites to the qualification of an expert.

The Guiding Authorities on Expert Opinion Evidence

[379] The Defendants relied on case law holding expert opinion inadmissible where

an expert adopted a position requested of them so as to reflect the parties’ views, or

where the expert did not have the time to properly test what was asked of them:

Martin Marietta Materials Canada Ltd. v. Beaver Marine Ltd., 2016 NSSC 225, at

paras. 95–96; and Piccolo v. Piccolo, 2014 ONSC 5280 at para. 13.

[380] The Defendants say this is exactly what Power-Stack did when, at the request

of counsel, she adopted the Allowance Analysis to reflect Mr. Walsh’s “way of

thinking” without considering the implications of the approach requested of her.

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[381] The Supreme Court of Canada in White Burgess held that, at the first step for

the qualification of an expert, the proponent must establish the threshold

requirements of admissibility, which are (1) relevance, (2) necessity, (3) absence of

an exclusionary rule, and (4) a properly qualified expert: White Burgess Langille

Inman v. Abbott and Haliburton Co., 2015 SCC 23, at para. 23.

[382] The expert witness’s duty is to the court and underlying that duty are the three

related concepts of impartiality, independence, and absence of bias. The court

explained (at para. 32):

The expert’s opinion must be impartial in the sense that it reflects an objective

assessment of the questions at hand. It must be independent in the sense that it is

the product of the expert’s independent judgment, uninfluenced by who has

retained him or her or the outcome of the litigation. It must be unbiased in the sense

that it does not unfairly favour one party’s position over another. The acid test is

whether the expert’s opinion would not change regardless of which party retained

him or her: …

[383] Cromwell J, in an opinion concurred by all judges who heard the appeal in

White Burgess, spoke (at para. 34) about the Court’s “gatekeeping role” when

considering admissibility of the expert opinion. He noted:

… a proposed expert’s independence and impartiality goes to admissibility and not

simply to weight and there is a threshold admissibility requirement in relation to

this duty. Once that threshold is met, remaining concerns about the expert’s

compliance with his or her duty should be considered as part of the overall cost-

benefit analysis which the judge conducts to carry out his or her gatekeeping role.

Power-Stack’s Engagement as an Expert

[384] The timing and details of Power-Stack’s retention are material to the

admissibility analysis.

[385] On September 10, 2019, the Walshes’ counsel sent Power-Stack various

documentation concerning her engagement to prepare an expert report.

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[386] On October 18, 2019, Power-Stack sent Walshes’ counsel the retainer

agreement concerning the retention of Power-Stack’s firm to provide business

valuation services by providing a calculation of the losses incurred by the Walshes,

relating to the supply of products to two supermarkets previously owned and

operated by the Walshes.

[387] From Case Management of the proceedings, the Walshes’ expert report was

initially to be provided to Defendants’ counsel by November 27, 2019. This

deadline was extended, with the agreement of Defendants’ counsel and with notice

to the Court, to December 11, 2019.

[388] On December 11, 2019, Walshes’ counsel emailed Defendants’ counsel

stating, “[a]ttached please find the expert report in this cause.” The attached report

of Power-Stack dated December 11, 2019, was styled as “Draft Expert Report” and

the top of each subsequent page contained the wording, “Draft – For Discussion

Purposes Only.”

[389] The December 11, 2019 Report exclusively adopted an approach referred to

as the “Gross Margin Approach.” Conceptually, the Gross Margin Approach

attempted to value the Walshes’ Corporations after internally adjusting the gross

margins of the Walshes’ Corporations to be equal to the average gross margin of the

Sobeys stores as reflected in the SDAs. The December 11, 2019 Report opined that

there was no loss associated with the Bay Bulls store and a loss of $1,165,000

associated with the Merrymeeting Road Store.

[390] On December 12, 2019, the day after the Walshes’ expert report was required

to be provided to the Defendants and the day after the Walshes had provided the

Defendants with the December 11, 2019 Report as being their “expert report in this

cause,” Walshes’ counsel, Dicks, Q.C. emailed Power-Stack to inquire and ask:

I was wondering about the following two issues:

Were you able to discern what is included in allowances on the SDAs? Did it

include “off invoice” reductions (which are given at the time of purchase) or did it

Page 90

also include rebates (which include what are sometimes referred to as “by cheque”

amounts) and other refunds which were given after the purchase?

If you were to assume that the total amounts included in the allowances in the

Sobey’s SDA’s were not amounts received by the Walshes, how would this affect

your valuations for the two stores? What would your valuations be in this scenario?

[391] The next day, Power-Stack delivered her “Calculation of Loss Report” dated

December 13, 2019, which she described in her testimony as her only final report.

[392] Power-Stack’s Calculation of Loss Report of December 13, 2019 fully

incorporates the Gross Margin Approach as originally contained in the earlier

Report, but also includes the alternate approach as asked of her by legal counsel,

referred to as the “Allowance Analysis.” The adoption of the Allowance Analysis

serves to significantly increase Power-Stack’s opinion of the loss.

[393] In cross-examination, the Defendants’ expert Susan Glass confirmed she has

prepared reports on scenarios suggested by clients which, in most cases, forms the

basis of an expert’s instructions and report. She also confirmed that draft reports are

usually circulated and discussed with clients before being finalized. The CBV

Practice Standards, No. 320 (at para. 1) allows for the provision of draft reports for

comment by the client.

Trial Ruling on Threshold Qualification of Power-Stack

[394] Co-counsel for the Defendants, Mr. Dale vigorously challenged and cross-

examined Power-Stack at the qualification stage of her testimony. He pressed her

on the adoption and inclusion of the Allowance Analysis in her Report at the explicit

request of Dicks, Q.C.. With detailed specificity, he questioned Stack-Power on the

Code of Ethics of The Canadian Institute of Chartered Business Valuators (“CBV

Institute”) and CBV Institute Practice Standards, No. 310, 320 and 330.

