55668 Newfoundland and Labrador Limited v. Sullivan

IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR

GENERAL DIVISION

Citation: 55668 Newfoundland and Labrador Limited v. Sullivan, 2022 NLSC 127

Date: August 1, 2022

Docket: 201001G5302

BETWEEN:

55668 NEWFOUNDLAND AND

LABRADOR LIMITED

FIRST PLAINTIFF

AND:

MICHAEL HALL

SECOND PLAINTIFF

AND:

CANADIAN ROOFING SOLUTIONS INC.

THIRD PLAINTIFF

AND:

ROBIN SULLIVAN

FIRST DEFENDANT

AND:

CHRISTOPHER WINSOR

SECOND DEFENDANT

(DISCONTINUED 10/03/2014)

AND:

61791 NEWFOUNDLAND AND

LABRADOR LTD.

THIRD DEFENDANT

Page 2

- AND -

Docket: 201201G0454

BETWEEN:

AND:

55668 NEWFOUNDLAND AND

LABRADOR LIMITED

FIRST PLAINTIFF

MICHAEL HALL

SECOND PLAINTIFF

(STRUCK 02/20/2013)

AND:

PAUL DAVIS SYSTEMS CANADA,

LTD.

DEFENDANT

AND:

PAUL DAVIS SYSTEMS CANADA,

LTD.

PLAINTIFF BY COUNTERCLAIM

AND:

55668 NEWFOUNDLAND AND

LABRADOR LIMITED

FIRST DEFENDANT BY COUNTERCLAIM

AND:

MICHAEL HALL

SECOND DEFENDANT BY COUNTERCLAIM

ROBIN SULLIVAN

FIRST THIRD PARTY

CHRISTOPHER WINSOR

SECOND THIRD PARTY

(DISCONTINUED 10/03/2014)

AND:

61791 NEWFOUNDLAND AND

LABRADOR LIMITED

THIRD THIRD PARTY

Page 3

Before: Justice Frances J. Knickle

Place of Hearing:

Date of Hearing:

St. John’s, Newfoundland and Labrador

March 3-6, 2020; March 9-13, 2020;

March 17-18, 2020; January 18-22, 2021

January 25-29, 2021; February 2, 2021;

April 27-30, 2021; June 30, 2021, July 30,

2021

Appearances:

Paul D. Dicks, Q.C. and

Megan S. Reynolds

Appearing on behalf of 55668 Newfoundland and

Labrador Ltd, Canadian Roofing Solutions Inc.

and Michael Hall

Christopher E. Gill

Appearing on behalf of Robin Sullivan and

61791 Newfoundland and Labrador Ltd.

Peter N. Browne, Q.C.

and Travis D. Payne and

Shane R. Belbin

Appearing on behalf of Paul Davis Systems

Canada, Ltd.

Authorities Cited:

CASES CONSIDERED: Allen v. Flood, [1898] A.C. 1, [1898] C.C.S. No.

35 (U.K.H.L.); Bram Enterprises Ltd. v. A.I. Enterprises Ltd., 2014 SCC 12;

Alleslev-Krofchak v. Valcom Ltd., 2010 ONCA 557; Seto v. Wendy’s

Restaurants of Canada Inc., 2016 ABQB 493; Canada Cement LaFarge Ltd.

v. British Columbia Lightweight Aggregate Ltd., [1983] 1 S.C.R. 452;

American Reserve Energy Corp. v. McDorman, 2002 NFCA 57; 1384334

Alberta Ltd. v. Buster’s Pizza Donair & Pasta Enterprises Ltd., 2020 ABQB

369; 373409 Alberta Ltd. (Receiver of) v. Bank of Montreal, 2002 SCC 81;

Page 4

Bhasin v. Hrynew, 2014 SCC 71; Kerr v. Baranow, 2011 SCC 10; Peel

(Regional Municipality) v. Canada, [1991] 3 S.C.R. 762; 2671914 Manitoba

Limited v. Suncorp Pacific Ltd., 2001 MBQB 70; R. c. Gagnon, 2006 SCC

17; R. v. K.P., 2019 NLCA 37; R. v. Best, 2016 NLCA 10; R. v. S.O., 2019

NLCA 42; R. v. M. (R.E.), 2008 SCC 51; 55668 Newfoundland and Labrador

Ltd. v. Sullivan, 2017 NLTD(G) 57; MDG Kingston Inc. v. MDG Computers

Canada Inc., 2008 ONCA 656

STATUTES CONSIDERED: Corporations Act, R.S.N.L. 1990, c. C-36;

Limitations Act, S.N.L. 1995, c. L-16.1, Interpretation Act, R.S.N.L. 1990, c.

I-19; Judgment Interest Act, R.S.N.L. 1990, c. J-2

TEXTS CONSIDERED: Peter T. Burns & Joost Blom, Economic Interests

in Canadian Tort Law (Markham: LexisNexis, 2009); Fridman, G.H.L., Law

of Agency, 7th ed. (Toronto: Butterworths, 1996)

REASONS FOR JUDGMENT

KNICKLE, J.:

INTRODUCTION

[1] This trial is the result of the conflict that ensued when the franchisor-

franchisee business relationship broke down. The Plaintiffs are (1) the incorporation

known as 55668 Newfoundland and Labrador Limited (55668), (2) Mike Hall, and

(3) Canadian Roofing Solutions Inc. (Canadian Roofing Solutions). 55668 was

incorporated to run the franchise known as Paul Davis Systems of St. John’s. Mike

Hall was a director of both companies. He was also initially a Plaintiff in both

actions; but after a pre-trial application had been removed as a Plaintiff in the action

against Paul Davis Systems of Canada.

[2] The Defendants are: (1) the franchisor Paul Davis Systems of Canada, and (2)

the owner operator of the franchise that replaced 55668, 61791 Newfoundland and

Labrador Limited (61791) and its director, Robin Sullivan. Chris Winsor, was also

initially a named Defendant. He, like Mike Hall, was a former owner of the Plaintiff

55668. He had partnered with Mike Hall in the operation of the franchise and, as

Page 5

well, Canada Roofing Solutions. The action against Chris Winsor has been

discontinued.

[3] The Plaintiffs, through two separate actions 201001G5302 (5302) and

201201G0454 (0454), alleged that the Defendants engaged in several torts:

conspiracy, conversion of goods, and the tort of economic loss by unlawful means.

They also claim unjust enrichment and a breach of the duty of good faith against

Paul Davis Systems of Canada in action 0454. In action 5302 the Defendants, Robin

Sullivan and 61791, have counterclaimed for alleged costs incurred by 61791 in

attempting to address outstanding debts of 55668. In action 0454, the Defendant,

Paul Davis Systems of Canada, have counterclaimed against 55668, for outstanding

royalties and other fees. Robin Sullivan and 61791 have been named as third parties

in the action 0454.

[4] While the two actions have not been joined, the evidence of the trials was

heard at the same time and is to be applied in both trials.

[5] The claims of the Plaintiff 55668 are allowed in part in action 5302. I am

satisfied that the Plaintiff 55668 has established wrongful interference by 61791 and

Robin Sullivan with the assets of 55668 when their assets were transferred to 61791,

by way of an invalid written agreement dated April 29, 2010. Any transfer of the

assets required the consent of Mike Hall, the majority shareholder of 55668. Mike

Hall did not consent to or sign this transfer of assets agreement, and he did not know

of the agreement until it was delivered to his counsel a month after it was executed.

As such, the assignment of the assets identified in this agreement was invalid and

constitutes wrongful interference with these assets from 55668. I am also satisfied

that monies belonging to 55668 were deposited into bank accounts of 61791. 55668

is entitled to damages in the amount equal to the value of the assets.

[6] I am also satisfied that the counterclaims of 61791 and Robin Sullivan should

be allowed in part, and the damages owing to 55668 shall be reduced by this set-off

amount.

Page 6

[7] In action 0454, I am not satisfied that the tort of conversion and/or trespass

against the premises and goods of the Plaintiff 55668 has been established. I am not

satisfied that 55668 established any damages as a result of this conduct. I am also

not satisfied that Paul Davis Systems of Canada breached their duty of good faith

towards 55668. Nor was Paul Davis Systems of Canada unjustly enriched by the

wrongful interference with 55668’s assets when 61791 took over these assets by way

of the invalid agreement.

[8] The counterclaims of Paul Davis Systems of Canada against 55668 are

allowed. At the date of the termination of the franchise, the Defendant Paul Davis

Systems of Canada, was owed more than $60,000 in royalties from the Plaintiff

55668. This debt accrued well before the alleged tortious conduct, and 55668 is

liable to Paul Davis Systems of Canada for these outstanding royalties.

[9] In both actions, 5302 and 0454, the claims in conspiracy and unlawful means

are dismissed. I am not satisfied that there was conduct on the part of any of the

Defendants that constituted either of these alleged torts. In particular, there was no

intent on the part of any of the Defendants to injure or cause harm to any of the

Plaintiffs. Nor have the Plaintiffs established any causal connection between the

alleged tortious conduct of the Defendants and purported harm suffered by the

Plaintiffs.

[10] Any adverse consequences to 55668 (except as I have found in relation to the

conversion of assets), or Mike Hall, whether economic or by way of mental distress

as alleged by Mike Hall personally, were, at worst, incidental consequences to the

legitimate business intentions of the Defendants in their conduct. As stated by Lord

Davey in Allen v. Flood, [1898] A.C. 1, [1898] C.C.S. No. 35 (U.K.H.L.) at page

173:

The right to which a man has to pursue his trade or calling is qualified by the equal

right of others to do the same and compete with him, though to his damage.

Page 7

[11] The claims of the Plaintiff, Canadian Roofing Solutions, in both actions are

dismissed as there was insufficient evidence to establish that there was any conduct

that impacted the property or assets of Canadian Roofing Solutions.

[12] In action 5302, the parties shall bear their own costs.

[13] In action 0454, the parties shall bear their own costs.

THE FACTS

[14] The presentation of evidence entailed several weeks spread over the course of

18 months; largely due to the advent of the Covid-19 pandemic. Apart from the

several witnesses who testified on behalf of the parties, hundreds of pages of

documents were filed which, to the credit of all the parties, were so done mostly by

consent. The documentary evidence in part comprises three binders with over 190

separate tabs, two additional books of documents, as well several documents filed

individually. There was a series of photographs tendered by the Plaintiffs describing

the alleged assets of 55668. There were also two expert reports filed as part of the

evidence on the financial health of the company.

[15] Myriad email communications were admitted. For the most part, there was

little issue that the communications could be taken for the truth of their contents, and

represented the intent of the person making the communication.

[16] I have reviewed this evidence and the viva voce testimony in its entirety. Many

of the facts are not in dispute. Unless otherwise stated, the background described

below can be taken as facts that I have accepted. Where there are conflicts in the

evidence, I have explicitly explained my finding of fact on the particular point.

Page 8

[17] Mike Hall, majority shareholder of 55668, testified that he was employed as

a municipal firefighter and had so been for many years. The nature of his work as a

firefighter left time to pursue other business ventures. In 2005, he opened a

renovation business engaging in what he described as “small renovation” projects,

such as kitchen renovations. The company incorporated to run the business was

known as Eastern Restorations Limited.

[18] Through a colleague he learned of Paul Davis Systems of Canada. It was

described as being in the “restoration” business and was becoming national in scope.

Paul Davis Systems of Canada was run by Ken Robinson and his brother, Stephen.

Mike Hall understood the business was interested in expanding to the Atlantic

Canada region where it was yet to be established. Mike Hall stated that he did some

research, and made a call to Ken Robinson.

[19] As a result of meeting with the Robinsons, in 2005 the first Paul Davis

Systems franchise was established, with the corporation, Eastern Restorations

Limited, being the franchisee. Mike Hall managed the first franchise in partnership

with his wife and from the couple’s home. Mike Hall testified that in the course of

running the franchise he became friends with both Stephen and Ken Robinson. He

visited them at their homes in Ontario and when either of the Robinsons came to

Newfoundland they were welcomed to Mike Hall’s home. He stated that he looked

to them for advice and support but he had more contact with Stephen Robinson in

running the franchise. He described Stephen Robinson as the “technical/money

guy”, whereas Ken Robinson was “geared towards marketing”.

[20] Mike Hall testified that the business struggled in the first two to three years.

During this period, Mike Hall’s marriage deteriorated and he and his first wife

divorced. In the course of the marriage break-up the first franchise was discontinued

and Mike Hall declared personal bankruptcy. Notwithstanding the bankruptcy, the

Robinson brothers supported a further franchise and a second restoration company

was established.

[21] In November 2007, the second franchise agreement with Paul Davis Systems

of Canada was signed. Mike Hall established the corporation 55668 to run the

Page 9

franchise. At the time of the establishment of 55668, Mike Hall was not yet

discharged from personal bankruptcy and so could not be a director. His mother was

a director until he was discharged from bankruptcy in December 2007. She played

no further role in the company.

[22] Mike Hall also convinced Chris Winsor, a longtime friend, to take part in the

venture as one of the shareholders of 55668. Mike Hall testified that both Ken and

Stephen Robinson had concerns about Mike Hall’s ability to be able to manage the

business given that he maintained his employment as a firefighter. They wanted to

know that there was someone managing the franchise on a full-time basis. For this

reason, Chris Winsor joined as the minority shareholder and also as a director of

55668.

[23] Chris Winsor confirmed that he joined the business because the head office of

Paul Davis Systems of Canada wanted a full-time partner. He testified that he and

Mike Hall both ran the business. Mike Hall looked after the “financial stuff” while

he was the “boots on the ground”. He testified that in the beginning “there was a

good relationship” with the Robinson brothers.

[24] The former company, Eastern Restorations Limited, was still in existence and

Mike Hall used this corporation to be paid for work done on behalf of the franchise.

Monies would be paid to Eastern Restorations Limited by 55668, which would then

be paid to Mike Hall. Eastern Restorations Limited was also used to provide

financial assistance for 55668.

The Franchise Agreement 2007

[25] The franchise agreement (Exhibit #1, Tab 11) governed the business

relationship between Paul Davis Systems of Canada, as the franchisor, 55668 as the

franchisee, and Mike Hall and Chris Winsor as individual “guarantors” and

shareholders of 55668. It was a standard form agreement for all of the franchises

operating as Paul Davis Systems. The franchise agreement permitted 55668 to

operate under the trade name of “Paul Davis Systems of St. John’s” and to use the

Page 10

exclusive trademarks and trade secrets of Paul Davis Systems. It also established the

requirements for royalty payments, which were due monthly. There were several

other fees that were required either on a monthly or annual basis.

[26] The franchise agreement prohibited the franchisee from carrying on any other

business under clauses 6.4 and 6.5., which stated:

6.4 Services Offered

During the term of this Agreement, Franchisee agrees to offer to customers within

the Franchise Territory insurance restoration construction, loss mitigation,

emergency services and cleaning services. Franchisee may also engage in Optional

Programs. Franchisee shall not engage in any other business activity, which is

not directly related to this Agreement.

6.6 Compliance with Operations Manual

Franchisee agrees to devote, carry on, conduct and operate the business

contemplated by this Agreement of a full time basis, in accordance with good

business practice and in accordance with the standards and policies of PDSC set

forth in the Operations Manual; to acquire, retain and own, during the term of this

[A]greement, all assets determined by PDSC to be reasonably necessary for the

operation of such business and to conduct no business other than the PDSC

Business from the location for the Franchisee’s operation…

[Emphasis Added]

[27] The franchise agreement also gave Paul Davis Systems of Canada the

authority to terminate the franchise agreement, with or without an “option to cure”

failures in adhering to the terms of the agreement (clauses 17.1 and 17.2). When

given a notice to terminate with the option to “cure”, the franchisee was permitted

15 days to bring the franchise into compliance with the franchise agreement.

Possible failures where the franchise might be permitted to cure the defect included

the failure to make timely payments as required (17.1(a)), or to operate the business

in accordance with the Operations Manual (17.1(b)). There was also a catch-all

clause, under 17.1(g) which described a failure of “any act” that could constitute a

breach of the agreement. The clause stated:

Page 11

(g) Commission or omission by Franchisee or any other act, not enumerated herein,

which constitutes a breach of the terms of this Franchise Agreement or any other

agreement or undertaking entered into between the Franchisor and Franchisee.

[28] The franchise also contained a dispute resolution clause, by way of mandatory

arbitration, under clause 24.1:

Any controversy or claim arising out of or relating to this Agreement or the

acquisition or operation of the franchise, shall be settled by binding arbitration in

accordance with arbitration procedures set forth in the Operations Manual. Any

pending arbitration proceedings involving the Franchisee shall have no effect on

PDSC’s right to terminate this Agreement and such [sic] to terminate shall not be

abrogated by the commencement of arbitration proceedings after termination has

begun or has been concluded.

[29] The wording of this clause appears to contain a typographical error. The

phrase “...and such to terminate” probably was intended to state “and such right to

terminate” as the sentence does not otherwise make grammatical sense. However,

nothing turns on this in respect of these proceedings. All parties agreed that

arbitration was a component of the franchise agreement.

[30] The franchise agreement also required both Chris Winsor and Mike Hall to

act as guarantors and personally guarantee the monies owed by the franchise to the

franchisor (Clause 18). Nor could any transfer of the franchise to another entity take

place without the approval of the franchisor.

[31] The franchise agreement also contained a non-competition clause in the event

the franchise agreement is terminated (Clause 23) prohibiting either 55668 or Mike

Hall and Chris Winsor from engaging in any related business for a period of two

years after the termination of the franchise agreement.

Page 12

The unanimous shareholder’s agreement

[32] The franchise agreement further required there to be a shareholders’

agreement between the shareholders of the corporation running the franchise. In

2009, a unanimous shareholders’ agreement was signed by both Mike Hall and Chris

Winsor (Exhibit #1, Tab 2). The agreement confirmed that Mike Hall was majority

shareholder at 60 per cent and Chris Winsor held the remaining 40 per cent. The

agreement provided the mechanisms for the operation of 55668, especially as it

related to any fundamental changes to the company. In particular, under section

2.02, certain activities could not be undertaken without unanimous consent by the

shareholders (both Mike Hall and Chris Winsor). Any “windup, reorganization, or

dissolution” of 55668 also required unanimous consent by the two shareholders.

Further, any transfer of shares could not be accomplished without a “first right of

refusal” of the other shareholders, and with 60 days’ notice to address any possible

transfer.

The Farmington leases

[33] The restoration business required specialized equipment. Much of this

equipment was leased through a business affiliated with the national Paul Davis

Systems business, Farmington Equipment Limited (Farmington). Jim Johnson, the

owner of Farmington and family friend to the Robinsons, testified as to how the

arrangement worked. Copies of the leases for 55668 were tendered, (Exhibit

J.Johnson #1, Tabs 3-9). Payments under the leases were monthly and would accrue

towards the eventual purchase of the particular piece of equipment at the end of the

lease period. The leases were explicit that the equipment remained the property of

Farmington until the full purchase price was paid.

The growth of 55668

[34] Mike Hall testified that in the first years of business, he struggled to find

clients. With encouragement from the Robinsons, Mike Hall took a more aggressive

approach in marketing the franchise. This strategy proved successful and the

Page 13

franchise secured a major client, Johnson Insurance, also known as Unifund

(Unifund). This was a significant gain for not only the franchise locally, but also

Paul Davis Systems of Canada, because Unifund was national in scope. This meant

that there was a potential to expand the relationship to other Paul Davis Systems

franchises across the country.

[35] Mike Hall stated that having secured Unifund’s business, the franchise’s

revenues started to improve. A second major client was secured, the Co-operators

Insurance Company (the Co-operators). These two companies made up the bulk of

55668’s business and by 2009, 55668 experienced a substantial increase in revenue.

The financial reports (unaudited), and tendered by consent, showed an increase in

business from a gross revenue of $613,771 in 2007 to a gross revenue of $1,848,698

in 2008 and $3,138,411 in 2009.

