Polard c. ARO Inc., 2022 QCCS 3443 ()  
Polard c. ARO Inc.  
SUPERIOR COURT  
2022 QCCS 3443  
(Civil Division)  
CANADA  
PROVINCE OF QUEBEC  
DISTRICT OF  
MONTREAL  
No:  
500-17-103513-183  
DATE:  
September 21, 2022  
_
_____________________________________________________________________  
BY  
THE HONOURABLE  
JEFFREY EDWARDS, J.S.C.  
_
_____________________________________________________________________  
MAURICE JOSEPH CLAUDE POLARD  
and-  
LIONEL POLARD  
and-  
ELIZABETH VICTORIA POLARD  
and-  
-
-
-
THE POLARD FAMILY TRUST  
Plaintiffs/Cross-Defendants  
v.  
ARO INC.  
-and-  
MICHAEL OGILVIE  
Defendants/Cross-Plaintiffs  
_
_____________________________________________________________________  
JUDGMENT  
_____________________________________________________________________  
_
Table of Contents  
. Overview................................................................................................................................... 5  
. Questions in Issue................................................................................................................... 6  
1
2
3
3
3
3
3
3
. Context...................................................................................................................................... 7  
.1 ARC..................................................................................................................................... 7  
.2 ARO..................................................................................................................................... 7  
.3 Discussions and overtures regarding ARO’s acquisition of ARC.............................. 8  
.4 Letter of Intent.................................................................................................................... 9  
.5 Beginning of Negotiations on the Performance Targets Under the Earnout Agreement  
1
3
3
.6 Mr. Ogilvie’s Personal Guarantee to the Polards for Amounts Owing Under the Earnout  
Agreement and the Bonus Agreement............................................................................... 16  
3
.7 Continuation and Completion of Negotiations of Certain Terms Under the Earnout  
Agreement..................................................................................................................................................  
1
8
3
.8 After the Transaction: Disappointment of ARO, Mr. Ogilvie and Termination of the Polards  
as Employees............................................................................................................................... 22  
3
2
.9 Polards’ Request for Payment of the First Instalment of the Adjusted Earnout Amount  
4
3
3
3
3
3
3
3
.10 Arbitration of Adjusted Earnout Amount.................................................................... 25  
.11 ARO’s Financial Statements....................................................................................... 27  
.11.1 ARO’s 2014 Financial Statements...................................................................... 27  
.11.2 ARO’s 2015 Financial Statements...................................................................... 29  
.11.3 ARO’s 2016 Financial Statements...................................................................... 29  
.11.4 ARO’s 2017 Financial Statements...................................................................... 31  
.12 Polards’ Demand Letters for Payment and Request for Homologation of the Arbitration  
Decision................................................................................................................................... 32  
3
3
3
3
3
3
3
3
3
.12.1 Polards’ First Demand Letter............................................................................... 32  
.12.2 Polards’ Homologation Proceedings on the Arbitration Decision.................. 33  
.12.3 Polards’ Second Demand Letter......................................................................... 35  
.13 Legal Proceedings........................................................................................................ 36  
.14 Expert Evidence............................................................................................................ 36  
.14.1 Andrew Michelin, CPA.......................................................................................... 36  
.14.2 Pascale Gaudreault, CPA.................................................................................... 37  
.14.3 Assessment by the Court of the Expert Evidence............................................ 37  
.14.3.1 Operation of the Earnout Agreement with Respect to Performance Targets and Relevant  
Practice and Usage in Sale Transactions of a Business........................ 37  
3
.14.3.2 Expert Debate Over Applicable Accounting Standards with regard to Financial  
Statements...................................................................................................................... 39  
3
.14.3.3 Assessment of the Experts’ Testimony with regard to Their Duties to Enlighten and  
Assist the Court.............................................................................................................. 43  
3.14.3.4 Summary of Expert Evidence Before the Court........................................ 44  
4. Analysis and Decision........................................................................................................... 46  
4.1 According to the agreement between the parties, was the legal effect of ARO’s non-  
compliance with the Schedule B Financial Ratios to defer the obligation to make payment of the  
annual instalments of the Adjusted Earnout Amount or to extinguish the obligation to pay  
them?..................................................................................................................................................  
46  
4.2 Legal Principles regarding the Interpretation of Contracts and Relevant Articles of the Civil  
Code of Quebec..................................................................................................................... 46  
4
4
.3 Is There an Ambiguity in the Terms of the Contract?................................................ 48  
.4 Which Interpretation of the Terms of Section 4 of the Earnout Agreement Should Prevail  
and be Binding on the Parties?................................................................................................... 51  
4
4
4
4
4
4
4
4
.4.1 Quebec Legal Principles on Contractual Interpretation..................................... 51  
.4.2 Common Intention of the Parties (Articles 1425 and 1426 C.C.Q.)................. 52  
.4.2.1 Polards............................................................................................................... 52  
.4.2.2 Credibility of the Polards.................................................................................. 57  
.4.2.3 ARO and Mr. Ogilvie........................................................................................ 58  
.4.2.4 Balance of Sale – Evolving Position of ARO and Mr. Ogilvie.................... 65  
.4.2.5 Credibility of Mr. Ogilvie................................................................................... 71  
.4.2.6 Mr. Ogilvie’s Unfounded Motivation to Revise the Interpretation of the Sentence in  
Issue................................................................................................................................. 72  
4
4
4
4
.4.2.7 Conclusion......................................................................................................... 73  
.4.3 The Circumstances in which the Contract was Formed (Art. 1426 C.C.Q.)... 73  
.4.4 The Court is to Read the Contract as a Whole (Articles 1427 and 1428 C.C.Q.) 76  
.4.5 Words Susceptible of Two Meanings Receive the Meaning that Best Conforms to the  
Subject Matter of the Contract (Article 1429 C.C.Q.)................................................... 84  
4
4
4
4
4
4
.4.6 Usage (Article 1426 C.C.Q.).................................................................................. 86  
.4.7 ARO and Mr. Ogilvie’s Various Other Grounds of Defence.............................. 87  
.4.7.1 Partial Prescription........................................................................................... 87  
.4.7.2 Interest................................................................................................................ 88  
.4.8 Conclusion................................................................................................................. 90  
.5 Did the Polards Renounce to Claiming the Unpaid Interest on the Capital of the Working  
Capital Amount Owed to Them by ARO?.......................................................................... 91  
4.6 Are the Parties’ Respective Claims Against Each Other for Damages, Legal Fees and  
Non-judicial Disbursements Well Founded, and if so, What Amount Should be Granted?  
9
4
7
.6.1 Other Claims of Both Parties, Relevant Articles of the Code of Civil Procedure and Legal  
Principles............................................................................................................................. 97  
4.6.2 Polards’ Claims...................................................................................................... 100  
4
4
4
4
.6.2.1 Claim for Punitive Damages......................................................................... 100  
.6.2.2 Claims for Legal and Other Extrajudicial Fees.......................................... 102  
.6.2.2.1 Fees Paid for Arbitration........................................................................ 102  
.6.2.2.2 Attorney Professional Fees Regarding the Application for Homologation of the  
Arbitration Decision on the Adjusted Earnout Amount...................................... 103  
4.6.2.2.3 Attorney Professional Fees and Disbursements for the Present Court  
Proceedings.............................................................................................................. 104  
4
4
4
.6.3 ARO and Mr. Ogilvie’s Claims............................................................................. 110  
.6.3.1 ARO’s Claim for Damages to Reputation and Trouble and Inconvenience 110  
.6.3.2 Mr. Ogilvie’s Claim for Damages to Reputation, Psychological Distress and  
Inconvenience.............................................................................................................. 111  
4
4
.6.3.3 ARO’s Claim for Refund of its Legal Fees................................................. 112  
.7 Legal Costs, including the Costs of Expertise.......................................................... 112  
1
. Overview  
[1]  
Plaintiffs Maurice Joseph Claude Polard (Maurice), Lionel Polard (Lionel), Elizabeth  
Victoria Polard and The Polard Family Trust (Polards) sold their family business, Accounts  
Recovery Corporation (ARC), a national collection agency based in Victoria, British Columbia,  
to Defendant ARO Inc. (ARO), another national collection agency, based in Montreal, Quebec.  
Defendant Michael Ogilvie is the sole shareholder, officer and director of ARO.  
[2]  
The agreed price of sale was $8 million. According to the structure of the transaction,  
ARO would pay $500,000 to Maurice, ARC’s principal shareholder and founder, by way of a  
Consulting Service Agreement0F[1]. The declared sale price then became $7,5 million. ARO  
paid $6 million on closing. A maximum balance of sale payment of $1,5 million was subject to  
an Earnout Agreement1F[2]. It was agreed that the amount owing under the Earnout  
Agreement was to be paid in three (3) equal annual instalments. Mr. Ogilvie personally  
guaranteed various amounts under the transaction, including the amount owing under the  
Earnout Agreement.  
[3]  
The Earnout Agreement sets out certain performance targets (Performance  
Targets). The precise amount (Adjusted Earnout Amount) to be paid under the Earnout  
Agreement as the balance of sale was to be determined by the extent to which the Performance  
Targets were achieved. In the event that the parties were unable to agree to what extent the  
Performance Targets were achieved, the parties stipulated that the issue would be decided by an  
independent arbitrator. As the parties were unable to agree on the extent of satisfaction of the  
Performance Targets, the Polards submitted the question to arbitration. On March 17, 2017, the  
arbitrator determined that the Adjusted Earnout Amount was $1,345,689.  
[4]  
ARO and Mr. Ogilvie nonetheless take the position that no amount of the Adjusted  
Earnout Amount is owed to the Polards. They allege that the three annual instalments to pay the  
Adjusted Earnout Amount were only owed if ARO complied with certain financial ratios  
(Schedule B Financial Ratios), as determined by ARO’s audited financial statements at its  
year end for the 3 years subsequent to the transaction (August 31, 2014, August 31, 2015 and  
August 31, 2016). ARO submits that its non-compliance with the Schedule B Financial Ratios on  
those dates extinguishes the liability for payment of the Adjusted Earnout Amount.  
[5]  
ARO’s audited financial statements ended on August 31, 2014, August 31, 2015 and  
August 31, 2016 state that ARO was non-compliant with the Schedule B Financial Ratios on  
those dates. The Polards do not contest ARO’s auditors’ accounting determination in that  
regard. However, the Polards submit that the agreed effect of ARO’s non-compliance with these  
ratios was never the extinguishing of the obligation to pay the three annual instalments of the  
Adjusted Earnout Amount or the obligation to pay the Adjusted Earnout Amount. Instead, they  
submit that the agreed effect was only to defer the exigibility of the 3 annual instalments of the  
Adjusted Earnout Amount for a maximum of 3 years. For example, in the event of ARO’s non-  
compliance with the Schedule B Financial Ratios on August 31, 2014, the obligation to pay the  
first instalment of one third of the Adjusted Earnout Amount was simply deferred. The same  
deferral would occur for the second and third annual instalments in the event of ARO’s  
non-compliance on the dates of August 31, 2015 and August 31, 2016. The Polards state that  
they agreed to such a possible deferral since ARO agreed that interest on any unpaid amount of  
the entire Adjusted Earnout Amount would continue to run from the date of closing of the  
transaction until full payment of the Adjusted Earnout Amount and since Mr. Ogilvie also  
agreed to give personal guarantees for payment of the Adjusted Earnout Amount as well as for  
other amounts under the transaction.  
[6]  
The Court concludes that the Polards’ interpretation regarding the legal effect of ARO’s  
non-compliance with the Schedule B Financial Ratios is correct. It was the common intention of  
the parties at the time of concluding the transaction that ARO’s non-compliance would only  
defer payment of the three annual instalments of the Adjusted Earnout Amount. As the period  
of deferral is now expired, the Polards are entitled to demand payment from ARO and  
Mr. Ogilvie of the entire Adjusted Earnout Amount, with interest. That amount totals  
$
2,079,578.99.  
[7] In addition, both parties make various other claims against each other which the Court  
also adjudicates.  
2
. Questions in Issue  
1
) According to the agreement between the parties, was the legal effect of ARO’s non-  
compliance with the Schedule B Financial Ratios to defer the obligation to make payment of the  
annual instalments of the Adjusted Earnout Amount or to extinguish the obligation to pay  
them?  
2
) Did the Polards renounce to claiming unpaid interest on the capital amount of the working  
capital amount owed to them by ARO?  
3
) Are the parties’ additional claims against each other for damages, legal fees and non-judicial  
disbursements well founded, and if so, what amount should be granted?  
3
3
. Context  
.1 ARC  
[8]  
In 1988, Maurice founded ARC. It started out as a small collection agency and  
progressively grew, obtained larger accounts and became a national company with offices  
throughout Canada. At the time of the transaction, ARC was based in Victoria, British  
Columbia. It had become a major player in the collection industry in Canada. It was notably  
mandated to undertake the collection of claims for large national companies and institutions,  
such as the Royal Bank of Canada, major telecommunication companies, the federal  
government, as well as various provincial and municipal governments in Canada. In 2012, ARC  
had approximately 250 employees.  
[9]  
ARC was a family company. Maurice’s brother, Lionel, was involved as well as  
Maurice’s children. In particular, Maurice’s son Joseph (Joe) was intensely involved. Joseph  
graduated in 1997 from the University of Victoria with a commerce degree. He started to work  
at ARC soon after. He worked with his father, his uncle and his siblings and gradually rose up  
the ranks. From 2008 to 2013, Joseph was president of ARC.  
[10]  
According to the Polards, ARC was profitable year after year. Maurice was debt adverse.  
So the company did not have institutional debt. ARC paid its invoices upon receipt from its  
bank account. Joe testified that for the five (5) years that he was president, ARC had an annual  
revenue of approximately $17 million, and made a yearly profit between $750,000 and  
$
1,000,000.  
[11] ARC also had an office in Nevada, United States of America, and was authorized to buy,  
sell and collect debts in the United States.  
3
.2 ARO  
[12]  
ARO refers to “Agence de recouvrement Ogilvie”. Mr. Ogilvie is fluent in both English  
and French and was brought up in both languages2F[3]. After completing his high school, he  
briefly attended junior college (CÉGEP)3F[4]. He first worked as an apprentice bailiff and then  
at a collection agency in Montreal. He was then recruited to work at the collection division of a  
major Canadian bank. He subsequently returned to work for a collection agency, which was  
then sold. As a result of his work experience, he understood the collection business both from  
the point of view of clients (such as banks) and collection agencies.  
[13]  
In 1994, Mr. Ogilvie founded ARO4F[5]. The company progressively grew and obtained  
larger accounts. Those accounts included those from major Canadian retail stores and chartered  
banks, as well as mandates from the federal government, certain provincial and municipal  
governments and public utilities. ARO also acts as a broker for collection work. In that role,  
ARO reassigns certain of its collection accounts to smaller collection agencies. In 2012, ARO  
was also a national company with clients and offices throughout Canada and had approximately  
2
50 employees.  
3
.3 Discussions and overtures regarding ARO’s  
acquisition of ARC  
[14]  
The owners and principal representatives of ARO and ARC knew each other for several  
years before discussions began regarding ARO’s possible acquisition of ARC. The two  
companies were competitors servicing the same clientele and “colleagues” in the same industry.  
As both ARC and ARO had operations throughout Canada, their representatives would notably  
meet at promotional and industry events. Mr. Ogilvie stated that he observed and admired the  
growth and operations of ARC. He also noted that ARC was run by a core group of people from  
the same family.  
[15]  
In the summer of 2012, Victor Sawisian, a senior executive of ARO based in Markham,  
Ontario, approached Lionel Polard at an industry event. He stated that ARO was interested in  
expanding and in acquiring collection companies, including ARC. The parties set up an  
introductory meeting to discuss the possibility. Mr. Ogilvie was very motivated in acquiring  
ARO. He felt that the corporate cultures of ARO and ARC were very similar and that it would be  
a great opportunity for the expansion of ARO. Although both ARO and ARC had offices  
throughout Canada, ARO was more present in Eastern Canada and ARC more present in  
Western Canada.  
[16]  
On September 6, 2012, a first meeting took place to discuss the possibility of ARO  
purchasing ARC. ARO was represented by Mr. Ogilvie, Mr. Sawisian, Jim Novasad and its  
attorney, Me André Rousseau. ARC was represented by Joe and Lionel. Before the meeting,  
Mr. Ogilvie had had a discussion with Maurice.  
[17]  
According to the minutes of the meeting, Mr. Ogilvie stated5F[6]:  
“[…] that ARC was built on much of the same principles as ARO and could be a perfect match.  
Michael noted that ARC’s client list is at least 60% different to ARO’s which is a benefit. Michael  
also noted that ARC’s IT infrastructure is solid and ARO is pleased in that respect.”  
[18]  
Prior to the meeting, ARC had sent its financial statements to ARO. Maurice had  
previously requested a purchase price of $10 million but Mr. Ogilvie said that was too high.  
Maurice had come down in price but conveyed to Mr. Ogilvie that he would not consider a price  
below $8 million. Joe understood that Maurice had made it clear that unless ARO was prepared  
to pay a minimum of $8 million, there was no point in continuing with discussions. At the end  
of the meeting, ARO wanted to pursue discussions to acquire ARC.  
[19]  
A second meeting by the parties was organized. It took place at the Hotel Grand Pacific  
in Victoria, British Columbia. This time, Maurice was present. The discussions on the price of  
sale were somewhat tense. Mr. Ogilvie tried to convince Maurice to accept less than $8 million  
but Maurice would not budge. According to the Polards, the meeting ended with Mr. Ogilvie  
assuring Maurice and the other representatives that ARO would pay $8 million to acquire ARC  
and that acquisition discussions would continue. ARO would be requesting further financial  
information on ARC’s operations.  
[20]  
The Defendants filed as exhibits many e-mails exchanged between the Polards,  
including Joe Polard, and the Polards’ attorney during the long negotiations of the transaction.  
[21]  
These e-mails were on ARC’s servers before the sale. When ARO acquired all of ARC’s  
assets, ARO also acquired the computers and the servers containing these e-mails. ARO  
therefore obtained access to all of these e-mails.  