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[395] In an oral decision during the course of Power-Stack’s examination on her

qualifications, I determined that the cross-examination at the qualification stage was

extending beyond what was contemplated by the applicable legal authorities. I

qualified Power-Stack for the purpose she was tendered as an expert witness and

allowed Dicks, Q.C. to continue with his direct examination and have Power-Stack

speak to her Calculation of Loss Report. I ruled that the admissibility of her Report

would be left for my determination at the end of the Trial.

[396] In my oral ruling, I relied on and noted White Burgess clearly states (at

para. 49) once the expert testifies as to the duty to the curt of independence and

impartiality, the threshold qualification requirement “is not particularly onerous and

it will likely be quite rare that a proposed expert’s evidence would be ruled

inadmissible for failing to meet it.” My concern was a Trial management issue and

how the voir dire admissibility hearing was becoming much longer than necessary,

and the fairness to the witness and the Walshes in having the expert evidence

excluded without Power-Stack even having the opportunity to explain and speak to

it under direct examination.

[397] I advised how my ruling may be different if this had been a jury trial. I had

much earlier in the proceedings denied the Walshes’ Applications for a jury trial:

(Walsh v. TRA Company Limited, 2019 NLSC 131). To now turn around and deny

the Walshes the opportunity to present their expert opinion evidence for my

consideration on admissibility at the end of the Trial would be quite unfair to them.

My ruling did not prevent Mr. Dale from coming back to his cross-examination in a

robust manner on the gatekeeping factors of impartiality and reliability before

Power-Stack’s opinion evidence can be admitted.

[398] I concluded, as part of my ruling on the threshold qualification hearing, as

follows:

I maintain a gatekeeping position with respect to this particular evidence even

though I am qualifying – I’m prepared to qualify the witness at this stage and allow

her to testify in respect to the opinion that she has given. I’m qualifying her in what

was asked to be qualified on is to give opinion evidence in business evaluations and

in particular, share evaluations …

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[I]t is only a timing issue as to making the determination at this stage and allowing

the witness simply to get over the qualification stage and then the Defendants will

be permitted to come back to the cross-examination. I will when I render my

decision in this matter, have to consider that cross-examination and I can still, at

the gatekeeping exclusionary stage rule [on admissibility of the Report].

[399] After full consideration of the Power-Stack Report, the direct and cross-

examinations of Power-Stack, the benefit of the Glass Report and her testimony, the

guiding legal authorities, and the submissions of counsel, I am ruling the Power-

Stack opinion on the loss to be unreliable and inadmissible. I will conduct an

analysis of her Report and opinion to show why I cannot rely on it, and why I accept

Glass’s material criticisms of it and the Glass opinion on the loss.

[400] My foremost concern is that Power-Stack’s use of Allowance Analysis

unfairly favors the Walshes’ quantification of the loss. The Allowance Analysis is

based on the assumption that the total amounts in Incremental Supplier Funding (‘all

the deals’) were not passed on to the Walshes’ Corporations. The evidence

established the assumption to be erroneous, as I have found substantial deals were

passed on in the form of price support to the Corporations. That is not to say, all the

deals were passed on but simply that the Corporations received the benefit of

significant price support at the product level through the Incremental Supplier

Funding or the “inside monies.”

[401] The inadmissibility of Power-Stack’s opinion is not in any way discrediting

Power-Stack’s professional integrity and impressiveness as an expert witness.

Although challenged for failing to comply with professional standards, which I find

she did not offend in the preparation of her Report, she calmly and astutely explained

technical accounting and business valuation principles and conceded the inherent

assumption in the Allowance Approach was that the deals were not passed on.

[402] Power-Stack specifically recognized a limitation in the scope of review of her

opinion. She stated in her Report (at para .22):

Since the pertinent time period dates back thirty-five years and certain information

was not produced during litigation or could not be provided, we must identify a

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limitation in the scope of our review. Assumptions were made in preparing this

report and are noted herein which we may have assumed differently if other

information has been made available. [emphasis added]

[403] Appendix C of the Report lists the information reviewed and relied upon. She

was not provided with any Pre-trial Discovery evidence or Answers to

Interrogatories. She would not have had the benefit of Pre-trial or Trial testimony

to verify her assumptions.

[404] Dicks, Q.C. did nothing inappropriate in asking her to make an assumption

that the amounts under Allowances in the SDAs were not passed on to the Walshes.

That is the position the Walshes advanced throughout this litigation, and quite

frankly, they were entitled to have the Court assess the evidence and merits of their

position. The Defendants’ Statement of Defence pleaded the Walshes’ Corporations

received “all of the deals … to which they were entitled.” It was not readily apparent

from either the pleadings or the Defendants’ document production that the Walshes’

Corporations received the benefit of all deals. Rather it was the evidence of Vokey,

through Pre-trial Answers to Interrogatories and his evidence at Trial, and

corroborated by others, that I was able to conclude substantial price support was

provided.

[405] Having considered the extensive evidence tendered by the Defendants on

price supports provided to the Walshes’ Corporations, I find the Walshes’ position

lacking in merit and cannot accept the foundational assumption of the Allowance

Analysis opinion.

Cross-examination of Power-Stack on her Analysis Approaches

[406] Power-Stack acknowledged in cross-examination that (1) any netting down

would show up in the gross margins of the Walshes’ Corporations, and (2) an

allowance line in the SDAs does not mean the Walshes did not receive the benefit

of those allowances. Power-Stack recognized that the financial reporting of Sobeys

might be different than that of the Walshes’ Corporations.