The relationship with Robin Sullivan

[36] It was during this time that Mike Hall also introduced Ken and Stephen

Robinson to the Defendant, Robin Sullivan. Mike Hall testified he was familiar with

Robin Sullivan, and recommended him as a potential franchisee. At the time, Robin

Sullivan operated his own construction company. The introduction was a success

and Robin Sullivan established his own Paul Davis Systems franchise operating on

the west coast of the island of Newfoundland; helping to expand the reach of Paul

Davis Systems of Canada in Newfoundland and Labrador. Mike Hall testified that

he took Robin Sullivan “under his wing”, taking him to meetings and introducing

him to contacts in the restoration business in St. John’s. He testified he introduced

Robin Sullivan to Michelle Stack who was Mike Hall’s friend and contact at

Unifund. Mike Hall testified that Robin Sullivan had been complaining to him about

the difficulty in obtaining work, and because of this introduction, Robin Sullivan

was able to establish his own relationship with Unifund for work on the west coast.

[37] Robin Sullivan also testified at trial. He explained that he was in the

construction business and was friends with Mike Hall. He confirmed that he learned

of Paul Davis Systems through Mike Hall. He also agreed that it was through Mike

Page 14

Hall that he was able to establish his own franchise on the west coast of the island

of Newfoundland, “Paul Davis Systems Western”, in 2008.

[38] There was evidence from an employee of 55668, Dwayne Kearney, that the

relationship between the two franchises was good and that equipment was often

shared. He testified that the St. John’s operation was larger and busier than Robin

Sullivan’s franchise on the west coast. Robin Sullivan agreed that the relationship

between the two franchises was good.

[39] Paul Davis Systems of Canada also expanded to other parts of Atlantic

Canada. Mike Hall stated that he assisted other franchises by providing his

expertise. He stated because of his efforts, in particular in attracting Robin Sullivan

as a further franchisee owner, Paul Davis Systems of Canada reduced the amount of

royalty payments from 55668 by 25 per cent. A condition of this reduction was that

the franchise remain up-to-date with payments, within a 90 day grace period.

[40] Despite the positive growth and activity of 55668, expenses also increased.

In 2009, 55668 took major steps to not only expand 55668’s scope of business but

also to move to larger and more expensive premises.

The leased premises at McNamara Drive

[41] Mike Hall testified that with the growth of the business, the business moved

on a couple of occasions. In 2009, 55668 secured a large space on McNamara Drive,

Paradise, NL that also required renovations to render it fit for the needs of the

business. Many of 55668’s employees handled that renovation work. Chris Winsor

testified that the renovations took approximately 6 to 8 weeks to complete. There

was a period of time in 2009 during which 55668 paid rent on two premises while

the renovations were completed, although it was unclear in the evidence the extent

to which this overlap in rental payments occurred. Chris Winsor estimated 55668

may have paid rent for two premises for a period of six months.

Page 15

The establishment of Canadian Roofing Solutions

[42] Both Mike Hall and Chris Winsor testified that in the course of 55668’s

projects, it was often necessary to subcontract work; especially in the area of roofing.

However, it was difficult to hire qualified roofers and there were complaints about

the quality of the work. To meet this demand, the two directors decided to establish

their own roofing company so that they could have control over this work. Mike Hall

testified that clients such as Unifund responded positively to the idea.

[43] Unfortunately, before so doing, neither Mike Hall nor Chris Winsor contacted

or involved Paul Davis Systems of Canada, to seek either their approval or assistance

with this venture. Nor did they consider the implications of starting another business

on the franchise agreement; in particular, the prohibition in the franchise agreement

from engaging in other businesses. Chris Winsor testified that at the time, he and

Mike Hall did not consider whether the creation of the new business put them in

violation of the franchise agreement, but thought because of the apparent need,

establishing the company would be a good idea.

[44] Although Mike Hall testified that Canadian Roofing Solutions was not a drain

or improperly drawing on the franchise’s resources, Chris Winsor testified that there

was overlap in managing the two businesses. He understood that the revenues were

kept separate, but there was “cross-over” as the two businesses were operating under

the “same roof”. The overlap was confirmed by other employees who testified, Larry

Walton and Glen Cook. For example, Larry Walton, who worked with the franchise

since 2007, testified that Canadian Roofing Solutions used the same phone system

as the franchise. Glen Cook also confirmed that assets of Canadian Roofing

Solutions were kept at the premises of 55668, although he did not know if 55668

shared assets with Canadian Roofing Solutions.

[45] I find as a fact that there was an overlap in running the two businesses insofar

as the use of the same premises, employees and infrastructure such as equipment and

payroll, to run the businesses.

Page 16

[46] Apart from the overlap of the roofing business with the franchise business,

Canadian Roofing Solutions suffered what Mike Hall described as a “major financial

setback” in 2009, when the one project that was independent of Paul Davis Systems

failed. Mike Hall testified that the value of the project was between $450,000-

$500,000. He stated that one third of the way through the project the contractor

defaulted on payments and he was forced to “call in the bond” in order to ensure

suppliers were paid.

[47] Chris Winsor testified that Canadian Roofing Solutions was never profitable.

The equipment costs were “outrageous” and Paul Davis Systems was the only

customer. He stated that if he had his time back, he would have never pursued this

venture.

Asbestos remediation

[48] Mike Hall testified that from his experience in the restoration business, many

buildings required asbestos remediation before renovations could be completed.

Given this, in 2009 he and Chris Winsor decided to have 55668 branch out into

asbestos remediation, and took the steps necessary to become certified. He stated

that the asbestos remediation business was to operate independently from the

franchise business. Specialized and expensive equipment was needed which meant

further expenses were incurred by 55668 to get the business established. It was

unclear in the evidence whether Paul Davis Systems of Canada had approved this

venture.

Industrial Cleaning

[49] A further business commenced around the same period was that of cleaning

industrial clothing, which meant further financial investment, including a new lease

from Farmington for a specialized washer and dryer. Again, it was unclear in the

evidence the extent to which, if any, Paul Davis Systems of Canada authorized this

venture.

Page 17

The deterioration of the relationship with Chris Winsor

[50] Mike Hall testified that a further complicating factor in running 55668, as well

as Canadian Roofing Solutions, in 2009 was the deterioration of his relationship with

Chris Winsor. With the two having been longtime friends, Mike Hall stated the

deterioration of their friendship was “like a divorce”. From his perspective, the main

issue was that Chris Winsor became involved in a personal relationship with a

former Co-operators adjuster, Kim Williams. Mike Hall stated that in 2009 she took

sick leave from the Co-operators and spent significant time in Chris Winsor’s

company. Mike Hall was concerned about the time they spent together, especially

while Chris Winsor was at work, given the potential for the appearance of, if not an

actual, conflict of interest. He described that often Kim Williams was at the premises

of 55668, and he was concerned she might have access to other files of 55668. He

learned that she in fact attended site visits on claims that did not have to do with the

Co-operators. He stated he spoke to Chris Winsor about the potential for creating a

conflict of interest with respect to non-clients of the Co-operators, but the problem

continued.

[51] To compound the financial and operational pressures on 55668 in 2009 (the

increased expenses, the addition of the above-described new businesses and

renovations to the newly leased premises), 55668 lost its two major clients: the Co-

operators and Unifund.

The loss of Co-operators Insurance business

[52] According to the witnesses, the Co-operators Insurance Company made up

almost 80 per cent of 55668’s business. However, sometime between 2008 and 2009

problems developed with individual restoration jobs. Not only were there

complaints regarding the quality of work, there was concern voiced of a potential

conflict of interest in the personal relationship between Chris Winsor and Kim

Williams, the adjuster with Co-operator’s. Complaints regarding the potential for

conflict of interest developed as early as the fall of 2008 (see for example, Exhibits

ML #3 and ML #5). In the spring of 2009, 55668 was suspended from the Co-

Page 18

operators’ roster of restoration companies with whom insurance adjusters were

entitled to contract. The loss of work meant a significant drop in revenue for 55668.

[53] The adverse impact from the loss of revenue was evident by mid-summer.

Royalty payments to Paul Davis Systems of Canada were late. This delay in

payments precipitated a series of emails from various personnel from the franchisor.

Around mid-August 2009, after several communications went unanswered or only

briefly responded to by Mike Hall, Stephen Robinson sent a formal memorandum

(Exhibit #1, Tab 42) to Mike Hall and Chris Winsor. Stephen Robinson expressed

not only his concerns with the delay in monies due to Paul Davis Systems of Canada,

he was concerned that the two directors had commenced a new venture, Canada

Roofing Solutions, without first getting approval from he and Ken Robinson.

[54] Mike Hall testified that the reaction of Paul Davis Systems of Canada to

establishment of Canadian Roofing Solutions was mixed, and that their main

concern was if or how the business could impact royalty payments. He stated there

was discussion back and forth about an arrangement that might work for both parties,

but there was “never a definitive no” to the business. Exhibit #1, Tab 42 suggests

that the reaction was more than mixed:

As you know, PDSC has been very patient with you and had given you a break on

your royalty. They have gone beyond being supportive of your business and now

have to react because of what has taken place. I have attached the part of your

Franchise Agreement which states that you cannot conduct a business other than

your Paul Davis business. (6.4 and 6.5). Based on your financials you have not

paid your taxes and are therefore in breach of the Operations Manual and MOR.

Non payment of taxes is a serious breach. It seems that you have been funding your

roofing company through your Paul Davis Company.

We believe that you have loaned the roofing business thousand [sic] of dollars,

while at the same time, not paying PDS Canada. I lack seeing the fairness in your

decision on this point. Ken and I have done everything from loan you money, to

teaching you on how to become a successful business owner and can tell you we

are both highly disappointed in your actions now.

[55] The memorandum continued:

Page 19

The Franchise Agreement is very clear on what is expected of you and what is

expected of us. We have no choice, but enforce this fully. You should have no

doubt that we cannot allow certain breaches to continue. …

[56] Stephen Robinson expressed concern that not only did Canadian Roofing

Solutions operate from the same premises as the franchise, used the same equipment

and the same employees, there was concern that the revenue generated by 55668

from Paul Davis Systems was being used to run the roofing business.

[57] The memorandum was also concerned with the financial health of the

franchise generally and referred to it as “again” being “insolvent”. (The reference

to “again” was to Mike Hall having had previously declared personal bankruptcy.)

The memorandum stated that as of the summer of 2009, while accounts receivable

were $157,552.28, accounts payable were $247,246.27. There was concern that

55668 was having to rent two premises at the same time, and the franchise was

behind not only in royalties, but statutory remittances.

[58] The memorandum advised the two shareholders that they had “15 days to

provide the following remedy”, and then listed a number of specific tasks to be

performed; including furnishing information about the particulars of Canadian

Roofing Solutions. The memorandum ended with what might be seen as a warning:

It is unfortunate we have arrived at this point as all could have been prevented by

simply heeding our advice and following your franchise agreement. I don’t want to

be forced to close your franchise, but it seems that that [sic] the franchise is being

operated as if no agreements have been signed and no rules need be followed.

[59] Mike Hall testified he did not recall that the memorandum included 15 days

notice to complete the steps to remedy the situation. He did however immediately

respond to the memorandum with an email (Exhibit #1, Tab 43) advising Stephen

Robinson that “we feel confident that we will rebound from our seeming financial

low we are enduring”. He also took “exception” to the assertion that the other

business ventures were financed by the franchise, and stated in the email:

Page 20

Our other ventures are supporting and fostering the growth of PDS, which will carry

our parent company to the next level and allow us to repay our outstanding AP.

[60] The email was signed as “Your friend, Michael”. Mike Hall testified that in

his view, Canadian Roofing Solutions was an independent business that did not

adversely affect the business interests of the Paul Davis Systems franchise. Chris

Winsor stated in his testimony that he also disagreed with the head office that

royalties should be paid to Paul Davis Systems of Canada from Canadian Roofing

Solutions’ revenue.

[61] Mike Hall provided the information regarding Canadian Roofing Solutions as

requested in the August memorandum. In an email sent September 2, 2009 (Exhibit

#1, Tab 45), Mike Hall tried to assure the Robinson brothers that the franchise was

on track, and that they were committed to paying outstanding royalties, which at that

point were in excess of $48,000. Although the email from Mike Hall maintained a

friendly and even joking tone, the response from Ken Robinson was less so:

Hi Mike and Chris

Thank you for providing the information requested. I will review immediately upon

receipt and get back to you.

Steve and I are very concerned about your organization. You have moved forward

with many initiatives this past year and been bitten by a few of them. We have both

seen and experienced this type of situation before and the outcome is usually very

bad. We both hope you will become very successful business people. Let’s hope

this path does not prove fatal.

I have often said to my employees in the past, don’t mistake my kindness for

weakness. Because I will always do what is necessary. Please don’t mistake me.

That being said, I do consider you both friends and I’m sure we can get you back

on the path. But you must be willing to listen!

Best wishes.

Ken Robinson

Page 21

[62] Upon review of the financial information forwarded by Mike Hall, on

September 10, 2010 Stephen Robinson sent a further memorandum to both Mike

Hall and Chris Winsor, outlining the concerns of Paul Davis Systems of Canada

(Exhibit #1, Tab 47). He confirmed the Robinson brothers’ view that not only were

55668, Mike Hall and Chris Winsor in breach of the franchise agreement, Stephen

Robinson reminded Mike Hall and Chris Winsor that there were “outstanding A/R

issues” and that the failure to address this problem could result in termination of the

franchise. He wrote:

It needs to be clearly understood that the St. John’s franchise could be terminated

for these breaches. It is not our intention to do so at this time, but all issues must be

resolved.

[63] Mike Hall responded to Stephen Robinson’s email agreeing with “some

points” but reaffirming his view that the roofing company operated independently

of the franchise. He stated that the company would continue to dispute that Paul

Davis Systems of Canada was owed royalties from revenue of Canadian Roofing

Solutions. With respect to being in breach of clauses 6.4 and 6.5 of the franchise

agreement, he stated:

We see our dilemma as to the conflict of interest presented in our FA in sections

6.4 and 6.5 and we are seeking legal opinion as to a remedy.

[64] In the email, Mike Hall stressed the desire to resolve the conflict and remain

on good terms with the head office. He expressed that he and Chris Winsor were

willing to “make the necessary changes to the present structure” of Canadian

Roofing Solutions so that “both PDSC and PDSJ will be happy with the

compromise”.

[65] Stephen Robinson responded to this email in a more conciliatory tone than

earlier emails. He stated: “we do understand the reasoning behind your decision to

open a roofing business”. He also supported Mike Hall discussing the issue with a

lawyer, explaining that “[w]e (PDSC) don’t have many options but to enforce the

agreement and let the process take its course”. Stephen Robinson also stated that one

option open to Mike Hall, once they received legal advice, was to pursue arbitration.

Page 22

He reminded Mike Hall that Paul Davis Systems of Canada had not received any

payments from 55668 in “6 to 7 months”.

[66] Ken Robinson testified that if the royalties from Canadian Roofing Solutions

had been paid to Paul Davis Systems of Canada, they would have approved of the

business. This supports Mike Hall’s testimony that a share of royalty payments from

Canadian Roofing Solutions’ revenue was the Robinsons’ primary concern. On

cross-examination, Ken Robinson agreed that there were other franchisees who

operated businesses in addition to their franchises. He agreed that Robin Sullivan

operated a construction business as well as the west coast franchise. Ken Robinson

distinguished Robin Sullivan’s situation from that of Mike Hall and Chris Winsor in

that “Robin was doing everything right” in making the required payments; whereas

with Mike Hall and Chris Winsor, the concern was that the other businesses were a

“distraction”.

[67] In October 2009, an agreement to address the late royalty payments from

55668 was reached (Exhibit #1, Tab 48). It was signed by Mike Hall, Chris Winsor

and Stephen Robinson. Apart from the payment regime to address monies owed to

Paul Davis Systems of Canada, 55668 was not permitted to assume new debt for

equipment. The agreement also included the following statement in bold type:

Please note that this is a notice of Non-Compliance as per the Operations Manual,

Booklet III, MOR, where stated that each Franchise shall pay all sums due to the

Franchisor as and when due. Failing to do so will result in a monetary ($500.00) or

network penalty (lose right to vote/awards/termination).

[68] Although no agreement was reached as to whether royalties were owed by

Canadian Roofing Solutions, Mike Hall testified that he thought “things were

settling down” and a plan was in place.

Page 23

The meeting in November, 2009

[69] Around early November 2009, both Ken and Stephen Robinson came to St.

John’s when the opening was held for the new premises at McNamara Drive. Both

Robinsons testified that they did not visit to celebrate the opening of the new

premises, but to have a frank discussion with Mike Hall and Chris Winsor about the

state of finances of the St. John’s franchise.

[70] Chris Winsor testified that at that meeting, the brothers were upset about the

“outstanding issues”. He testified that Stephen Robinson stated that the franchise

was insolvent, to which Chris Winsor stated he did not appreciate the comment, and

did not agree. He thought business was “good”, as at that point work was “still

coming in”. However, he also testified that at that time he did not know the full state

of affairs with the finances of both 55668 and Canadian Roofing Solutions.

[71] Mike Hall testified that at the meeting, in looking for a way to resolve the

financial difficulties of 55668, Ken Robinson suggested that one option was for the

business to be sold. Mike Hall stated he was open to selling the franchise. He stated

that the brothers indicated to him that they had a buyer. During this meeting, Mike

Hall stated that he was advised by the brothers that Robin Sullivan was a possible

buyer for the franchise. Both Ken and Stephen Robinson denied having said this;

nor did Chris Winsor confirm that Robin Sullivan was mentioned as a potential

purchaser. He did agree on cross-examination that approximately six months prior

to the termination of 55668’s franchise, Robin Sullivan told him that he, Robin

Sullivan, would be the new franchisee.

[72] Robin Sullivan denied that he had been interested, or even approached by the

Robinsons, to purchase the franchise in the fall of 2009. He also denied that he told

Chris Winsor he would be the new franchisee. Robin Sullivan testified that he was

aware of the trouble faced by 55668, and was concerned how it might affect his

operations on the west coast. He testified he was not approached by the brothers to

possibly take over the franchise until after Christmas of 2009, or early January 2010.

Page 24

[73] I accept that there was discussion at the meeting in November 2009 that an

option for the resolution of the franchise’s financial woes was to sell the franchise.

I also accept that Robin Sullivan’s name may have come up in the meeting. I also

accept Chris Winsor’s testimony that Robin Sullivan advised him that he was going

to be the new franchisee, but have difficulty accepting that this occurred six months

prior to the termination of 55668’s franchise agreement. I agree with Robin Sullivan

that it is more likely that he was approached by the brothers around Christmas 2009,

or early January 2010, when 55668 lost its second major client, Unifund.

The loss of Unifund

[74] Despite coming to an agreement in October 2009 as to how to return the

business to more solid financial footing, towards the end of November 2009, 55668

suffered another major financial setback. Unifund suspended 55668 as a potential

contractor for restoration work. Mike Hall testified that there was no formal notice,

but he learned of the suspension while on a snowmobiling trip in the Rocky

Mountains with Robin Sullivan. Mike Hall stated that he received a phone call from

Michelle Stack, the close friend and business associate from Unifund, who advised

she had been fired from the company.

[75] Mike Hall pursued the matter further with the regional manager at Unifund,

Gerard Corcoran. A series of emails were tendered showing correspondence

between the two (Exhibit #1, Tabs 49-50). In a lengthy email on December 1, 2009,

Mike Hall requested to meet with Gerard Corcoran to try and resolve the suspension.

In the email, he described the franchise as a “loyal service provider” and took

“enormous pride” in the position the franchise had held with Unifund. The email

response from Gerard Corcoran was telling:

[You have] no clue of the present state of affairs we (Unifund) finds itself in thanks

to the lack of attention and control of several restoration jobs currently ongoing

with your company. Over the past several weeks (and actually months) PDS has

done anything but “make Unifund look good”.

We have adjusters scrambling to get control of several files that have gone clearly

off the rails because of the incompetence [shown] by your staff by not “doing the

Page 25

right thing” and not “keeping control of the situation” when it comes to major

restoration --- needed in a timely manner.

[76] Gerard Corcoran stated in the email that until matters were under control, he

would not discuss the situation with Mike Hall.

[77] Whether the work done by 55668 for Unifund was of less than satisfactory

quality was not pursued in detail at trial. However, Gerard Corcoran testified that

from his recollection, there were problems with particular restoration projects. He

agreed on cross-examination that there could also be unreasonable clients. He

testified that one concern was not so much about the quality of the work, but that

55668 had obtained a larger share of restoration work than was typical. That

imbalance had to be rectified and was part of the reason for the suspension. While

he agreed that the suspension of the franchise was not necessarily permanent, he

stated that as long as Mike Hall was associated with Paul Davis Systems, Unifund

would not use the franchise for restoration work. I accept as a fact that by the end

of November, 2009, Unifund no longer wished to utilize Mike Hall or 55668 for

restoration work.