[22]  
At trial, the Polards themselves referred to these exchanges. Neither the Polards nor  
their attorney objected to the admission into evidency of these e-mails on the basis of  
confidentiality or professional secrecy. The Polards therefore waived any right to object to the  
admissibility, confidentiality, professional secrecy or otherwise privileged nature of these  
exchanges6F[7]. Accordingly, Defendants had exceptional access to the exchanges made  
between the Polards and their attorney during the negotiations of the transaction and entered  
them into evidence, without objection.  
3
.4 Letter of Intent  
[23]  
On November 1, 2012, ARO’s accountants (BDO) sent ARC a draft letter of intent about  
the proposed transaction7F[8]. On November 21, 2012, the letter of intent (Letter of Intent)  
was signed by the representatives of ARO and ARC. Under the heading “Principal Terms of the  
Proposed Transaction”, the Letter of Intent reads8F[9]:  
“(c) Purchase Price. Based upon the Purchased Assets and/or shares being free and clear of  
all encumbrances, the purchase price would be a maximum of $8,000,000 (including a  
normal working capital) in Canadian funds (the “Purchase Price”) based on the financial  
information received as of October 31, 2012. The Purchase Price is subject to a normal working  
capital to be agreed upon between the parties.”  
[Emphasis added.]  
[24] Subsequently, ARC and ARO were involved in a due diligence process. BDO (ARO’s  
accountants) requested and received full access to ARC’s financial records and operations. BDO  
visited ARC on site in Victoria, British Columbia, to carry out part of the due diligence process.  
[25]  
On January 11, 2013, BDO provided ARO with a due diligence report on ARC’s  
operations9F[10]. After receiving the due diligence report, ARO decided to move forward with  
the proposed transaction.  
[26]  
The transaction process went on for approximately nine (9) to ten (10) months,  
culminating in agreements that were signed on August 23, 2013 (the principal agreement,  
namely the Sale and Purchase Agreement10F[11] (SAPA)) and on October 11, 2013 (the  
remaining agreements, including the Earnout Agreement).  
[
[
27]  
28]  
In February 2013, the parties agreed to three changes to the Letter of Intent.  
First, Mr. Ogilvie told Maurice that ARO would prefer to pay part of the $8 million  
purchase price, namely $500,000, to Maurice by way of a separate consulting agreement.  
Maurice agreed. That would have the effect of reducing the declared purchase price to $7.5  
million.  
[29]  
Second, ARO requested that only $6 million of the purchase price be paid at closing.  
Third, the balance of sale, namely $1.5 million, would be paid by way of an “Earnout  
Agreement”11F[12].  
[30]  
According to Joe’s understanding, from his discussions with ARO’s representatives  
including Michael Ogilvie and Jim Novasad, one of ARO’s lenders, Investissement Québec (IQ),  
was requesting that the $1.5 million balance of sale be conditional and payable on the basis of  
an earnout agreement predicated upon the satisfaction and validation of certain agreed  
performance targets of ARC’s commercial operations to be acquired by ARO. According to Joe,  
this request was made in the early months of 2013.  
[31]  
According to Mr. Ogilvie, the term “Earnout” was first mentioned in one of the early  
meetings with the Polards regarding the negotiation of the price. He is unable to say who  
mentioned it. Mr. Ogilvie’s version is vague. It is not supported by the testimony of any other  
witness. ARO had the opportunity to have testify ARO’s other representatives at these meetings,  
but chose not to do so. It is not credible that Mr. Ogilvie cannot even indicate the source of the  
suggestion.  
[32]  
The precontractual documents support the Polards’ version in this regard since the idea  
of an earnout for the balance of price is supported by the subsequent written exchanges between  
the parties, as we will see.  
[33]  
It is therefore clear the parties agreed that a balance of the purchase price in the  
amount of $1,500,000 would be held back by ARO and not paid at closing. The balance of the  
purchase price would be subject to an earnout agreement on the basis of agreed performance  
targets. To the extent that the performance targets were met, ARO would pay the balance of sale  
up to a maximum amount of $1,500,000.  
[34]  
On February 21, 2013, Mr. Ogilvie confirmed in writing by two separate letters how  
ARC would pay the Polards the $8 million purchase price. A first amount of $500,000 would be  
paid by way of a Consulting Service Agreement between Maurice and ARO to be signed at the  
time of the closing of the transaction. In his letter to Maurice, Mr. Ogilvie confirmed12F[13]:  
“As per discussions, in order to bring the Purchase Price to $8,000,000, an additional  
amount of $500,000 will be payable to you upon the signature of the Purchase Agreement as an  
independent deal and to remain confidential. This $500,000 will be paid to you in 12 monthly  
consecutive payments of $41,666.67 as Consulting Services.”  
[
Emphasis added.]  
35] In light of the $500,000 payment in virtue of the Consulting Service Agreement, the  
[
declared purchase price for the acquisition of the assets and shares of ARC was reduced to  
7,500,000. In a separate letter to Maurice on the same date (February 21, 2013), Mr. Ogilvie  
confirmed13F[14]:  
$
“This letter is an amendment to our original letter [of intent] dated November 21, 2012 and is to  
reflect our Agreement in Principle of the negotiated terms:  
•
•
•
[
[
Purchase price is to be $7,500,000;  
Amount Due on closing will be $6,000,000;  
Earnout of $1,500,000 bearing interest at an annual rate of 5%.”  
Emphasis added.]  
36] The last point includes a reference to an agreement on interest due for the earnout  
amount. The Polards requested and ARO agreed to the earnout mechanism for payment of the  
balance of sale on the condition that the amount owed would bear interest at a rate of 5% until  
final payment.  
[37]  
On February 25, 2013, ARO’s accountants sent to ARC’s accountants a memorandum  
regarding the structure of the proposed transaction. The document is prepared by the same  
accounting firm (BDO) that prepared the due diligence report for ARO. In light of the  
amendment to the Letter of Intent by way of a separate payment of $500,000, ARO’s  
accountants confirmed to ARC that a fair market value of $7.5 million was attributed to ARC’s  
shares. The memorandum reads in part as follows14F[15]:  
#
shares  
FMV  
Class B Preferred  
Maurice Polard  
6,300  
$699,300  
Maurice Polard in trust for Lionel Polard 1,800  
$199,800  
Elizabeth Polard  
Common shares  
Maurice Polard  
900  
420  
$99,90015F[16]  
$2,730,420  
$1,300,200  
$650,100  
Maurice Polard in trust for Lionel Polard 200  
Elizabeth Polard  
100  
280  
The Polard Family Trust  
$1,820,280  
$7,500,00016F[17]  
The preferred class B shares have a redemption value of $111/share. For purposes of this  
memorandum, it has been assumed that the fair market value of the shares of ARC is  
equal to $7.5 million.17F[18]  
“
•
Total Value $7,500,00018F[19]  
ARO is willing to pay $800,000 for ARC’s working capital and $6.7 million for its capital  
assets and goodwill for a total of $7.5 million.19F[20]  
…]  
7. PurchaseCo buys all the outstanding shares of Holdco from its shareholders in consideration  
[
1
for a note payable in the amount of $1,500,000 subject to a reverse earnout  
agreement and cash for the remaining fair market value.20F[21]  
7The reverse earnout will be based on the assets purchased from ARC and a  
formula taking into account loss of clients over a period of 12 months, retention  
of staff over the next 12 months, and the gross revenues.21F[22]”  
[
Emphasis added.]  
38] We will see that the Performance Targets did include various formulae regarding client  
[
retention, staff retention and gross revenue generated by former clients of ARC22F[23].  
[39] Based upon ARO’s two letters of February 21, 2013 and the letter of February 25, 2013,  
it is clear that the total value of the consideration of the purchase of ARC was $8 million. An  
amount of $500,000 was to be paid to Maurice under a Consulting Service Agreement. The  
declared purchase price was reduced to $7,5 million. The purchase price was to be paid in two  
parts. First, an amount of $6 million would be paid on closing. Second, a balance of sale up to  
$
1.5 million would be paid according to the terms of an earnout agreement.  
3
.5 Beginning of Negotiations on the Performance  
Targets Under the Earnout Agreement  
[40]  
Joe testified that before agreeing to the principle of an earnout agreement for the  
payment of the balance of sale of $1,500,000, Mr. Ogilvie told him and Maurice that the  
performance targets for the calculation of the earnout amount would be reasonable, negotiated  
with the Polards and subject to their consent, and that the Polards would be comfortable with  
them.  
[41]  
From approximately April to June 2013, the parties negotiated the Performance Targets  
that were inserted into the Earnout Agreement. Both the Polards (including Maurice and Joe)  
and ARO (including Michael Ogilvie and Jim Novasad) worked on developing the criteria that  
were later inserted into Section 3 of the Earnout Agreement. The parties agreed that the amount  
payable under the Earnout Agreement would be determined over a 12-month period calculated  
from the date of closing of the transaction. The Earnout Agreement defines “Performance  
Period” as follows23F[24]:  
“
“Performance Period” means the twelve (12) month period beginning on the Closing Date and  
terminating twelve (12) months thereafter.”  
[42] The negotiated and agreed Performance Targets inserted into the Earnout Agreement  
refer to the following criteria24F[25]:  
1
) Loss or not of ARC’s clients - the amount of revenue generated for the benefit of ARO by  
former clients of ARC who remained clients of ARO at the termination of the Performance  
Period;  
2
) Retention of staff of ARC - the number of former employees of ARC who remained  
employed by ARO (both key staff and other staff) at the termination of the Performance Period;  
3
) Gross revenue generated by former clients of ARC - the amount of revenue  
generated by certain former major clients of ARC during the Performance Period.  
[43]  
In particular, Section 2(a) stipulates the Performance Targets to be used, as follows:  
“(i) the number of Additional Staff who remain employees of ARO at the expiration of the  
Performance Period;  
(ii) a statement as to whether Additional Staff Retention Level 1, Additional Staff Retention  
Level 2 or Additional Staff Retention Level 3 was achieved;  
(iii) the number of Key Staff who have remained as employees of ARO throughout the  
Performance Period;  
(iv) a statement as to whether Key Staff Retention Level 1 or Key Staff Retention Level 2 was  
achieved;  
(
(
v) the calculation of Revenue From Clients for the Performance period;  
vi) a statement as to whether Client Retention Level 1, Client Retention Level 2, Client  
Retention Level 3 or Client Retention Level 4 was achieved;  
(vii) the calculation of Revenue for the Performance period; and  
(viii) a statement as to whether Tier 1 Revenue, Tier 2 Revenue or Tier 3 Revenue was  
achieved.”  
[44] The relevant defined terms are25F[26]:  
“(w) “Operations” means the Business, as a going concern, substantially as carried on  
immediately prior to closing.  
[
(
…]  
y) “Revenue” means the collection revenue and collection fees of the Business resulting from  
the operation by ARO of the Operations.  
(z) “Revenue From Clients” means the collection revenue and collection fees of the Business  
derived directly from the Clients resulting from the operation by ARO of the Operations. For  
greater certainty, for the purpose of calculating Revenue From Clients, “Revenue From Clients”  
excludes loss in collection revenue and collection fees from Clients resulting from a substantial  
lack of performance by ARO in connection with any Client that is, as well, a client of ARO, which  
lack of performance is not, to any extent, attributable to any of the Key Staff and which  
materially and adversely impacts such revenue and fees.  
(aa) “Revenue Goal Earnout Amount” means $600,000 or such lesser amount as is payable  
pursuant to the applicable provision of Section 3 hereof, as the case may be.  
[…]  
(
(
(
cc) “Tier 1 Revenue” means Revenue of $14,335,000 earned during the Performance Period.  
dd) “Tier 2 Revenue” means Revenue of $13,618,250 earned during the Performance Period.  
ee) “Tier 3 Revenue” means Revenue of $13,259,875 earned during the Performance Period.  
“Business” means the business of ARC, ARC Nevada and ARC USA, being:  
1
.1.17.1 accounts receivable management and recovery, including (i) third party collections on  
behalf of financial institutions, Governmental Bodies and Individuals and (ii) recovery services  
on client purchased and third party purchased portfolios of accounts receivable; and  
1
.1.17.1 recovery of delinquent accounts receivable using clients’ names, trace services and  
investigations, and first party outsource services.26F[27]”  
[45]  
The agreed criteria for the Performance Targets were sent by the parties to their  
attorneys for inclusion by ARO’s attorney into the draft earnout agreement. On June 19, 2013,  
ARO’s attorney sent a draft earnout agreement to the Polards’ attorney27F[28].  
[46]  
Under the Earnout Agreement, upon the termination of the Performance Period, ARO  
is to provide the Polards with an Earnout Schedule28F[29], which indicates the information  
necessary to calculate the adjustment29F[30] to the maximum potential amount of the Earnout  
Amount ($1,500,000). After calculation of the information provided in the Earnout Schedule,  
the Adjusted Earnout Amount is determined30F[31].  
[47]  
The parties also agreed that the Adjusted Earnout Amount not only determined the  
amount of the balance of price owed. It also affected the amount owing to Maurice under his  
separate Bonus Agreement31F[32]. The Bonus Agreement, which included various non-  
solicitation undertakings on the part of Maurice32F[33], was for an amount of $100,000.  
Under the terms of the Bonus Agreement, the amount owed was subject to reduction “by the  
same percentage as the Earnout Amount” under the terms of the Earnout Agreement33F[34].  
3
.6 Mr. Ogilvie’s Personal Guarantee to the Polards for  
Amounts Owing Under the Earnout Agreement and the  
Bonus Agreement  
[48]  
During negotiations of the transaction, including those required for the Performance  
Targets under the Earnout Agreement, a major issue arose and came to the fore. The Polards  
required a personal guarantee from Mr. Ogilvie for amounts owing under the Earnout  
Agreement, the Bonus Agreement and the Consulting Agreement. From the beginning of  
negotiations, Mr. Ogilvie had committed to give the Polards “all financial guaranties in due  
time”34F[35] but that commitment was vague. After the initial agreement of an $8 million  
purchase price, the terms of payment had evolved. At the request of ARO and Mr. Ogilvie, the  
Polards had agreed not to receive full payment of the purchase price at the time of closing. A  
balance of payment would be paid by way of an Earnout Agreement based upon the satisfaction  
of Performance Targets, the evaluation of which would take place over a year after the  
transaction. The Polards also agreed that payment of the amount owed under the Earnout  
Agreement, namely the Adjusted Earnout Amount, would be paid by annual instalments over a  
period of 3 years. The Polards also agreed that, in the event that ARO, during a period of 3 years  
after the transaction, was not in compliance with certain financial ratios required by its lender,  
the payment of the three annual instalments of the Adjusted Earnout Amount would be  
deferred for a maximum period of three years. In return, ARO and Mr. Ogilvie agreed that the  
balance of the purchase price to be determined under the Earnout Agreement would be subject  
to a compound interest rate of 5%35F[36].  
[49]  
As a result of the possibility of deferrals of payment of the large amount of the balance  
of sale, the Polards were concerned that the maximum term of payment of 3 or 4 years after the  
transaction closed was an unacceptable risk for them without adequate guarantees. The Polards  
were not interested in proceeding to the sale unless Mr. Ogilvie provided personal guarantees  
for payment of the amounts that remained to be paid after the closing. As late as June 14, 2013,  
ARO and Mr. Ogilvie’s attorney were resisting the giving of personal guarantees requested by  
the Polards36F[37].  
[50]  
On June 24, 2013, the Polards’ attorneys indicated to ARO and Mr. Ogilvie’s attorneys  
that the issue of Mr. Ogilvie’s personal guarantees was paramount to the Polards and had to be  
resolved “in order for this transaction to complete”37F[38]. It is clear that the transaction  
discussions in general would not continue, including those relating to the Performance Targets  
under the Earnout Agreement, until that issue was resolved.  
[51] The next day, Mr. Ogilvie telephoned Maurice to inform him that he would provide the  
requested personal guarantees to the Polards. Mr. Ogilvie told Maurice38F[39]:  
“Alright Maurice listen I got the communications through the lawyers and everything you  
wanted guarantees. I have absolutely no issues with that so let me just say I will be providing  
you a personal guarantee, […]  
[…] I’m doing it on a personal level Maurice because I want to prove to you that I am very very  
confident and very motivated and very confident of what we are going to be building so that you  
are very secure and feel that I am personally getting myself involved and not getting  
away from any guarantees that you would want. You’re seeing my blood there so that  
for me proves a lot to you.”  
[
[
Emphasis added.]  
52] Mr. Ogilvie agreed to give the Polards his personal guarantees for payment of various  
amounts owing under the transaction, including the Earnout Agreement (up to a maximum of  
1,500,000), the Bonus Agreement and the Consulting Agreement39F[40]. Mr. Ogilvie also  
$
signed a promissory note making him personally liable to pay the Polards the Adjusted Earnout  
Amount owing under the Earnout Agreement40F[41].  
3
.7 Continuation and Completion of Negotiations of  
Certain Terms Under the Earnout Agreement  
[53]  
At the time, ARO’s attorney asked to proceed to the closing in two steps: first by signing  
the SAPA41F[42], and second, by signing all the separate agreements, in particular those listed  
in the schedules of the SAPA. ARO’s attorney wanted to have the terms of the Earnout  
Agreement regarding the Performance Targets approved by the Polards and sent to IQ42F[43].  
Joe provided some comments on the draft earnout agreement by e-mail. After the acceptance by  
Mr. Ogilvie to provide personal guarantees, those comments were forwarded by ARC’s attorney  
to ARO’s attorney43F[44]. Amongst other comments, Joe referred to the sentence in Section 4  
of the Earnout Agreement (Sentence in Issue) that is invoked in defence by ARO and  
Mr. Ogilvie to deny the Polards’ claim, namely:  
“Payment of each of the annual payments is conditional upon ARO’s compliance, in all material  
respects, with the financial ratios set out in Schedule “B” attached hereto, such compliance to be  
determined based on the audited financial statements of ARO for its fiscal period ending  
August 31, 2014, August 31, 2015 or August 31, 2016, as applicable.”  
[54]  
Joe pointed out that it was important that interest payable to the Polards on the entire  
Adjusted Earnout Amount was owed and should be calculated from the day the transaction  
closed. If that was not clarified, Joe expressed the view that the instalment payments could be  
deferred by ARO artificially, such as by taking out loans or by increasing dividends44F[45]. He  
also wanted to make it clear that interest should not begin to run only from the time of the  
calculation and determination of the Adjusted Earnout Amount. He indicated that a  
clarification was required so that the possible deferrals of payment of the annual instalments of  
the Adjusted Earnout Amount in Section 4 of the draft earnout agreement, caused by ARO’s  
potential non-compliance with the Schedule B Financial Ratios, would not be consequential to  
the Polards as interest would in any event run from the date of the closing on the full Adjusted  
Earnout Amount.  