Page 94

[407] This acknowledgment by Power-Stack is consistent with Vokey’s evidence

that the accounting for allowances separately in Sobeys’ SDAs reflects a different

way of doing the math than TRA did for the Walshes’ Corporations. Vokey testified:

How you got to the math is what’s different. Because we handed, “we” being TRA,

handed on the allowances in their cost of goods on the invoice. Foodland’s would

see a higher margin than a Sobeys store because a Sobeys store never handed on

their allowances they collected on their invoice. They were collected on a separate

line, hence, the allowance line.

[408] I am not convinced it was simply a way of doing the math differently. To

accept that proposition means I would have to believe ‘all the deals’ were passed on

to the Walshes’ Corporations. While I accept substantial amounts were passed on

the Walshes’ Corporations, I am not convinced based on the haphazard manner TRA

at the relevant time period accounted for Incremental Supplier Funding (unlike the

precision at which Sobeys accounted for it) passed on all deals and “inside monies”

to the Walshes’ Corporations. That does not assist the reliability of the Allowance

Analysis, since it assumes no Allowances as documented in the SDAs were passed

on.

[409] Stack-Power agreed that the Gross Margin Approach captures any passing

along of deals regardless of how they might have been financially reported by

Sobeys or by the Walshes’ Corporations. The Gross Margin Approach gives the

Walshes’ Corporations the full benefit of the allowances as reflected in the SDAs.

It brings the Walshes’ Corporations up to the same gross margin as Sobeys.

[410] The methodological problem with the Allowance Analysis is that it precludes

consideration of whether the Walshes’ stores received the same or equal treatment

as the Sobeys stores. By assuming the Walshes’ Corporations did not receive any

of the allowances as allocated in the SDAs, the Allowance Analysis inherently

overstates the loss to the extent that any allowances that were in fact passed along.

It necessarily results in a “double count” by giving the Walshes’ Corporations the

benefit of the total of all allowances without counting for any allowances received

by way of price support.

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[411] Stack-Power specifically pointed out, “[t]here was no way for me to verify

whether or not the Plaintiffs’ Corporations have received any allowances.” She

could not reconcile if allowances had been paid with the information that she had.

She conceded that the methodology of the Allowance Analysis meant that if the

Walshes’ Corporations received allowances by way of netting down of product cost,

there would be a double count. She made it clear counsel requested the Allowance

Analysis scenario, and she applied it, on the assumption that Walshes’ Corporations

had not received any allowances. A concern not present in the Gross Margin

Analysis.

Defendants’ Case Law on Admissibility of Expert Opinion

[412] The Defendants rely on the “acid test” for admissibility that “the expert’s

opinion would not change regardless of which party retained” the expert: White

Burgess, at para. 32. They submit Power-Stack’s Report was not the product of

independent judgment; it was influenced by who had retained her; and the Report

unfairly favors the Walshes’ position over the Defendants.

[413] Expert evidence has been held to be inadmissible where the “evidence is

nothing more than a platform from which to argue” the party’s case: Piccolo, at

para. 16.

[414] In Martin Marietta, the court held proposed expert evidence to be

inadmissible as being nothing more than the plaintiffs’ theory of the case that failed

to challenge the positions put to them by counsel or seek contrary possibilities. The

court applied White Burgess and held (at para. 98) that the applicant (opposing party)

had met its burden in showing there is a “realistic concern” that the expert evidence

should not be received.

[415] It is worth noting that in Martin Marietta, the court recognized (at para. 95)

that the expert had “precious little time to review the evidence.” In fairness to Stack-

Power, she had only a day to prepare the Allowance Analysis asked of her, and had

insufficient time to consider and account for a scenario where the Court accepted

that the Walshes’ Corporations received substantial price support, as Vokey had

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attested in his Pre-trial Answers to Interrogatories. The Answers to Interrogatories

dated January 22, 2019 (entered into evidence as Consent 5), and more particularly

his Answers to Interrogatories 5 and 10(d).

[416] Similar concerns to the present case also resulted in a proposed expert report

being inadmissible in Piccolo, where the court held that the expert’s evidence was

calculations in support of the parties’ position based on financial statements and

other documents of the proponent parties without independent analysis. The expert

was doing what his clients requested of him. The court noted (at para. 13), “[t]here

is nothing wrong with that. The issue becomes, however, whether what he did meets

the [established] criteria for admissibility as expert evidence.”

[417] The Defendants submit that the Allowance Analysis asked of Power-Stack,

including the assumption that all of the allowances as reflected in the SDAs were

not received by the Walshes’ Corporations, is similar to engaging an accident

reconstruction expert and asking the expert to assume that the accident happened on

a certain side of the road. That is what happened in Bye v. Newman, 2016 BSSC

267, which led to an accident reconstruction expert’s report being held inadmissible.

The court stated (at para. 19), “[t]he report has unfairly favoured the position of

Mr. Newman, and that makes it unreliable.” The expert did not meet the duty to the

court to provide impartial assistance.

[418] The Allowance Analysis that confirms Mr. Walsh’s “way of thinking” but

precludes the consideration of alternative explanations is not admissible as expert

evidence.

Accepted Criticism of the Allowance Analysis by Defendants’ Expert

[419] I qualified the Defendants’ expert, Susan Glass as an expert in business

valuation and damage quantification and permitted the tendering of her report dated

March 6, 2020, in Reply to Report of Stack-Power and Independent Assessment of

Loss. Counsel for the Walshes’ reserved the right to contest the admissibility of her

opinion in Closing Submissions.