[78] The loss of both Unifund and Co-operators for 55668 meant that by the end

of December 2009, 55668 had lost its major sources of revenue.

[79] Mike Hall stated that in late December or early January 2010, he had

discussions with Robin Sullivan. According to Mike Hall, Robin Sullivan expressed

an interest in purchasing the business and was willing to discuss coming to an

agreement. Mike Hall stated that in the meantime he also considered other potential

buyers and even raised another specific potential buyer, Henry Power, with Chris

Winsor. Robin Sullivan did not confirm the conversation. I find as a fact there was

a conversation between Robin Sullivan and Mike Hall about selling the franchise, in

late December 2009 or early January 2010.

Page 26

The events of January 2010

[80] Matters came to a head in January of 2010.

[81] Mike Hall testified that in his view, the deterioration of his relationship with

Chris Winsor contributed negatively to business. He decided Chris Winsor should

be removed from managing the business. Rather than approaching him directly, or

taking any of the steps as established in the unanimous shareholder agreement, on

January 3, 2010 Mike Hall sent an email advising several employees that Chris

Winsor and he would be “parting ways” (Exhibit #1, Tab 55). He forwarded a

similar email to Ken and Stephen Robinson approximately an hour later. He did not

send the email to Chris Winsor. Chris Winsor stated that he found out about the

email from one of the recipients, Dwayne Kearney.

[82] Chris Winsor stated upon learning of the email, his first concern was that he

was losing his job. He telephoned Ken Robinson and was advised by him that Mike

Hall could not “do this” as it would be in breach of the franchise agreement. Chris

Winsor then wrote Mike Hall an email and advised him accordingly. At the direction

of the Robinsons, the four individuals spoke in a conference phone call the next

morning.

[83] Mike Hall stated that in that phone call he was told by the brothers to send out

a retraction regarding Chris Winsor or there would be no “further dialogue”

regarding helping out the franchise. Mike Hall stated that he was told that he had no

authority to “break” his relationship with Chris Winsor, but had to obtain

authorization from the head office. Mike Hall described the direction to him to either

“back down” or it would be the end of the relationship with Paul Davis Systems of

Canada. Mike Hall stated that, for that reason, he sent an email to the Robinsons

confirming that he would not pursue removing Chris Winsor as a director or

shareholder of 55668 (Exhibit 1, Tab # 58).

[84] Chris Winsor testified that when he learned from Dwayne Kearney of Mike

Hall’s intention to remove him from the franchise, while he was worried about losing

Page 27

his job, he also wanted to quit. However, he testified that Ken Robinson convinced

him to stay with the franchise. After the phone conference in which the Robinsons

directed Mike Hall to retract the email purporting to remove Chris Winsor as a

director of 55668, Chris Winsor emailed the brothers advising that he would

continue to work for and “support” the franchise “until I am directed from PDSC.”

He advised he would update the brothers over the next month, and thanked them for

their support.

January 22, 2010

[85] Mike Hall testified that after the phone call on January 4, 2010, his

relationship with both of the Robinsons and Chris Winsor became tense. There was

little communication thereafter.

[86] Chris Winsor testified that after the phone call with the Robinson brothers,

and during the month of January 2010, Mike Hall’s behavior was “unpredictable”.

In particular, on the afternoon of Friday, January 22, 2010 during business hours, he

noticed Mike Hall removing equipment and items from the workshop area of the

premises. He could not recall exactly what was taken, except tools and a snow-

blower, but he became concerned because he did not know what Mike Hall was

removing or why. There were items that belonged to homeowners or other clients of

the insurance companies stored at the premises while restoration work was done.

Chris Winsor knew that the franchise was responsible for the safekeeping of this

property while at its premises.

[87] He also became aware that on the same date, that Mike Hall had directed

55668’s bank to remove overdraft protection on its account. Mike Hall then

transferred approximately $15,000 from 55668’s bank account to the bank account

of Eastern Restorations Limited. Mike Hall testified that he transferred the money

because Eastern Restorations Limited had loaned this money to ensure that 55668

would have the necessary overdraft protection on its account.

Page 28

[88] Chris Winsor stated that he telephoned Ken Robinson the same day “looking

for direction” as to what he should do. He stated that Ken Robinson told him to

“change the locks”. On cross-examination by counsel for Paul Davis Systems of

Canada, Chris Winsor qualified what Ken Robinson said to “he told me I could

change the locks”. Under further cross-examination by counsel for the Plaintiffs,

Chris Winsor confirmed that it was Ken Robinson’s idea to change the locks. He

stated he did not know of any authority under the franchise agreement to take such

action but assumed there was authority given it was what Ken Robinson told him to

do. He followed this direction and had the locks changed by an employee. He then

sent an email both to Ken Robinson and Robin Sullivan (Exhibit #1, Tab 64)

advising of having changed the locks. He testified that his concern was to ensure

that the property of third parties, and the contents of the building generally, were

safe.

[89] Ken Robinson testified that while he had a conversation with Chris Winsor he

did not direct him to change the locks at the premises. He may have suggested it as

an option. He testified his main concern was to ensure that any property belonging

to customers stored at the premises was protected from harm.

[90] Mike Hall stated that on January 22, 2010 he received a call from one of the

managers, Larry Walton, that the locks to the premises of McNamara Drive had been

changed. Mike Hall testified he tried the locks himself the next day, which was a

Saturday when the offices would normally be closed, and was unable to access the

premises.

[91] Larry Walton testified that he was the person who actually changed the locks.

He was instructed to so do by Chris Winsor, and then was told that he and other

employees were not to allow Mike Hall into the premises except during business

hours, and through the front door. He testified that at the time he had no concerns

that Mike Hall was removing assets of 55668 or insurance clients from the premises.

[92] Dwayne Kearney similarly testified that he was also instructed to not allow

Mike Hall on the premises. He testified that because of what happened, the “drama”

as he described it, employees were concerned whether or not they would have a job.

Page 29

He also testified that before January 22 he did not see Mike Hall remove any property

from the premises. He did not know if Mike Hall removed any of his personal

property, but testified “I’m sure he did”. Dwayne Kearney testified that he was told

by Chris Winsor to report if Mike Hall came to the premises.

[93] Glen Cook, another employee of 55668, confirmed that Chris Winsor advised

that the locks were changed. He understood from Chris Winsor that the direction to

do so “specifically” came from Ken Robinson. He testified he remembered this

because he remembered stating “that’s going to have implications down the road”.

The termination of the franchise agreement

[94] On January 26, four days after the locks were changed at 55668’s premises, a

letter (CW #3, Tab 12) was sent from Paul Davis Systems of Canada to both Chris

Winsor and Mike Hall advising that the franchise agreement was being terminated

under article 17 of the franchise agreement. The termination was for “failure to

maintain business practices in accordance with the Paul Davis Systems Operations

Manual”. The failure was as per article 17.1(A) of the franchise agreement by failing

to pay “sums” as required. As a termination under article 17.1, the termination

should have included the 15 day notice period for 55668 to “cure” the failures.

However, the notice provided no option to remedy the failures, in particular the late

royalty payments. The termination notice also cited article 6.2b for:

“failing to conduct business as per the Franchise Agreement: Franchisee agrees to

carry on, conduct and operate the business contemplated by this franchisee

agreement on a full time basis, …etc.”

[95] The citation of the relevant article number as 6.2b appears to have been in

error. The text of the article cited as 6.2b is in fact the text of articles 6.4 and 6.5 of

the franchise agreement referred to earlier in this judgment. Article 6.2b of the

franchise agreement refers to unrelated subject matter. Nothing turns on this

apparent error in the letter, as it was clear from the evidence, and the parties agreed,

that the basis for the termination of the franchise was because of the failure to pay

Page 30

the required royalties, and that 55668, by operating a separate business, Canadian

Roofing Solutions, violated articles 6.4 and 6.5.

The new franchise agreement with 61791 and Robin Sullivan

[96] On February 6, 2010, less than two weeks after the termination of the

franchise agreement with 55668, Paul Davis Systems of Canada signed a franchise

agreement with Robin Sullivan and 61791, his newly incorporated company (RS #2,

Tab 10). The new name of the franchise was “Paul Davis Systems Eastern”.

[97] Neither Robin Sullivan nor the Robinson brothers could recall with precision

when Robin Sullivan was approached or agreed to run a franchise for Paul Davis

Systems in eastern Newfoundland and Labrador. Chris Winsor also initially testified

that he was unsure at what point he knew that Robin Sullivan was going to take over

the franchise, notwithstanding that he also testified that Robin Sullivan had told him

he would be the new franchisee six months earlier. However, on cross-examination,

Chris Winsor agreed he must have known at least by January 22, because he would

not otherwise have advised Robin Sullivan that the locks had been changed. Chris

Winsor also agreed that after the locks were changed he took direction from Robin

Sullivan. He stated that there was a two-week period before the locks were changed

where he was given no direction by anyone.

[98] Gerard Corcoran from Unifund confirmed email communication with Robin

Sullivan as early as January 18, 2010 (Exhibit 1, Tab 63) in which Robin Sullivan

advised he was taking over the Paul Davis Systems franchise in St. John’s. The

email from Robin Sullivan to Gerard Corcoran states:

Hi Gerard, I think that we haven’t officially met but I am told that Jason Hicks and

Todd Blake have spoken to you in the past with regards to our work here on the

west coast of the province. I have been in conversation with Ken Robinson of PDS

Canada and the PDS staff out in St. John’s with regards to the current issues in that

location. I have been engaged to take over the business out there in an effort to right

some of the wrongs that have been done.

Page 31

I am coming to St. John’s to begin this task and would like to ask for the

opportunity to meet with you to discuss the issues so that I can or we can resolve

them with the hopes of doing work in the future for your organization. Please let

me know a time that I might come and speak with you in the next day or so. Just 5

minutes would do.

[99] Although Robin Sullivan could not recall the email, he did not dispute that he

would have met with Gerard Corcoran in the course of doing his “due diligence” to

determine whether or not he would take over the franchise. He did not agree that he

had made a final decision to assume the franchise at that point, but was still doing

his “due diligence”. Robin Sullivan stated that not only Unifund, but other suppliers

or contractors used by Paul Davis Systems in St. John’s did not want to hire, or be

hired, if Mike Hall was associated with the franchise. Many suppliers had not been

paid, and their relationships with the Paul Davis Systems franchise in St. John’s were

strained. Robin Sullivan testified he had to meet with suppliers and clients to see if

they would accept further business from the franchise with him at the helm, and it

was for this reason he met with Gerard Corcoran.

[100] Even earlier there was correspondence from Jim Johnson to Ken Robinson (J.

Johnson #3) dated January 13, 2010 before the termination of the franchise

agreement that stated:

… I spoke to Chris Winsor; who is very optimistic that the business will survive.

He indicated that he is waiting for a decision from you (head office) on the future

plans for St. John’s.

[101] Larry Walton, who kept a diary to keep track of work for the franchise (LW

#1), had noted on January 25, 2010, before the new franchise agreement but after

the locks were changed, to provide Robin Sullivan with a list of “courses and

contacts”.

[102] Similarly, Dwayne Kearney testified that on January 29, 2010 he went to the

west coast of the island to help out with that franchise, while Robin Sullivan came

to St. John’s to conduct business in relation to the St John’s operation. Robin

Sullivan also agreed these events occurred. January 29, 2010 would have been after

Page 32

the termination of the franchise agreement with 55668, but prior to Robin Sullivan

signing the new franchise agreement with Paul Davis Systems of Canada in

February.

The transition from 55668 (Paul Davis Systems St. John’s) to 61791 (Paul

Davis Systems Eastern)

[103] Although the new franchise agreement for 61791 was in place by early

February 2010, it took several weeks for the operations that related to Paul Davis

Systems to be transferred from 55668 to 61791. Chris Winsor testified that he

understood that Mike Hall was going to continue with the roofing business. While

55668 would clue up any outstanding work for Paul Davis Systems, 61791 would

take over new work that appeared.

[104] During this period, the same employees were working for 55668 and 61791.

Both Robin Sullivan and Chris Winsor testified there was an effort to have

employees paid by 55668 or 61791, depending on for whom work was being done,

but the delineation was not clear. There was overlap as to which company paid

which employee and when. For example, a check stub was filed for Larry Walton

showing that for the weeks February 22, 2010 to March 3, 2010, after the franchise

agreement was terminated with 55668, he was paid by 55668; although he was also

assisting Robin Sullivan in organizing the new franchise. By April 2010, it appears

the employees were all transferred to 61791’s payroll.

[105] There is ample correspondence during February and March 2010 that suggests

that, for the most part, there was an amicable tone to the negotiations to the transfer

of operations from 55668 to 61791. In particular, the email correspondence from

March, 2010 described in Exhibit #1, Tabs 81, 82, 85, 87, shows that the parties not

only came to an agreement on the assignment of the lease held by 55668 for

McNamara Drive, but they were working towards an agreement on the assignment

of 55668’s equipment and infrastructure.

Page 33

The transfer of the lease of premises at McNamara Drive

[106] The assignment of the lease was finalized on March 29, 2010 (Exhibit #1, Tab

13), and signed by Mike Hall and Robin Sullivan. Robin Sullivan testified that he

did not want to lease McNamara Drive because in his view the premises were larger

than what was needed to run the franchise. However, he testified that work started

coming in almost immediately for the new franchise. He needed not only space

immediately within which to run the franchise; he also wanted to assure clients like

Unifund that the new franchise was in control of the premises and business. For this

reason, he testified he was willing to assume the lease. I accept his testimony that

this was why he assumed the lease.

[107] The lease, as had been arranged between 55668 and the owner of the building,

included an option to purchase the building at the end of the lease period. The

purchase price was just under one million dollars, less the rent that was paid during

the term of the lease. Included in the assignment to 61791, was a further clause that

61791 agreed to pay $50,000 to 55668 if, at the end of term of the lease, Robin

Sullivan and 61791 decided to purchase the premises rather than continue to rent.

[108] There was a conflict in the evidence as to the purpose of this clause. Robin

Sullivan testified that this clause was to accommodate Mike Hall’s concern that

55668 be reimbursed for the improvements made by the company to the premises

when it had renovated the building. Under cross-examination, it was put to Robin

Sullivan that the $50,000 represented reimbursement for monies 55668 had already

paid under the lease. Robin Sullivan disagreed.

[109] Part of the email correspondence on the terms of the lease assignment and

transfer of operations included exchanges about compensation for the leasehold

improvements. In an email dated March 23, 2010 (Exhibit #1, Tab 85), Mike Hall

stated:

… In discussions with my lawyer, it is clear that unless you are willing to

compensate Chris and I for our leasehold improvements, I’m not willing to sign the

assignment …

Page 34

[110] Robin Sullivan responded:

Fair enough. As for the leasehold improvements, I guess it would be easy enough

then to put a clause in the assignment of the lease that if I decide to stay in the

building and ultimately buy it out, which is not happening because it is too big for

us, then at that time I would reimburse you for some of the costs of the

infrastructure. Does that solve the assignment issue with you? All we have to do is

come to terms on a more reasonable value of the infrastructure and that is put to

bed.

As for the assets, Chris has to put all the information together and then I can finalize

my list for the agreement.

Sound good?

[111] Mike Hall responded back “Sounds good old friend!!”

[112] Mike Hall denied in his testimony that the purpose of the $50,000 payment

clause was to accommodate his concern that the improvements to the premises be

accounted for in the transfer of assets. He stated that the clause was “earmarked for

the opportunity Robin Sullivan was given to take over the lease agreement”. Mike

Hall testified that he signed the lease under duress and compulsion and if he had

known that he would be treated dishonestly he would never have signed.

The transfer of assets and equipment

[113] There was both leased equipment as well as equipment owned by 55668 that

was transferred from 55668 to 61791.

[114] With respect to equipment owned by 55668, by March 18, 2010, Chris Winsor

prepared a list with estimated values in dollars beside each item (Exhibit #1, Tab

82). The total value of the assets in this list was estimated to be $157,000. This

amount included a value of $75,000 for “building infrastructure” to account for the

improvements that had been made by the renovations to the leased premises. This

Page 35

list was forwarded by email to Mike Hall on the same day. He responded by email

(Exhibit #1, Tab 81): “Looks good to me”. Although the list was not attached to

this email exhibit, given the timing of the emails I am satisfied this response was

made regarding the list.

[115] At trial, Mike Hall disputed that he agreed that this was a “complete” list of

the assets of 55668. Nor did he agree with the valuations. He testified that the item

“GMC van caps” on the list valued at $4500 was inaccurate, as there were three such

caps, which he would have valued at $7500 each. He testified that when he sent the

email saying “Looks good to me”, he did not think this list was final, but was a

starting point.

[116] There was difficulty in coming to agreement, not solely regarding the value

of the equipment; but how compensation for the acquisitions was to be effected.

Rather than pay 55668 directly, Robin Sullivan wanted to pay debts outstanding to

creditors who were continuing suppliers or contractors used by the Paul Davis

Systems franchise. However, Mike Hall testified that he did not agree that this was

how the money should be used, if the money was not going to come directly to

55668. He was more concerned with paying creditors such as Revenue Canada or

Workplace Safety NL (see for example Exhibit #1, Tab 100), in which Mike Hall

emailed Chris Winsor that he would only allow the sale of one of the vehicles if “the

full proceeds go toward the Revenue Canada Remittance balance”).

[117] On April 16, Chris Winsor emailed Mike Hall to tell him Robin Sullivan “has

agreed to buy all the assets from 55668 for the prices that we had listed”. Chris

Winsor testified he was referring to the list with values that had been prepared on

March 18, 2010 (Exhibit #1, Tab 103). Before Mike Hall responded to this email,

Chris Winsor also emailed Mike Hall regarding payments on two vehicles owned by

55668, and other equipment (Exhibit #1, Tab 102). Mike Hall responded to this

second email first, stating: “When is Robin making the payment for the equipment?”

[118] Mike Hall then responded to the first email about Robin Sullivan having

agreed to purchase the assets, and stated:

Page 36

I will agree to the sale of these assets when the cheque has been delivered to our lawyers.

...

[119] Chris Winsor testified that he took these responses as agreement from Mike

Hall with the list and values as the proposal for Robin Sullivan. Mike Hall testified

that when he wrote this email, he was “wondering what was going on with the

assets”.

[120] An agreement was signed and dated April 30, 2010 (Consent #1, Tab 14). The

assignment agreement contained the original list prepared by Chris Winsor without

the item “building infrastructure”, as that had been accommodated in the lease

assignment signed in March 2010. The value of the assets to be assigned to 61791

was also as per the original list except as reduced to account for the removal of the

building infrastructure value of $75,000. The amount of money to be paid for the

remaining assets was $70,000.

[121] There was a Schedule “A” attached to the agreement which was a list of

inventory different than the list prepared by Chris Winsor on March 18, 2010.

However, the March 18 list was included (less the item “building infrastructure”) as

Schedule “C”, and Schedule “A” referred to Schedule “C” list of items where

necessary. As well, the $70,000 did not initially include the harmonized sales tax

(HST). Chris Winsor initialed and wrote in handwriting on the agreement that HST

was to be added to the $70,000. Chris Winsor and Larry Walton also initialed all

the pages of the agreement.

[122] In terms of payments to creditors of 55668, the agreement stipulated:

Whereas the assets as noted in Schedule “A” of the assignor will be sold as is where

is to the assignee for noted compensation of $70,000.00 CDN HST inclusive, which

will be paid out solely to the creditors listed in Schedule “B” for compensation of

debt owed to them by the Assignor noted above. The above noted compensation

will attempt to pay off debts owed by the assignor to the credits to the extent that

the above notes compensation will allow. The Assignee extends no guarantee that

the creditors will be paid in full and in no way is the Assignee responsible for these

debts or any others owed by the Assignor.

Page 37

[123] Chris Winsor testified that he believed the $70,000 was used to pay the

creditors listed in Schedule “B” of the agreement. He testified that both he and

Robin Sullivan decided which creditors to pay and chose to pay those creditors with

whom the franchise needed to maintain a business relationship. The creditors listed

in Schedule “B” did not include creditors that Mike Hall testified he wanted paid,

such as Canada Revenue Agency. At trial, Robin Sullivan and 61791 tendered a

summary of payments totaling $89,418.05, made by 61791 to creditors of 55668 (RS

#3). Many of the vendors paid were the same vendors listed in Schedule “B”, and I

accept that RS#3 is an accurate account of creditors of 55668 that were paid by

61791.