[55]  
When cross-examined on this e-mail, Joe was clear that his comments related only to  
the timing and deferral of the annual instalment payments of the Adjusted Earnout Amount.  
His comment and request that the text specify that interest was owed from the time of closing  
notwithstanding the application of the Schedule B Financial Ratios make clear that, in his  
understanding, there was no issue or possibility that non-compliance with these financial ratios  
could have the effect of extinguishing the obligation to pay the instalments of the Adjusted  
Earnout Amount. In that regard, the interpretation proposed by ARO and Mr. Ogilvie of  
extinguishment of the obligation to pay the three annual instalments of the Adjusted Earnout  
Amount is irreconcilable with Joe’s comments and requests.  
[56]  
Joe’s comments and requests were forwarded to the negotiating team of ARO,  
including Mr. Ogilvie45F[46]. On the face of the e-mails exchanged, Joe’s comments were well  
received by ARO. ARO’s attorney wrote back46F[47]:  
“
You will note that we have accommodated your client’s requirements.”  
Emphasis added.]  
57] In his return e-mail, ARO’s attorney annotated Joe’s comments. Regarding the two  
[
[
comments mentioned, the annotations are as follows47F[48]:  
“
“
This matter is resolved.”  
Agreed. This change has been made.”  
[
[
Emphasis added.]  
58] The initial draft earnout agreement sent by ARO’s attorney to the Polards’ attorney did  
not contain any Schedule B Financial Ratios 48F[49]. In fact, the Schedule B of the draft  
earnout agreement was blank. ARO’s attorney indicated that there was no discussion or  
negotiation to be had concerning the Schedule B Financial Ratios. He simply wrote that  
“Schedule “B” will need to be added when finalized”49F[50].  
[59] Joe testified that he understood from the explanations given to the Polards throughout  
the transaction process that the Schedule B Financial Ratios were strictly something between  
ARO and IQ alone and did not concern or affect the Polards, except for a possible temporary  
deferral of payments of the annual instalments of the Adjusted Earnout Amount. The Schedule  
B Financial Ratios were simply imposed upon ARO by IQ for its financing50F[51]. That did not  
affect ARO’s underlying obligation to pay the Polards the balance of sale price as determined by  
the Adjusted Earnout Amount and payable by way of the three annual instalments.  
[60]  
The evidence supports the Polards’ testimony in that regard. Neither party suggests  
that the Schedule B Financial Ratios were ever the subject of negotiations. Mr. Ogilvie states  
that he never discussed them with the Polards51F[52]. During the entire acquisition process,  
there is not one e-mail exchange between the parties or their attorneys which seek to modify or  
negotiate the Schedule B Financial Ratios.  
[61]  
In light of their understanding that the effect of ARO’s possible non-compliance with  
the Schedule B Financial Ratios was only to defer payment of the three annual instalments of  
the Adjusted Earnout Amount, which continued to accrue interest, and in light of the personal  
guarantees that Mr. Ogilvie agreed to give for the amounts owed, the Polards explained that  
they did not seek to negotiate these ratios.  
[62]  
On July 4, 2013, ARO’s attorneys wanted to send the agreed terms of the Earnout  
Agreement to IQ52F[53]. At the time, the version circulated between the attorneys and the  
parties for approval did not contain the Schedule B Financial Ratios, which was still left  
blank53F[54]. The Polards’ attorney approved that version of the Earnout Agreement54F[55]  
with the Schedule B left blank. ARO then sent it to IQ55F[56].  
[63] Section 4 of the Earnout Agreement at the time, which was not modified subsequently,  
reads as follows:  
“The Earnout Amount, as adjusted pursuant to Section 3 of this Agreement (the “Adjusted  
Earnout Amount”), shall be paid and payable by ARO to the Seller Representative (on behalf of  
st  
the Shareholders) by way of three (3) equal annual payments, with the first (1 ) of such annual  
th  
payments to be made on the fifteenth (15 ) Business Day following the final determination of  
the Earnout Schedule (whether by mutual agreement of ARO and the Seller Representative or  
nd  
rd  
pursuant to Section 2(d) of this Agreement) and the second (2 ) and third (3 ) annual  
st  
nd  
payments to be made on the first (1 ) and second (2 ) anniversary, respectively, of such first  
(
1st) payment. Payment of each of the annual payments is conditional upon ARO’s compliance,  
in all material respects, with the financial ratios set out in Schedule “B” attached hereto, such  
compliance to be determined based on the audited financial statements of ARO for its fiscal  
period ending August 31, 2014, August 31, 2015 or August 31, 2016, as applicable. The Adjusted  
Earnout Amount shall be paid in cash and shall be made by wire transfers of immediately  
available funds to an account designated by the Seller Representative in writing. Interest shall  
be paid by ARO on the Adjusted Earnout Amount, as and from the Closing Date, until payment  
in full at a rate per annum equal to five percent (5%), calculated and paid in the manner set  
forth in Section 9.4 of the Share and Asset Purchase Agreement.  
[64]  
On August 23, 2013, the SAPA was signed56F[57]. The parties and the attorneys then  
turned their attention to the schedules and attachments for finalization. According to the  
evidence filed, from July 4 to October 8, 2013, there were virtually no discussions regarding the  
Earnout Agreement.  
[65] The parties and attorneys scheduled the finalization and closing of all the remaining  
contractual documentation of the transaction for October 11, 2013.  
[66]  
On October 8, 2013, ARO’s attorneys forwarded to the Polards’ attorney a revised  
version of the Earnout Agreement57F[58]. The version includes various “Notes to  
Reader”58F[59] indicating that the Performance Targets include client retention levels of  
clients of ARC from 87.5% to 95%59F[60].  
[67] For the first time, the page of “Schedule B Financial Ratios”, previously blank, now  
includes text60F[61]. The page reads as follows:  
“
SCHEDULE “B”  
FINANCIAL RATIOS  
Financial Ratios  
1
) A Fixed Charge Coverage Ratio of 1.15 : 1.00 or more, calculated quarterly based on the  
quarterly financial statements of ARO Inc. commencing with the quarter ending on August 31,  
2
2
014; and  
) A Total Secured Debt to ABITDA Ratio of 3.50 : 1.00 or less, calculated quarterly based on  
the quarterly financial statements of ARO Inc.  
Definitions  
“EBITDA” means the net earnings before interest expenses, income tax expenses, depreciation  
and amortization;  
“Fixed Charge Coverage Ratio” means to ratio of (A) EBITDA less (i) current income tax  
expenses and (ii) the aggregate amount of unfunded capital expenditures (Fixed Assets),  
calculated on the last 12 month period, to (B) the sum of (i) interest expenses paid over the  
same 12 month period and (ii) the SPLTD for the next 12 month period;  
“Long Term Debt” means the aggregate amount of all financial liabilities which ARO Inc. is not  
usually committed to pay during the current financial year and presented as long term liabilities  
on its balance sheet;  
“SPLTD” means the short term portion of the Long Term Debt, including the amounts payable  
under the Earnout Agreement;  
“Total Secured Debt to EBITDA Ratio” means the ratio of (A) the aggregate amount of debt and  
other financial liabilities secured by a hypothec on, or a security interest in, the assets of ARO  
Inc. (but excluding all amounts payable under the Earnout Agreement) to (B) EBITDA.”  
[68]  
On October 9, 2013, ARO’s attorney sent to the Polards’ attorney essentially the same  
document requesting approval61F[62]. On the same day, the Polards’ attorney confirmed  
approval62F[63].  
[69]  
On October 11, 2013, two days later, the transaction closed and the remaining  
contractual documentation, including the Earnout Agreement, was signed63F[64].  
[70] Therefore, there were never any discussions or negotiations between the parties  
regarding the Schedule B Financial Ratios of the Earnout Agreement.  
3
.8 After the Transaction: Disappointment of ARO,  
Mr. Ogilvie and Termination of the Polards as  
Employees  
[71] Pursuant to the transaction and the acquisition of ARC’s operations, several Polards, in  
particular Joe and Lionel, were given key employee positions at ARO.  
[72] Joe was given the position of president of ARO. In his testimony, Joe described his  
surprise upon assuming his new responsibilities:  
1
) In the first week of work at ARO, Mr. Ogilvie told Joe that ARO did not have sufficient funds  
in its bank account to make payroll. Joe was asked to speak to the Chief Financial Officer in  
Montreal. The plan was to top up funds of ARO by withdrawing funds from bank accounts  
previously controlled by ARC;  
2
) Joe also noticed that suppliers and service providers to ARC were not being paid in a timely  
manner and that they had sent many “late payment” and “reminder” notices;  
3
) Joe was told that ARO’s practice was that it does not pay invoices before receiving several  
reminder notices and even a “final notice”;  
4) Payments received for accounts were not posted to the accounts in a timely fashion. That  
caused a lag time for amounts to be deposited into accounts of clients;  
5) Joe was also surprised to learn that there were several lawsuits against ARO by its former  
employees;  
6) According to Joe, there was a generalized approach of avoiding payment of obligations when  
they were due;  
7
) Joe observed in his view that ARO was mired in debt;  
8
) Joe was surprised by the lack of positive leadership and encouragement by management  
given to employees.  
[73]  
All this was very different from ARC’s corporate culture. ARC had no debt. Invoices  
were paid upon receipt. Management was always supportive and encouraging of employees.  
[74] According to Joe, he did his best in the circumstances to carry out his new  
responsibilities at ARO and to make a positive contribution.  
[75]  
In March 2014, Mr. Ogilvie unilaterally drastically reduced Lionel’s salary. Afterwards,  
Lionel was terminated and the bonus stipulated in his contract was not paid. Lionel sued ARO  
and was awarded compensation for the violation of his employment contract.  
[76]  
On October 31, 2014, Mr. Ogilvie terminated Joe. Joe did not receive the bonus  
stipulated under his employment contract with ARO. Joe had to sue ARO to receive his bonus.  
That legal suit was settled before trial.  
[77] Angie Polard, Joe’s sister, also had an employment contract with ARO, which stipulated  
a bonus. Mr. Ogilvie terminated her employment and refused to pay the bonus.  
[78]  
According to Mr. Ogilvie, after the closing of the transaction, he was immediately  
surprised and disappointed that the integration of the former ARC’s operations into those of  
ARO was not smoother. He had understood that the different accounting and software  
programs of ARO and ARC could interface and be easily merged. He states that he found out  
that was not the case. The integration of the systems required much computer tech consulting  
services.  
[79]  
Mr. Ogilvie also states that he was surprised that former ARC’s offices at various  
locations were not automatically recognized as new ARO offices by provincial regulators. New  
regulatory applications had to be made.  
[80]  
Mr. Ogilvie’s testimony regarding difficulties of integration is contradicted by an e-mail  
sent by him on December 5, 2014 in which he states that “we are doing very well  
integrating”64F[65].  
[81]  
Mr. Ogilvie states that the corporate cultures of ARO and ARC did not coalesce as he  
had expected and were sometimes in contradiction. He is of the view that, after the transaction,  
there was a division between ARO employees and ARC former employees, a sort of East versus  
West dynamic. Lastly, Mr. Ogilvie testifies that the financial results after the acquisition were  
not what he had hoped.  
[82] In his testimony, Mr. Ogilvie acknowledged that on August 31, 2014, he was well aware  
that ARO was not compliant with the Schedule B Financial Ratios of the Earnout Agreement.  
3
.9 Polards’ Request for Payment of the First  
Instalment of the Adjusted Earnout Amount  
[83]  
After the dismissals of the Polard employees, the first deadline under the Earnout  
Agreement occurred, namely to provide the Earnout Schedule in order to determine the  
Adjusted Earnout Amount and the payment of the first of the three annual instalments of the  
Adjusted Earnout Amount. Under the Earnout Agreement, the Performance Targets were to be  
measured at the end of the Performance Period, being one year after the closing65F[66]. As the  
closing occurred on October 11, 2013, the termination of the Performance Period occurred on  
October 11, 2014. According to the terms of the Earnout Agreement, after ninety (90) days from  
the end of the Performance Period, namely on January 11, 2015, ARO was to provide the Polards  
with the Earnout Schedule setting forth the calculations and results of the Performance  
Targets66F[67]. ARO did not respect that deadline.  
[84]  
On January 27, 2015, the Polards’ attorneys wrote to ARO to advise that the deadline  
was not respected and that the Earnout Schedule was overdue67F[68]. As a result of not  
providing the Earnout Schedule, the Polards’ attorney took the position that ARO had lost the  
benefit of the term for the three (3) separate annual instalments of the Adjusted Earnout  
Amount and therefore requested full payment thereof68F[69].  
[85]  
On February 2, 2015, ARO’s attorneys responded and provided certain of the required  
elements of the Earnout Schedule69F[70]. No Adjusted Earnout Amount was calculated.  
Instead, ARO’s attorneys stated that they were advised that ARO was not in compliance with the  
Schedule B Financial Ratios for the fiscal period that ended on August 31, 2014. As such, ARO’s  
attorneys stated that no amount was currently “payable” in connection with the first annual  
payment contemplated by Section 4 of the Earnout Agreement. ARO’s attorneys did not state at  
the time that the consequence of ARO’s non-compliance with the Schedule B Financial Ratios  
was that ARO’s obligation to pay the first annual instalment of the Adjusted Earnout Amount  
(or the entire amount thereof) was extinguished. Furthermore, there is no comment or mention  
by ARO’s attorneys that the amount of the first annual payment will not be paid at a later time,  
or that it would never be paid.  
[86]  
On February 20, 2015, ARO’s attorneys sent the Polards’ attorney ARO’s financial  
statement ended August 31, 2014 confirming that the Schedule B Financial Ratios were not  
respected on that date70F[71]. Again, the letter does not state that the Adjusted Earnout  
Amount, or any part thereof, is extinguished for that reason.  
3
.10 Arbitration of Adjusted Earnout Amount  
[87]  
In March 2015, the Polards objected to the adequacy and content of the Earnout  
Schedule provided by ARO71F[72]. The latter responded by providing further  
information72F[73]. Section 4 of the Earnout Agreement states that the parties may either  
determine the Adjusted Earnout Amount by “mutual agreement” or “pursuant to Section 2 of  
the Earnout Agreement”.  
[88]  
Section 2(d) of the Earnout Agreement creates a dispute resolution mechanism. The  
parties may submit for determination to a preselected independent accountant, namely PSB  
Boisjoli LLP (PSB)73F[74], a dispute under the Earnout Agreement, in particular regarding the  
Earnout Schedule.  
[
(
89] On June 22, 2015, the Polards served on ARO a “Notice of Submission to Arbitration”  
Arbitration Notice) pursuant to Section 2(d) of the Earnout Agreement regarding the  
Adjusted Earnout Amount74F[75]. ARO did not object to PSB determining the Adjusted  
Earnout Amount. However, ARO took the position that the arbitrator had no jurisdiction to  
decide on whether the Adjusted Earnout Amount was exigible with regard to the Schedule B  
Financial Ratios. ARO did not have an objection to including in PSB’s arbitration mandate the  
authority to determine another issue under the Earnout Agreement, namely the relevant  
working capital amount75F[76]. On July 23, 2015, PSB confirmed its joint mandate from the  
parties to determine disputes with regard to the Adjusted Earnout Amount and the working  
capital amount76F[77].  
[90]  
ARO’s position evolved regarding its liability for payment of the Adjusted Earnout  
Amount.  
[91]  
In ARO’s initial contestation, it took the position that no Adjusted Earnout Amount at  
all was due. ARO asked that the Polards’ claim be dismissed77F[78].  
[92] ARO also took a new and novel position regarding the payment of the Adjusted  
Earnout Amount. For the first time, ARO submitted that, despite that the Adjusted Earnout  
Amount was payable by annual instalments over three (3) years according to the terms in  
Section 4, the entire amount was no longer owed since ARO was not compliant with the  
Schedule B Financial Ratios on the first mentioned date for verification of those ratios, namely  
on August 31, 2014. We will see that ARO’s position regarding the terms of the payment of the  
Adjusted Earnout Amount would continue to evolve78F[79].  
[
93]  
94]  
The arbitration proceedings were protracted.  
[
On October 21, 2016, the arbitrator first determined the “closing date” of the  
transaction79F[80]. The arbitrator concluded that for the purposes of the calculation of the  
Adjusted Earnout Amount, the closing date was October 11, 201380F[81]. Until at least  
January 26, 2017, the parties continued to submit documentation to the arbitrator81F[82].  
[95] On March 17, 2017, the arbitrator issued two decisions. The first arbitration decision  
determined the closing working capital in dispute82F[83].  
[
(
96]  
The second arbitration decision determined the Adjusted Earnout Amount  
Arbitration Decision). The arbitrator reviewed all the documentation submitted by the  
parties regarding the extent to which the Performance Targets (additional staff retention target,  
clients retention earnout target, key staff retention target and the revenue goal earnout target)  
were met. The arbitrator found predominantly in favour of the Polards’ submissions. The  
arbitrator concluded that out of a maximum of $1,500,000, the Adjusted Earnout Amount in  
favour of the Polards was $1,345,689 or 90% of the maximum amount83F[84].  
3
.11 ARO’s Financial Statements  
3
.11.1 ARO’s 2014 Financial Statements  
[97]  
ARO’s Financial Statements for the year ended August 31, 2014 are dated January 27,  
2
01584F[85]. They were prepared by the same accounting firm that advised ARO throughout  
the transaction with ARC, namely BDO. According to the testimony of Mr. Ogilvie, the same  
actual persons at the accounting firm were involved in the transaction and in the preparation of  
the 2014 Financial Statements. Mr. Ogilvie confirmed in his testimony that he reviewed and  
approved all of ARO’s Financial Statements. At the time of the preparation and approval of the  
2
014 Financial Statements, Mr. Ogilvie was well aware that ARO did not meet the Schedule B  
Financial Ratios on August 31, 201485F[86]. That is confirmed in the 2014 Financial  
Statements which include the following text with respect to the IQ loan86F[87]:  
“As at August 31 2014, the company was not respecting its minimum financial ratios under the  
loan agreement relating to its fixed charge and total guaranteed debt to EBITDA ratios.  