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[420] I admit and accept the opinion evidence of Glass on the flaws and her criticism

of the Allowance Analysis, without fully accepting her opinion that the Walshes’

Corporations received “all of the Additional Allowances” [emphasis added].

[421] Glass considered whether the Walshes’ Corporations received “equal

treatment,” as Power-Stack was engaged to do. Glass did this in three ways, which

led to her opinion (at para. 114 of the Glass Report) that the evidence “implies a high

likelihood that the Walsh Stores actually received some or all of the Additional

Allowances.”

[422] The three ways Glass used to assess the “equal treatment” of the Walshes’

Corporations were:

(i) Comparing Sobeys’ store margins and Sobeys' gross margins to the gross

margins achieved by the Walshes’ Corporations;

(ii) Calculating the gross margins of the Walshes’ Corporations that were

implied through Power-Stack’s Allowance Analysis and comparing them to

Sobeys; and

(iii) Determining the operating profits of the Walshes’ Corporations that were

implied through Power-Stack’s Allowance Analysis conclusions and

comparing them to other industry data.

(i) The SDAs as compared to the financial statements of the Walshes’ Corporations

[423] Glass compared the financial information as contained in the SDAs to the

financial information from the statements of the Walshes’ Corporations. She

recognized that the gross margins as reported by the Walshes’ Corporations were

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significantly higher than the store margins achieved by Sobeys, before Sobeys

separately accounted for their receipt of Incremental Supplier Funding.

[424] Table 4.1 of the Glass Report, reproduced below, in reference to the objective

and uncontested data illustrates both the Walshes’ stores had gross margins

significantly higher than the Sobeys-store margins. Glass opined (at para. 118) that

these results establish that the Allowance Approach “is inappropriate and results in

double-counting, since many of the Additional Allowances separately reported by

the Sobeys Stores are already included in the Walsh Stores’ gross margins.”

Table 4.1 Store Margin vs. Gross Margin

Sobey’s

93.93

BB

94-96

MM

Store Margin

Additional allowances

Gross Margin

14.5%

6.5%

21,0%

13.3%

8.4%

21.8%

19.3%

21.4%

(ii) The implied margins of the Walshes’ Corporations using Allowance Analysis

[425] Glass looked at the gross margins of the Walshes’ Corporations that were

necessarily implied through Power-Stack’s Allowance Analysis.

[426] Power-Stack agreed in cross-examination that the Allowance Approach

results in an implied gross margin of the Walshes’ Corporations, which she could

have determined but did not do so.

[427] The calculations in Table 4.2 of the Glass Report showed that the Walshes’

Corporations would have had gross margins that were higher than the Sobeys

average gross margin and in fact higher than any of the Sobeys stores. These high

margins prove that TRA did provide the Walshes’ Corporations with additional price

support, as spoken to by the witnesses who had firsthand knowledge. Glass opined

she was not aware of any reason to suggest that such high implied margins would be

reasonable.

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[428] The implied gross margins establish the Walshes would actually have been

treated more favorably than Sobeys.

(iii) The Implied Operating Profits of the Walshes’ Corporations

[429] Glass determined the operating profit margins of the Walshes’ Corporations

that were necessarily implied through the Allowance Approach.

[430] Glass concluded the Walshes’ Corporations would have had operating profits

that were higher than public company average.

[431] There was no evidence tendered at Trial, and Power-Stack does not speak to

it in her Report, that would suggest it is reasonable to conclude that the Walshes’

Corporations would have had operating margins that were, in some cases, multiples

higher than the most profitable public companies in North America.

[432] When presented with Glass’s findings on this point, Stack-Power suggested

that she did not think public companies were the most appropriate comparator. She

agreed that Sobeys Newfoundland stores would have been the most appropriate.

[433] There was no evidence tendered by the Walshes, who have the burden of

proof, suggesting or showing that the Walshes’ Corporations, on an alleged

entitlement to netting down or equal treatment, should have achieved higher gross

margins than any Sobeys store and should have had operating margins better than

the most successful public companies.

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Walshes’ Objections to the Admissibility of the Glass Report

[434] The Walshes submit that the Glass Report discloses evidence of bias, and that

I should reject her opinion because her approach was intended, either intentionally

or inadvertently, to diminish the value of the Walshes’ stores. I do not accept the

complaints of bias leveled at Glass.

[435] The Walshes raise three principal areas of concern with the Glass Report.

They say the Glass Report and opinion should be rejected for (a) lacking

consideration of prior reports of Glass and reports of experts previously engaged by

the Plaintiffs; (b) failing to conduct an analysis in reference to The Oshawa Group;

and (c) accepting, without testing, the Defendants evidence that TRA had provided

additional price support to the Walshes’ Corporations.

[436] Power-Stack in her Report identifies other expert reports the Walshes had

previously obtained and prepared by other experts, including Duff & Phelps dated

October 13, 2017, and a Supplemental Expert Report of January 30, 2018, in

response to KPMG (Glass). During the cross-examination of Glass, I upheld the

Defendants’ objection to introduction of the prior opinion reports of Duff & Phelps,

but allowed Walshes’ counsel to ask Glass questions about the prior reports of Duff

& Phelps, since Glass and Power-Stack had reviewed those reports.

[437] Glass noted in response to questioning on the Duff & Phelps reports that their

Supplemental Report actually identified the need to consider a possible double-

counting if one were to proceed with an Allowance Analysis.

[438] In the context of the development of the Defendants’ expert opinion in this

litigation, it is unfair and inappropriate to compare the prior reports of Glass dated

December 21, 2017 and September 19, 2018, to the Glass Report of March 6, 2020,

which is the only expert opinion tendered by the Defendants. The report of

December 21, 2017, was in response to Duff & Phelps report of October 13, 2017.