[124] RS #3 also listed payments by 61791 for vehicles and miscellaneous items,

for $19,605 and $5,650 respectively. It appears this money went directly to 55668,

as evidenced by deposits from 61791 to 55668’s bank accounts. I also accept that

this money was paid by 61791 for the vehicles of 55668.

[125] Although the list prepared by Chris Winsor on March 18, and as attached as

Schedule “C” to the assignment agreement contained the item “GMC Van”, it

appears that most of the vehicles were handled separately from the April 30, 2010

agreement. An email from Larry Walton to Robin Sullivan on March 25, 2010

(Exhibit #1, Tab 94) listed a number of vehicle purchases by 61791 from 55668,

including three vans (1 Ford, and 2 Dodge) and a “Ford Cube Van”. There was also

a steam cleaner and a “drain vac” listed. The individual amounts paid for the items

were also listed beside each item and totaled $23,500.

[126] Mike Hall did not sign the agreement to assign the assets and asserted at trial

that he never agreed to the terms of this agreement. Mike Hall testified he did not

know it had been executed until it was forwarded to him and his lawyer in early June

2010 (Consent #2, Tab 115). Upon receipt of a copy of the assignment of assets

agreement, then counsel for Mike Hall and 55668, wrote a letter to Robin Sullivan

(Consent #2, Tab 115) challenging its legitimacy. Mike Hall testified that when he

became privy to the agreement, he told Robin Sullivan that he “would see him in

court”.

Page 38

[127] Mike Hall further testified that the manner in which the creditors of 55668

were paid by Chris Winsor and Robin Sullivan meant that the unpaid creditors of

55668 started approaching him for monies owed. Often they were directed to him

by Chris Winsor; particularly if it was a creditor for whom Mike Hall had provided

a personal guarantee. Both Robin Sullivan and Chris Winsor testified that their

concern was to ensure creditors with whom Paul Davis Systems needed to maintain

a relationship were paid.

[128] Mike Hall made arrangements with some creditors, such as Bell Mobility,

Honda, and Workplace Health and Safety NL to pay debts. The money owed to

Workplace Health and Safety NL was $44,365.21. Debts totaling $28,302.26 to

several other creditors were not paid. A further $10,000 was paid by Mike Hall on

behalf of Canadian Roofing Solutions to a creditor (J.N. Baird & Company), as part

of a settlement (Exhibit M.H. #7).

[129] The Farmington leases were handled independently of the agreement to

transfer the assets. The leased equipment was transferred generally without issue;

although Robin Sullivan testified that in his view, the leases he entered into with

Farmington were new leases, as he renegotiated the dates of commencement and

termination. The email (Exhibit #1, Tab 94) regarding the purchase of vehicles also

referred to leases that were to be sent to Robin Sullivan. It contained the line “two

trailers, drying equipment, soda and ice blasters”.

[130] However, the transfer or renegotiation of the lease for the specialized washer

and dryer was delayed. There was correspondence from Jim Johnson in March 2010

which suggested, at least initially, that 61791 would not assume this lease (J. Johnson

#2, Tab 75). However, it appears that at some point 61791 did take over the lease,

as a copy of that lease was filed with the court (Exhibit #1, Tab 6). The

commencement date was July 1, 2010.

Page 39

The disposition of Canadian Roofing Solutions assets

[131] At the time the franchise agreement between Paul Davis Systems of Canada

and 55668 was terminated, like 55668, the financial picture for Canadian Roofing

Solutions was not strong. There were outstanding debts, and apart from the one

major project, there was little revenue being generated.

[132] Soon after the locks were changed, Mike Hall sent an email to Kent Building

Supplies (Exhibit #1, Tabs 65-66) advising that he would be continuing on with the

roofing business without Chris Winsor. However, there was also evidence that Mike

Hall intended to and did sell the assets of the business to help realize some of the

outstanding debt. Fred Stack, a retired firefighter who was acquainted with the

Plaintiff, Mike Hall, testified that he purchased the equipment. He testified he had a

conversation with Mike Hall about buying the equipment in 2010, and purchased it

around August of 2010. He stated he thought it was a “good deal” as the equipment

was in good condition. He testified he paid $7000. Copies of two cheques tendered

from the banking records of August 2011 showed that Fred Stack paid a total of

$8000. Mike Hall testified that he used the money paid by Fred Stack to pay debts

of Canadian Roofing Solutions. The business was discontinued.

The personal items of Mike Hall

[133] There was evidence that several items that belonged personally to Mike Hall

were at the premises of McNamara Drive when the locks were changed. Although

there was continuous correspondence back and forth between Mike Hall, Chris

Winsor and Robin Sullivan regarding Mike Hall’s retrieval of these items, this did

not occur for some time. Mike Hall did eventually retrieve at least some of the items.

It was not clear in the evidence what was missing, if anything, when Mike Hall was

finally able to retrieve the items.

Page 40

The financial evidence

[134] Financial reports for both 55668 and Canadian Roofing Solutions were filed

by consent (Consent MP #5, Supplementary Book of Documents, Tab 9). Similar

financial statements were filed for 61791 (Consents 7-24, Tabs 18-35). Although the

financial statements were not established as having been audited or externally

verified, the parties were in agreement that the statements were generally

representative of the financial health of all three companies.

[135] As well, bank statements of 55668 between February 2010 and July 2010

(Consents #37-43, Tabs 173-179) showed that deposits to 55668’s account totaled

$550,863.08. There was further evidence that between January 22-28, 2010, 55668

received $51,289.61 in deposits. This revenue was explained as payment for projects

that had either just finished, or were finished during 2010.

THE EXPERT TESTIMONY

[136] Michael Power, a chartered accountant, testified on behalf of the Plaintiff

55668, and Errol Soriano testified on behalf of the Defence. Both were qualified as

experts in business valuation.

The evidence of Michael Power

[137] The admissibility of Michael Power’s testimony as an expert was challenged

both on the basis of his qualifications and alleged impartiality. After a voir dire, I

was satisfied that Mr. Power was both qualified to give expert opinion and was an

impartial witness.

[138] The evidence on the voir dire was that Mr. Power has been a chartered

accountant, managing his own firm since 1979. With over forty years’ experience as

Page 41

a chartered accountant, he had previously testified in the Supreme Court of

Newfoundland and Labrador on matters relating to taxation and accounting. He did

not specify the number of times he has been qualified as an expert in accounting or

whether he had been previously qualified to give expert opinion on business

evaluation. He testified, however, that in the course of his work as a chartered

accountant he developed a niche, advising clients on the financial implications in

acquiring businesses. This required him to assess the value of a particular company

including an assessment of the business’ current worth, and expected future

profitability. He explained this work also included advising clients on the value of

the goodwill of a company that was a prospective purchase. On cross-examination,

Mr. Power conceded that he did not have the formal designation of a “chartered

business evaluator”, and agreed there is a national standard in doing such work.

However, he testified that he had calculated the goodwill of a company on behalf of

clients regularly, in the area of 100-200 times per year.

[139] Mr. Power was also challenged on his impartiality in these proceedings as he

provided information to Canada Revenue Agency after 2009 on behalf of Mike Hall

and 55668 respecting taxes owed by both Mike Hall and 55668. Mr. Power

disagreed that when he provided information, he was acting as an advocate for Mike

Hall. Mr. Power testified that he understood the need to be impartial. He also agreed

that his opinions were only as reliable as the information upon which they were

based.

[140] Upon hearing his testimony, I was satisfied that he was not acting as an

advocate for Mike Hall, but did no more than explain facts as he understood them to

be at the time. I was satisfied both that he would be an impartial witness and was

qualified to opine on the value of a business. All other criteria for the admissibility

of expert opinion having been met, I permitted him to testify in the area of business

valuation.

[141] Michael Power prepared two reports which were entered by consent. The

first, (MP #3, Tab 170) was described as a draft report in the form of a five-page

letter to Mike Hall’s former counsel. There were several attachments including

copies of emails, unaudited financial statements for 55668 for the years 2007, 2008,

2009 and 2010, and for 61791 for the years 2011, 2012, and 2013. Michael Power

Page 42

also explained that he reviewed the deposit books for 55668 between January 2010

and May 2010. He also reviewed the inventory list of equipment in 55668’s

possession as identified by Chris Winsor. The second report (MP #4, Tab 171) was

a response to Eric Soriano’s “critique” report. This second report was also in the

form of a letter (five pages), with further attachments.

[142] According to MP#3, Schedule 1, 55668’s revenue and net income for the years

2007-2009 was as follows:

Year

Revenue

Net Income (Loss)

2007

2008

2009

$ 613,771

1,848,698

3,138,412

10,012

(10,608)

45,430

[143] For 61791, in the ensuing years the revenue and net income was determined

to be:

Year

Revenue

Net Income (Loss)

2010

2011

2012

2013

$1,979,150

3,829,623

3,243,851

3,540,374

(92,818)

101,209

(2,582)

99,117

[144] Mr. Power testified that at the time the locks were changed (January 22, 2010),

there were statutory remittances, due by both 55668 and Canadian Roofing Solutions

to both Canada Revenue Agency and Workplace Health and Safety (WHCC) in the

following amounts:

55668

Canada Revenue Agency – Payroll

WHSCC

50,487.32

16,617.23

________________________________________

Total 67,104.55

Page 43

Canadian Roofing Solutions

Canada Revenue Agency – Payroll

WHSCC

66,203.27

34,339.25

_______________________________________

Total 100,542.52

[145] Mr. Power stated in his report that there was a further amount of money owing

from both 55668 and Canadian Roofing Solutions to Kent’s Limited in the amounts

of $56,529.33 and $27,302.20; both debts of which Mike Hall had provided a

personal guarantee.

The assets

[146] According to MP#3, at page 4, the assets and corresponding values of 55668

as of January 22, 2010 were:

Deposits (Jan/10)

Deposits (Feb-May/10)

Leasehold Improvements

Equipment

$

51,289.61

550,863.08

350,000

157,000

____________________________________

Total Value 1,147,253.58

$

[147] Mr. Power described the above as the “hard” assets of 55668.

The equipment

[148] The “equipment” value was obtained from the list prepared by Chris Winsor.

Mr. Power stated that the 2009 financial statements recorded assets in the amount of

$798,615.32. He explained the difference between his value and the value in the

Page 44

2009 statement, in that the 2009 statement did not appear to include account

receivables for that year or the value of assets later removed from Mike Hall’s

control.

[149] In the second report (MP #4, Tab 171, Schedule A), the list of equipment was

more extensive and was valued at an amount exceeding the previous $157,000, at

almost $1,000,000. Upon cross-examination, it became evident that this increase in

value was because included in the itemization of the equipment, were the items

leased from Farmington. Further, the list included a value of $100,000 for “pick

ups” and “cargo vans”.

The leasehold improvements

[150] Mr. Power explained that the value of the leasehold improvements he assigned

in his report was given to him by Mike Hall. He was not provided with

documentation to verify this amount. In the second report, there was a more detailed

breakdown of the work done as part of the leasehold improvements. There was no

supporting documentation, but the cost, like the first report, was listed as $350,000.

Mr. Power also estimated the value of the upgrades to be between $250,000 to

$600,000. He explained this estimate range was reasonable, as he had noted that the

salaries for employees of 55668 had increased dramatically for the year 2009 when

the renovation work was completed. He understood that it had been the employees

of 55668 that had conducted the renovation work. He testified that the amount of the

increase in salaries was proportional to the estimated costs in leasehold

improvements. Given this, he was satisfied that the estimated figure of $350,000 was

consistent with this comparison of the total cost, less the increase in salaries.

The calculation of goodwill of 55668

[151] Mr. Power testified that at the time the locks were changed, there would have

been a goodwill value attached to 55668. He calculated the value of the goodwill to

be somewhere between $693,273 and $1,039,914.

Page 45

[152] In determining this value, Mr. Power explained that he relied on not only the

financial statements of 55668, but the financial statements of 61791 in 2011 to

calculate the goodwill value (MP #3, p. 5). When he examined 61791’s financial

statements, he observed that the level of revenue was similar to that of 55668’s

revenue in 2009. In his view this similar level of revenue supported that had 55668

been able to continue in 2011 with operations, 55668 could have expected a similar

level of revenue as 61791.

[153] Upon review of the information he was provided, Mr. Power concluded that

at the time the franchise agreement was terminated, the total value of 55668 was

estimated to be between $1,840,529 and $2,187,167. Although his first report

referred to these figures as representing the “actual loss to Michael Hall”, Michael

Power stated that the figures should have been described as representing the value

of the assets of 55668 “out of the control” of Michael Hall.

[154] On cross-examination, Mr. Power was challenged on his explanation as to

how or when a business possessed goodwill. While Mr. Power did not concede that

there was no goodwill in a business that was not being sold, he agreed that the value

of goodwill is a value that only becomes relevant when a business is being sold.

[155] Mr. Power was also challenged as to whether or not his draft report was a

valuation of losses to Mike Hall personally, or a valuation of 55668 at the time of

lockout. It was pointed out to him that the opening sentence in the report referred to

providing “comments” on the “financial impact of the lockout of Mike Hall”. The

concluding paragraph in the draft report refers to the “actual loss to Mr. Michael

Hall”, and the reference line states “Mike Hall”.

[156] Mr. Power acknowledged the references, but stated that the valuation he was

determining was not to establish Mike Hall’s personal losses but the loss of the value

of 55668.

[157] Mr. Power was also challenged on his inclusion of Canadian Roofing

Solutions in his valuation of 55668, given that it was a separate company. Mr. Power

Page 46

stated that there was little information regarding Canadian Roofing Services, except

for the March deposit, and the monies owed.

[158] Mr. Power agreed it was not possible to come to a definitive conclusion about

the overall value of 55668 as he had insufficient information and was clear that his

assessment was an estimate only. Mr. Power explained his report assumed Michael

Hall did not have control of the named assets of 55668, but it did not account for

whether Chris Winsor, the other shareholder and director, had control of the assets.

He also conceded that if Michael Hall continued to exercise control over assets of

55668, such as the bank accounts, this would affect his valuation. He agreed that if

money went into 55668’s bank accounts, this would be money that was in 55668’s

control. This would affect his inclusion of the bank deposits as assets that were “out

of 55668’s control”.

[159] Mr. Power stated he did not have access to, and so did not take into account

the assignment of the lease agreement for McNamara Drive (Consent #1, Tab 14).

The evidence of Errol Soriano

[160] The admissibility of Errol Soriano’s opinions, the expert who testified on

behalf of the Defendants, were not challenged and he was qualified to testify as an

expert in the area of business valuation. It was clear from his background he had

considerable training and experience in business valuation.

[161] He prepared one report (ES#2) for the Defendants entitled a “Limited Critique

Report”. His report described its purpose as “to comment on the analysis and

findings” of Michael Power’s first report. The report reviewed most of the same

documentation reviewed by Michael Power, however, the report stated that further

material was reviewed: the franchise agreement, the agreement to assign the assets

from 55668 to 61791, the formal notice of termination delivered to 55668, a

summary of monies paid by 61791 on “behalf of 55668”, emails from Stacey

Penney, the former bookkeeper for 55668, with attachments, and the pleadings filed

in the litigation.

Page 47

[162] Errol Soriano’s report criticized the analysis undertaken by Michael Power.

He objected to the valuation of the assets of 55668 as it did not take into account the

liabilities of 55668. He was also concerned that there were either unjustifiable

assumptions of facts relied upon, or a failure to consider other relevant factors. In

particular, Errol Soriano objected to the assumption made by Michael Power when

he calculated the goodwill of 55668, that 55668 would have had the same earning

potential as 61791 in 2010-2011, if it had been able to pursue restoration ventures.

At page 6 of his report Mr. Soriano stated:

…

b. second, PB states that “… the loss to Mr. Michael Hall would also include

goodwill or earnings ability of the business…It is a reasonable assumption that the

value of goodwill is significant”. Whether or not a particular business has

commercial (saleable) goodwill is a matter determined based on the particular

attributes of the business. The valuator’s analysis should focus on the ability of the

business to earn an above market rate of return on invested capital into the

foreseeable future. PB has not undertaken any such analysis. …

[163] Although retained solely to configure the report of Mr. Power, when asked,

Errol Soriano testified that given the situation with 55668 at the time, it would be

difficult to attach any goodwill value to the company.

The calculation of goodwill

[164] I agree with Errol Soriano that the calculation of any goodwill attaching to

55668 had to reasonably account for 55668’s earning potential at the time. On cross-

examination, Mr. Power agreed that if 80 per cent of 55668’s clients were gone, this

would affect his calculation of goodwill for the company.

[165] For this reason, I do not accept Mr. Power’s calculation of the goodwill of

55668. It was not reasonable to assume that 55668 would have earned similar

revenue to 61791 in 2011, because this assumption fails to consider whether 55668

actually had a prospect of earning any revenue. At the time the franchise was

Page 48

terminated, 55668 was generating no new work, no longer had new clients, or any

prospective potential earnings. There is no dispute that $804,619.53 was deposited

into the account, but $817,987.60 was also debited; most of which was used to pay

55668’s financial obligations such as salaries and paying creditors.

[166] It was only after Robin Sullivan, through 61791, took over the franchise that

the former major clients, such as the Co-operators and Unifund, returned to using

Paul Davis Systems franchise to do restoration work. The evidence from Gerard

Corcoran of Unifund was that as long as Mike Hall, through 55668, was managing

Paul Davis Systems, they did not intend to use Paul Davis Systems to do restoration

work. As well, there were emails from Robin Sullivan to Ken and Stephen Robinson

as late as August 2011 describing difficulties in establishing and maintaining

relationships with suppliers of the former franchise because of monies owed and left

unpaid.

[167] Further, while 55668 may have been able to continue in unrelated businesses

such as the cleaning of industrial equipment, 55668 would not have been able to

carry on in the restoration business given the two-year prohibition on competition in

the franchise agreement. There was no evidence presented that 55668 had pending

clients in any of the unrelated businesses.

[168] With these realities facing 55668, and in contrast to the prospects for 61791,

who had re-established relationships with both the Co-operators and Unifund, it is

speculative to suggest that the revenue stream for 55668 in 2011 would have been

similar to the revenues for 61791. Unfortunately, there was no evidence as to how

these differences would affect the value of any goodwill of 55668.

[169] Given the above I attach no goodwill value to 55668.

[170] In October 2010, Mike Hall and 55668 filed a Statement of Claim against

Robin Sullivan and 61791. The Statement of Claim against Paul Davis Systems of

Canada was filed in February 2012. Both Statements of Claim and corresponding

Statements of Defence, and Statements of Third Parties have been amended.

Page 49

THE POSITION OF THE PARTIES

The position of the Plaintiffs 55668 and Canadian Roofing Solutions

[171] The Plaintiffs, 55668 and Canadian Roofing Solutions, submit the Defendants

unlawfully conspired to “exclude Mike Hall” from the premises of 55668 so that a

“seamless takeover” of the franchise could be facilitated; in particular by the act of

changing the locks at the premises of McNamara Drive on January 22, 2010. The

Plaintiffs submit this was done without legal authority and that the explanation that

there was concern that Mike Hall was improperly removing the assets was no more

than a “pretext” to exclude Mike Hall from the operation of the business of 55668.

The Plaintiffs submit the real reason behind changing the locks was because Mike

Hall had earlier that day withdrawn approximately $15,000 from the account of

55668 and placed it in the account of his business, Eastern Restorations Limited.

[172] The Plaintiffs submit that by excluding Mike Hall from the premises and

limiting his operation of the bank accounts, the Defendants were able to avoid all

the delay, expense, headaches and uncertainties of starting from scratch. The

Plaintiffs submit this conduct “deprived 55668 and Mike Hall access to 55668’s

assets”, and that the Defendants basically stole the assets of 55668. The Plaintiffs

assert the purported assignment of the assets of 55668 is invalid and as such, 55668

has never been properly reimbursed for these assets. It was signed without Mike

Hall’s consent, and thus not in compliance with the unanimous shareholder’s

agreement or the Corporations Act, R.S.N.L. 1990, c. C-36. They further assert that

61791 and Robin Sullivan used the assets of 55668 to pay creditors that only

benefitted the Defendants. This was also a trespass and conversion of 55668’s

assets.