However, the loan has not been reclassified as a current liability as the lender has advised that  
they do not currently intend to exercise their right to call the debt within one year from the  
balance sheet date.”  
[98]  
The 2014 Financial Statements refer to the amount owed by ARO to the Polards  
pursuant to the Earnout Agreement under the section dealing with liabilities87F[88]. They  
indicate it as a “contingent consideration” of $1,500,00088F[89].  
[99]  
This contingent consideration is described as follows89F[90]:  
“On October 11, 2013, the company’s wholly-owned subsidiary (9281-5745 Québec Inc.)  
acquired the total operating assets of A.R.C. Account Recovery Corporation in  
addition to all outstanding shares of 9286-1103 Québec Inc., A.R.C. Account Recovery (U.S.A.)  
Corporation LLC and A.R.C. Accounts Recovery Nevada Inc. for an amount of $7,500,000  
paid as follows: $6,000,000 payable in cash on October 11, 2013, and a conditional  
balance of sale of $1,500,000, bearing interest at 5% and payable in three equal  
annual payments from the date of issuance of the August 31, 2014 financial  
statements. According to the agreement, the contingent consideration is subject to  
certain adjustment clauses based on the financial and non-financial performance  
of the acquired business. The fair value of the contingent consideration was  
calculated at $1,500,000 by discounting the present value of future cash flows over a three  
year period at a rate of 5%.  
The transaction was financed by a $6,500,000 loan, bearing interest at 8% and repayable in 60  
monthly instalments of $108,333 […].”  
[Emphasis added.]  
[100] As such, ARO’s Financial Statements recognize that the $1,500,000 liability amount is a  
conditional “balance of sale” subject to certain adjustment clauses based solely on the financial  
revenues) and non-financial (staff retention) of ARC’s former operations. There is no reference  
(
that the balance of sale is to be adjusted, reduced or eliminated by ARO’s non-compliance with  
certain financial ratios. The 2014 Financial Statements also recognize that the “fair value” of the  
contingent consideration is calculated at $1,500,000.  
[101] Despite the fact that ARO was aware that it was not in compliance with the Schedule B  
Financial Ratios on August 31, 2014, there is no reference whatsoever in the 2014 Financial  
Statements that either the first instalment of one third or the entire amount of the Adjusted  
Earnout Amount was extinguished as a liability. On the contrary, the 2014 Financial Statements  
indicate that the Adjusted Earnout Amount is owed and constitutes a liability of ARO that bears  
interest at the rate of 5%.  
3
.11.2 ARO’s 2015 Financial Statements  
[102] ARO states, and the Polards do not contest, that on August 31, 2015, ARO was again  
non-compliant with the Schedule B Financial Ratios90F[91]. Regarding the Adjusted Earnout  
Amount, ARO’s 2015 Financial Statements again refer to it as a “contingent consideration” of  
$
1,500,000 under its section of “liabilities”. Again, it is described in the following terms:  
“On October 11, 2013, the company’s wholly-owned subsidiary (9281-5745 Québec Inc.)  
acquired the total operating assets of A.R.C. Account Recovery Corporation in  
addition to all outstanding shares of 9286-1103 Québec Inc., A.R.C. Account Recovery (U.S.A.)  
Corporation LLC and A.R.C. Accounts Recovery Nevada Inc. for an amount of $7,500,000  
paid as follows: $6,000,000 payable in cash on October 11, 2013, and a conditional  
balance of sale of $1,500,000, bearing interest at 5% and payable in three equal  
annual payments from the date of issuance of the August 31, 2014 financial  
statements. According to the agreement, the contingent consideration is subject to  
certain adjustment clauses based on the financial and non-financial performance  
of the acquired business. The fair value of the contingent consideration was  
calculated at $1,500,000 by discounting the present value of future cash flows over a three  
year period at a rate of 5%. As at August 31, 2015, a settlement amount for the contingent  
consideration has not yet been agreed.  
The transaction was financed by a $6,500,000 loan, bearing interest at 8% and repayable in 60  
monthly instalments of $108,333 […].”  
[
[
Emphasis added.]  
103] Again, the Adjusted Earnout Amount is recognized to be a conditional balance of sale of  
$
1,500,000 bearing interest at 5% and payable in three equal annual instalments. The 2015  
Financial Statements also recognizes that the fair value of the contingent consideration is  
calculated at $1,500,000, plus interest.  
3
.11.3 ARO’s 2016 Financial Statements  
[104] At the time of preparation of ARO’s 2016 Financial Statements for the year ended  
August 31, 2016, ARO and Mr. Ogilvie were again fully aware that ARO was not in compliance  
with the Schedule B Financial Ratios91F[92].  
[105] ARO’s 2016 Financial Statements contain changes regarding the description of the  
amount owed under the Earnout Agreement. The 2016 Financial Statements again recognize  
that the amount owing under the Earnout Agreement is a “contingent consideration” and is a  
liability in the amount of $1,500,00092F[93]. The 2016 Financial Statements however use  
different language to describe the liability93F[94]:  
“On October 11, 2013, the company’s wholly-owned subsidiary (9281-5745 Québec Inc.)  
acquired the total operating assets of A.R.C. Account Recovery Corporation in addition to all  
outstanding shares of 9286-1103 Québec Inc., A.R.C. Account Recovery (U.S.A.) Corporation  
LLC and A.R.C. Accounts Recovery Nevada Inc. Immediately following this transaction, the  
Company and its two wholly-owned subsidiaries, 9281-5745 Québec inc. and 9286-1103 Québec  
inc., were amalgamated under the registered name ARO Inc. The consideration amounted  
to $7,500,000 paid as follows: $6,000,000 payable in cash on October 11, 2013  
and a conditional consideration of $1,500,000, bearing interest at 5%. According  
to the agreement, the contingent consideration is subject to certain adjustment  
clauses based on the financial and non-financial performance of the acquired  
business for 12 months after the acquisition.  
As at August 31, 2016, a settlement amount for the contingent consideration had not yet been  
agreed.  
Subsequent to year-end, following an arbitration process, guidance was provided on how the  
adjustment clauses should be interpreted and so how the contingent consideration should  
therefore be calculated. As a result, management currently estimates the contingent  
consideration so determined to be approximately $1,300,000. Both parties are still in  
negotiations for the final determination of this amount. In accordance with accounting  
standards, the contingent consideration will only be remeasured when the contingency is  
resolved, with any gain or loss recognized in the net earnings.  
The contingent consideration must be repaid in three equal annual instalments  
from the date of final determination of this contingent consideration either from  
mutual agreement or following the arbitration process. The payment of each of  
the annual payments is conditional upon the achievement of certain financial  
ratios for years referred to in the agreement as August 31, 2014 and the two  
subsequent years. When one third of the amount estimated by management is  
considered in the financial ratio calculations, the financial ratios are not met in  
any of the years referred in the agreement.  
As at August 31, 2016, accrued and unpaid interests on the contingent consideration totaled  
$
109,375 (2015 - $106,250).”  
[
[
Emphasis added.]  
106] The 2016 Financial Statements reiterated that the adjustment clauses which determine  
the amount owing under the Earnout Agreement relate to “financial and non-financial  
Performance Targets” of the “acquired business” (ARC’s business), not the financial  
performance of ARO, and that they are calculated within 12 months from the acquisition of  
ARC. Instead, the relevant dates for the verification of ARO’s compliance with the Schedule B  
Financial Ratios are at different times (August 31, 2014, August 31, 2015 and August 31, 2016).  
107] ARO’s 2016 Financial Statements add a new element. They state that “payment” of the  
[
three (3) annual amounts of the contingent consideration is “conditional” upon the achievement  
by ARO of “certain financial ratios”. That year’s Financial Statements add that these prescribed  
financial ratios are not met in any of the 3 years (August 31, 2014, August 31, 2015 and  
August 31, 2016). The 2016 Financial Statements do not state that the consequence of non-  
compliance is that the amount is no longer due or that the liability for the contingent  
consideration is extinguished.  
[
$
108] Contrary to the 2014 and 2015 Financial Statements, the contingent consideration of  
1,500,000 is no longer described as a “conditional balance of sale”. Also, the reference that the  
fair value of the consideration was calculated at $1,500,000 is removed.  
3
.11.4 ARO’s 2017 Financial Statements  
[109] ARO’s 2017 Financial Statements for the year ended August 31, 2017 were prepared on  
December 5, 201794F[95]. The terms used to describe the liability under the SAPA and the  
Earnout Agreement are again changed. The 2017 Financial Statements now state that no  
amount is due by ARO since it did not meet the Schedule B Financial Ratios95F[96]:  
“On October 11, 2013, the company’s wholly-owned subsidiary (9281-5745 Québec Inc.)  
acquired the total operating assets of A.R.C. Account Recovery Corporation in addition to all  
outstanding shares of 9286-1103 Québec Inc., A.R.C. Account Recovery (U.S.A.) Corporation  
LLC and A.R.C. Accounts Recovery Nevada Inc. Immediately following this transaction, the  
Company and its two wholly-owned subsidiaries, 9281-5745 Québec inc. and 9286-1103 Québec  
inc., were amalgamated under the registered name ARO Inc. The consideration amounted  
to $7,500,000 paid as follows: $6,000,000 payable in cash on October 11, 2013  
and a conditional consideration of $1,500,000, bearing interest at 5%. According  
to the agreement, the contingent consideration is subject to certain adjustment  
clauses based on the financial and non-financial performance of the acquired  
business for 12 months after the acquisition.  
On March 17, 2017, following an arbitration process, the contingent consideration  
was determined to be $1,345,000. According to the purchase agreement, the  
contingent consideration must be repaid in three equal annual instalments from  
the date of final determination of this contingent consideration following the arbitration  
process. The payment of each of the annual payments is conditional upon the  
achievement of certain financial ratios for years referred to in the agreement as  
August 31, 2014 and the two subsequent years. When one third of the amount,  
determined by the arbitration process, is considered in the financial ratio  
calculations, the financial ratios are not met in any of the years referred in the  
agreement. The determination of the amount and not the decision of the final  
payment was the subject of the arbitration. The decision of the final payment has  
not been concluded and the Company claims no amounts are due to the Vendor  
under the contingent consideration. […]  
As at August 31, 2017, accrued and unpaid interests on the contingent consideration totaled  
$
146,875 (2016 - $109,375).”  
[Emphasis added.]  
3
.12 Polards’ Demand Letters for Payment and  
Request for Homologation of the Arbitration Decision  
3
.12.1 Polards’ First Demand Letter  
[110] On May 4, 2017, the Polards’ attorney sent ARO a demand letter requesting payment, as  
of April 7, 2017, of the first annual instalment of the Adjusted Earnout Amount of $1,345,689,  
namely one third, being $448,56396F[97]. The Polards’ attorney also demanded payment of the  
amount awarded to the Polards by the arbitrator regarding the working capital dispute97F[98].  
The Polards’ attorney made a separate demand for payment of interest on the capital amount  
owed under the working capital dispute.  
111] On May 31, 2017, ARO’s attorney responded that since ARO was non-compliant with the  
[
Schedule B Financial Ratios on August 31, 201498F[99], “no payment will be made” to ARC and  
the “First payment will never be made”.  
[112] ARO offered to pay $79,364.13 for the claim for the capital amount of the working  
capital dispute. ARO offered no amount for payment of the separate claim for interest on the  
capital amount of the working capital dispute. ARO’s attorney wrote:  
“Therefore, ARO is ready to pay to the Seller $79,364.13 ($141,817.13 - $62,453.00) on receipt  
of your written acceptance of that amount”99F[100].  
[113] On August 11, 2017, the Polards’ attorney wrote to ARO’s attorney100F[101]:  
“With regards to paragraph 9 of said letter, concerning the working capital calculations, our  
clients accept the payment of $79,364.13, and request that payment to be made without delay.”  
[114] On August 15, 2017, ARO’s attorney sent the Polards’ attorney a cheque for the amount  
of $79,364.13 but now added that it was a “paiement final” for the entirety of the working  
capital dispute. The cheque was payable to the Polards’ attorney in trust101F[102]. ARO’s  
attorney wrote102F[103]:  
“Relativement à l’affaire mentionnée en titre, nous vous transmettons un chèque de 79 364,13 $  
libellé à l’ordre de votre étude en fidéicommis en guise de paiement final, tel que demandé  
dans votre lettre du 11 août 2017 le tout, suite à la décision de l’arbitre rendue le 17 mars 2017  
concernant le Working Capital Calculations.  
Nous comprenons que vous verrez à nous transmettre la quittance pour le paiement du  
Working Capital Calculations seulement, signée par vos clients, avant de leur remettre  
ledit paiement de 79 364,13 $.  
[Emphasis added.]  
[115] Although the Polards’ attorney deposited the cheque into her trust account, she never  
remitted to the Polards the amount received and the draft settlement document sent was never  
signed by the Polards. Thereafter, the attorneys of the parties could not agree as to whether the  
Polards had renounced their separate claim for interest due on the capital amount of the  
working capital dispute.  
[116] As we will see, the parties request the Court to decide on whether the Polards renounced  
to their claim for interest on the amount due of capital of the working capital dispute and  
whether a transaction occurred in respect of that claim.  
3
.12.2 Polards’ Homologation Proceedings on the Arbitration Decision  
[117] On October 18, 2017, the Polards served on ARO and Mr. Ogilvie an application to  
homologate the Arbitration Decision of March 17, 2017 concerning the Adjusted Earnout  
Amount103F[104]. The initial application included a request that ARO and Mr. Ogilvie be  
condemned to pay the Adjusted Earnout Amount ($1,345,689), plus accrued interest104F[105].  
ARO and Mr. Ogilvie objected to an order of monetary condemnation on the basis that the  
mandate of the arbitrator did not include the determination of the effect of ARO’s non-  
compliance with the Schedule B Financial Ratios, namely whether it deferred (Polards’  
interpretation) or extinguished (Defendants’ interpretation) the obligation to pay the annual  
instalments for the Adjusted Earnout Amount.  
[118] ARO and Mr. Ogilvie did not contest that the Arbitration Decision correctly determined  
the quantum of the Adjusted Earnout Amount.  
[119] On February 5, 2018, the Polards filed an Amended Application to  
Homologate105F[106]. The Polards withdrew the conclusions requesting the condemnation of  
ARO and Mr. Ogilvie to pay the Adjusted Earnout Amount, plus interest.  
[120] After discussion and agreement, the parties submitted jointly to the court that the  
judgment should be limited to taking act of the Arbitration Decision with respect to the  
Adjusted Earnout Amount of $1,345,689106F[107].  
[121] On February 9, 2018, on the Amended Application to Homologate, the Superior Court  
rendered the following judgment107F[108]:  
“
JUGEMENT:  
CONSIDÉRANT la demande d’homologation présentée à l’égard de la sentence arbitrale rendue  
le 17 mars 2017 par PSB Boisjoli;  
CONSIDÉRANT la contestation de cette demande au motif que la sentence arbitrale n’est pas  
exécutoire;  
CONSIDÉRANT que toutes les parties en l’instance ne remettent pas en cause le montant établi  
dans le cadre de cette sentence arbitrale;  
CONSIDÉRANT que les parties demandent au tribunal de prendre acte d’une telle  
reconnaissance;  
POUR CES MOTIFS, LE TRIBUNAL :  
TAKES NOTE that the parties (Plaintiffs, Defendant and Impleaded Party) recognize that the  
«
Revised Earnout Amount » decided by the arbitration award as the “Accountant Report” by  
th  
PSB Boisjoli dated March 17 , 2017, in accordance with Section 2(d) of the Earnout Agreement  
is in the amount of $1,345,689.00, and that the parties (Plaintiffs, Defendant and Impleaded  
party) do not dispute the amounts;  
TAKES NOTE that Plaintiffs will not file a new Application to homologate the Arbitration award  
in the future;  
THE WHOLE without costs.”  
[122] According to the judgment, ARC, ARO and Mr. Ogilvie agreed that the Adjusted  
Earnout Amount, as determined by the Arbitration Decision, was correct and binding upon  
them. There was no legal determination regarding the different interpretations of the parties  
regarding the Sentence in Issue, namely the effect of the condition with respect to ARO’s  
compliance with the Schedule B Financial Ratios.  
3
.12.3 Polards’ Second Demand Letter  
[123] On April 6, 2018, the Polards’ attorney sent a second demand letter to ARO and  
Mr. Ogilvie108F[109]. The Polards requested payment of various amounts including the  
Adjusted Earnout Amount of $1,345,689, interest thereon, the amount claimed by Maurice  
pursuant to his Bonus Agreement as well as the unpaid interest on the capital amount on the  
working capital dispute109F[110].  
[124] On April 20, 2018, ARO’s and Mr. Ogilvie’s attorney replied that, although they did not  
contest the Adjusted Earnout Amount, no part of the Adjusted Earnout Amount would ever be  
paid by ARO or Mr. Ogilvie. They stated that the first annual instalment was payable in April  
2
017, that the second instalment was payable in April 2018 and the third in April 2019110F[111].  
On that basis, ARO alleged that any claim for the third instalment was premature.  
[125] With regard to the Polards’ claim for unpaid interest on the capital amount of the  
working capital dispute, ARO’s attorney stated that a “full and final settlement” had been agreed  
to and paid111F[112].  
[126] On April 27, 2018, the Polards’ attorney reiterated her clients’ claims112F[113]. She  
confirmed that the capital amount of the working capital dispute was only deposited into her  
trust account and that she had not remitted it to her clients. She reiterated her clients’ claim for  
the unpaid interest on the capital amount of the working capital dispute.  
[127] The Polards’ attorney rejected a request of ARO’s attorneys to hold off on judicial  
proceedings. ARO’s attorneys proposed to submit certain claims to a dispute resolution  
mechanism involving accountants113F[114]. The Polards’ attorney rejected that proposed  
avenue as being “transparently dilatory”114F[115] and advised that her clients had instructed  
her to institute legal proceedings.  