After the Walshes ended their engagement with Duff & Phelps, they indicated they

would proceed to Trial without tendering any expert report. Glass therefore prepared

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her report of September 19, 2018, removing any references to the Duff & Phelps

report.

[439] When the Walshes engaged Power-Stack, Glass then prepared the report

tendered at Trial.

[440] The cross-examination and Closing Submissions of the Walshes on the

comparisons between the Glass Report and prior reports do not undermine the

evidence of Glass and my acceptance of her opinion on the double-counting.

[441] With respect to her reference to the Oshawa Group, former counsel for the

Walshes instructed Duff & Phelps to assume the Walshes’ Corporations would have

earned a gross margin (sales less cost of sales) equal to that earned by The Oshawa

Group, less a 0.5% adjustment. The Walshes chose not to proceed to trial on the

report of Duff & Phelps, which quantified the loss on that basis. Power-Stack did

not speak to The Oshawa Group in her Report.

[442] Glass confirmed in her cross-examination what the publicly available data for

the Oshawa group, in Table 4.3 of her report, showed. The operating profits implied

by the Allowance Analysis would mean the Walshes’ Corporations would have been

two times more profitable that the Oshawa Group for all years, and that the

Merrymeeting Road store would have been more than five times more profitable.

[443] Counsel for the Walshes challenged Glass on whether she simply relied on

what Vokey told her, in discussions before preparation of her Trial Report about

TRA providing additional price support to the Walshes’ Corporations, rather than

independently testing her assumptions. Glass was clear that she premised her

analysis on the assumption of the Walshes’ Corporations receiving equal treatment

with Sobeys. The Allowance Analysis she confirmed results in the Walshes’

Corporations receiving significantly more favorable treatment than Sobeys.

Page 102

[444] When challenged on the possibility that some allowances might have been

reflected in Sobeys stores’ margins in the SDAs, Glass explained that the Gross

Margin Approach implicitly accounts for any potential difference in the way

allowances were reported or received.

[445] I am unable to accept any suggestion that Glass lacked objectivity in her report

or testimony. Her assumptions and conclusions were based on objective data and

focused on the allegations in this proceeding.

Consideration Paid for the Shares

[446] Mr. Walsh, during his cross-examination, admitted that the total consideration

paid for the shares in the Walshes’ Corporations was structured to minimalize the

tax consequences to him and Mrs. Walsh. Mr. Walsh confirmed that the

consideration for the shares was as follows:

a) $1,625,000 for the shares in the Bay Bulls Corporation, of which $1,500,000

was paid by way of the share sale agreement, and with $125,000 of the

purchase price paid by TRA for the Walshes’ real property and attributed to

the share sale price; and

b) $1,285,000 for the shares in the Merrymeeting Road Corporation, of which

$835,000 paid by way of the share sale and with $450,000 paid over time as

part of a consulting arrangement.

[447] Both Power-Stack and Glass recognized that it would not be uncommon for

commercial transactions to be structured in a tax-efficient way, including by way of

the inclusion of consulting or other arrangements.

Page 103

[448] Mr. Walsh acknowledged the business part of the Bay Bulls sale was $1.625

million and it was structured in a tax-efficient way so that TRA/Sobeys paid

$250,000 for their house in Bay Bulls. He agreed that in reality TRA/Sobeys only

paid $125,000 for the house, and the other $125,000 applied to the total proceeds for

the shares. Mr. Walsh’s testimony was consistent with prior testimony he gave in

these proceedings on August 27, 2019, and duly referenced in the Glass Report.

The Joint Consulting Agreement for Merrymeeting Road Sale

[449] Power-Stack agreed on cross-examination that if the Court were to find that

the $450,000 paid further to the Joint Consulting Agreement on the sale of

Merrymeeting Road Corporation was part of the purchase price, then $450,000

would be subtracted from her conclusion on the loss. The Glass Report similarly

identified that it is a factual question as to whether the $450,000 constituted part of

the consideration for the shares.

[450] The share sale agreement between the Walshes and Coleman Management

Services Limited provided at section 7.1(j) that the Walshes’ execution of the Joint

Consulting Agreement (as attached to sale agreement) was a condition of closing. I

find that the consulting agreement was part of the consideration for the shares.

[451] The Joint Consulting Agreement provided that the Walshes would be paid a

total of $450,000 over seven years, with $75,000/year for the first four years and

$50,000/year for the last three years. It also provided that the benefit of the payments

to the Walshes under the Joint Consulting Agreement “shall enure to their heirs,

successors and assigns,” confirming that it comprised part of the consideration for

the sale of the shares.

[452] The Walshes had earlier approached TRA and Sobeys on a potential sale of

the Merrymeeting Road Corporation. The Walshes’ proposal contained a written

offer that as part of the defined “Purchase Price” included payments in the future

starting at $75,000/year for first five years and $50,000 for next five years. They

achieved the goal of future payments for their shares in the sale to Colemans

(although for a shorter duration of years).

Page 104

[453] Most importantly, Mr. Walsh confirmed during cross-examination that the

$450,000 paid further to the Joint Consulting Agreement was part of the

consideration for the sale of the shares and structured that way for tax purposes:

Q. This Consulting Agreement and the payments that were provided for under the

Consulting Agreement, that was really part of the purchase price for Merrymeeting

Road, correct?

A. Yes, same as the house in Bay Bulls, same thing.

Q. Same sort of tax efficient structure?

A. That’s right.

[454] Mr. Walsh’s evidence is consistent with his subsequent conduct and with the

conduct of Colemans. Mr. Walsh testified that he and Mrs. Walsh took the majority

of 1998 off. They received the $75,000 for that year further to the Joint Consulting

Agreement. In December of 1998, Mr. Walsh began working for Colemans and

received an annual salary of $40,000.