[173] While Mike Hall concedes that he signed the agreement to assign the lease of

McNamara Drive on behalf of 55668, he submits he so did under duress and threats

from the Defendants as well as pressure from creditors. He submits that he also

signed as an “act of good faith” as he believed at that time 55668 would receive fair

compensation for the equipment of 55668.

Page 50

[174] The Plaintiffs further assert that the Farmington leases were assigned to 61791

without any compensation due to 55668.

[175] The Plaintiffs also assert that a significant number of assets of Canadian

Roofing Solutions were at the premises when the locks were changed.

[176] The Plaintiffs submit that the manner in which the Defendants, in particular

Paul Davis Systems of Canada, took control of the assets of 55668 and Canadian

Roofing Solutions, constituted a breach of their duty of honest performance and

good faith owed to the Plaintiffs. Paul Davis Systems of Canada breached their duty

of good faith towards the Plaintiffs by misrepresenting their intentions to the

Plaintiffs in the January 4, 2010 conference call. In that call, Ken and Stephen

Robinson advised Mike Hall to “back down” with respect to his desire to remove

Chris Winsor from the company or there would be no further cooperation or dialogue

between them and Mike Hall regarding the franchise. The Plaintiffs submit this was

a statement made in bad faith, because at that point Paul Davis Systems of Canada

had already determined that it would end the franchise agreement and had no

intentions of continuing the relationship with 55668. They submit the Robinsons

were in discussions with Robin Sullivan well before the date the locks were changed.

All of this conduct, submit the Plaintiffs, supports evidence of a conspiracy to take

over the assets of 55668.

[177] They further submit that all of the above conduct of the Defendants

established the Defendants committed the tort of unlawful means against the

Plaintiffs.

[178] For the above wrongs, the Plaintiffs claim damages for the value of 55668’s

assets for which no compensation was paid; including $804,619.53 deposited in the

account of 55668, the value of leasehold improvements, and the value of the

equipment as provided by Mike Hall to the expert, Mike Power, at $1,106,000. The

Plaintiffs submit there was also goodwill in 55668, the value for which it alleges no

compensation was paid. Mr. Power estimated the goodwill value was between

$173,319 and $1,039,914, and the Plaintiffs claim this amount.

Page 51

[179] The Plaintiffs claim that damages for Mike Hall personally should consist of

“two elements”: the payments Mike Hall was required to make to creditors of 55668

and general damages for lost wages and benefits he would have received from

55668. He also claims aggravated damages for the “severe and unnecessary personal

anguish, embarrassment, hurt and reputational damage to Hall”.

[180] In response to the counterclaims of Paul Davis Systems of Canada, the

Plaintiffs do not dispute that there were royalties outstanding; nor do they dispute

that Paul Davis Systems of Canada was entitled to terminate the franchise

agreement. However, they submit that Paul Davis Systems of Canada “actively

interfered” with 55668’s ability to carry on business, and thus 55668 was never

permitted the chance to pay these monies. The Plaintiffs submit the Defendants

should not be able to benefit from its own wrongful conduct in “participating in the

seizures of 55668’s assets”. Further, Paul Davis Systems of Canada benefited from

the “seamless” transition of the franchise from 55668 to 61791, pointing to the fees

paid by 61791 to Paul Davis Systems of Canada. They submit the monies paid is a

result of the wrongful conduct by Paul Davis Systems of Canada.

[181] The Plaintiffs claim for a disgorgement of the profits earned by Paul Davis

Systems of Canada, as well as exemplary or punitive damages for the conduct in bad

faith by all the Defendants.

[182] The Plaintiffs make a similar submission respecting the counterclaims of

Robin Sullivan and 61791. The Plaintiffs submit 61791 and Robin Sullivan

converted the assets of 55668, in particular in taking control of the equipment

through an invalid agreement. Further, any payments made by 61791 on behalf of

55668 were not at the request of 55668. These were previous decisions made by

Robin Sullivan to benefit 61791. This should not fall at the feet of 55668.

[183] The position for Canadian Roofing Solutions is that there is no need to

quantify damages as they would be the same as 55668.

Page 52

The position of 61791 and Robin Sullivan

[184] The position of 61791 and Robin Sullivan as Defendants in action 5302, and

as third parties in action 0454, is that both actions should be dismissed. They deny

being involved in a conspiracy or any wrongdoing towards 55668 or Canadian

Roofing Solutions. The Defendants assert that Robin Sullivan had no knowledge or

involvement in the decision to change the locks of the premises at McNamara Drive.

They acknowledge that Robin Sullivan was uncertain as to the date he decided to

take over the franchise, however, the evidence supports that the decision was likely

around January 25, 2010, after the locks had been changed.

[185] They further submit Mike Hall continued to exercise control and they point to

several areas in the evidence, at paragraph 43 of their brief, which illustrates this

control after the locks were changed on January 22, 2010. They further submit that

as majority shareholder, if Mike Hall objected to the changing of the locks, it was

not only within Mike Hall’s authority to take steps to assert control over 55668, it

was his duty. The unanimous shareholder agreement would have supported action

by him as majority shareholder.

[186] Robin Sullivan and 61791 further assert there was no wrongful conversion of

either company’s assets. The assignment of the lease of the premises was fairly

negotiated and Mike Hall signed it in the presence of his own legal counsel. They

assert the agreement to assign the assets as identified to 61791 is also valid. Mike

Hall agreed to the transfer of the assets and was actively involved in the negotiations

as to the appropriate compensation. While the Defendants acknowledge that Mike

Hall did not sign this agreement, they assert that they are entitled to rely on Chris

Winsor’s signature under the principle known as the “indoor management” rule.

[187] As far as the Farmington leases were concerned, the Defendants submit the

Plaintiffs had no property interest in these leases, as the leases themselves confirm

that the subject matter of these leases remained the property of Farmington until the

lease was fully paid for by the lessee. Given this, there can be no monies owed to

the Plaintiffs for their transfer to 61791.

Page 53

[188] They further assert that the choice of creditors to be paid was with no intention

to harm 55668 or Mike Hall, although Robin Sullivan conceded his main concern

was to preserve the Paul Davis Systems brand. Robin Sullivan asserted that he left

the decisions mostly to Chris Winsor and Stacey Penney, and whatever involvement

he had as to which creditors were paid, his choices were a fair business decision.

[189] Robin Sullivan further asserts that the mismanagement of 55668 by Mike Hall

was the cause of its downfall, not the conduct on the part of the Defendants,

including which creditors to pay. He submits that the large debt owed by 55668 took

several years to accrue, in particular the amounts owing to government entities such

as Workplace Health and Safety NL. Further, given the loss of the two major clients

there was very little if any goodwill attached to 55668, as the goodwill only existed

if there was a “book of business”. The Defendants point to the fact that there was no

evidence that there were any interested buyers in 55668 and any suggestion by the

Plaintiffs otherwise is nothing more than speculation.

[190] The Defendants submit that they are not liable to the Plaintiffs as alleged. Still,

if liability is found, the Plaintiffs have failed to establish any damages and the claims

should be dismissed in their entirety. If damages are to be determined they should

be offset by expenditures made by 61791 on behalf of 55668.

The position of Paul Davis Systems of Canada

[191] The position of Paul Davis Systems of Canada on action 0454 is that not only

should the actions be dismissed, the counterclaim for the monies owing should be

allowed. Paul Davis Systems of Canada submits that the claims for conspiracy and

unlawful means should be dismissed as they are barred under the Limitations Act,

S.N.L. 1995, c. L-16.1.

[192] Paul Davis Systems of Canada submits that while there is overlap in the

evidence between the two actions, it is a Defendant in the second action only. The

sole Plaintiff is 55668. Any complaint about the conduct of Robin Sullivan and

Page 54

61791 in the transfer of assets from 55668 to 61791 does not involve Paul Davis

Systems of Canada.

[193] Paul Davis Systems of Canada submits that it was within its legitimate right

to terminate the franchise agreement. 55668 was in breach of the franchise

agreement because it was behind in royalty fees and was also running an independent

business, Canadian Roofing Solutions. There was nothing conspiratorial or unlawful

in the conduct that surrounded the termination of the franchise agreement. This was

a legitimate business decision.

THE ISSUES

[194] Although there are two separate actions, there is overlap between the issues

as they relate to each Defendant. Given this, the issues are identified not according

to the action, but as they relate to the evidence as a whole. Having said that, Paul

Davis Systems of Canada is a Defendant solely in action 0454, so liability, if any,

for any of the allegations will attach to that action.

[195] The issues can be framed as follows:

1.

2.

Are the Plaintiffs statute barred in bringing the within actions against

Paul Davis Systems of Canada by reason of the Limitations Act?

If the Plaintiffs are not barred from bringing any of the within actions,

does the evidence establish that the Defendants committed the torts as

alleged?

3.

If any of the torts alleged are established, what is the proper assessment

of damages in these circumstances?

Page 55

[196] Before addressing the issues, it is helpful to review the applicable legal

principles in this matter.

THE APPLICABLE LAW

[197] The Plaintiffs allege mainly three torts against all Defendants, the tort of

causing economic harm by unlawful means, the tort of conspiracy to cause harm,

and conversion of the property of 55668 and Canadian Roofing Solutions. The

Plaintiffs further allege that Paul Davis Systems of Canada breached its duty of good

faith in its handling of the termination of the agreement, and has been unjustly

enriched by their conduct.

The tort of causing economic harm by unlawful means

[198] The tort of causing economic harm by unlawful means was explained in Bram

Enterprises Ltd. v. A.I. Enterprises Ltd., 2014 SCC 12.

[199] In Bram, Cromwell, J. explained that the tort is a “parasitic” tort in that it

creates liability in a “three party” situation (Bram, para. 23); allowing the plaintiff

to “sue the defendant for economic loss resulting from the defendant’s unlawful act

against a third party”. Given this tort relates to wrongs arising generally in the

commercial context, the elements are narrowly construed. Cromwell, J. explained

the rational for the narrow constraints of the tort at paragraph 29:

The scope of the unlawful means tort should be understood in the context of the

broad outlines of tort law’s approach to regulating economic and competitive

activity. Several aspects of that approach support adopting a narrow scope for the

unlawful means tort: the common law accords less protection to purely economic

interests; it is reluctant to develop rules to enforce fair competition; it is concerned

not to undermine certainty in commercial affairs; and the history of the common

law shows that tort liability, if unduly expanded, may undermine fundamental

rights.

Page 56

[200] At paragraph 44, Cromwell, J. stated that the narrow scope of the tort is “to

maintain tort law’s reticence to intrude too far into the realm of competitive market

activity”. From Bram, there are three elements to the tort:

1) the defendant engages in an unlawful conduct against a 3rd party

2) with the intention to cause economic harm to the plaintiff.

3) and the unlawful conduct against the 3rd party causes economic harm to the

plaintiff.

The meaning of “unlawful” conduct

[201] The narrow scope of the tort limits the alleged “unlawful conduct” to only

those acts of the defendant against a third party that would give rise to civil liability

to the third party or would be actionable by the third party if the third party suffered

harm”, (Bram at paras. 74-76, and 86). As Cromwell, J. stated at paragraph 45:

… the tort does not seek to create new actionable wrongs but simply to expand the

range of persons who may sue for harm intentionally caused by existing actionable

wrongs to a third party.

The meaning of “intention”

[202] The intention is “to cause economic harm” to the plaintiff, either as an end in

itself, or “as a necessary means that serves an ulterior motive”, (Bram, at para. 95).

Cromwell, J. stated:

95.

It is the intentional targeting of the plaintiff by the defendant that justifies

stretching the defendant’s liability so as to afford the plaintiff a cause of

action. It is not sufficient that the harm to the plaintiff be an incidental

consequence of the defendant’s conduct, even where the defendant realizes

that it is extremely likely that harm to the plaintiff may result. Such

incidental economic harm is an accepted part of market competition.

Page 57

[203] At paragraph 96, Cromwell, J. cited Goudge, J. in Alleslev-Krofchak v.

Valcom Ltd., 2010 ONCA 557, at paragraph 50, where it was explained that it is

insufficient to show that the consequences of the conduct were “merely foreseeable”.

“Vigorous” but “lawful competitive behavior” will not be captured by the tort, as

stated in Bram at paragraph 97.

[204] For the Plaintiffs to succeed with this allegation they must establish that one

or more of the Defendants engaged in unlawful conduct, as understood in Bram,

against a third party, with the intention to cause economic harm to the Plaintiff(s)

and economic harm was suffered as a result of this conduct (see also Seto v. Wendy’s

Restaurants of Canada Inc., 2016 ABQB 493, at paras. 51-53).

The elements of tort of conspiracy

[205] In the text Peter T. Burns & Joost Blom, Economic Interests in Canadian Tort

Law (Markham: LexisNexis, 2009) at pages 11-12 conspiracy was described as

consisting of two kinds, conspiracy to injure (sometimes referred to as lawful means

conspiracy or predominant purpose conspiracy), and unlawful means conspiracy.

Lawful means conspiracy was described as where two or more persons agree to a

course of conduct that while lawful, has the predominant purpose of injuring the

economic interest of the plaintiff and does injure the plaintiff.

[206] The elements of the tort of conspiracy were also explained in Canada Cement

LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1 S.C.R. 452.

At paragraph 33 of LaFarge the two means by which the tort may be committed

were described:

1) Whether the means used by the defendants are lawful or unlawful, the

predominant purpose of the conduct is to cause injury to the plaintiff; or

2) Where the conducts of the defendants is unlawful, the conduct is directed toward

the plaintiff (alone or together with others), and the defendants should know in the

circumstances that injury to the plaintiff is likely to and does cause injury.

Page 58

[207] The Plaintiffs allege that it is the second form of the tort that is at issue in

these circumstances. In order for the Plaintiffs to succeed, they must establish that

there was an agreement between two or more of the Defendants to engage in

unlawful conduct, directed at the Plaintiffs, knowing or having ought to have known

that the conduct was likely to cause harm to the Plaintiffs, and that conduct does

cause harm to the Plaintiffs. It is important to note that unlawful conduct in this

context is not necessarily the same kind of unlawful conduct to establish the tort of

unlawful means. Finally, there must be a causal connection between the alleged

conspiratorial conduct and the harm suffered (see American Reserve Energy Corp.

v. McDorman, 2002 NFCA 57, at paras. 38-39).

The elements of the tort of conversion

[208] The tort of conversion was aptly described in 1384334 Alberta Ltd. v. Buster’s

Pizza Donair & Pasta Enterprises Ltd., 2020 ABQB 369, at paragraphs 91-92:

91

For the tort of conversion, there are four essential features: (1) a wrongful

act; (2) involving a chattel; (3) consisting of handling, disposing, or

destruction of the chattel; (4) with the intention or effect of denying or

negating the title of another person to such chattel: Clow v. Gershman

Transport International Ltd., 2000 ABQB 360 (Alta. Q.B.) at para 13

(Chow).

92

A wrongful seizure of chattels is trespass. Trespass involves a simple

interference with the plaintiff's possession whereas conversion requires the

defendant to exercise rights of ownership over the goods: Chow at para 19.

[209] In order to establish this tort, the Plaintiffs must establish that the Defendants

wrongfully interfered with their property. (See also 373409 Alberta Ltd. (Receiver

of) v. Bank of Montreal, 2002 SCC 81, at paras 8 and 9).

Page 59

Duty of good faith

[210] The Plaintiffs allege Paul Davis Systems of Canada breached its duty of good

faith towards the Plaintiffs by facilitating the transfer of the franchise.

[211] The duty of good faith of parties to perform the contract obligations honestly

was explained in Bhasin v. Hrynew, 2014 SCC 71. The principle arose in the context

of a dispute regarding a franchise agreement. At paragraph 33, Cromwell, J. stated

that the duty of good faith is an ‘organizing principle’ of the common law of

contracts to act honestly, fairly and reasonably. A ‘manifestation’ of that organizing

principle is the common law duty to act honestly in the performance of contractual

duties. The scope of this duty is that the parties must not knowingly lie or mislead

the other party about matters directly linked to the performance of the contract

(Bhasin, at para. 73).

[212] It is not an implied term of a contract (Bhasin, at para. 86), but defines the

minimum standard of conduct expected of the parties in the performance of the

contract (Bhasin, at para. 74). In order to establish this, the Plaintiffs must establish

that the Defendants, Paul Davis Systems of Canada, behaved dishonestly or misled

the Plaintiffs in the performance of their contractual duties.

The principles regarding unjust enrichment

[213] The Plaintiffs alleged that the Defendants, particularly Paul Davis Systems of

Canada, were unjustly enriched by their conduct, including the conversion of the

assets of 55668. They were unjustly enriched because they were able to receive

royalties form 61791 which occurred at the expense of 55668 losing control of its

assets and business.

[214] The principles of unjust enrichment are well established: Kerr v. Baranow,

2011 SCC 10; Peel (Regional Municipality) v. Canada, [1991] 3 S.C.R. 762:

Page 60

1) The defendant has been enriched by the receipt of a benefit;

2) the plaintiff has suffered a corresponding deprivation; or at the expense of the

plaintiff; and

3) there is no juristic reason for the enrichment of the defendant.

[215] At paragraphs, 31-32 in Kerr, Cromwell, J. explained the principles this way:

31

At the heart of the doctrine of unjust enrichment lies the notion of restoring

a benefit which justice does not permit one to retain: Peel (Regional

Municipality) v. Canada, [1992] 3 S.C.R. 762 (S.C.C.), at p. 788. For

recovery, something must have been given by the plaintiff and received and

retained by the defendant without juristic reason. A series of categories

developed in which retention of a conferred benefit was considered unjust.

These included, for example: benefits conferred under mistakes of fact or

law; under compulsion; out of necessity; as a result of ineffective

transactions; or at the defendant’s request: see Peel, at p. 789; see generally,

G. H. L. Fridman, Restitution (2nd ed. 1992), c. 3-5, 7, 8 and 10; and Lord

Goff of Chieveley and G. Jones, The Law of Restitution (7th ed., 2007), c.

4-11, 17 and 19-26).

32

Canadian law, however, does not limit unjust enrichment claims to these

categories. It permits recovery whenever the plaintiff can establish three

elements: an enrichment of or benefit to the defendant, a corresponding

deprivation of the plaintiff, and the absence of a juristic reason for the

enrichment: Pettkus; Peel, at p. 784. By retaining the existing categories,

while recognizing other claims that fall within the principles underlying

unjust enrichment, the law is able “to develop in a flexible way as required

to meet changing perceptions of justice”: Peel, at p. 788.

[216] At paragraph 40 of Kerr, Cromwell explained that “juristic reason” means no

more than:

…there is no reason in law or justice for the defendant’s retention of the benefit

conferred by the plaintiff, making its retention “unjust” in the circumstances of the

case.

Page 61

[217] For the Plaintiffs to succeed with their claims of unjust enrichment they must

establish that the Defendants received a benefit, at the expense of the Plaintiffs, and

there is no juristic reason for the benefit making it unjust for the Defendants to retain

the benefit.

The indoor management rule

[218] The Defendants 61791 and Robin Sullivan assert that the agreement to assign

the assets from 55668 to 61791 is valid. They rely on the principle known as the

indoor management rule to support their argument that they were entitled to rely on

Chris Winsor’s signature to execute the agreement.

[219] The indoor management rule is a principle at common law that has also been

codified in many Corporations Acts, including the Corporations Act in this

jurisdiction. The decision of 2671914 Manitoba Limited v. Suncorp Pacific Ltd.,

2001 MBQB 70 explained the rule at common law. At paragraph 46, referring to

Fridman, G.H.L., Law of Agency, 7th ed. (Toronto: Butterworths, 1996) at page 357,

the court explained that the indoor management rule permits a party outside the

corporation who is contracting with the company, to rely upon a purported agent of

the company’s authority to act.

[220] Section 31 of the Corporations Act of Newfoundland and Labrador, has

codified the rule. The relevant sections for the purposes here of Section 31 states:

Assertions of corporate incapacity

31. A corporation, or a guarantor of an obligation of a corporation, may not assert

against a person dealing with the corporation or with a person who has acquired

rights from the corporation

…

(d) that a person held out by a corporation as a director, an officer or an agent of

the corporation has not been properly appointed or has no authority to exercise the

Page 62

powers and perform the duties that are customary in the business of the corporation

or usual for that director, officer or agent;

(e) that a document issued by a director, officer or agent of a corporation with

actual or usual authority to issue the document is not valid or not genuine; or

…

except where that person has, or ought to have by virtue of his or her position with

or relationship to the corporation, knowledge to the contrary.