3
.13 Legal Proceedings  
[
2
128] On June 1, 2018, the Polards instituted the present legal proceedings. On November 7,  
019, the case was set down for trial for October, 2021. On March 30, 2021, ARO and  
Mr. Ogilvie’s attorneys withdrew and were replaced by new attorneys115F[116]. On April 26,  
021, the new attorneys filed an application for postponement of the trial. That application was  
2
dismissed. Later, as a result of a personal issue affecting the Polards’ attorney, the hearing was  
postponed until June 2022.  
3
.14 Expert Evidence  
[129] Both parties filed expertises and presented expert witnesses.  
3
.14.1 Andrew Michelin, CPA  
[130] The Polards called Andrew Michelin, CPA as their expert. In 1992, Mr. Michelin became  
a Chartered Public Accountant (CPA)116F[117]. He worked first in business valuation and  
transactional support. In 2001, he joined the firm of Richter. He was the founder of the Richter  
Business Valuation, Litigation and Forensic Accounting and Transaction Advisory Services  
Group. He is a partner at Richter. Mr. Michelin specializes in business and securities valuation.  
He provides professional services in the area of mergers and acquisitions. In his practice, he  
regularly advises clients on the structure of proposed sale transactions of businesses.  
[131] Over his 30 year career, Mr. Michelin has had extensive experience with the use of  
earnout agreements. He has also had extensive experience as an expert witness in financial  
litigation. In particular, Mr. Michelin acted as an expert in a case before the Superior Court  
involving the application of an earnout agreement117F[118]. The trial judge based his judgment  
partially on Mr. Michelin’s expertise and testimony118F[119]. The Court of Appeal confirmed  
the Superior Court judgment119F[120].  
[132] Mr. Michelin was recognized by the Court as an expert witness as a “Chartered  
Professional Accountant, Chartered Business Valuator and Transaction Advisor with specific  
expertise with concepts such as balance of sale, earnout agreement and purchase  
agreement”120F[121].  
3
.14.2 Pascale Gaudreault, CPA  
[133] ARO and Mr. Ogilvie called Pascale Gaudreault, CPA as their expert. Ms. Gaudreault is a  
Chartered Public Accountant since 1997. She is a partner at Deloitte. Over the last 25 years, her  
principal career focus has been in forensic accounting, especially fraud cases. She also acts in  
the area of business valuation. She has limited experience in the area of transaction advisory  
services and in the structuring of sale agreements121F[122]. In certain mandates, her role was  
limited to the application of an earnout agreement.  
[134] Ms. Gaudreault was recognized by the Court as a Chartered Professional Accountant  
and Chartered Business Valuator specializing in investigative and forensic accounting and  
litigation support with experience in concepts such as earnouts and balance of sale122F[123].  
3
.14.3 Assessment by the Court of the Expert Evidence  
3.14.3.1 Operation of the Earnout Agreement with Respect to Performance Targets  
and Relevant Practice and Usage in Sale Transactions of a Business  
[135] Mr. Michelin reviewed the Earnout Agreement in the context of the entire transaction.  
He gave his view notably on the purpose of the earnout agreement and how it was connected to  
the payment of the balance of sale in the transaction. Mr. Michelin also testified about his many  
years of professional experience in the area of transaction advisory with respect to practices and  
usages regarding the structure of sale and purchase transactions of businesses and the use of  
earnout agreements. Mr. Michelin gave his expert opinion on whether the interpretations  
proposed by the parties make commercial and economic sense.  
[136] Ms. Gaudreault explained from the outset that she would not make any comment  
regarding the interpretation of the Earnout Agreement. She would only apply the terms of  
Section 4 of the Earnout Agreement. In fact, that application of terms was based solely upon her  
clients’ (ARO and Mr. Ogilvie) interpretation that the effect of ARO’s non-compliance with the  
Schedule B Financial Ratios was to extinguish the Adjusted Earnout Amount. Ms. Gaudreault  
prepared two reports that were filed.  
[137] Ms. Gaudreault’s second expert report was prepared subsequently to that of  
Mr. Michelin. Ms. Gaudreault also testified after Mr. Michelin.  
[138] As we will see in more detail below, Mr. Michelin stated that, in all of his years of  
practice as a Professional Chartered Accountant and Transaction Advisor regarding sales of  
businesses, he has never seen a clause by which the seller’s obligation to pay a balance of sale  
amount (including after validation of the amount by the application of the terms of an earnout  
agreement) would or could be discharged or extinguished as a result of the buyer’s post-  
transaction financial ratios.  
[139] Ms. Gaudreault did not, either in her second report nor in her testimony, deny,  
challenge or otherwise counter Mr. Michelin’s report and opinion in that regard.  
[140] Furthermore, Ms. Gaudreault did not deny Mr. Michelin’s opinion that ARO and  
Mr. Ogilvie’s proposed interpretation of the effect of ARO’s non-compliance with financial  
ratios made no economic or commercial sense and was contrary to industry practice and usage.  
[141] According to Mr. Michelin, pursuant to standard practice and usage in sale transactions  
of a business, criteria such as that agreed to and used in the Performance Targets in the Earnout  
Agreement determine the amount of the balance of sale payable to the seller. That is not the  
case for financial ratios of the buyer’s company subsequent to the transaction. Mr. Michelin  
testified that in his view the Adjusted Earnout Amount constitutes in fact a balance of sale owed  
to the Polards under the transaction.  
[142] Mr. Michelin testified that the Defendants’ proposed interpretation of the Sentence in  
Issue would have the dramatic, astounding and unheard of effect of ARO obtaining the full  
value of ARC’s assets and operations corresponding to the balance of sale, as validated by the  
results of Performance Targets, without compensation to the Polards. Ms. Gaudreault did not  
contest or otherwise reply to that testimony.  
[143] Mr. Michelin also demonstrated that ARO’s proposed interpretation of Section 4 of the  
Earnout Agreement would generate nonsensical and economically perverse results. Under  
ARO’s proposed interpretation, had the agreed Performance Targets been less well achieved  
than they actually were (and the Adjusted Earnout Amount was below $335,000), the Polards  
would have actually received amounts under the Earnout Agreement123F[124]. That is because  
the amount of the Adjusted Earnout Amount (or 1/3 thereof for each of the three annual  
instalments) is included as an expense and has a negative effect on the Schedule B Financial  
Ratios. Therefore, under ARO’s proposed interpretation, if the Performance Targets are  
satisfied to a lower extent, the financial return for the Polards is higher. According to  
Mr. Michelin, that does not make any economic or commercial sense since, in accordance with  
standard practice and usage, the whole idea of stipulating Performance Targets under an  
earnout formula is to reward the seller commensurably and proportionally for meeting the  
agreed targets.  
[144] Mr. Michelin wrote:  
“According to ARO’s interpretation of the Earnout Agreement:  
•
At any Arbitral Amount greater than $335,000, Polard will get nothing. This is because  
the Ratios are in non-compliance in all three years.  
•
At an Arbitral Amount between $150,000 and $335,000, Polard will receive one third of  
the Arbitral Amount payable in respect of 2016 ($50,000 to $111,667), the only year where the  
Ratio is in compliance.  
•
At an Arbirral Amount between $0 and $149,000, Polard will receive two thirds of the  
Arbitral amount payable in respect of 2015 and 2016 ($0 to $99,333) because the Ratios are in  
compliance for 2015 and 2016.  
The results are perverse because:  
•
Polard is better off with an Award lower than $335,000, which at least allows him to get  
something. At any Award greater than $335,000, the ratios are in non-compliance and Polard  
gets nothing.  
•
Once the Arbitral Award falls below $335,000, there are instances where Polard is better  
off with a lower Award. For instance, at $150,000 Polard gets $50,000 (1/3 of the amount)  
while at $149,000, Polard gets $99,333 (2/3 of the amount).”  
[145] Ms. Gaudreault had no reply.  
3.14.3.2 Expert Debate Over Applicable Accounting Standards with regard to  
Financial Statements  
[146] According to Mr. Michelin, the manner by which ARO treated and described in its 2014  
and 2015 Financial Statements the conditional liability for the balance of sale owed to the  
Polards shows that ARO and Mr. Ogilvie believed that ARO’s non-compliance with the Schedule  
B Financial Ratios had only the legal effect of deferring payment of the annual instalments of  
the Adjusted Earnout Amount and not extinguishing the debt for their payment. For that  
reason, Mr. Michelin points out that ARO’s financial statements even after 2014 and 2015  
always mentioned as a liability the interest that had accrued on the Adjusted Earnout Amount.  
[147] Mr. Ogilvie acknowledge he and ARO were fully aware that on August 31, 2014 and  
August 31, 2015, ARO was non-compliant with the Schedule B Financial Ratios.  
[148] Each year, ARO’s financial statements were prepared in the months following its fiscal  
year end of August 31. That is also the case for 2014 and 2015.  
[149] Each year, Mr. Ogilvie signed the financial statements. Those financial statements  
include a letter from the auditors that they “present fairly, in all material respects, the financial  
position of ARO”124F[125].  
[150] For the 2014 Financial Statements, Mr. Ogilvie claims that he objected to the  
description and reference to the liability of $1,500,000 since the amount was extinguished as a  
result of ARO’s non-compliance with the Schedule B Financial Ratios. He states that his  
accountants (BDO) told him that he had no choice but to include the description made. ARO  
called no accountant of BDO to testify in support of that assertion, even though such a person  
appeared on ARO’s list of witness in its joint declaration. Furthermore, Mr. Ogilvie stated that  
the description and reference to this liability was detrimental to ARO since it caused a negative  
perception on the part of its clients (he stated that major clients requested the financial  
statements) and lenders.  
[151] According to Mr. Michelin, had that in fact been the case, ARO’s 2014 and 2015  
Financial Statements could and would have reflected the position now taken by ARO. According  
to Mr. Michelin, since ARO’s non-compliance on August 31, 2014 was known at the time of  
preparation of ARO’s 2014 Financial Statements, the accounting standards required that the  
change and reduction in liability allegedly caused by the partial or total extinguishment of the  
debt of the Adjusted Earnout Amount be mentioned. For 2014, that could have taken the form  
of an adjustment or reduction to the amount indicated as a conditional balance of sale of  
$
1,500,000 by reducing it by one third, namely $500,000, on the basis that the first instalment  
would never be paid. ARO’s 2014 Financial Statements do not do that. Mr. Michelin refers  
notably to paragraph 47 to 49, 61 and 62 of the General Accounting Section 1582 of the  
Accounting Standards for Private Enterprises (ASPE)125F[126].  
[152] According to Ms. Gaudreault, that is not the case. She states that the pertinent  
accounting standard is instead found at 1582.60 of ASPE126F[127]. She states that the Schedule  
B Financial Ratios are not “measurement period adjustments” and not subject to the standard  
of updating information. She bases that interpretation on her view that the text of paragraph 60  
states that certain changes such as an “earnings target” are not “measurement period  
adjustments”. According to Ms. Gaudreault, paragraph 1582.60 applied and the full amount of  
the conditional contingency had to remain on the financial statements until the question was  
“resolved”, which includes a settlement.  
[153] With respect, Ms. Gaudreault’s interpretation does not appear to be logical or consistent  
with ARO’s position before the Court. Performance Targets under the Earnout Agreement and  
the Adjusted Earnout Agreement may constitute an “earnings target” per paragraph 60. In that  
case, knowledge that a particular Performance Target was not met may not have to be disclosed  
in the Financial Statement to present “fairly, in all material respect, the financial position of  
ARO”. But ARO’s interpretation and position is that ARO’s non-compliance with the Schedule B  
Financial Ratios extinguished the debt of the Adjusted Earnout Amount. That is not based on a  
failure to respect an “earnings target”. Therefore, if ARO and Mr. Ogilvie were of the opinion  
that ARO’s non-compliance with the Schedule B Financial Ratios eliminated in whole or in part  
the contingent debt (regardless of partial performance of the Performance Targets), it would  
have been logical and conforming to the applicable accounting standards to indicate that in its  
Financial Statements. It is clear that doing so would have, in accordance with ARO and  
Mr. Ogilvie’s position before the Court, more accurately presented “fairly in all material  
respects, the financial position of ARO.”  
[154] As we will see, in any event, if ARO did actually believe that its non-compliance with the  
Schedule B Financial Ratios extinguished the debt for the payment of the annual instalments of  
the Adjusted Earnout Amount, there is no doubt that such a position could have been better  
reflected in the 2014 and 2015 Financial Statements, as it was in fact done later in the 2016 and  
2
017 Financial Statements.  
[155] Nevertheless, for reasons set forth below127F[128], the Court is of the view that is not  
necessary to rule on this particular accounting issue of applicable accounting standards in order  
to determine whether ARO’s 2014 and 2015 Financial Statements are inconsistent with the  
Defendants’ proposed interpretation and whether ARO’s Financial Statements from 2014 to  
2
017 demonstrate an evolution of its position in that regard.  
3.14.3.3 Assessment of the Experts’ Testimony with regard to Their Duties to  
Enlighten and Assist the Court  
[156] ARO and Mr. Ogilvie’s attorney submitted at trial that Mr. Michelin exceeded his role as  
an expert witness and that his observations both in his report and testimony attempted to usurp  
the role of the Court to interpret the terms of the contract. The Court does not agree.  
[157] In his testimony, Mr. Michelin was clear that it was exclusively the dominion of the  
Court to interpret the terms of the contract and that it was not his role to do so. He simply  
provided his comments and analysis based upon his professional experience and knowledge,  
notably with regard to practice and usage followed with respect to earnout clauses and balances  
of sale in the technical context of the structure of a transaction of a sale of a business.  
[158] In the Court’s view, Mr. Michelin properly fulfilled his duty, prescribed by Article 235 of  
the Code of Civil Procedure (C.C.P.), to “enlighten the Court and assist it in assessing the  
evidence”. ARO and Mr. Ogilvie’s attorney referred the Court to the Supreme Court judgment of  
White Burgess Langille Inman v. Abbott and Haliburton Co128F[129]. In that judgment, the  
Supreme Court held:  
“[32] Underlying the various formulations of the duty are three related concepts:  
impartiality, independence and absence of bias. The expert’s opinion must be impartial  
in the sense that it reflects an objective assessment of the questions at hand. It must be  
independent in the sense that it is the product of the expert’s independent judgment,  
uninfluenced by who has retained him or her or the outcome of the litigation. It must be  
unbiased in the sense that it does not unfairly favour one party’s position over another.”  
[
[
Emphasis added.]  
159] Mr. Michelin’s testimony was impartial, independent and absent of bias. It was also  
objective, credible, balanced and relevant to the issues before the Court. Article 1426 of the Civil  
Code of Quebec (C.C.Q.) instructs the Court, when interpreting a contract, to consider and  
take into account the circumstances in which it was formed” as well as the presence of “usage”.  
“
The Court of Appeal has notably affirmed in the context of the interpretation of an earnout  
clause that it is important and relevant for the Court to consider whether a proposed  
interpretation conforms to economic and commercial sense129F[130].  
[160] Given the voluntary narrow and self-restricted scope of Ms. Gaudreault’s testimony, the  
Court considers her testimony to be incomplete and weak. Ms. Gaudreault intentionally refused  
to consider or comment on all the relevant circumstances for the proper interpretation of the  
terms of the Earnout Agreement. In so doing, the Court is of the view that Ms. Gaudreault did  
not in this regard discharge her duty to the Court to fulfil her role of assistance “objectively,  
impartially and thoroughly” in accordance with the duties of an expert required and stipulated  
at Article 22 C.C.P.  
3.14.3.4 Summary of Expert Evidence Before the Court  
[161] In light of the above, with regard to the relevant issues to adjudicate in the present  
matter, the Court favours the expert evidence of Mr. Michelin and rejects that of  
Ms. Gaudreault.  
[162] In summary, based upon the pre-contractual and contractual documentation submitted  
and reviewed by him, Mr. Michelin made the following points:  
1
) the earnout amount to be determined by the Performance Targets, per Section 4 of the  
Earnout Agreement, being the Adjusted Earnout Amount, is a balance of sale under the  
transaction between the parties. That is stated in the third paragraph of the Earnout  
Agreement130F[131]. According to the Earnout Agreement, the maximum amount of the  
balance of sale owing to the Polards was $1,500,000. That maximum amount was based on the  
value assessed by ARO of ARC’s assets notably with regard to its revenues, clients and  
operations. As a result of the purchase of the operations and assets of ARC, ARO received  
property and value from the Polards. In particular, ARC’s former clients are now ARO’s clients  
and continue to generate revenue and income for the benefit of ARO; In that regard, Mr. Ogilvie  
acknowledged in his testimony the value in particular of acquiring ARC’s United States  
operations.  
2
) In all of his 30 years of practice as a Professional Chartered Accountant, including his many  
years as a Transaction Advisor, Mr. Michelin has never seen an actual or proposed condition or  
clause in a sale of a business by which a seller’s right to payment for an earned amount under an  
earnout mechanism was extinguished as a result of the buyer company’s failure to meet certain  
financial ratios after the transaction;  
3
) It is often the case, especially in a highly leveraged transaction, that the buyer company does  
not meet, immediately after the sale, certain financial ratios. In the present case, the transaction  
was highly leveraged: the entire part of the purchase price paid at closing was financed by ARO  
by taking on additional debt, namely a loan obtained from IQ;  
4) It is illogical and contrary to commercial sense for a seller to accept to extinguish a debt  
owed to it on the basis of the buyer’s post sale’s financial ratios since such financial ratios can be  
easily manipulated by the buyer. Using ARO’s actual financial ratios during the relevant years,  
Mr. Michelin showed that the issuance of a small shareholder dividend of $100,000, plus the  
obtaining of additional financing of $100,000 would make the difference for ARO between  
being compliant or non-compliant131F[132] with the Schedule B Financial Ratios dealing with  
secured debt to EBITDA132F[133]. That change would be made without affecting the actual  
financial status or economic position of ARO133F[134]. Decisions by the buyer of this nature  
are completely beyond the control of the seller. Mr. Michelin points out that ARO decided in  
2
016 to pay down a massive amount of debt of $1,282,393 and still had almost $1,250,000 in  
extra cash134F[135]. Mr. Michelin states that, according to its 2015 and 2016 Financial  
Statements, ARO had the financial ability to pay the 2015 and 2016 annual instalments of the  
Adjusted Earnout Amount, or at least a significant part thereof135F[136], but chose not to do  
so. Even Ms. Gaudreault acknowledged that ARO could have paid, without any issue, at least  
$
244,905 in 2016;  
5) Mr. Michelin has seen, over the course of his experience as a Professional Chartered  
Accountant and Transaction Advisor, that sellers of a business do give buyers a deferral of  
payment of the balance of sale for several years after the sale;  
6) Mr. Michelin stated that the principal risk for the seller of deferral of payment of a balance  
of sale by the buyer is that sometimes the buyer becomes insolvent before the balance of sale  
amount is fully paid. In order to avoid the risk of insolvency and the resulting non payment of a  
balance of sale, the seller normally seeks to obtain a personal guarantee from the individuals or  
principals who own the buyer company for payment of the balance of sale. That personal  
guarantee is the seller’s protection to be paid the balance of sale in the event of financial fragility  
or insolvency of the buyer. As we have seen, Mr. Ogilvie gave a personal guarantee for all  
amounts owed under the Earnout Agreement.  