[455] Mr. Walsh confirmed the distinction between consulting payments and salary

payments: “Now we’re talking about a sale price, and we’re talking about going back

to work … I didn’t have to do anything for the consulting, if I didn’t want to.”

Other Material Points of Disagreement between the Experts

[456] Glass identified other material concerns or points of professional

disagreement with Power-Stack’s analytical approaches, including:

a) Stack-Power’s grouping of the bulk sales department with the grocery

department;

b) The issue relating to the valuation of past and future losses;

Page 105

c) Failing to account for the cost of services provided by the Walshes, where

the Walshes did not take any salary for those services; and

d) The approach to estimating maintainable “EBITDA” (Earnings before

interest, taxes, depreciation, and amortization).

a) Grouping of the “Bulk Sales” Department with the “Grocery” Department

[457] Whether further to the Gross Margin Approach or the Allowance Analysis,

the techniques employed involve comparing the Sobeys departments, as identified

in the SDAs, to the departments operated by the Walshes’ Corporations.

[458] Power-Stack took the consolidated data of the 17 Sobeys stores and then

combined the separate data for the grocery, bulk sales, and merchandising

departments and concluded that this is the margin the Walshes’ Corporations should

have achieved on the grocery sales.

[459] The majority of the Sobeys stores did not report a department called “bulk

sales.” For those that did, the reported sales under the bulk sales department are

more modest than some of the larger departments, but had significantly higher

margins than the grocery department.

[460] Glass noted that the Walshes’ Corporations did not separately report bulk or

general merchandise sales, similar to 10 of the individual Sobeys stores. It was her

view that it is more appropriate to compare the Walshes’ grocery margins to the 10

most comparable Sobeys stores.

[461] The difference of professional opinion between Glass and Power-Stack’s

grouping of the bulk sales department with the grocery department is a material one

and has consequences for their conclusions.

Page 106

[462] I accept Power-Stack’s grouping of the bulk sales department with the grocery

department served to increase her opinion on loss. The Walshes did not lead

evidence as to why this grouping was appropriate to proper interpretation of the

SDAs.

b) The Issue Relating to Valuation of Past and Future Losses

[463] The quantification by both experts involves a determination of past loss and

future loss. The issue of future loss only relates to Merrymeeting Road Corporation.

Neither expert quantified any loss on the sale of the Bay Bulls location as a future

loss.

[464] The past loss is the loss or the shortfall to the Walshes’ Corporations up to the

point of sale of the stores from 1984 to 1996. The assumption is that the cash would

remain in the Corporations because of the accumulation of additional revenue from

the alleged entitlement. Both experts assumed that the full amount, which would

have accrued while the Walshes owned the shares, would have remained in the

Corporations and not paid out as salary or dividends. The prospective purchaser

would have been purchasing the cash asset.

[465] The future loss is the net present value of all future years’ cash flow that would

have arisen had the alleged entitlement continued.

[466] For future losses, Glass identified what she termed as a “legal issue.” She

explained for future losses to be recoverable it needed to be determined whether a

prospective purchaser would pay for the anticipated future profits of a corporation,

if the agreement was not transferrable to them or if those same deals were already

available in the market.

[467] I accept the unconverted evidence of the Defendants that they would not have

allowed a commercially unreasonable agreement to be transferred to a third-party

purchaser.

Page 107

[468] The Walshes have not tendered any evidence as to what pricing arrangements

might have been available from other suppliers. More fundamentally, if such deals

were available, then the valuation would not include consideration for future losses.

A prudent purchaser would not pay for future benefits, which they could already

obtain.

[469] Accordingly, I find the evidence does not support a claim for recoverable

future losses.

c) Accounting for Notional Salary

[470] A hypothetical purchaser of the Walshes’ Corporations would need to

consider whether the corporation is receiving the benefit of necessary services at no

cost, or otherwise would run the risk of overvaluing the corporation. Glass

considered the point of attributing a notional salary for services that the purchaser is

going to have to pay somebody to provide those same services. It represents a future

cost to the purchaser. Glass deducted a notional salary from her valuation of the

Merrymeeting Road Corporation.

[471] Mr. and Mrs. Walsh did not report on their personal income taxes taking any

salary from the Merrymeeting Road Corporation between 1994 and 1996. There

were no dividends paid out of the Corporation.

[472] The Walshes were working at Merrymeeting Road at the relevant time for

valuation purposes, immediately prior to the sale in 1996. Mr. Walsh testified that

during this period, he and Mrs. Walsh were working at the store “day and night

trying to keep that going,” and at one point said, “[i]t was seven people not on the

payroll.”

[473] Glass did not address notional salaries for Merrymeeting Road in her prior

reports because she was not aware at that time that the Walshes had not taken a salary

while working there.

Page 108

[474] Glass noted that Mr. and Mrs. Walsh had both taken salaries from Bay Bulls,

and considering the smaller size of the Merrymeeting Road store, she elected to use

only one salary. She selected the amount of $60,000, equivalent to what the Walshes

received in 1993 and 1994 for the Bay Bulls site. If she had used two salaries, it

would have further reduced her opinion on loss.

[475] During her cross-examination, Glass explained the distinction between

compensation for services as compared to salaries for “management.” She noted her

implicit assumption that the Walshes were not previously overpaying themselves

given that the claim alleges the Walshes’ Corporations could not achieve a

reasonable rate of return.