Emphasis Added

[221] The codification of the indoor management rule is similarly stated in the

equivalent Act in Manitoba, and was discussed in 2671914 Manitoba Ltd. As can

be seen, the rule is limited in scope. It will provide no protection to the contracting

party who knows or ought have known that “the agent has no authority to act”. In

respect of this limitation, the court in 2671914 Manitoba Limited stated, at paragraph

52:

52

Thus, there is nothing in the indoor management rule that prohibits a third

party from challenging actions of the corporation. The rule does not appear

to be intended to protect the corporation from inquiries, rather to protect an

outside party acting in good faith from later facing a claim by the

corporation that acts undertaken in its name are not valid because its internal

management rules were not followed. It is clear from both the common law

and the legislation that the protection afforded by the indoor management

rule applies only so long as the outside party is acting in good faith and

without notice of any deficiency. Where the outside party either has actual

knowledge of a deficiency or reasonably ought to have known, that party

cannot take advantage of the protection afforded by either the indoor

management rule or s. 18 of the MCA. It follows that, where a stranger to

the corporation has reason to question the validity of an agent's authority to

act for the corporation, it must be able to demand proof of that authority. To

refuse that outside party the right to make those inquiries would leave that

party in the untenable position of having no protection from unauthorized

acts of corporate agents and no way to confirm the state of that agent's

authority to act.

[Emphasis added]

Page 63

[222] The rule applies so long as the party relying on the rule acts in “good faith”

and “without notice of any deficiency” of the agent’s authority (2671914 Manitoba

Limited, at para. 67). Thus, in order for the Defendants to rely on this principle to

support that the assignment of assets is valid, they must establish that, in good faith,

either did not know that Chris Winsor had no authority to sign the agreement, or

cannot have been reasonably expected to doubt Chris Winsor’s authority to execute

the agreement.

The principles applicable to the assessment of credibility

[223] Because the testimony differed amongst the witnesses, it is also necessary to

say a few words about the assessment of the credibility of witnesses. Whether or not

any conflicts in the evidence between the testimony of the witnesses can be resolved

depends in part on the assessment of the credibility and reliability of the witnesses’

testimony.

[224] The assessment of the credibility of a witness, as well as the veracity of a

witness’ testimony, is not a formulaic process; but the culmination of a number of

considerations such as, but not limited to, how the witness responded to questions,

were they argumentative, evasive or forthright, how was their recall, what was their

opportunity to observe the event, and were there inconsistencies in their evidence

standing alone, or in relation to the other evidence called. I keep in mind the words

of the Supreme Court of Canada in R. c. Gagnon, 2006 SCC 17, at paragraph 20:

Assessing credibility is not a science. It is very difficult for a trial judge to articulate

with precision the complex intermingling of impressions that emerge after watching

and listening to witnesses and attempting to reconcile the various versions of

events. ...

[225] I also keep in mind the further comments of our Court of Appeal in R. v. K.P.,

2019 NLCA 37, at paragraphs 42 and 47. Referring to their previous decision of R.

v. Best, 2016 NLCA 10, the court reminds us that as the trier of fact, I may accept

all, some or none of the evidence of a witness. Witnesses may also have differing

perceptions of the same event.

Page 64

[226] In R. v. S.O., 2019 NLCA 42, at paragraph 16, Hoegg, J.A, speaking for a

unanimous court, stated that the assessment of credibility of the witness is the

“province” of trial judges, and “many factors inform the result”. And as stated by

McLachlin, C.J. in R. v. M. (R.E.), 2008 SCC 51, at paragraph 49, “assessing

credibility is a difficult and delicate matter that does not always lend itself to precise

and complete verbalization”.

[227] It is with the above guidance in mind that I assess the testimony of the

witnesses, particularly where the testimony differs on particular events.

ANALYSIS

The assessment of the credibility and reliability of the witnesses

Mike Hall

[228] Mike Hall was generally a credible witness. He was forthright and tried to

answer all questions. He was not argumentative but there were times when his recall

was lacking; especially in relation to his lack of control over operations of 55668

after the locks were changed. His view of particular circumstances did not always

accord with other evidence.

[229] For example, while he acknowledged that 55668 had struggled financially in

2009, Mike Hall tended to minimize the state of the financial circumstances of 55668

and Canadian Roofing Solutions at the time the franchise agreement was terminated.

There is no dispute that the gross revenue of 55668 in 2009 was likely in excess of

$3,000,000 as per the financial statements, but the large increase in revenues for the

franchise must be measured against the equally substantial sums that were owing to

multiple creditors, including Canada Revenue Agency, Workplace NL, other

suppliers and Paul Davis Systems of Canada.

Page 65

[230] There was also a lack of new work being generated. The bank account records

of 55668 for 2010 (Consents #37-43, Tabs 173-179), and summary of the bank

statements (Consent #36, Tab 172), show that once the franchise agreement was

terminated, the deposits shrunk exponentially between January 2010 and July 2010:

[231] While the accounts receivable for the first half of 2010 was in excess of

$500,000, it was for work that was completed or ongoing from 2009. There were

no new projects in 2010, even during the first weeks of January while 55668 was

still operating as a Paul Davis Systems franchise. The evidence from other witnesses,

including the Plaintiffs’ expert, Michael Power, as well as documentation filed with

the court, supported that by the time the franchise agreement was terminated in

January 2010, the financial health of 55668 was far from promising.

[232] An email (Exhibit #1, Tab 62) from Stacey Penney to Mike Hall on

January 11, 2010, prior to the termination of the franchise agreement, is telling:

Mike,

I just received a call from Revenue Canada re PDS stating that if we don’t pay HST

& Payroll by next week that they will be proceeding with legal action. It has also

been brought to my attention that your mother and Chris are listed on the account

as Directors; therefore, they both will be personally liable for the debt which to date

is over $100K. In saying that, we have yet to receive a call on the CRS account.

In order to obtain cash quickly we will need to liquidate some of our assets. The

following will be listed in the Buy & Sell today for approximately $45-50K; GMC

Sierra, Dually, and the Cargo trailer. The trucks will also be brought to a Used Car

dealer with the hope of a quicker turn around today or tomorrow. If there are any

other assets that you know of that can be liquidated please advise ASAP.

Thanks,

Stacey

[233] That Stacey Penney was intending to list vehicles of 55668 for sale to meet

outstanding remittances to Canada Revenue Agency, and inquiring about what other

assets might be “liquidated”, supports that, as testified to by Chris Winsor, 55668

was, if not insolvent, on the precipice of so becoming.

Page 66

[234] Mike Hall also tended to minimize the deterioration of the relationship

between 55668 and Unifund. I accept that when Mike Hall wrote to Gerard Corcoran

in December 2009 (Exhibit 1, Tabs 49-50) his positive tone was with a view to

assuaging the concerns of Mr. Corcoran, but Mr. Corcoran’s terse response that

Mike Hall had “no clue” as to the state of affairs between the two businesses is,

again, telling.

[235] Similarly, the communications from Ken and Stephen Robinson in August

and September of 2009 regarding their concerns over the financial state of affairs of

55668, suggest that Mike Hall either did not understand or was ignoring the

seriousness of 55668’s situation. Notwithstanding that the brothers expressed

concern and displeasure over the apparent financial state of 55668, Mike Hall was

joking with them in emails. For example, in Exhibit #1, Tab 43, which is the email

Mike Hall sent in response to the August, 2009 memorandum from Stephen

Robinson, Mike Hall ended the email with:

PS. Steve is still gay, and Ken needs to improve his squash to beat me again. Let’s

work it out ladies, we love you guys.

[236] I accept that there may well have been an informal relationship between the

parties during their years in business together, but it is clear that the formal

memorandum sent by Stephen Robinson was in no way intended to be casual,

informal or jovial. Yet Mike Hall’s response above shows either a misunderstanding

of the circumstances, or a deliberate decision to minimize the seriousness.

[237] This is also evidenced by the fact that despite the difficult financial situation

in November 2009, Mike Hall decided that it was appropriate to go snowmobiling

in British Columbia. It was during this trip that he learned that 55668 had been

suspended as a client by Unifund.

[238] Mike Hall’s view of the extent to which he had lost control of 55668 after the

locks were changed also does not easily accord with the other evidence. He testified

that after the locks were changed, he had no access to the bank accounts or other

assets of 55668. While I accept that the act of changing the locks may have been a

Page 67

personal affront to Mike Hall, the evidence supports that in the months following,

he maintained control over input and direction of 55668. He was the person who

negotiated the transfer of the lease agreement for the premises at McNamara Drive,

and the evidence supports that he was content with this arrangement. He was also

asked for approval by Chris Winsor to transfer signing authority on 55668’s

chequing account to their employee, Stacey Penney.

[239] There are also examples of cheques signed by Mike Hall on behalf of 55668,

after the locks were changed on January 22, 2010. On January 28, he signed a

cheque for Donald Webber for expenses (Consent #38, Tab 174, cheque 4230).

Between February and April, he signed four cheques intended for Farmington Leases

(Consent #39, Tab 175, cheques numbers 1248, 2657 (February), and 03700, and

03701 (March, and April). There were also examples of cheques showing monies

transferred from 55668 to Canadian Roofing Solutions (see for example Consent

#38, Tab 174, cheque dated February 12, 2010; and Consent #39, Tab 175, cheque

dated March 12, 2010). Although these cheques were signed by Stacey Penney,

given that Mike Hall expressed the intention to continue to manage Canadian

Roofing Solutions after the termination of the franchise agreement, and the multiple

and ongoing communications between he and Stacey Penney that show a significant

level of involvement by him, it is likely Mike Hall would have known about these

cheques.

[240] There is also an email dated as late as April 20, 2010 (Exhibit #1, Tab 105)

from Stacey Penney to Mike Hall which contained the subject line:

I am back in the office, did you want to meet at the bank today?

[241] Stacey Penney was not called to testify at trial, but Mike Hall testified that the

purpose of the email was because Stacey Penney was looking to receive a cheque.

Although there was no explanation as to what the cheque related, he testified he did

not recall any meeting taking place. I accept that this email is further evidence that

Mike Hall was capable of, and was exercising some control over both 55668 and

Canadian Roofing Solutions.

Page 68

[242] I also accept the testimony of Chris Winsor and Robin Sullivan that after the

locks were changed, Mike Hall attended at the premises of McNamara Drive on at

least one occasion.

[243] Further, Mike Hall was able to realize on the assets of Canadian Roofing

Solutions. As testified to by Fred Stack, the equipment was sold to him by Mike

Hall for $7000. There are two cheques totaling $8,000 written to Fred Stack. That

Mike Hall directed the sale of the equipment shows that he was exercising control

over Canadian Roofing Solutions. This shows he was in control of this equipment.

[244] Mike Hall asserted that he could not access the accounting records of 55668.

These records were stored on the computer system located at McNamara Drive. I

accept that there was significant delay in obtaining these records. However, Kenneth

Evans, the IT specialist for 55668 who continued to work with 61791 when it became

the new Paul Davis Systems franchisee, testified that he was asked by Robin Sullivan

sometime in 2010 to prepare a copy of the accounting records for 55668 and

Canadian Roofing Solutions. He testified that he created a CD, and that this CD was

delivered to Mike Hall. I accept that the delivery of this information was not timely,

but there is no dispute that Mike Hall did receive these records.

[245] The above illustrates only a few examples where I found it difficult to, at

times, reconcile Mike Hall’s testimony with other evidence. While I find that Mike

Hall was a credible witness, and I accept parts of his testimony, given the above

conflicts in the evidence, I do not accept his testimony that he had “no control” over

what happened with either 55668 or Canadian Roofing Solutions. Nor do I accept

that at the time the locks were changed, as well as the termination of the franchise,

the financial and business prospects for 55668 were good.

Robin Sullivan, Ken Robinson and Stephen Robinson

[246] I also found Robin Sullivan to be a credible witness. I accept that Robin

Sullivan was in no rush to take on a new franchise and did his “due diligence” such

as meeting with the insurance companies and other suppliers to see if a business

Page 69

relationship could be reestablished. However, I was troubled by his poor recall as to

how he came to sign the new franchise agreement. In so saying, I acknowledge that

the lack of recall with any and all of the witnesses is understandable. The witnesses

testified to events that occurred almost 10 years earlier. But this does not explain

why he had no recall as to when he decided that he would in fact take over the

franchise. Given that commencing a new business venture was a major business

decision and he was reticent about it, one might reasonably expect that he would

have had better recall as to how and when that decision was made. Yet he was so

vague about how he came to sign the new franchise agreement on February 6, 2010,

I agree with the Plaintiffs that it was as if the agreement, already signed, fell from

the sky.

[247] I also found Ken Robinson’s and Stephen Robinson’s recall vague on this

point. Given that the thrust of this litigation is about alleged wrongful conduct on

the part of the Defendants in terminating the franchise agreement with 55668 and

setting up the new franchise with 61791, it is surprising that their testimony and

recall as to the timing of the changeover between the two franchises was so poor.

[248] Having said that, I accept the testimony of both Ken and Stephen Robinson

that when they decided to terminate the franchise agreement with 55668 it was not

with any intent to harm Mike Hall, or 55668’s interests, but to pursue and preserve

the legitimate business interests of Paul Davis Systems of Canada. This was credible

testimony supported by the documented communications between the Robinsons

and Mike Hall.

[249] This is also supported by the testimony of the other witnesses, and other

documentation, such as KR #2, which provided a snapshot of the business

relationship between Paul Davis Systems of Canada and its various franchisees. KR

#2 was an extract of a 2014 report prepared for the sale of the business. The extract

included references to the status of franchises nationwide in respect of matters such

as outstanding royalty payments. What is illustrative of this document was the extent

to which many franchises appeared to be late with royalty payments. It supported

the testimony of both Robinsons that they were more flexible and tried to work with

the franchises.

Page 70

[250] The flexibility is evident in how the Robinsons approached enforcement of

the franchise agreements. For example, Ken Robinson acknowledged that Robin

Sullivan was permitted to manage a separate business while running the franchise,

despite that this was prohibited by the franchise agreement. This was explained by

Ken Robinson as “Robin Sullivan was doing everything right”. As well, while the

Robinsons objected to Canadian Roofing Solutions, they did not appear to object to

the asbestos remediation business. I accept, and the correspondence from the

summer and fall of 2009 supports, that both Ken and Stephen Robinson took a

flexible approach with Mike Hall and Chris Winsor over the course of 2009, despite

their concerns. I also consider that this flexibility extended well back in the

relationship with Mike Hall, including the willingness to renew the franchise

relationship with Mike Hall in 2007 despite that he had declared personal

bankruptcy.

[251] What the above evidence illustrates is that the approach taken by the brothers

with respect to franchises, including that of 55668, was to be flexible in the

administration of the franchise agreement to the extent it did not undermine the

business interests of Paul Davis Systems of Canada. When I consider all the

circumstances, and the financial position that 55668 found itself in in January 2010,

notwithstanding the efforts by Paul Davis Systems of Canada to have Mike Hall and

Chris Winsor address the problems, I find as a fact that the decision to terminate the

franchise agreement with 55668 by the two directors was a legitimate business

decision on the part of the franchisor, with no intent other than to maintain and

preserve the brand of Paul Davis Systems of Canada.

[252] I also accept Ken and Steve Robinson’s testimony that while they did not seek

to terminate franchises who were in financial trouble, this would be the outcome if

a particular situation could not be rectified.

[253] With regards to their testimony on subsequent events, I find more problematic

that both Robinsons testified they had little to do with the actual transfer of the

operations and assets of 55668 to 61791. It is clear from the correspondence that

Robin Sullivan sought input and advice from both of the brothers regarding the

transfer of the operations from 55668 to 61791 and the brothers were actively

involved. For example, on March 25, 2010, during the negotiations for both the

Page 71

transfer of the lease and assets, Stephen Robinson emailed Robin Sullivan the

following (Exhibit RS #6, Tab 96):

Hi Robin,

How is everything, I am still thinking about coming out there for some kind of snow

mobile or ATV trip.

We should chat about St. John’s issues, purchase of assets, transition timelines, etc.

before things get ugly in St. John’s. I have some ideas. Are you available?

[254] Robin Sullivan repeatedly stated that neither Ken nor Stephen Robinson

explicitly directed whether to assign the assets of 55668, or which creditors of 55668

should be paid by monies used to purchase the assets. I accept that there was no

explicit evidence of direction by them in the correspondence. However, there was

evidence that both brothers were aware of the tension between Robin Sullivan and

Mike Hall on the issue of which creditors to pay. Robin Sullivan wrote the brothers

repeatedly explaining that there were differences between he and both Mike Hall

and Chris Winsor as to which debts should be paid. In these emails, Robin Sullivan

sought financial assistance from Paul Davis Systems of Canada to address the

outstanding debt of 55668. The brothers communicated with each other as to if, and

to what extent, they could provide financial assistance (see for example Exhibits RS

#7, Tab 98; and RS #8, Tab 110). In an email dated March 23, 2010 (Exhibit #1, Tab

85), Robin Sullivan stated to Mike Hall:

“Spoke with Ken Robinson regarding this matter and he informed me that you are

responsible based on your contractual obligations and if you hurt my business going

ahead he can legally take you for everything you are worth which can include your

wages and pension.”

[255] Ken Robinson denied having made such statements, but I do not accept this

denial. Given the forthright and frank tone of other correspondence, and as well

both Mike Hall and Chris Winsor’s testimony that Ken’s responses were direct,

especially around the events of January 4, 2010, I have no reason to doubt that when

Robin Sullivan wrote Mike Hall what Ken Robinson had said, it was because it had

been said.

Page 72

[256] Thus, there was no direct evidence that Stephen or Ken Robinson specifically

instructed Robin Sullivan as to how to acquire the assets or which creditor to pay,

they were certainly regularly consulting with Robin Sullivan as to how to address

the difficulties he complained of in transferring the business of Paul Davis Systems

from 55668 to 61791.

Chris Winsor

[257] I also found Chris Winsor to be a credible witness. While he at times had poor

recall, he testified in a forthright manner regardless for whom such evidence might

be favourable. He readily admitted that if an email or other documentary evidence

contradicted his recall, the latter should prevail as the more likely account.

[258] In particular, Chris Winsor was pressed on cross-examination as to whether

Robin Sullivan knew about the locks having been changed on January 22, 2010.

Initially, Chris Winsor testified that he would not have been in contact with Robin

Sullivan over changing the locks. It was pointed out to him that when he advised

Ken Robinson by email of having changed the locks, Robin Sullivan was also

advised by email (CW #2, Tab 64). While not recalling the email, Chris Winsor

readily agreed that he must have known at that point that Robin Sullivan was taking

over the franchise because there would be no other reason to send him the email. I

accept his testimony on this point. I accept that Robin Sullivan, no later than

January 18, 2010, after visiting Gerard Corcoran, made the decision to assume the

franchise in St. John’s.

[259] I also accept Chris Winsor’s evidence respecting the events of January 22,

2010, when the locks were changed. I accept, and find as a fact, that when he

contacted Ken Robinson on January 22, 2010 about his observations of Mike Hall,

Chris Winsor was genuinely concerned about items or property that may not belong

to Mike Hall or 55668, as well that Mike Hall may be improperly moving money

out of bank accounts. In his email to Ken Robinson, he advised that Mike Hall

“requested the bank remove the overdraft component from the PDS account and

reinstate the money back into his holding company (Eastern Restoration)”.

Page 73

[260] I also accept that he was seeking direction from Ken Robinson. Whether Ken

Robinson specifically directed Chris Winsor to change the locks or stated that it was

merely an option, it is clear that Chris Winsor sought Ken Robinson’s advice and

relied on Ken Robinson’s advice that this was the appropriate step.

[261] I accept this was what happened, because Chris Winsor’s reliance on the

Robinsons was evident in other evidence. He telephoned them when Mike Hall sent

the email that Chris Winsor was leaving the franchise, and he testified that when

Ken Robinson asked him to “stay on” he agreed to so do. I also note, and as

discussed, there are numerous examples in the emails filed where Robin Sullivan

also sought direction from the brothers. Indeed, as that and the correspondence from

the summer and fall of 2009 show, the brothers demanded consultation and approval

from them before a franchisee took any major steps.