[163] The Court is of the view that Mr. Michelin’s statements of fact do conform to the  
preponderance of the evidence136F[137]. Furthermore, Mr. Michelin’s statements regarding  
professional practice and usage in sale transactions of a business, including with regard to  
earnout agreements, constitute in the circumstances “usage” in accordance with Articles 1426  
and 1434 C.C.Q.  
4
4
. Analysis and Decision  
.1 According to the agreement between the parties,  
was the legal effect of ARO’s non-compliance with the  
Schedule B Financial Ratios to defer the obligation to  
make payment of the annual instalments of the  
Adjusted Earnout Amount or to extinguish the  
obligation to pay them?  
4
.2 Legal Principles regarding the Interpretation of  
Contracts and Relevant Articles of the Civil Code of  
Quebec  
[164] In Uniprix inc. v. Gestion Gosselin et Bérubé inc.137F[138], the Supreme Court  
enunciated the two step process for the interpretation of a contract in Quebec Civil Law :  
“[34] The first step in interpreting a contract is to determine whether its words are clear or  
ambiguous (Droit de la famille — 171197, 2017 QCCA 861, at para. 62 (); Samen  
Investments Inc. v. Monit Management Ltd., 2014 QCCA 826, at para. 46 ()). The  
purpose of this step, which some authors refer to as the clear act rule (règle de l’acte clair)  
(Gendron, at p. 27), is to prevent judges from departing, deliberately or unexpectedly, from a  
clearly expressed intention of the parties. In short, a judge must defer to a clear contract. This  
step thus [translation] “‘serves as a bulwark’ against the risk of an interpretation that deviates  
from the true intention of the parties and subverts the scheme of their agreement” (Baudouin  
and Jobin, at No. 413 (citation omitted); see also Lluelles and Moore, at No. 1570).  
[35] Although this step is based first and foremost on a reading of the words themselves, it is  
not necessarily limited to that in every case, as there may be situations in which a contract’s  
language is not faithful to the parties’ common intention (Lluelles and Moore, at No. 1574; Droit  
de la famille — 171197, at para. 62). Indeed, [translation] “[w]hen considered in the context of  
the agreement’s other clauses or of the circumstances in which it was concluded, the seemingly  
clear words of a clause may [sometimes] prove to be ambiguous and to be inconsistent with the  
scheme of the contract, the true intention of the parties” (Baudouin and Jobin, at No. 413; see  
also Lluelles and Moore, at Nos. 1572-74; Tancelin, at No. 316; Gendron, at pp. 27, 31 and  
3
4; Éolectric Inc. v. Kruger, groupe Énergie, 2015 QCCA 365, at paras. 18-19 (); Rouge  
Resto-bar inc. v. Zoom Média inc., 2013 QCCA 443, at paras. 78-79 ()). Likewise, a  
clause that might be perceived to be ambiguous may be perfectly clear when considered in its  
context.  
[36] If the words of the contract are clear, the court’s role is limited to applying them to the  
facts before it. If, on the other hand, the court identifies an ambiguity, it must resolve the  
ambiguity by proceeding to the second step of contractual interpretation (Baudouin and Jobin,  
at No. 413; Lluelles and Moore, at Nos. 1584-86; Samen Investments, at paras. 46-47). The  
distinction between these two steps can be difficult to see, but it is fundamental. At the first  
step, the judge might, for example, consider the context of the conclusion and performance of  
the contract in order to confirm that its language is clear (see e.g. Habitations Gilles Stébenne  
inc. v. 9166-9929 Québec inc., 2016 QCCS 2953, at paras. 34 and 41-47 ()). In principle,  
however, the judge should not have recourse to the principles of interpretation set out in arts.  
1
425 to 1432 of the Code (Baudouin and Jobin, at No. 413; Lluelles and Moore, at No. 1571). In  
this sense, the interpretation of the contract is more superficial at the first step than at the  
second (Lluelles and Moore, at No. 1572).  
[37] The cardinal principle that guides the second step of the interpretation  
exercise is that “[t]he common intention of the parties rather than adherence to  
the literal meaning of the words shall be sought” (art. 1425 C.C.Q.). In this  
exercise, it is necessary to consider intrinsic aspects of the contract, such as the  
words of the clause at issue and the other clauses, in order to ensure that each of  
them is given a meaningful effect and that each is interpreted in light of the others  
(arts. 1427 and 1428 C.C.Q.; Baudouin and Jobin, at No. 417; Lluelles and Moore, at  
Nos. 1593-94). The interpretation of a contract also requires consideration of the  
nature of the contract and of the context extrinsic to it, including the factual  
circumstances in which it was formed, how the parties have interpreted it, and  
usage (art. 1426 C.C.Q.; Baudouin and Jobin, at No. 418; Lluelles and Moore, at Nos. 1600,  
1
603 and 1607).”  
[
[
Emphasis added.]  
165] In Hydro-Québec v. Matta138F[139], the Supreme Court reiterated that two-step  
process:  
“
[57] Servitude agreements are subject to the rules applicable to the interpretation of  
contracts: Centre de distribution intégré (CDI) inc. v. Développements Olymbec inc.,  
015 QCCA 1463, 59 R.P.R. (5th) 1, at para. 17; 151692 Canada inc. v. Centre de loisirs de  
2
Pierrefonds enr., 2005 QCCA 376, [2005] R.D.I. 237, at para. 30; Normand, at p. 329; see  
also Uniprix, at paras. 34-41. If their words are clear, effect must be given to the clearly  
expressed intention of the parties. If, however, the agreements, read as a whole, are vague,  
ambiguous or incomplete, the common intention of the parties must be sought:  
art. 1425 C.C.Q.”  
4
.3 Is There an Ambiguity in the Terms of the  
Contract?  
[166] The Court must first determine whether there is an ambiguity in the contract. In the  
absence of ambiguity, the Court should simply apply the terms of the contract.  
[167] Section 2.3.1 of the SAPA states that part of the purchase price will be paid by way of an  
Earnout Agreement139F[140].  
“
2.3 Payment of the Purchase Price.  
.3.1 Subject to the provisions hereof, the Purchase Price shall be payable as follows:  
.3.1.1 as concerns the Holdco Shares, (i) by the Buyer, following its amalgamation with  
2
2
ARO Inc. and ARC Holdco, paying to the Shareholders, on the Closing Date, by wire transfer or  
certified cheque, the sum of $2,376,991 and (ii) the delivery by the Buyer, following its  
amalgamation with ARO Inc. and ARC Holdco, to the Shareholders of a promissory note  
in the amount of $1,500,000 in the form of promissory note annexed hereto as  
Exhibit 2.3.1.1(a) (the “Earnout Note”), to be allocated and paid by the Buyer  
pursuant to the terms, and subject to the conditions, of an earnout holdback agreement  
by and among the Shareholders, Companies, Rod and the Buyer, in the form of the earnout  
holdback agreement annexed hereto as Exhibit 2.3.1.1(b) (the “Earnout Agreement”);”  
[Emphasis added.]  
[168] The Earnout Agreement states140F[141]:  
“WHEREAS pursuant to Section 2.3.1.1 of the Share and Asset Purchase Agreement, a portion  
of the Purchase Price of the Holdco Shares, being the sum of $1,500,000, is to be paid to  
the Shareholders pursuant to the provisions of this Agreement [Earnout Agreement] and the  
Earnout Note, such amount payable to be reduced to the extent certain Performance  
Targets are not achieved by the Operations as of the expiration of the Performance  
Period, all as set forth herein.”  
[
[
Emphasis added.]  
169] The Earnout Agreement defines Earnout Amount as follows141F[142]:  
“
“Earnout Amount” means, collectively, the Additional Staff Retention Earnout  
Amount, the Client Retention Earnout Amount, the Key Staff Retention Earnout  
Amount and the Revenue Goal Earnout Amount.”  
[Emphasis added.]  
[170] Section 4 of the Earnout Agreement states that the Adjusted Earnout Amount “shall be  
paid” by ARO to the Seller Representative:  
“4. Earnout Amount payment  
The Earnout Amount, as adjusted pursuant to Section 3 of this Agreement (the “Adjusted  
Earnout Amount”), shall be paid and payable by ARO to the Seller Representative (on  
st  
behalf of the Shareholders) by way of three (3) equal annual payments, with the first (1 ) of  
th  
such annual payments to be made on the fifteenth (15 ) Business Day following the final  
determination of the Earnout Schedule (whether by mutual agreement of ARO and the Seller  
nd  
Representative or pursuant to Section 2(d) of this Agreement) and the second (2 ) and third  
rd st nd  
3 ) annual payments to be made on the first (1 ) and second (2 ) anniversary, respectively of  
st  
(
such first (1 ) payment. Payment of each of the annual payments is conditional upon  
ARO’s compliance, in all material respects, with the financial ratios set out in  
Schedule “B” attached hereto, such compliance to be determined based on the  
audited financial statements of ARO for its fiscal period ending August 31, 2014,  
August 31, 2015 or August 31, 2016, as applicable. The Adjusted Earnout Amount shall  
be paid in cash and shall be made by wire transfers of immediately available funds to an account  
designated by the Seller Representative in writing. Interest shall be paid by ARO on the  
Adjusted Earnout Amount, as and from the Closing Date, until payment in full at a rate per  
annum equal to five percent (5%), calculated and paid in the manner set forth in Section 9.4 of  
the Share and Asset Purchase Agreement.”  
[
[
Emphasis added.]  
171] According to ARO, there is no ambiguity in Section 4. ARO submits that the Sentence in  
Issue, namely:  
“Payment of each of the annual payments is conditional upon ARO’s compliance, in all material  
respects, with the financial ratios set out in Schedule “B” attached hereto, such compliance to be  
determined based on the audited financial statements of ARO for its fiscal period ending  
August 31, 2014, August 31 2015 or August 31, 2016, as applicable”  
is clear. ARO submits that the Sentence in Issue means that the legal effect of ARO’s non-  
compliance with the Schedule B Financial Ratios on the stated dates is the extinguishment of  
the obligation to pay each annual instalment of the Adjusted Earnout Amount142F[143].  
[172] According to the Polards, the meaning of the Sentence in Issue is that the legal effect of  
ARO’s non-compliance with the Schedule B Financial Ratios on the relevant dates is a deferral  
of ARO’s obligation to make payment of the three annual instalments of the Adjusted Earnout  
Amount143F[144]. The Polards add that, pursuant to the last sentence of Section 4, the deferral  
of the payment obligation to pay the instalments did not affect ARO’s obligation to pay interest  
on the entirety of the Adjusted Earnout Amount which continued to run. In support of their  
interpretation, the Polards also refer to the terms of the SAPA referred to in the Earnout  
Agreement, the remainder of the Earnout Agreement and the context of the transaction.  
173] ARO and Mr. Ogilvie’s submission that the interpretation proposed by ARO of the  
[
Sentence in Issue is clear, unambiguous and apparent is incorrect. There are at least two  
ambiguities in Section 4 and in the Sentence in Issue. First, the parties disagree on the meaning  
of the word “Payment” at the beginning of the Sentence in Issue. ARO and Mr. Ogilvie propose  
that the word “Payment” in the Sentence in Issue means the obligation of payment, namely the  
existence of the debt to pay the annual instalments of the Adjusted Earnout Amount. The  
Polards submit that the word “Payment” refers only to the act of payment of those annual  
instalments. Second, the legal effect or consequence of ARO’s non-compliance with the  
Schedule B Financial Ratios on the dates mentioned is ambiguous and unclear. ARO and  
Mr. Ogilvie submit that the legal effect is to extinguish the debt for the Adjusted Earnout  
Amount. But such an effect or consequence is not stated either in the Sentence in Issue,  
elsewhere in Section 4 of the SAPA or anywhere else in the contractual documents of the  
transaction. The Polards submit that the legal effect of ARO’s non-compliance is only to defer  
the obligation of payment of the three annual instalments of the Adjusted Earnout Amount.  
[174] The Court therefore concludes that the terms regarding the legal effect of ARO’s non-  
compliance with the Schedule B Financial Ratios in the Sentence in Issue, as well as those in the  
clause in which it is inserted (Section 4), are ambiguous and unclear. The Court must therefore  
proceed to the second step of the interpretation process and interpret the relevant terms of  
Section 4, notably in light of the rules of interpretation of contracts set out by the Civil Code of  
Quebec.  
4
.4 Which Interpretation of the Terms of Section 4 of  
the Earnout Agreement Should Prevail and be Binding  
on the Parties?  
4
.4.1 Quebec Legal Principles on Contractual Interpretation  
[175] In PF Résolu Canada inc. v. Hydro-Québec, the Supreme Court stated144F[145]:  
“
[61] It should be noted that it is necessary, in interpreting a contract, to seek “[t]he common  
intention of the parties” (art. 1425 C.C.Q.) while taking into account, in the words of the C.C.Q.,  
the nature of the contract, the circumstances in which it was formed, the interpretation which  
has already been given to it by the parties or which it may have received, and usage”  
art. 1426 C.C.Q.). Each clause is to be interpreted “in light of the others” so that each one is  
given the meaning derived from the contract as a whole (art. 1427 C.C.Q.). […]”  
“
(
“
1425. The common intention of the parties rather than adherence to the literal meaning of the  
words shall be sought in interpreting a contract.  
1
426. In interpreting a contract, the nature of the contract, the circumstances in which it was  
formed, the interpretation which has already been given to it by the parties or which it may have  
received, and usage, are all taken into account.  
1
427. Each clause of a contract is interpreted in light of the others so that each is given the  
meaning derived from the contract as a whole.  
1
428. A clause is given a meaning that gives it some effect rather than one that gives it no  
effect.  
1
429. Words susceptible of two meanings shall be given the meaning that best conforms to the  
subject matter of the contract.”  
[177] In light of the above mentioned articles, and after review of the pre-contractual and  
contractual documentation, the testimony of the parties and the other evidence, including that  
of experts, the Court is of the view that the evidence overwhelmingly supports the interpretation  
proposed by the Polards, namely that the parties’ intended legal effect of ARO’s possible non-  
compliance with the Schedule B Financial Ratios was the deferral of ARO’s obligation to make  
the payments of the annual instalments of the Adjusted Earnout Amount. “Payment” in the  
Sentence in Issue refers only to the act of payment, not to the existence of the obligation or  
debt to pay the annual instalments of the Adjusted Earnout Amount. The legal effect of ARO’s  
non-compliance with the Schedule B Financial Ratios on the dates of August 31, 2014,  
August 31, 2015 and August 31, 2016 is only to defer the exigibility by the Polards of the  
payment of the instalment amounts of the Adjusted Earnout Amount. ARO’s obligation of  
payment of the annual instalments of the Adjusted Earnout Amount and ARO’s obligation of  
payment of the Adjusted Earnout Amount are not extinguished or otherwise affected. ARO and  
Mr. Ogilvie therefore owe the Polards the full unpaid Adjusted Earnout Amount, with  
compound interest at 5% per annum as stipulated in the SAPA.  
[178] The Court’s conclusion in that regard is based on the following reasons.  
4
.4.2 Common Intention of the Parties (Articles 1425 and 1426 C.C.Q.)  
“1425. The common intention of the parties rather than adherence to the literal meaning of the  
words shall be sought in interpreting a contract.”  
[180] According to the evidence, the common intention of the parties was that ARO’s non-  
compliance with the Schedule B Financial Ratios deferred the exigibility of ARO’s obligation to  
make the payments of the three annual instalments of the Adjusted Earnout Amount.  
4.4.2.1 Polards  
[181] In his examination before trial, Maurice testified as follows145F[146]:  
“146F[147]Q- At paragraph forty three (43) of your suit, you say that the earn-out  
agreement, the earn-out adjustment is a balance of sale. Why are you saying that?  
A-  
Because it was the amount to make up the eight million dollar ($8,000,000.00) agreed  
purchase and sale price.  
Q-  
A-  
But it was subject to certain ratios being met?  
It was subject to certain targets being met which we met as determined by  
the arbitrator.  
[…]  
1
47F[148]A-  
The amount, - we always were of the opinion that the amount was  
owed and if they were not paying it, we would be paid interest on a monthly basis.  
Q-  
Okay, so now you say at paragraph forty (40) of your suit that,  
The intention of the earn-out agreement was to create a win-win scenario  
“
for the parties by allowing ARO to defer the principal payment of the earn-out  
amount up to three (3) years without having to make large principal payments if  
the ratios were not met for a specific fiscal year. The plaintiffs in return are secured by  
receiving interest as set out in section four (4) of the EHA.”  
Where, - why do you say that this was the intention of the parties?  
A-  
That was my understanding.  
[…]  
1
48F[149]Q-  
No, Mr. Polard, you are telling us that the intention of the parties was  
to defer the principal payment of the earn-out up to three (3) years without having  
to make large principal payments and you in return are secured by receiving interest.  
Where do you derive that knowledge from? Why do you say that? Because you say…  
A-  
Q
It was always my understanding.  
Okay. And that understanding was derived from what exactly?  
From my reading the agreement from discussions or negotiations with  
A-  
Michael Ogilvie. We agreed that we would, - we would accept an earn-out and that  
we would be paid the interest at the end of the earn-out.  
Q-  
A-  
Okay. So that was discussed between you and Michael Ogilvie?  
Yes.  
[…]  
1
49F[150]Q-  
Were you the one amongst the plaintiffs who was conducting negotiations at  
the time of the sale?  