[476] I find that the services Mr. and Mrs. Walsh provided to the Merrymeeting

Road store were of benefit to the business. The notional salary used by Glass reflects

the value of those services for the reasonable valuation of what a purchaser would

pay for the shares in the Corporation.

d) Approach to Estimating Maintainable EBITDA

[477] I accept the Glass opinion on the maintainable EBITDA for the Walshes’

Corporations, which results in further decreasing the quantification of loss.

[478] Merrymeeting Road Corporation only operated for the first six months of

1996. Glass opined that smaller businesses typically do not accrue expenses

throughout the year, such that interim statements of profit are often overstated.

Doubling Merrymeeting’s EBITDA from the first six months of 1996 results in an

overestimation of what likely would have resulted. Glass showed (at Table 5.7), in

reference to actual data from the Walshes’ Corporations, how the final EBITDA

results for 1995 were significantly lower than two times the reported amount after

six months.

Page 109

[479] Table 5.7 shows that if the experts had simply doubled the six-month reported

EBITDA, they would have used a figure of $169,218, which is more than 27% higher

than the number that was actually achieved at yearend.

[480] Despite those concerns, Glass did double Merrymeeting Road’s six-month

EBITDA for 1996 for the purpose of her analysis, noting that her valuation of loss

would have decreased if she had addressed the evidenced overstatement.

[481] Power-Stack took the same approach to maintainable EBITDA, although she

made no reference to the concern Glass expressed.

[482] Glass also questioned Power-Stack’s approach toward estimating

maintainable EBITDA based on recognition of an upward trend for Merrymeeting

Road while disregarding the downward trend for Bay Bulls. Power-Stack,

recognizing an upward trend for Merrymeeting Road, added another $50,000 to her

low-end range of $335,000 increasing the selected high end to $385,000. Glass

pointed out “the high-end range of the EBITDA range would be $50,000 higher than

even a best-case estimate of EBITDA ever earned by the store.”

[483] Glass also noted that the main reason for the increased EBITDA in 1996 was

the reduction in labour costs, and that additional revenue through a control of labour

costs would not be a basis for anticipating similar growth and future profits, unless

the purchaser could cut labour costs even further.

[484] Finally, Glass explained Power-Stack’s selected maintainable EBITDA

approach for Merrymeeting Road (which served to increase Power-Stack’s valuation

of loss) was opposite to the approach when calculating the maintainable EBITDA

for Bay Bulls. Power-Stack ignored the declining trend in adjusted EBITDA, and

focused on the results of prior years (which also served to increase her valuation of

loss). Power-Stack assessed the maintainable EBITDA in the range of $160,000 to

$175,000. As Glass noted, this is higher than the averages and much higher than the

most recent results.

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No Losses Established on either Share Sale

[485] The Walshes have failed to establish losses associated with the sale of their

shares in either of the Bay Bulls or Merrymeeting Road Corporations.

Bay Bulls

[486] Mr. Walsh testified that he felt no need for a professional valuation of the Bay

Bulls business, and admitted that he felt fairly treated in the sale and that he achieved

fair market value. The expert evidence is consistent with Mr. Walsh’s own view.

[487] Regardless of whether the consideration for the shares is as I have found

$1,625,000 (confirmed by the testimony of Mr. Walsh), or if the consideration is

$1,500,000 (as the Closing Submission of the Walshes assert), there is nil loss.

[488] Power-Stack’s Gross Margin Approach, which I accept as a reliable approach

because it avoids the double-count concern, valued the shares at $1,300,000,

resulting in a nil loss.

[489] If I had found Power-Stack’s Allowance Analysis to be admissible, the loss

for Bay Bulls would still be nil considering the concerns Glass expressed and I

accept with the grouping of bulk sales with grocery and the double count. Table 6.2

of the Glass Report puts the notional fair market value at $1,341,500 when the

calculated adjustments are made for mix-adjusted gross margin ($367,000) and

allowance double count ($550,000).

[490] Power-Stack’s valuation adjusted for these two items brings the value under

the Gross Margin Approach to be $933,000 and the value under the Allowance

Approach at $1,750,000. Consistent with the approach of Power-Stack in averaging

the two values puts it at the $1,341,500, and thus a loss of nil arises even compared

to sale proceeds of $1.5M.

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Merrymeeting Road

[491] Power-Stack assessed the loss for Merrymeeting Road at $1,415,000 with

$415,000 as past loss and $1,000,000 for future loss. Glass assessed the loss at

$400,000 with $190,000 as past loss and $210,000 in future loss.

[492] Since I made two consequential findings: (1) that the future losses are not

recoverable; and (2) that the payments under the Joint Consulting Agreement were

part of the consideration for the shares, the loss for Merrymeeting Road is also nil.

[493] If however I am wrong in either conclusion, in assessing the expert opinion

on the loss, I must still consider the double count and issues with Power-Stack’s

product mix categories, failure to address notional salary for services rendered, and

the treatment of estimates for maintainable EBITDA.

[494] For the reasons succinctly stated in paragraph 220 of the Glass Report (the

material matters I have explored above), I accept her opinion that a total loss of

$400,000 represents the maximum potential loss, and likely overstates any actual

loss to the Walshes.

[495] Based on my findings on the losses, I would make no award of damages to

the Walshes for the sale of their shares in the Corporations.

COSTS

[496] Costs are in the discretion of the Court, and I am exercising my discretion to

make no order as to costs: s. 53(1) of Judicature Act, R.S.N.L. 1990, c. J-4.

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[497] Costs follow the cause or event and in the usual course, the successful party

would be entitled to costs (Rule 55.03(1) and Hiscott v. Hall, 2015 NLCA 1, at para.