[262] The correspondence from Jim Johnson to Ken Robinson (J. Johnson #3) also

supports that Chis Winsor was, at that time, taking direction from the Robinson

brothers. Jim Johnson stated:

I spoke to Chris Winsor; who is very optimistic that the business will survive. He

indicated that he is waiting for a decision from you (head office) on the future plans

for St. John’s.

[263] Chris Winsor did not dispute this email or that this was his perspective as

described by Jim Johnson in this email. This communication supports not only that

Chris Winsor was taking direction from the Robinsons, but that as of January 13,

2010, almost 19 days before the locks were changed, and almost two weeks before

the termination of the franchise occurred, there was an intention to address how the

franchise was run in St. John’s.

[264] For these reasons, I accept Chris Winsor’s testimony that the decision to

change the locks came from Ken Robinson, and at Ken Robinson’s direction. It does

not matter whether Ken Robinson suggested changing the locks as an option or as

an instruction; he would have known that Chris Winsor relied on his advice. That is

why Chris Winsor telephoned him.

Page 74

[265] I also accept that it was no later than January 18, 2010 that Robin Sullivan

finalized his decision to assume the franchise from 55668.

[266] Given the above assessment of the witnesses, and my factual findings as

stated, I turn now to the merits of the allegations.

Issue 1:

Are the Plaintiffs statute barred in bringing the within actions

against Paul Davis Systems of Canada by reason of the Limitations

Act?

[267] Before dealing with the substantive torts, it is necessary to address Paul Davis

Systems of Canada’s submission that the actions pleaded against them in the 2nd

Amended Statement of Claim (dated April 2017), insofar as those pleadings alleged

wrongdoing prior to January 26, 2010, are barred by virtue of sections 5 or 6 of the

Limitations Act. Section 5 of the Act states:

5. Following the expiration of 2 years after the date on which the right to do so

arose, a person shall not bring an action

(a) for damages in respect of injury to a person or property, including

economic loss arising from the injury whether based on contract, tort or

statutory duty;

(b) for damages in respect of injury to person or property including

economic loss arising from negligent misrepresentation and professional

negligence whether based on contract, tort or statutory duty;

(c) for trespass to property not included in paragraph (a);

(d) for defamation other than defamation referred to in section 17

of the Defamation Act ;

(e) for false imprisonment;

(f) for malicious prosecution;

(g) for conspiracy to commit a wrong referred to in paragraphs (a) to (e);

(h) which is a civil action, to recover a fine or other penalty and to

recover a fine or penalty imposed by a court or law;

(i) under the Fatal Accidents Act ; or

(j) under the Privacy Act.

[268] Section 6 of the Act states:

Page 75

6. (1) Following the expiration of 6 years after the date on which the right to do so

arose, a person shall not bring an action

(a) for damages for conversion or detention of goods;

(b) to recover goods wrongfully taken or retained;

(c) for a tort committed against that person which does not come under

paragraph 5(a);

(d) to enforce an instrument under seal;

(e) to enforce the forfeiture of a recognizance;

(f) to enforce an obligation arising from a statute;

(g) to enforce a foreign judgment;

(h) to recover a debt;

(i) by a creditor not in possession of collateral to realize on the collateral;

and

(j) by a debtor not in possession of collateral to redeem the collateral.

(2) In subsection (1), "debtor" means a person who owes payment or other

performance of an obligation secured, whether or not he or she owns or has rights

in the collateral.

[269] Paul Davis Systems of Canada submits that the 2nd Amended Statement of

Claim is outside the 2 and 5 year time limits under section 5 and 6 of the Act, as it

was filed on April 24, 2017. Notwithstanding sections 5 and 6, section 11(3) of the

Act allows for an amendment to pleadings outside the above time periods where the

amendment “involves a non-prejudicial error and that it arises out of the facts set out

in the original pleadings”.

[270] However, Paul Davis Systems of Canada submits the pleadings cannot be

saved by section 11(3) of the Act because not only do the pleadings allege new torts

relying on facts not initially pleaded in the original Statement of Claim, there are

factual errors corrected by the new Statement of Claim that have caused prejudice

to Paul Davis Systems of Canada.

[271] There is no dispute that neither the tort of unlawful means or conspiracy were

specifically alleged in the original pleadings against Paul Davis Systems of Canada;

however in my view, the torts comprise essentially the same circumstances as

originally pleaded. Further, while the tort of conspiracy was not alleged in the

original pleadings against Paul Davis Systems of Canada, conspiracy was alleged in

the original pleadings against 61791, Robin Sullivan and Chris Winsor. I appreciate

Page 76

that Paul Davis Systems of Canada were not parties to that action. But given that the

franchise agreement required franchises indemnify the franchisor for any liabilities

to third parties (see clause 13.1), I would be shocked if when 61791 and Robin

Sullivan were served with the original Statement of Claim, Robin Sullivan did not

bring it to Paul Davis Systems of Canada’s attention; whether or not Paul Davis

Systems of Canada had been named as a party. I do not accept that Paul Davis

Systems is taken by surprise by this allegation. Nor are they prejudiced in

responding to this allegation.

[272] As pointed out by the Plaintiff, the decision to amend the pleadings arose out

of a pre-trial decision (55668 Newfoundland and Labrador Ltd. v. Sullivan, 2017

NLTD(G) 57), rendered by Butler, J. (as she then was). This interlocutory decision

resulted from a request by the Defendants to deal with some of the trial issues under

Rule 38.01(a). At paragraphs 23-30 of her decision, Butler, J. was satisfied that

several torts, including those now pleaded in the 2nd Amended Statement of Claim,

were available on the facts as had been pleaded at that time.

[273] I agree with the Plaintiffs that the newly started causes of action do no more

than clarify the earlier pleadings as to how the conduct, already referred to in the

earlier pleadings, was alleged to be tortious. Given this, there is nothing unfair or

prejudicial in these circumstances, by the Plaintiffs, to have further amended the

Statement of Claim to now include these torts. I do not accept that by attempting to

clarify how the conduct in question constitutes these specific torts, that Paul Davis

Systems of Canada has suffered prejudice in its defence.

[274] Paul Davis Systems of Canada alleges they are prejudiced in their defence by

the change of facts in the amended pleadings; but there is nothing new factually

alleged to ground this tortious conduct, except that the date on which the locks are

alleged to have been changed has been corrected from Feb 5 to Jan 22. Paul Davis

Systems of Canada asserts that had they known that January 22 was the date alleged

that the locks were changed, and not February, they would have pleaded in their

original Defence that any complaint about Paul Davis Systems of Canada’s conduct

prior to January 26, (the date the franchise agreement was terminated), ought to have

been addressed by way of arbitration under the franchise agreement. I do not accept

this argument.

Page 77

[275] While the Plaintiffs initially believed the tortious conduct to have occurred

after the franchise agreement was terminated, it has always been known that all of

the conduct relevant to the proceedings covered a time period that both pre-dated

and post-dated January 26, 2010. In fact, Paul Davis Systems itself acknowledges

this in its trial brief, at paragraph 129:

The Second Amended Statement of Claim was filed on April 24, 2017, which is

beyond both the two and six year limitations periods. The material times of the

events of this litigation is the fall and winter of 2009-2010.

[276] Recognizing that the “material times” to the litigation extend to the “fall and

winter” before the date the franchise agreement was terminated, means that it has

always been within Paul Davis Systems’ knowledge and ability to assert that any

conflict between it and the Plaintiff(s) arising from facts occurring then, ought to

have been addressed by way of arbitration. It is not solely the act of changing the

locks that is conduct complained of by the Plaintiffs. In the original pleadings, the

Plaintiffs stated that it was September of 2009 that it became embroiled in a

“dispute” between it and Paul Davis Systems of Canada (paragraph 5). According

to paragraph 8 it was “in or about January, 2010” that Robin Sullivan allegedly told

Mike Hall that he had been approached by Paul Davis Systems of Canada to take

over the franchise. I appreciate that the Plaintiffs have always maintained that their

complaints fall outside the purview of the franchise agreement, but this has never

prevented the Defendant from asserting that the complaints do fall within the terms

of the agreement, and should have been dealt with by arbitration.

[277] Yet the original Statement of Defence filed by Paul Davis Systems of Canada

makes no reference to the obligation of the Plaintiffs to have pursued arbitration.

Given they did not raise the issue of arbitration whether the conduct occurred before

or after the termination of the franchise, I do not accept that their defence regarding

the alleged conduct in relation to the locks, is now somehow prejudiced because it

occurred on January 22 (during the life of the franchise agreement), as opposed to

February 5, after the agreement was terminated.

[278] Further, it is not clear that whether particular conduct alleged to be tortious

occurred within or beyond the life of the franchise agreement governs the

Page 78

Defendants’ ability to rely on the obligation to pursue arbitration. For example, in

MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656, the

arbitration clause of the franchise agreement explicitly referenced the continuing

obligation of the parties to seek arbitration, even after the termination or rescission

of the agreement. At paragraph 15 of MDG, the relevant portion of the arbitration

clause was reproduced and stated:

19. General Provisions

(23) Arbitration. If, at any time during the continuance of this agreement or

after the termination thereof, any dispute, difference or question shall arise

between or among any of the parties hereto or … then subject to the exceptions

referred to hereinbefore, every such dispute, difference or question shall be

submitted to and settled by arbitration and the decision of the arbitrator, appointed

as hereinafter provided, to deal with such matter shall be accepted by all the parties

to such dispute, difference or question and their heirs, executors, administrators,

successors and assigns.

[279] This language was found to “clearly” mean that disputes arising after the

termination of the agreement were still bound by the arbitration clause (MDG, at

para. 16). While the arbitration clause in the Paul Davis Systems franchise agreement

is silent as to whether arbitration survives the termination of the agreement, in MDG,

the court went on to say that the issue as to whether or not an arbitrator retains

jurisdiction over a dispute after the termination of an agreement, is for the arbitrator

to decide. At paragraph 24 of MDG the court stated:

24

In cases where the dispute is about whether the agreement was breached by

one party and consequently terminated by the other, and whether that

termination has the effect of terminating the arbitration clause as well, the

case law makes it clear that the court is not to determine the merits of that

issue on a stay motion. Instead, the issue of whether the entire contract was

properly terminated and the effect of any such termination is for the

arbitrator. Otherwise, arbitration clauses would be rendered ineffective in

many disputes, even when, in the end, they should have applied. However,

in cases where the agreement was void ab initio because it was illegal, or

where no agreement was ever reached, the arbitration clause will not apply

because it was never validly agreed to: see for example, Fairfield v.

Low (1990), 71 O.R. (2d) 599 (Ont. H.C.) at paras. 20-23, and Heyman v.

Darwins Ltd., [1942] 1 All E.R. 337 (U.K. H.L.).

Page 79

[280] MDG supports if the arbitration clause survived the termination of the

agreement, then the parties may have been obliged to pursue arbitration regardless

of when the dispute, assuming the dispute related to the agreement, arose. Further,

under MDG, even the preliminary question of whether the requirement to pursue

arbitration survived the termination of the franchise agreement, may be the purview

of an arbitrator.

[281] This means that regardless of when the locks were changed, assuming that

conduct gave rise to a dispute in the context of the franchise agreement (of which

must be the case to support the Defendant’s position), arbitration may have been the

available option.

[282] However, the Defendants chose not to plead that any complaint of the

Plaintiffs ought to have been by way of arbitration in their defence initially, even

though it was open to them to so do. Given this, I find the argument disingenuous

that they are now prejudiced by the Plaintiffs’ assertion as to when the locks were

changed as being January 22, 2010, rather than February 5, 2010.

[283] For these reasons, I dismiss the Defendants’ assertion that the causes of action

as alleged in the 2nd Amended Statement of Claim arise out of new facts and thus

are statute barred by the Limitations Act.

Issue 2: Have the elements of the alleged torts been established?

The tort of unlawful means

[284] With respect to the tort of unlawful means, the evidence does not establish

either arm of the tort against any of the Defendants. There was no unlawful act

against a third party, and there was no intention on the part of any of the Defendants

to harm 55668, Mike Hall or Canadian Roofing Solutions.

Page 80

There was no conduct actionable by a third party

[285] The Plaintiffs submitted that the failure of Robin Sullivan and Chris Winsor,

in consultation with Ken and Stephen Robinson, to pay statutory remittances to such

entities as Revenue Canada or Workplace Health and Safety NL constituted an

unlawful act, because it could give rise to a cause of action by such entities to be

paid the monies owing.

[286] The problem with this submission is that as explained in Bram, the cause of

action that might be pursued by the third party, must be as against the Defendants

not the victim. The failure for the monies owed by 55668 to not be paid does not fall

at the feet of Robin Sullivan, Paul Davis Systems of Canada or 61791, but 55668,

Mike Hall and Chris Winsor. The cause of action that might arise on behalf of

Revenue Canada or Workplace Health and Safety would be against the Plaintiffs,

not the Defendants.

[287] The Plaintiffs also argue that locking Mike Hall from the premises on

January 22, 2010 would have given him a cause of action in trespass against the

Defendants. While I agree that if there was an action in trespass (and it is not clear

to me that trespass is made out), this might satisfy that there was an action against a

party, the party who would maintain the action is 55668. There would be no action

in trespass by Mike Hall personally. Personally, he had no right to enter the

premises. He did not lease the premises; 55668 leased the premises. Locking Mike

Hall from the premises mattered only as shareholder and director of 55668. Thus

the action against the Defendants for trespass would be by 55668, not Mike Hall.

Indeed, conversion of the assets, starting with the changing of the locks, has been

alleged by 55668 against all the Defendants.

[288] The evidence does not satisfy the requirement under Bram that there is

conduct by any of the Defendants that gives rise to an action by a third party.

Page 81

There was no intent to cause harm to the Plaintiffs

[289] More importantly, even if it could be said that Mike Hall constitutes the

necessary third party who had a cause of action against the Defendants in trespass

(and I do not agree that he does constitute the necessary third party), the evidence

does not establish that there was an intention to cause harm to 55668. As stated, I

am not satisfied that the conduct of changing the locks was with a view to harming

the Plaintiffs by preventing Mike Hall from accessing the premises or the assets of

55668 or Canadian Roofing Solutions. I am also not satisfied that the conduct was

with the intent to convert the assets to the Defendants’ control. To the contrary, I

accept that the intention in changing the locks was to preserve the property of clients

of the franchise that were being stored at the premises, and to maintain a level of

stability in the day-to-day operations of the franchise.

[290] I accept the explanation by Chris Winsor and Ken Robinson that they were

concerned for the inventory of clients under the control of the franchise. I also accept

that they wanted to maintain stability of the franchise to the extent possible and until

its termination could be given effect. These are legitimate business intentions for all

concerned, including 55668. I see no evidence of the necessary intention to harm

the Plaintiffs in the conduct.

[291] Finally, I am not satisfied that the Plaintiffs have established harm as a result

of this conduct. There has been no evidence to explain how this conduct caused

economic harm. There is no dispute that at the time the locks were changed both

55668 and Canadian Roofing Solutions were struggling financially. This struggle

had nothing to do with the locks being changed. If anything, the economic harm had

already occurred by the demise of the businesses.

[292] The allegation of the tort of unlawful means against all Defendants in both

actions is dismissed.

Page 82

The tort of conspiracy

[293] I am also not satisfied that the tort of conspiracy has been established as

against any of the Defendants.

There was no agreement

[294] Firstly I am not satisfied that there was an agreement between any of the

Defendants to engage in either lawful or unlawful conduct intended to cause harm

to 55668, Mike Hall or Canadian Roofing Solutions. At paragraph 230 of their trial

brief, the Plaintiffs assert that:

… an agreement was made among the co-conspirators (Sullivan, 61791, Winsor

and PDSC) who acted in concert to carry out the unlawful acts of changing the

locks to the business to exclude Hall and take possession of the assets for the

purpose of establishing 61791 as the new Paul Davis Systems’ franchise.

[295] As discussed in relation to the previous tort, I am not satisfied that changing

of the locks was part of an “unlawful plan” to establish Robin Sullivan and 61791 as

the new franchisee. I accept that Ken Robinson, in advising Chris Winsor to change

the locks at the premises of 55668, was acting in the interests of both 55668 and Paul

Davis Systems of Canada.

[296] Further, one of the alleged conspirators, Robin Sullivan, did not even know

that the locks were changed, until Chris Winsor advised him. I accept Robin

Sullivan’s evidence that he did not know about this until afterwards, and I accept

Chris Winsor’s evidence that he communicated with Robin Sullivan that this

occurred, after the locks were changed. It makes sense that Robin Sullivan would be

told this, as by then it was known that he would be taking over the franchise.

Page 83

[297] Standing alone, this conduct does not establish that there was an agreement

between the Defendants to harm the Plaintiffs by having the Defendants unlawfully

take over the franchise.

[298] Nor does the fact that Robin Sullivan was pursuing whether or not to take over

the franchise, even if at the request of Paul Davis Systems, mean there was a

conspiracy to injure 55668, Mike Hall or Canadian Roofing Solutions. The intention

to take over the franchise does not equate with an unlawful intention to harm 55668.

Everyone, as of mid-January, was aware that this was likely going to happen. Both

Mike Hall and Chris Winsor had been repeatedly warned that the franchise may be

terminated for failure to comply with the franchise agreement. Mike Hall testified

that he was open to selling the franchise. He also wrote a supplier prior to the

termination advising that someone else would be taking over the franchise. Nor does

the fact that Paul Davis Systems of Canada and Robin Sullivan may have hoped to

achieve smooth transition mean there was an intention to cause harm to the Plaintiffs.

It is logical that all parties would hope that the transition would occur with as few

difficulties as possible. Everyone, including Mike Hall, were aware that it was likely

that the franchise was to be assumed by someone new. Mike Hall testified he spoke

with Robin about taking over the franchise in late December or January.

[299] That this was within the knowledge of both directors of 55668 undermines

why or how the Defendants would needed to have conspired to bring this to pass.

Indeed, Mike Hall removed the overdraft protection of 55668’s bank accounts the

day the locks were changed. If 55668 was going to continue as a viable enterprise

it is difficult to understand why any draft protection on its bank accounts would be

removed. This conduct is more consistent with a recognition that 55668 was soon to

no longer be operating as a franchise, and would not require overdraft protection.

[300] For the above reasons, while there may have been agreements about 61791

and Robin Sullivan taking over the franchise they were not conspiratorial, but with

the full knowledge and endorsement of Mike Hall and Chris Winsor.

Page 84

There was no unlawful conduct in furtherance of an agreement

[301] Nor was there unlawful conduct in furtherance of this with a view to harming

the Plaintiffs. While changing the locks was heavy handed, it was with the approval

of a director of 55668, and was not intended to cause harm but to protect property.

Nor does the conversion of the assets by way of the assignment agreement, though

actionable involve any conspiracy. As discussed below, while I am satisfied Paul

Davis Systems was aware of the assignment agreement, they played no role in its

execution. That conduct, which I have found was conversions of assets, does not link

them to any agreement.

[302] Similarly while I am satisfied that there was a conversion of the assets of

55668 by 61791 and Robin Sullivan, that was not the result of an agreement between

it and Paul Davis Systems of Canada to harm the Plaintiff. That conduct is solely

between 61791, Robin Sullivan and 55668.

There was no causal connection between the conduct and alleged harm

[303] Even if I accepted that there was unlawful conduct in changing the locks, and

I do not accept that there was, there is no causal connection between the conduct and

the alleged harm. At the time the alleged conspiracy was to have occurred, 55668

was, or was about to become, insolvent. Given this, it is difficult to conceive what

“harm” the alleged conspirators were going to accomplish against 55668. It is not

as if there was a prospect of future business – at least not in the restoration field,

particularly in light of the prohibition of competition under the franchise agreement.

[304] As with the tort of unlawful means, I am not satisfied that any of the

Defendants made any agreement with the intention to harm either 55668, Mike Hall

or Canadian Roofing Solutions. It bears repeating the comments referred to earlier

in LaFarge; harm must be more than an incidental consequence to the agreement by

the alleged conspirators.

Page 85

The tort of conversion

The conversion of 55668’s assets by Paul Davis Systems of Canada

[305] With respect to Paul Davis Systems of Canada, this has been discussed to a

certain extent in respect of the conspiracy claim. There was no conversion of assets

belonging to 55668, by directing Chris Winsor to change the locks of 55668’s

premises. While I am satisfied that Paul Davis Systems of Canada directed Chris

Winsor to change the locks, I am not satisfied they took possession of the building

that was leased by 55668, or the equipment inside. I am also not satisfied that 55668

or Canadian Roofing Solutions have established that any harm resulted by this

conduct. It was heavy handed, but it did not amount to trespass or conversion. I am

not satisfied that there was a wrongful interference with this property.