A- I was one of the parties, yes. Joe was conducting the, the, - as well.  
[…]  
1
50F[151]Q-  
Okay. And what did you discuss specifically with Michael Ogilvie pertaining to  
the earn-out?  
A-  
Q-  
A-  
That we would be paid the earn-out over a period of three (3) years.  
If certain ratios were met?  
Well, I don’t know about that. I don’t recall anything about us not getting paid or ratios  
being discussed. Like my understanding was that, - that we would get the earn-out  
and if we didn’t get the earn-out, we’d get interest and the interest would be paid  
to us on a monthly basis from the, after the first year.  
[…]  
1
51F[152]Q- Do you know at paragraph fifty four (54) what position has changed because  
you say that at paragraph fifty four that,  
“
…the defendants have changed their position submitting…”  
Do you know what changed exactly?  
A-  
Well they originally suggested that they wouldn’t, they weren’t able to pay  
the or they weren’t going to pay because we hadn’t met our targets. And when, we,  
after the arbitration then they determined that there was another reason why  
they didn’t pay.  
-
[…]  
1
52F[153]A-  
They were to either pay the earn-out or pay interest. They didn’t do  
either.  
[
[
[
…]”  
Emphasis added.]  
182] The understanding of the parties and the meaning of Section 4 was that the balance of  
sale was to be paid by way of an earnout formula based upon whether the Performance Targets  
were met. The only effect of ARO’s possible non-compliance with the Schedule B Financial  
Ratios on the agreed dates of payment for the annual instalments of the Adjusted Earnout  
Amount was to defer the exigibility or the act of payment of those instalments for a maximum of  
3
years. It was agreed that interest on the full Adjusted Earnout Amount would continue to run  
in favour of the Polards in the event of deferral. In his examination before trial, Joe testified as  
follows153F[154]:  
“154F[155]Q-  
Okay, so what do you base yourself…  
A-  
The knowledge I have, - it was the intention to create a win-win scenario and they  
could defer the principal payment because they had – because it would help their  
cash flow not to have to pay the principal and only pay the interest. They, - they, -  
yes.  
…]  
55F[156]A-  
[
1
Let me go back to paragraph forty (40). My understanding of what is  
contained in paragraph forty (40), it was to create a win-win scenario and it  
allowed ARO to defer the principal payment and pay interest for the three (3) year  
period.  
Q
Okay. Where, - how did you arrive at that understanding? Where are you deriving this  
understanding from?  
A-  
Q-  
A-  
Q-  
I was provided with the earn-out agreement.  
Yes.  
Yes.  
And that is by reading the earn-out agreement Exhibit P-8, that you arrived  
at that understanding?  
A-  
Yes.  
Q-  
Did you discuss that understanding with the other plaintiffs at the time  
before signing the documents?  
A-  
Did I discuss, yes, I discussed my understanding of the earn-out agreement  
with other plaintiffs.  
Q-  
A-  
Okay. With whom did you discuss it?  
Well certainly with Maurice but I would suggest that I had discussed it with  
the rest of the family members.  
Q-  
A-  
Do you remember what was said?  
I remember, yes, I do remember what was said that we, - that we would all be working  
for the company and there would be an earn-out and they would have to pay interest  
on it and it would remain on the books and be secured as, you know, we would be a  
secured creditor so to speak and it would be personally guaranteed by Michael  
Ogilvie.  
Q-  
A-  
Did you ever speak to Michael Ogilvie before the sale, before the Exhibit P-1 was signed?  
I did have conversations with Michael Ogilvie before I, - we spoke.  
[…]  
1
56F[157]Q-  
What was discussed at that time? And maybe, maybe to help you out, did you  
speak with him or meet with him on more than one (1) occasion or only on that occasion when  
he flew in to Victoria, B.C.?  
A-  
Q-  
More than one (1) occasion.  
Okay. Would it be between one (1) and five (5) occasions? Or between five  
(5) and ten (10) occasions or more than ten (10) occasions?  
A-  
Q-  
I would, - probably it would be between five (5) and ten (10).  
Okay. And when you discussed with him, was there any discussions around the earn-out  
agreement or the question…  
A-  
Q-  
There was discussion, yes, he brought up that there would be an earn-out agreement.  
Okay. What did he tell you about the earn-out agreement? That Investissement Québec  
needed it to finance the transaction?  
A-  
Yes, he said,  
“
There will be an earn-out agreement because we’re required to have one.”  
[…]  
1
57F[158]A-  
Yes, it is – there is nothing explained there other than what is there, so I mean,  
I can explain that there was interest that was supposed to be paid as and from the  
closing date so that was explained and understood. We understood that there  
would be three (3) payments after and those payments would be equal based on  
the amount of the adjusted earn-out amount and that we would, we would  
basically be secured on ARO’s books and secured by the personal guarantee.”  
[
[
Emphasis added.]  
183] In his testimony before the Court, Joe stated that he had had contact with Jim Novasad,  
who was a senior member of ARO’s management and was on ARO’s negotiation team for the  
transaction. Further to discussions with him, Joe understood that ARO wanted to have the  
flexibility over the first three (3) years after the transaction to pay down the debt for the  
purchase of ARC and not pay out immediately the full instalment amounts of the Adjusted  
Earnout Amount. If ARO chose not pay over the deferral period, interest on the amount owed  
would continue to run until payment in full.  
4.4.2.2 Credibility of the Polards  
[184] In the Court’s view, all three Polards who testified - Maurice, Joe and Lionel - did so  
honestly. They demonstrated integrity and credibility in their testimony. During often long,  
intensive and sometimes aggressive cross-examination, they answered the questions asked of  
them sincerely, thoroughly and without contradiction.  
[185] Furthermore, the Polards have always had the same version with regard to the common  
understanding of the parties with respect to the interpretation of Section 4 of the Earnout  
Agreement. They have consistently stated and affirmed the same version for over nine (9) years  
(2013 to 2022), from the time of drafting of the earnout agreement158F[159], from the first  
letter requesting payment of the Adjusted Earnout Amount159F[160], during the arbitration  
proceedings160F[161], during their legal proceedings161F[162], in their examinations out of  
Court162F[163] and finally in their testimony before the Court.  
4.4.2.3 ARO and Mr. Ogilvie  
[186] On the other hand, ARO has constantly changed its position regarding the  
interpretation to be given to the Sentence in Issue, to Section 4 of the Earnout Agreement, and  
in particular regarding the legal effect of ARO’s non-compliance with the Schedule B Financial  
Ratios with respect to payment of the annual instalments of the Adjusted Earnout Amount.  
[187] At the time of the negotiation of the Earnout Agreement, the Polards indicated their  
understanding regarding the payment of the Adjusted Earnout Amount. Joe requested that it be  
clarified that, if a payment of the three annual instalments of the Adjusted Earnout Amount was  
deferred and not paid because of ARO’s non-compliance with the Schedule B Financial Ratios,  
interest on the entire Adjusted Earnout Amount would continue to run from the date of closing  
of the transaction until payment in full. That request clearly indicated that ARO’s  
non-compliance with the Schedule B Financial Ratios would not extinguish the obligation to pay  
the Adjusted Earnout Amount, but only defer the timing of its payment, since the full amount of  
the Adjusted Earnout Amount would continue to be owed and continue to bear interest.  
Therefore, the intention and understanding of the Polards with respect to the Sentence in Issue  
and Section 4 were clearly conveyed to ARO and Mr. Ogilvie. ARO and Mr. Ogilvie confirmed  
the commonality of that intention and interpretation by acceding to the requested clarification  
and stated that they agreed with it. ARO and Mr. Ogilvie therefore confirmed to the Polards that  
they agreed with the Polards’ interpretation regarding the legal effect of deferral of the payment  
obligation with respect to the three annual instalments of the Adjusted Earnout Amount caused  
by ARO’s non-compliance with the Schedule B Financial Ratios.  
[188] The modified text of Section 4, immediately after the Sentence in Issue, reads as  
follows:  
“The Adjusted Earnout Amount shall be paid in cash and shall be made by wire transfers  
of immediately available funds to an account designated by the Seller Representative in writing.  
Interest shall be paid by ARO on the Adjusted Earnout Amount, as and from the  
Closing Date, until payment in full at a rate per annum equal to five percent (5%),  
calculated and paid in the manner set forth in Section 9.4 of the Share and Asset Purchase  
Agreement.”  
[
[
Emphasis added.]  
189] The text in italics was added by ARO’s attorney to respond to Joe’s request that it be  
clear that interest was payable on the full amount of the Adjusted Earnout Amount from the  
date of the closing, regardless of ARO’s non-compliance with the Schedule B Financial Ratios  
and any resulting deferral of payment of any of the three annual instalments of the Adjusted  
Earnout Amount.  
[190] ARO’s attorney responded to Joe’s request by writing that ARO had accepted the  
requested clarifications163F[164]. The terms used were as follows:  
“
This matter is resolved.”  
…]  
Agreed. This change has been made.”  
[
“
[
[
Emphasis added.]  
191] In addition, ARO’s attorney wrote to the Polards’ attorney as follows164F[165]:  
“You will note that we have accommodated your client’s requirements.”  
[
[
Emphasis added.]  
192] ARO’s attorney did not change or suggest to change the term “Adjusted Earnout  
Amount” to the “remaining part of” the Adjusted Earnout Amount” with regard to the “interest”  
that had to be paid. Furthermore, ARO’s attorney did not modify the text that states interest had  
to be paid on the Adjusted Earnout Amount “until payment in full”.  
[193] The Polards thus clearly expressed their understanding that the only effect of ARO’s  
non-compliance with the Schedule B Financial Ratios was the deferral of exigibility of the  
instalment payments of the Adjusted Earnout Amount. Interest continued to run on the entire  
“Adjusted Earnout Amount” “until payment in full”. Neither ARO nor its attorney sought to  
change the wording used but instead confirmed that the Polards’ interpretation was correct by  
stating that ARO “agreed” to the change and “accommodated” the Polards’ request and  
requirements. Therefore, ARO’s response to the Polards’ request of clarification confirms that  
ARO’s interpretation of Section 4 was in fact at the time the same as that of the Polards, namely  
that ARO’s non-compliance with the Schedule B Financial Ratios would only defer, and not  
extinguish, the obligation to make payment to the Polards of the three annual instalments  
constituting the entire “Adjusted Earnout Amount” with interest, until payment in full.  
[194] ARO’s proposed interpretation, in the present judicial proceedings, of extinguishment  
of the obligation to pay the three annual instalments constituting the Adjusted Earnout Amount  
is irreconcilable with that exchange regarding the terms of Section 4, including the Sentence in  
Issue, with the change made to Section 4, with the absence of a change to state that only the  
“remaining part of” (or similar language) the Adjusted Earnout Amount would bear interest.  
Instead, ARO chose to retain the text that states that interest on the entire “Adjusted Earnout  
Amount”, as determined, is owed “until payment in full”. Therefore, the “common intention” of  
the parties165F[166] at the time that the transaction was concluded was that the legal effect of  
ARO’s non-compliance with the Schedule B Financial ratios was only deferral of exigibility of  
the annual payment instalments of the Adjusted Earnout Amount.  
[195] After the transaction, ARO acted in a way consistent with the interpretation of deferral.  
At the time of the Polards’ first request for payment of the first annual instalment of the  
Adjusted Earnout Amount on January 27, 2015166F[167], ARO was already fully aware that the  
Schedule B Financial Ratios were not respected on August 31, 2014. However, on February 2,  
st  
2
015, ARO did not reply that the obligation to pay the 1 instalment was extinguished. ARO’s  
attorney only replied that, since ARO did not comply on that date with the Schedule B Financial  
Ratios, the first instalment of the Adjusted Earnout Amount was not “payable”167F[168].  
Significantly, ARO’s attorney did not state that such first instalment would never be paid nor  
that the obligation to pay it was extinguished. That type of statement would only be made later  
by ARO. The simple assertion that the amount is not currently “payable” is consistent with the  
Polards’ interpretation. By letter dated February 20, 2015168F[169], ARO’s attorneys again did  
not state that the amount was extinguished or would not be paid in the future. They only stated  
that the first instalment was not at the time “payable”.  
[196] On June 22, 2015, the Polards filed the Notice of Arbitration.  
[197] On September 15, 2015, some 2 years after the closing of the transaction and 8 months  
after the Polards’ first request for payment of the first annual instalment, ARO’s attorney, in its  
response to the Notice of Arbitration, for the first time stated that ARO’s failure to meet the  
Schedule B Financial Ratios had the effect of extinguishing payment of the Adjusted Earnout  
Amount169F[170]. However, the interpretation then proposed is different from that made to  
the Court in the present judicial proceedings. In September 2015, ARO stated that since it was  
not in compliance with the Schedule B Financial Ratios on August 31, 2014, no amount of the  
Adjusted Earnout Amount (including the second and third instalments) would ever be paid.  
That is both different from ARO’s previous interpretations and its current  
interpretation170F[171].  
[198] On August 12, 2016171F[172], in ARO’s subsequent filing in the arbitration  
proceedings172F[173], ARO repeated that since it was non-compliant with the Schedule B  
Financial Ratios on August 31, 2014, “no amount under the Earnout Agreement is payable or  
will ever be payable to the sellers”.  
[199] After the passing of the three dates mentioned in the Sentence in Issue (August 31,  
2
014, August 31, 2015 and August 31, 2016) to determine ARO’s non-compliance with the  
Schedule B Financial Ratios and after it was confirmed by the passage of time that on all three  
dates ARO was non-compliant, ARO again changed its position173F[174]: ARO then put  
forward that its non-compliance with the Schedule B Financial Ratios on the dates of August 31,  
2
014, August 31, 2015 and August 31, 2016 had the effect each time of extinguishing the  
obligation to pay the first, second and third instalments of the Adjusted Earnout Amount.  
[200] In ARO and Mr. Ogilvie’s Defense (November 22, 2018) to the Polards’ Judicial  
Application, several interpretations of the Sentence in Issue are presented174F[175]:  
“[…] It is therefore the obligation to pay the annual instalment that is conditional and  
the timing of such payment is strictly conditional upon the ratios being met. The  
determination of whether or not the condition for each instalment was fulfilled is  
based on the audited financial statements of Aro corresponding to the period in  
question;175F[176]  
[
2
…] Rather, Defendants’ position is that whether you consider 2014 only or  
014-2015-2016 the result is the same as the Earnout is not payable in all  
cases;176F[177]  
[…] Ultimately, the financial ratios were not attained by Aro for any of the three fiscal periods  
and the Plaintiffs received all of the necessary documentation which indicates that the Plaintiffs  
are not entitled to payment of the Adjusted Earnout Amount;177F[178]”  
[
[
Emphasis added.]  
201] The allegation refers to ARO’s first interpretation (deferral) by using the word “timing”.  
It also refers to ARO’s second interpretation (non-compliance on August 31, 2014 extinguishes  
the entire Adjusted Earnout amount) and ARO’s third interpretation (non-compliance on  
August 31, 2014, August 31, 2015 and August 31, 2016 extinguishes the obligation to pay the 1st,  
2nd and 3rd instalments of the Adjusted Earnout Amount).  
[202] On December 6, 2018, one month later, in his examination out of Court, Mr. Ogilvie’s  
interpretation of the Sentence in Issue is convoluted and appears to revert back to ARO’s  
original interpretation at the time of signing of the transaction, namely that ARO’s  
non-compliance does not extinguish ARO’s obligation to pay the Adjusted Earnout Amount.  
Mr. Ogilvie testified as follows:  
“178F[179]R  
[…] Les ratios n’ont rien à voir avec Michael Ogilvie, avec Aro ou  
avec ARC. Les ratios sont une condition de financement du prêteur. Ça n’a rien à  
voir avec le « earnout », ça n’a rien à voir avec le contrat d’achat, ça n’a rien à voir  
avec la valeur de l’entreprise. La seule, seule chose que les ratios font, c’est les  
termes et les conditions d’un financement.  
[…]  
1
79F[180]Q Mais les ratios ont été mentionnés dans le “Earnout Agreement”. Donc, ça lie  
aussi les demandeurs [Polards]?  
R
Aucunement. Ça ne lie aucunement les demandeurs. Comment ça lie les  
demandeurs, maître Citrom? Expliquez-moi parce que ça ne lie du tout les…  
comment ça lie les vendeurs? Ça ne les lie pas du tout. Ça lie Michael Ogilvie, Aro.  
Ça ne lie pas… ils n’ont aucun lien avec les vendeurs, les ratios. Les ratios, maître  
Citrom, c’est important de comprendre. Je vois qu’il y a de l’incompréhension.  
Q
Une autre question sur la valeur. Donc, pour évaluer la valeur, est-ce que les  
ratios ont une place dans l’évaluation ou c’est les « Performance Targets » qui ont  
été évalués pour évaluer le prix d’achat?  
R
Non, non. Les ratios sont là pour la capacité de remboursement. Les ratios  
n’ont rien à voir avec la performance, n’ont rien à voir avec… c’est la capacité de  
remboursement, maître Citrom.  
[…]  
1
80F[181]R  
[…] Moi, je vous dis que ça ne les lie pas. Il n’y a aucun lien. Je ne  
peux pas vous expliquer mieux que ça. Aucun lien entre les ratios puis les  
vendeurs, dans ma compréhension à moi.”  
[Emphasis added.]  
[203] At trial, ARO’s attorney put forward ARO’s third interpretation, that of three  
consecutive extinguishments of the three annual instalments of the Adjusted Earnout Amount  
on the mentioned dates as a result of ARO’s non-compliance with the Schedule B Financial  
Ratios on those dates181F[182].  
[204] At trial, Mr. Ogilvie was confronted with the above extracts of his examination out of  
Court. He claimed that he hadn’t understood the questions. He stated that the questions posed  
by the Polards’ attorney were not clear, as she was asking them in her second language. The  
Court has reviewed the transcript of the examination. Me Citrom’s questions were clear and the  
answers given by Mr. Ogilvie were both categorical and reiterated several times. At trial, when  
the Polards’ attorney showed Mr. Ogilvie the various versions and the evolution of ARO’s  
positions on the interpretation of the Sentence in Issue, he admitted that he had changed his  
mind.  