29). Given the complexity, duration of the litigation, seniority of counsel, and

amount involved in this case, the Defendants could realistically expect an award for

two counsel taxed on the Rules of Supreme Court, Rule 55, Column 5 of the Scale

of Costs. I am also quite mindful the Walshes have made serious and unproven

allegations of fraud against the Defendants, which can justify an award of increased

costs.

[498] How then can I justify on principled grounds making no order against the

Walshes to pay costs to the Defendants?

[499] The reason is the Defendants are not without fault. While the fault does not

give rise to liability, it does justify the awarding of no costs.

[500] While TRA and Sobeys spent considerable resources on their experienced

litigation counsel and got the result they so ably advocated, they may have been able

to avoid all of this if they had instructed their corporate counsel to draft and

document the Supply Arrangement agreed to with the Walshes’ Corporations. TRA

and Sobeys were obviously attuned to the uncertainty and confusion that could give

rise to supply arrangements as early as 1984, since they made sure to do so in the

1984 Sobeys Supply Agreement. They could have clarified and defined terms such

as “net costing,” “true landed cost,” and “Sobeys equivalent cost.” Of course, there

is no guarantee that Mr. Walsh would not have contested the terms and meaning of

the Supply Arrangement. But, it would have been a more focused dispute on

contractual terms than simply trying to defend allegations of what was promised and

said to the Walshes 37 years ago.

[501] Although there is no duty at law to document commercial transactions

between parties, Sobeys had the resources available and ought to have done so to

avoid misapprehension on the part of the Walshes on promises made to them.

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[502] Evidence from Tiller confirms that TRA, through Tiller as TRA’s

representative, knew that the Walshes might misconstrue what he told them in the

Foodland presentation meeting about receiving Sobeys’ prices. Tiller testified he

“didn’t dwell on cost that much” because “it’s like opening a can of worms.” He

confirmed he moved on from costs “as quick as possible” knowing that it could not

“be avoided forever.” A documented Supply Arrangement presumably would not

have been able to avoid the promised costing arrangement.

[503] Even though impecuniosity of the Walshes is not a ground on which to deny

the Defendants their costs, it explains why the Defendants did not vigorously contest

costs. When I pressed Seviour, Q.C. in closing oral submissions on whether I had

justification for denying the Defendants their costs, he conceded an award of costs

against the Walshes would have little practical effect or pecuniary benefit to the

Defendants. I held in the Defendants Pre-trial Security for Costs Application that

the Walshes are impecunious: Walsh v. TRA Company Limited, 2019 NLSC 167.

[504] Finally, if I had been prepared to make an award of costs, I would not have

awarded costs in any circumstance against Mrs. Walsh. Mr. Walsh was the

“directing mind” of the Corporations for this litigation, and Mrs. Walsh was a

nominal plaintiff and bystander. She stood by Mr. Walsh all these years as he wanted

to see the case through to the end, and I would not burden her with an order to pay

costs.

CONCLUSION

[505] To summarize, I have concluded:

1. The Walshes have not established the elements necessary to prove negligent

or fraudulent misrepresentations.

2. The Walshes’ claims for negligence, negligent misrepresentation, and personal

losses for fraudulent misrepresentation are statute-barred by s. 5(a) and (b) of

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the Limitations Act. The only claim not time-barred (but dismissed for no

liability) is for economic losses arising from fraudulent misrepresentation

governed by s. 6(c) of the Limitations Act.

3. The Walshes failed to establish (i) an independent and separate wrong to them

personally as shareholders, and (ii) the claims for loss of share value are

damages sustained by the Corporations and not a direct loss to them as

shareholders. The common law rule in Foss v. Harbottle precludes their

claims, and denying the claims cannot be considered “too flagrantly opposed

to justice.”

4. The Walshes did not sustain any direct personal losses for which they can

recover damages.

5. The Walshes’ expert-opinion evidence is inadmissible, and the admissible

evidence failed to prove the Walshes suffered losses associated with the sale

of their shares in either of the Bay Bulls or Merrymeeting Road Corporations.

POSTSCRIPT

[506] I know the Walshes will be extremely disappointed with this result. I will

never convince Mr. Walsh that his understanding of the Supply Arrangement and

perception of TRA and Sobeys’ mistreatment of them is not grounded in the

evidence and law. Nevertheless, I hope I have given the Walshes a full and fair

hearing of their case and clearly articulated my reasons for my findings and

conclusion.

[507] I would be remiss if I did not thank counsel on both sides for their thorough

submissions, professionalism, and dedication to this case and their clients. It is a

pleasure to adjudicate cases where counsel show civility to each other and respect to

all participants and the Court. While my job in deciding the issues and producing

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these reasons was difficult, the exceptional performance and work product of

counsel certainly made it much easier.

ORDER

[508] The Walshes’ action is dismissed against all Defendants with no order as to

costs.

_____________________________

GLEN L.C. NOEL

Justice

APPENDIX ‘A’

1. Walsh v. TRA, 2005 NLTD 139 (unpublished)

2. Walsh v. TRA Co., 2006 CarswellNfld 376, [2006] N.J. No. 389 (by Orsborn J)

3. Walsh v. TRA Co., 2007 NLCA 50

4. Walsh v. TRA Co., 2009 NLTD 9

5. Walsh v. T.R.A. Co., 2015 NLTD(G) 27

6. Walsh v. T.R.A. Co., 2016 NLTD(G) 119

7. Walsh v. T.R.A. Company Limited, 2018 NLSC 178

8. Walsh v. TRA Company Limited, 2019 NLSC 131

9. Walsh v. TRA Company Limited, 2019 NLSC 167

10. Walsh v. TRA Company Limited, 2019 NLSC 168