[306] In my view, 55668, through Chris Winsor and Mike Hall, continued to

exercise control over the premises. Indeed, Mike Hall signed the assignment of the

lease of the premises to 61791. He could not have assigned the lease if he had not

maintained control over the premises as a director of 55668. Nor did the evidence

demonstrate that changing the locks interfered with 55668’s ability to do business.

To the contrary, 55668 continued to receive invoices and pay its accounts, and

projects outstanding were completed.

[307] Further, Mike Hall took no steps to address this conduct if he believed it had

been wrongful. As majority shareholder of 55668, I agree with counsel for Robin

Sullivan that Mike Hall had a duty to ensure 55668’s interests were maintained. If

Mike Hall believed he was being treated unfairly, as a director of 55668 he may have

had legal options available to him, for example to pursue an application for

oppression under section 371 of the Corporations Act (see American Reserve Energy

Corp., at paras. 26-34). Given that the other director of the company, Chris Winsor,

continued to freely enter the premises, while Mike Hall was not so permitted, Mike

Hall might have applied to a court to find that this treatment by Chris Winsor was

unequal, and therefore “oppressive”. However, Mike Hall took no such steps. The

action against Paul Davis Systems of Canada for conversion of the assets of 55668

is dismissed.

Page 86

[308] There being no harm established by the Plaintiff the claim of trespass and

conversion of assets by Paul Davis Systems of Canada is dismissed.

The conversion of assets of 55668 by Robin Sullivan and 61791

[309] I am satisfied that 61791 and Robin Sullivan, as director of 61791, converted

the assets of 55668 by the assignment of the assets agreement dated April 29, 2010.

[310] Robin Sullivan’s email of March 23, 2010 (Exhibit 1, Tab 85) not only

proposed a $50,000 payment clause to address leasehold improvements, the email

also contained the proposal that the funds for the purchase of the assets be used to

pay towards creditors of 55668. In the email, Robin Sullivan stated:

… When I buy assets we need to air mark where the funds should go. I need to

protect the business going forward and if you take the money and only pay off debts

that you consider good for you only, I am left with suppliers or contractors that are

going to go to the homeowners and to Unifund with law suits which will inturn [sic]

put me out of business …

[311] Mike Hall responded:

I agree with much of what u [sic] have said; I’m am [sic] certainly open to

discussions and will provide full disclosure as to where the money will be spent.

[312] It was then that Robin Sullivan responded with the comment “fair enough”.

With respect to the assignment of assets, Robin Sullivan stated:

… As for the rest of the assets, Chris has to put all the information together and

then I can finalize my list for agreement.

Sound Good?

Page 87

[313] The above exchange supports that at that point, there was no final agreement

reached as to which assets would be purchased, what the price paid would be, and

whether the money would be used to pay creditors that Robin Sullivan needed to be

paid to “protect” his “business going forward”. If anything, the response from Mike

Hall that he would make “full disclosure as to which creditors will be paid” supports

that he intended to retain control over the monies paid to 55668 for its assets.

[314] Further, in this email correspondence, Robin Sullivan stated that Chris Winsor

“has to put all the information together and then I can finalize my list for agreement”.

This strongly suggests that notwithstanding that Chris Winsor had prepared a list on

March 18, 2010, Robin Sullivan, like Mike Hall, did not view that list as final.

[315] Thus, when Mike Hall responded “sounds good old friend”, as far as the assets

were concerned, I find this acknowledgement was not a consent to assign the assets

for the values as listed at that time – but an agreement that Chris Winsor continue

with determining a final list and the parties would continue to negotiate. I accept

Mike Hall’s testimony on this point.

[316] Further, I accept Mike Hall’s testimony that his responses to Chris Winsor on

April 16, 2010 were not confirmation that an agreement had been reached, as far as

what was going to happen with the funds for the assets. Mike Hall did not ask “When

is Robin going to pay the creditors of 55668?”; he asked “When is Robin paying for

the equipment?” This supports that his intention with respect to the purchase of the

assets was that the monies would be paid directly to him or 55668.

[317] When I consider these exchanges, and the fact that Mike Hall did not even

know of the final written agreement to assign the assets until it was received by his

counsel a month later, I am satisfied not only that he did not consent to the terms of

the agreement, but that both Robin Sullivan and Chris Winsor knew he had not

consented, particularly regarding where the funds for the assets would be directed.

Mike Hall’s evidence on this issue is consistent with the documentation. It is very

clear in the evidence that Mike Hall did not wish to leave it to either Robin Sullivan

or Chris Winsor to decide how the money should be used.

Page 88

[318] Given this, I do not accept that Robin Sullivan and 61791 can rely on section

31 of the Corporations Act, or as argued by Robin Sullivan and 61791, the “indoor

management rule”.

[319] The above email communications from Mike Hall, particularly his comment

that he would make “full disclosure as to where the funds will be spent”, supports

that he expected to use the funds, not leave it in the hands of 61791 or Robin Sullivan

to decide how they would be used. Robin Sullivan knew Mike Hall did not consent

to this arrangement and he ought to have questioned whether Chris Winsor had the

authority to execute the agreement in light of this knowledge. There was no evidence

that Chris Winsor provided assurances. To the contrary, as late as May 5, Robin

Sullivan emailed the Robinsons complaining about the outstanding dispute with

Mike Hall over which creditors should be paid.

[320] I am satisfied there was conversion of these assets.

The monies of 55668 deposited in to account of 61791

[321] I am also satisfied, and this was conceded by 61791 and Robin Sullivan that

there were deposits made to the account of 61791 that were monies belonging to

55668. The monies were deposited into 61791’s bank account after the account of

55668 had been closed. I am satisfied these monies were converted to 61791 and

Robin Sullivan.

[322] The parties agreed this amount represented $20,938.67. There was no

evidence to explain what happened with this money and I am satisfied 55668 is also

entitled to be reimbursed for this money.

Page 89

There was no conversion in the assignment of the lease for the premises of

McNamara Drive

[323] I agree with the Defendants 61791 and Robin Sullivan that there is no basis to

find conversion of this asset. The negotiation of the leased premises included a

clause that 61791 would pay 55668 the amount of $50,000 if at the end of the lease

period it decided to purchase the premises. Any value associated with the leasehold

improvements was accounted for by this clause. The agreement was negotiated by

Mike Hall and signed in the presence of his legal counsel. Mike Hall testified that

he consented to this transfer. There is no basis to find that the Defendants wrongfully

converted this asset.

The claim for unjust enrichment

[324] I am not satisfied that Paul Davis Systems of Canada were unjustly enriched

by the conversion of the assets of 55668 through the invalid assignment of the assets

to 61791 or any other conduct.

[325] There is no dispute that Robin Sullivan was able to commence operations of

the franchise sooner than he would otherwise have been able to do if he had not been

in the possession of 55668’s assets and infrastructure. Indeed Robin Sullivan was

clear that he was inundated with claims so there was pressure on him to get the

franchise operational as soon as possible. The assets and infrastructure of 55668

provided 61791, for all intents and purposes, a “turnkey” operation. As stated by

Chris Winsor on cross-examination, if the new franchise was started from “scratch”

and had to establish the infrastructure in place that was in place at 55668’s

termination, it would take “considerable effort”.

[326] I also accept that for Paul Davis Systems of Canada, they reaped the benefits

of receiving earlier royalty payments than might have been expected if there had

been a delay in setting up the new franchise. However there is no way to measure

this benefit or how they may have been different had it taken longer to get the

franchise operational.

Page 90

[327] Further, I accept that 55668 suffered a deprivation in the conversion of its

assets, and while Paul Davis Systems of Canada may have enjoyed some benefit,

there is a juristic reason for this benefit. The royalties or any other fees were duly

received under the franchise agreement between 61791 and Paul Davis Systems of

Canada.

[328] Given this, even if I accepted that there was a benefit, the third criteria of

unjust enrichment is not established. The claim for unjust enrichment is dismissed.

There is no breach of the principle of good faith in the performance of a

contract

[329] I am not satisfied that the Plaintiffs have established that Paul Davis Systems

failed to comply with their duty of good faith. As pointed out in Bhasin, this is an

“organizing” principle of the common law contract and its performance. The

Plaintiffs have suggested that Paul Davis Systems committed a breach of the

franchise agreement. They have always alleged that the wrongful conduct of the

Defendants was beyond the purview of the contract and governed by the principles

of tort and equity in relation to the unjust enrichment claim. I see no basis to engage

the principle of good faith in the performance of a contract when the issue is not

whether the contract was properly performed, but whether the Defendants engaged

in tortious conduct outside the corners of the contract. Further, if this principle has

application in this context, as a dispute in contract law, the dispute may be covered

by the arbitration clause in the franchise agreement.

[330] For these reasons, I dismiss the Plaintiffs claims that Paul Davis Systems

breached their duty of good faith as it relates to the alleged tortious conduct.

There were no torts committed against Canadian Roofing Solutions

[331] There is no basis to find any tort was committed against Canadian Roofing

Solutions. The evidence was scant at best. I accept that the business initially kept

Page 91

equipment at the premises of McNamara Drive but there is nothing in the evidence

that Mike Hall did not retain control of this equipment. As noted, there was

equipment of Canadian Roofing Solutions sold by Mike Hall. There was no evidence

to explain how Canadian Roofing Solutions’ business interests were harmed. The

actions in relation to this Plaintiff are dismissed in its entirety.

[332] Mike Hall testified, and there was substantial evidence to show the financial

obligations he faced to pay creditors of both 55668 and Canadian Roofing Solutions.

After the termination of the franchise agreement and dissolution of 55668, Mike Hall

was the focus of such creditors as he had provided guarantees voluntarily, or was so

required to provide personal guarantees for these debts. The franchise agreement

was clear that any monies owing by the franchise would fall to he and Chris Winsor

as the owners. Given this, I do not accept that the problems faced by Mike Hall in

having to assess the demands of such creditors falls at the feet of any of the

Defendants.

[333] Likewise, while I accept that the dispute that ensued with the Defendants, and

the demise of 55668 and Canadian Roofing Solutions, has taken a person toll, there

is no basis to attribute this impact as harm resulting from any tortious conduct on the

part of the Defendants. Due to the financial problems with the business, Mike Hall

testified he was under stress well before the dates the locks were changed, or the

transfer of operations from 55668 to 61791.

[334] The claims of Mike Hall personally as against 61791 and Robins Sullivan are

dismissed.

The counterclaims of 61791 and Robin Sullivan

[335] Robin Sullivan submitted that whatever value is assigned 55668, it must be

set-off against the expenditures 61791 made to creditors of 55668. I agree. While I

accept that the creditors paid by 61791 were not necessarily the ones that would have

been paid by Mike Hall, the fact is, they were creditors of 55668 and it was of benefit

Page 92

to 55668 to have these debts relieved. There was no evidence to suggest that it would

have been of greater benefit to 55668 if different creditors had been paid.

[336] For this reason, monies expended by 61791 to address debts of 55668 are to

be set-off against the damages owed for the wrongful interference with 55668’s

assets.

The counterclaim of Paul Davis Systems of Canada

[337] I am satisfied the counterclaim of Paul Davis Systems has been established.

There is no dispute that royalties and other fees were owing to Paul Davis Systems

of Canada at the time the franchise agreement was terminated. This debt accrued

before any of the acrimony between the parties, and I am satisfied Paul Davis

Systems is entitled to this money.

DAMAGES

[338] For the conversion of its assets under the invalid agreement, 55668 is entitled

to the value of the assets at the time of the conversion. This of course must take into

account that there were monies paid by 61791 for the assets by way of paying debts

to 55668’s creditors. At trial, the evidence established that 61791 paid out more

money on behalf of 55668 than the sole $70,000 identified in the agreement. As well,

55668 and Mike Hall dispute that $70,000 is representative of the value of the assets

that were acquired by 61791.

[339] In order to determine the proper measure of damages, first the value of the

assets as converted by 61791 must be determined. Next, the proper amount of set-

off in relation to monies expended by 61791 on behalf of 55668 must be determined.

The difference between these amounts will be the damages owing to 55668.

Page 93

The value of the assets under the agreement

[340] There were no less than three inventory lists of the assets of 55668: 1) the

initial list prepared by Chris Winsor; 2) the list that was attached to the assignment

of asset agreement as Schedule “A”, (which is almost identical to Chris Winsor’s

list, less the $75,000 for building infrastructure), and which also included Schedule

“C” from the assignment of asset agreement; and 3) the list prepared by Mike Hall

and given to Michael Power to prepare his valuation report.

[341] I am satisfied that the lists attached to the agreement to assign the assets

represent a reasonably complete inventory of the assets of 55668. I note that Larry

Walton, who was an impartial witness at trial, initialed the inventory as listed in

Schedules “A” and “C”. I do not believe he would have initialed these lists if, at the

time, he did not believe they were representative of the inventory of assets.

[342] However, I am less comfortable with lists as accurately representing the value

of the assets at $70,000. There was very little explanation as to how these values

were determined. Further, while Larry Walton confirmed the inventory, he testified

that he was not asked to provide values of the assets. Thus, while his initials on the

asset lists provide assurance that these were the assets of 55668 at the time they were

converted to 61791, they do not provide any assurance that the total value of $70,000

is reasonable or accurate.

[343] Likewise, and for similar reasons, I also do not accept the values provided by

Mike Hall for Michael Power’s report. The values seem greatly inflated. When I

compare this amount with the value assigned similar assets as identified in the

financial statements for 55668 in 2009 and 61791 in 2010, the difference is

substantial.

[344] In between these two extremes are the values of the assets as described in the

financial statements. The financial statement for the end of 2009 for 55668 (see

MP#3, Tab 170) listed the assets and values. The list of assets in the financial

statements is more expansive; however by extracting only those assets that

Page 94

correspond to the list of assets prepared by Chris Winsor and confirmed by Larry

Walton, their value is as follows:

Fixed Assets

Computer

Depreciation

Value

Total Computer

-380.17

4,971.58

4,591.41

Office Furniture/Equipment

Depreciation

Value

Office Furniture/Equipment – Other

Total Office Furniture/Equipment

-1,509.32

36,608.96

-1,654.74

33,444.90

Vehicle Purchases

Depreciation

-29,733.18

120,360.93

6,000

Value

Vehicle Purchases – Other

Total Vehicle Purchases

96,627.75

Warehouse Equipment

Depreciation

-12,961.58

77,163.48

3,807.20

Value

Warehouse Equipment – Other

Total Warehouse Equipment

68,009.10

[345] The total net value for these particular assets as per the financial statement is

$202,273.15.

[346] The end of year financial statement for 61791 for 2010, listed a total net value

for similar assets as $216,171.

[347] These two valuations are close, differing by an amount of less than $20,000.

The difference of less than $20,000 between the 2009 and 2010 financial statements

is not troubling. It may be no more than the result of further acquisitions made by

Page 95

61791 during the course of 2010. For example, Robin Sullivan testified that he

purchased at least one new vehicle.

[348] I find these valuations are more reliable evidence of the values of the assets

of 55668. Both experts relied on these numbers in preparing their reports. I

understand the reports were unaudited, but they were prepared as part of the course

of usual business of both enterprises, and both experts relied on them. I am satisfied

these values likely represent a more accurate valuation of the assets that were

transferred from 55668 to 61791. I accept that the valuation of the assets in question

is $202,673.75, as per the 2009 statement. This is the statement closest in time to the

date of the conversion of the assets in April 2010. Further, because it is possible that

61791 purchased other equipment using the value from that financial statement may

neither accurately reflect the items possessed by 55668, or their value.

[349] Based on the 2009 financial statement for 55668, I am satisfied that the

Plaintiff 55668 is entitled to damages in the amount of $202,207.63 as representing

the value of the assets that were converted by the Defendants 61791 and Robin

Sullivan by way of the invalid agreement.

Deposits to account of 55668

[350] As well, the deposits of $20,938.67 made to 61791’s bank account are

damages to be paid to 55668 for the wrongful conversion of its assets, along with

$202,207.63, for a total of $223,146.30.

The set-off claims

[351] As stated, damages to be paid to 55668 are to be partially set-off by the

counterclaims of Robin Sullivan and 61791 for the monies paid directly to 55668 for

the assets, as well as to creditors of 55668. Robin Sullivan claimed in total

$234,017.59, and provided a breakdown of these amounts (Exhibit RS #3, Tab 17).

Page 96

In my view, not all of the amounts listed should be included in the determination of

the appropriate amount of set-off against the monies owed to 55668.

[352] In particular, I do not accept the Defendants’ claim of $100,555, as the value

of the monies owing on the Farmington leases, should be included. These amounts

do not represent any expense incurred by 61791 on behalf of 55668. Robin Sullivan

voluntarily re-negotiated these leases with Farmington on behalf of 61791, and there

was a benefit to 61791 in so doing. Taking over the leases meant that 61791 was

able to secure the necessary equipment to run the franchise. Robin Sullivan testified

the new franchise was inundated with work upon signing the franchise agreement.

Given this, the availability of this specialized equipment and infrastructure

immediately upon signing the new franchise agreement clearly saved time and

expense for the franchise to get off the ground. There is no doubt it was also of

benefit to 55668 to no longer need to worry about these lease payments, but given

the benefit to 61791, this should not be included in the set-off against the damages

owed to 55668.

[353] Nor do I accept the inclusion of “20 per cent rent” paid by 61791 when the

two companies were operating out of McNamara Drive. Given that 61791 was up

and running as a business out of those premises at that time, while 55668 was still

the lessee and paying rent, it is reasonable that 61791 would have paid a portion of

the rent to 55668 until it formally took over the lease at the end of March 2010. This

is not a cost incurred by 61791 for the benefit of 55668.

[354] I am also deducting $10,000 of the over $14,000 claimed by 61791 because

of work by 55668 it had to re-do. These were described as warranty claims.

However, the evidence at trial established that 61791 received $10,000 from the

insurance fund of Paul Davis Systems of Canada towards this work. Therefore, it

has already been reimbursed for this money.

[355] Apart from these exclusions, the amounts as described by RS#3, Tab 17 are

reasonable. Deducting the above amounts, the total amount to be set-off from the

damages owed to 55668 is $138,379.50.

Page 97

[356] The damages for compensation for conversion by 61791 and Robin Sullivan

of the assets are as follows:

The Value of equipment converted by Defendant 61791

Value of deposits to account of 61796 belonging to 55668

Total

$202,673.15

20,938.67

$223,611.82

$138,379.50

$ 85, 232.32

Set-off on behalf of 61791 and Robin Sullivan

-

Total Damages

[357] Plaintiff 55668 is awarded the sum of $85,232.32 plus interest as per the

Judgment Interest Act.

Damages to Paul Davis Systems of Canada

[358] For outstanding fees owed by 55668 to Paul Davis Systems of Canada, Paul

Davis Systems of Canada is awarded the sum of $60,933.02, as per paragraph 340

of their brief, plus interest as per the Judgment Interest Act, R.S.N.L. 1990, c. J-2,

as representing the fees owed by 55668 at the time of the termination of the franchise

agreement.

CONCLUSION

[359] In action 5302, the claims of Mike Hall and Canada Roofing Solutions are

dismissed in their entirety. The claims of 55668 against Robin Sullivan and 61791

are allowed in part, for the conversion of the assets of 55668 by way of the invalid

assignment of assets agreement and monies belonging to 55668 deposited to the

account of 61791. The counterclaim for set-off of damages owing by 61791 to 55668

is allowed in part.

Page 98

[360] In action 0454, the claim of 55668 is dismissed. The counterclaim by Paul

Davis Systems for fees owed is allowed.

COSTS

[361] In action 5302, the Plaintiff 55668 has been successful in its claim for

conversion of its assets as against 61791 and Robin Sullivan. Robin Sullivan and

61791 have been partially successful in resisting the full extent of the claims of

55668 and Mike Hall, by way of set-off. In my view, the parties should bear their

own costs.

[362] In action 0454, Paul Davis Systems of Canada has been successful in resisting

all the claims by 55668, and has successfully established their counterclaim. They

are entitled to their party and party costs on the usual basis.

_____________________________

FRANCES J. KNICKLE

Justice