[205] In support of ARO’s assertion that the Polards purportedly knew and understood that  
the effect of ARO’s non-compliance with the Schedule B Financial Ratios would be to extinguish  
ARO’s obligation to pay the Adjusted Earnout Amount, ARO and Mr. Ogilvie refer notably to  
three elements of proof.  
[206] First, they refer to an extract of a telephone conversation on June 25, 2013 between  
Mr. Ogilvie and Maurice182F[183]. The conversation was recorded by Mr. Ogilvie without the  
knowledge of Maurice. The Court has listened to and reviewed the telephone conversation. The  
Court is of the view that it does not support ARO’s submission. ARO’s attorney refers to certain  
words expressed by Maurice and quotes them out of context and in a misleading manner. The  
brief conversation has only one purpose. Mr. Ogilvie wants to tell Maurice that Mr. Ogilvie will  
provide the personal guarantees requested by the Polards for amounts under the transaction  
that are not paid at closing, such as the amount owing under the future earnout agreement.  
During the conversation, any reference to financial ratios is oblique, undetailed and unclear.  
Furthermore, ARO’s proposed interpretation of the conversation is nonsensical. If Maurice  
thought that ARO’s non-compliance with the Schedule B Financial Ratios imposed by IQ would  
extinguish amounts owing under the Earnout Agreement, there would be no sense in asking  
Mr. Ogilvie for a personal guarantee for an extinguished amount under the Earnout Agreement.  
[207] Furthermore, ARO cannot credibly put forth that the conversation related to the  
Schedule B Financial Ratios or their effect. In his examination out of Court, Mr. Ogilvie testified  
that he never discussed the financial ratios with the Polards, including with Maurice.  
Mr. Ogilvie stated183F[184]:  
“Q  
[…] Quand est-ce que les ratios, « Schedule B », stipulés dans la clause 4 du « Earnout  
Agreement » ont été introduits dans les négociations entre vous et les demandeurs?  
R
Ah! Ça n’a jamais été entendu entre moi et les demandeurs. Je n’ai jamais  
discuté des ratios avec les Polard, moi. Les ratios ont seulement été introduits dans les  
offres écrites qui ont été soumises aux avocats et comptables de Polard. Moi, je n’ai jamais  
discuté de ratios avec Maurice, Lionel ou Joe Polard, jamais.”  
[Emphasis added.]  
[208] Similarly, ARO does not refer to other words mentioned in the telephone conversation  
when Mr. Ogilvie reassures Maurice that financial ratios are only a banker’s issue (“Ya for them  
it’s ratios and bankers”184F[185]) and not something that Maurice should be concerned about  
in light of Mr. Ogilvie’s personal guarantees. Mr. Ogilvie’s comments at the time confirm the  
Polards’ version regarding Mr. Ogilvie’s reassurances and representations to them with respect  
to the financial ratios, namely that they in no way would affect ARO’s obligation to pay the  
Adjusted Earnout Amount as was expressed by Mr. Ogilvie during his examination:  
“
185F[186]R  
ARC. Les ratios sont une condition de financement du prêteur. Ça n’a rien à voir avec le  
earnout », ça n’a rien à voir avec le contrat d’achat, ça n’a rien à voir avec la valeur de  
[…] Les ratios n’ont rien à voir avec Michael Ogilvie, avec Aro ou avec  
«
l’entreprise. La seule, seule chose que les ratios font, c’est les termes et les  
conditions d’un financement.  
[…]  
1
86F[187]Q Mais les ratios ont été mentionnés dans le “Earnout Agreement”. Donc, ça lie  
aussi les demandeurs [Polards]?  
R
Aucunement. Ça ne lie aucunement les demandeurs. Comment ça lie les  
demandeurs, maître Citrom? Expliquez-moi parce que ça ne lie du tout les… comment ça lie  
les vendeurs? Ça ne les lie pas du tout. Ça lie Michael Ogilvie, Aro. Ça ne lie pas… ils  
n’ont aucun lien avec les vendeurs, les ratios. […]”  
[
[
Emphasis added.]  
209] Second, ARO also refers to an e-mail of Maurice to his attorney wherein he expresses  
his view that ARO, after the acquisition of ARC’s operations, should be in an adequate  
favourable financial situation187F[188]. Again, ARO attempts to quote this e-mail out of  
context and in a misleading manner. Nowhere in the e-mail does Maurice state that ARO’s  
non-compliance with the Schedule B Financial Ratios would extinguish the Adjusted Earnout  
Amount. The e-mail is entirely consistent with the Polards’ submissions that the parties agreed  
that the effect of ARO’s non-compliance was only to defer payment of the three annual  
instalments of the Adjusted Earnout Amount. Quite logically, it is Maurice’s preference to be  
paid the instalments of the Adjusted Earnout Amount when first exigible rather than have them  
deferred. Furthermore, Maurice’s children and his brother would be working at ARO after the  
transaction. He wants ARO to succeed after the transaction. Moreover, the parties had signed  
agreements of first refusal for a future sale of ARO188F[189]. That is another reason for  
Maurice to want ARO to succeed after the transaction.  
[210] Third, ARO refers to an e-mail of one of its employees (Victor Sawisian) to ARO’s  
negotiation team for the transaction189F[190]. It is his unilateral account regarding his  
perception of certain conversations with some of the Polards. It was not sent to the Polards  
during the negotiations. The document was untested in Court. ARO chose not to have  
Mr. Sawisian testify, even though he was one of its witness listed in the joint declaration. It is  
unknown to what extent Mr. Sawisian’s brief account of certain conversations is accurate or not.  
In any event, ARO again quotes the content of the e-mail out of context and in a misleading  
manner. Nothing in the e-mail is contrary to the Polards’ position that their understanding, and  
what was told to them by ARO’s representatives including by Mr. Ogilvie, was that the effect of  
ARO’s non-compliance with the Schedule B Financial Ratios could only be to temporarily defer  
payment of the annual instalments of the Adjusted Earnout Amount. According to  
Mr. Sawisian’s account, the Polards were uncomfortable with IQ imposing a deferral of the  
instalment payments in the absence of a personal guarantee of Mr. Ogilvie for those payments.  
That is not contested by the Polards.  
4.4.2.4 Balance of Sale – Evolving Position of ARO and Mr. Ogilvie  
[211] ARO and Mr. Ogilvie have also changed their position regarding the nature of the  
amount owed to the Polards under the Earnout Agreement.  
[212] On November 21, 2012, by their Letter of Intent, the parties agreed to a purchase price  
of $8 million190F[191]. The accountants of ARO (BDO) then conducted a due diligence  
examination of ARC’s financials and its operations191F[192]. ARO’s purchase price of  
$
8 million was maintained but, upon Mr. Ogilvie’s request, the structure of the payment of the  
purchase price was changed. On February 21, 2013, the parties agreed that ARO, as part of the  
overall sale transaction, would pay Maurice an amount of $500,000 by way of a consulting  
agreement192F[193] to be signed at the time of closing of the transaction. On February 21,  
2
$
013, the declared purchase price of $8 million for ARC was reduced accordingly to  
7.5 million. Mr. Ogilvie’s letter of February 21, 2013 to Maurice regarding the revised sale price  
specifies that the “purchase price” is $7.5 million. The letter states the terms of payment of the  
purchase price”: On closing, ARO would pay $6 million; the remainder of the purchase price,  
“
namely the balance of sale of $1,500,000, would be payable according to the terms of an  
earnout agreement193F[194].  
[213] Initially, the parties agreed to a “reverse earnout” mechanism regarding the balance of  
sale of $1,500,000194F[195]. Under a reverse earnout, the buyer pays the seller immediately at  
closing the entire purchase price. To the extent that the agreed performance targets are not met,  
the seller must return to the buyer the overpayment of the purchase price195F[196].  
[214] Later, the parties agreed to use a more classic earnout mechanism: to the extent that,  
after the sale, the Performance Targets were achieved, ARO would pay the earnout amount to  
the Polards. According to the evidence, such a method is often used in the practice of mergers  
and acquisition of a business in order to pay a balance of sale196F[197].  
[215] At closing, ARO paid the Polards the amount of $6 million. The SAPA specified that the  
remaining purchase price was to be paid by way of an “earnout holdback agreement”197F[198].  
[
216] The Earnout Agreement clearly specifies that “a portion of the Purchase Price” “being  
the sum of $1,500,000” “is to be paid” pursuant to the Earnout Agreement and that the  
1,500,000 is “to be reduced to the extent Performance Targets are not achieved” “at the  
expiration of the Performance Period”, namely 12 months after the transaction198F[199]:  
$
“WHEREAS pursuant to Section 2.3.1.1 of the Share and Asset Purchase Agreement, a portion  
of the Purchase Price of the Holdco Shares, being the sum of $1,500,000, is to be paid  
to the Shareholders pursuant to the provision of this [Earnout] Agreement and the  
Earnout Note, such amount payable to be reduced to the extent certain Performance  
Targets are not achieved by the Operations as of the expiration of the Performance Period,  
all as set forth herein.”  
[
[
Emphasis added.]  
217] ARO’s 2014 and 2015 Financial Statements were prepared by the same accounting firm  
as the one which represented ARO in the sale transaction with the Polards, namely BDO. ARO’s  
014 and 2015 Financial Statements clearly refer to the amount owed under the Earnout  
2
Agreement as being a “conditional balance of sale”199F[200]:  
[…] a conditional balance of sale of $1,500,000, bearing interest at 5% and payable in  
“
three equal annual payments from the date of issuance of the August 31, 2014 financial  
statements. According to the agreement, the contingent consideration is subject to certain  
adjustment clauses based on the financial and non-financial performance of the acquired  
business. The fair value of the contingent consideration was calculated at  
$
1,500,000 by discounting the present value of future cash flows over a three year period at a  
rate of 5%.”  
[
[
Emphasis added.]  
218] The 2014 and 2015 Financial Statements were personally approved and signed by  
Mr. Ogilvie. However, ARO later contradicted and denied that position. In September 2015, in  
its reply to the arbitration proceeding, ARO changed its interpretation of the Earnout  
Agreement. ARO denied that it was a mechanism to pay the balance of sale for a maximum  
agreed amount of $1,500,000. ARO alleged instead that200F[201]:  
“63. This is not a balance of sale. It is an Earnout;  
[…]  
8
0. The sellers believe wrongly that it is a balance of sale; it is an Earnout and not a balance of  
sale;”  
[219] In its defence to the present proceedings, ARO and Mr. Ogilvie continued to deny that  
the Earnout Agreement was a mechanism to pay the balance of sale of the  
transaction201F[202]. At trial, ARO and Mr. Ogilvie’s attorney continued to deny that the  
Earnout Agreement was a mechanism to pay the agreed balance of sale202F[203].  
[220] According to Mr. Michelin, ARO’s 2014 and 2015 Financial Statements contradict  
ARO’s new interpretation that ARO’s non-compliance with the Schedule B Financial Ratios  
extinguished in part or in whole ARO’s obligation to pay the Adjusted Earnout Amount.  
Mr. Michelin stated that if ARO’s non-compliance with the Schedule B Financial Ratios on  
August 31, 2014 extinguished its liability to pay the first instalment of the Adjusted Earnout  
Amount, it would have been logical and in accordance with accounting standards for ARO to at  
least reduce the declared liability by $500,000 in 2014 and a further $500,000 in  
2
015203F[204].  
[221] Ms. Gaudreault stated that according to the relevant accounting standards, ARO was  
required to maintain this liability on its books until the Polards’ claim had been settled.  
[222] As previously stated, it is not necessary for the Court to adjudicate on this accounting  
standard issue in order to decide whether ARO’s 2014 and 2015 Financial Statements are  
inconsistent with ARO’s present interpretation regarding the effect of its non-compliance with  
the Schedule B Financial Ratios and whether they demonstrate an evolution of ARO and  
Mr. Ogilvie’s position.  
[223] Mr. Michelin is correct in stating that if in 2014 and 2015 ARO and Mr. Ogilvie truly  
believed that ARO’s non-compliance with the Schedule B Financial Ratios resulted in the  
extinguishment each time of one third of the Adjusted Earnout Amount, such material and  
significant financial events are not reflected in ARO’s 2014 and 2015 Financial Statements.  
Mr. Ogilvie testified that, at the time of the preparation of ARO 2014 and 2015 Financial  
Statements, he was fully aware that the Schedule B Financial Ratios were not respected. He also  
testified that the references in the 2014 and 2015 Financial Statements which refer to liability  
for the full amount of $1,500,000 as opposed to a reduced amount were detrimental to ARO  
with respect to its clients and lenders. Therefore, it is clear that if ARO’s position was, at the  
time, that such liability was in fact less or even potentially less, there would definitely have been  
a reference in that regard in ARO’s 2014 and 2015 Financial Statements, to the extent allowed  
by the relevant accounting standards. ARO’s 2014 and 2015 Financial Statements contain no  
reference to a possibility of reduced liability of ARO for the full amount of $1,500,000.  
[224] Ms. Gaudreault states that no qualified reference to a reduced amount payable or owing  
was possible. However, that cannot be true. It was completely possible to add comments to  
these financial statements to present ARO’s position that it was of the view that the first and  
second instalments of the Adjusted Earnout Amount were not due as a result of ARO’s non-  
compliance with the Schedule B Financial Ratios on August 31, 2014 and August 31, 2015. The  
proof is that that was in fact done in ARO’s subsequent financial statements, including those of  
2
016, 2017 and 2018. ARO’s Financial Statements for those years specifically include language  
which indicates that ARO is not liable for the full amount of the $1,5 million Earnout Amount  
liability. ARO’s 2016 Financial Statements read as follows204F[205]:  
“The contingent consideration must be repaid in three equal annual installments from the date  
of final determination of this contingent consideration either from mutual agreement or  
following the arbitration process. The payment of each of the annual payments is  
conditional upon the achievement of certain financial ratios for years referred to  
in the agreement as August 31, 2014 and the two subsequent years. When one  
third of the amount estimated by management is considered in the financial ratio  
calculations, the financial ratios are not met in any of the years referred in the  
agreement.”  
[
[
Emphasis added.]  
225] ARO’s 2017 and 2018 Financial Statements went further and read as follows205F[206]:  
“According to the purchase agreement, the contingent consideration must be repaid in three  
equal annual installments from the date of final determination of this contingent consideration  
following the arbitration process. The payment of each of the annual payments is  
conditional upon the achievement of certain financial ratios for years referred to  
in the agreement as August 31, 2014 and the two subsequent years. When one  
third of the amount, determined by the arbitration process, is considered in the  
financial ratio calculations, the financial ratios are not met in any of the years  
referred in the agreement. The determination of the amount and not the decision of the  
final payment was the subject of the arbitration. The decision of the final payment has not been  
concluded and the Company claims no amounts are due to the Vendor under the  
contingent consideration.”  
[Emphasis added.]  
[226] Mr. Michelin is therefore correct. The behaviour and conduct of ARO and Mr. Ogilvie,  
as appears in the 2014 and 2015 Financial Statements with regard to an otherwise unqualified  
contingent liability for the full amount of the Adjusted Earnout Amount, is incompatible with  
ARO’s proposed interpretation presented to the Court at trial. Instead, ARO’s 2014 and 2015  
Financial Statements descriptions of liability with regard to the Adjusted Earnout Amount  
confirm the Polards’ interpretation that the agreed legal effect of ARO’s non-compliance with  
the Schedule B Financial Ratios was only to defer the exigibility of ARO’s obligation to make  
payment of the instalments of the Adjusted Earnout Amount.  
[227] ARO’s 2016, 2017 and 2018 Financial Statements demonstrate a similar evolution of  
ARO’s interpretation regarding the description of ARO’s liability for the balance of sale owed to  
the Polards. The 2014 and 2015 Financial Statements refer to a “conditional balance of sale”.  
The 2016, 2017 and 2018 Financial Statements remove those terms and substitute “contingent  
consideration”.  
[228] Therefore, ARO and Mr. Ogilvie’s interpretations with respect to the nature of the  
Adjusted Earnout Amount as a balance of sale as well as the effect of ARO’s non-compliance  
with the Schedule B Financial Ratios have evolved over time. ARO and Mr. Ogilvie now attempt  
to modify the original understanding of the parties at the time of the transaction regarding the  
interpretation of the Sentence in Issue.  
[229] In his report, Mr. Michelin wrote:  
“The Earnout Amount was subject to two conditions, as follows:  
•
The Earnout Amount could be adjusted if certain performance goals [targets] were not  
met (as per Sections 2 and 3 of the Earnout Agreement, Exhibit P-8). Pursuant to the arbitral  
award, the Earnout Amount was reduced to $1,345,689.  
•
The timing of the payment of the Earnout Amount was conditional on ARO being in  
compliance with the financial ratios. Failure to comply with the financial ratios would result in a  
delay in payment.206F[207]  
[…]  
It is clear from the above analysis that the Earnout Amount is a liability of ARO.  
Notwithstanding that the liability is called the Earnout amount, its economic substance is that  
of a balance of sale, which was required to bridge the financial gap. The fact that the Earnout  
Amount was reduced pursuant to the arbitral award to $1,345,689 does not change its nature. It  
remains a liability of ARO.207F[208]”  
[230] The Court is of the view that the evidence supports Mr. Michelin’s above points. The  
overwhelming evidence shows that the Earnout Agreement created a mechanism to pay the  
agreed balance of sale owing to the Polards, corresponding to an estimated fair market value of  
$
1,500,000, to the extent that the Performance Targets were met. The Arbitration Decision  
determined that the balance of sale owing to the Polards was $1,345,689.  
4.4.2.5 Credibility of Mr. Ogilvie  
[231] The Court’s assessment of Mr. Ogilvie’s credibility is unfavourable. With respect, in the  
Court’s view, Mr. Ogilvie has a selective relationship with the truth. He has regularly changed  
ARO’s position, as well as his own position, regarding the major elements of the transaction,  
including the purchase price, the balance of price, the conditions of payment of the three annual  
instalments of the Adjusted Earnout Amount and ARO’s obligation of payment of the Adjusted  
Earnout Amount.  
[232] Two other elements of evidence support the Court’s unfavourable conclusion regarding  
Mr. Ogilvie’s credibility and his relationship with the truth.  
[233] First, the Polards called Greg Carter as a witness. Mr. Carter appeared as a result of a  
subpoena issued by the Court and served upon him. Mr. Carter is a former senior executive of  
ARO and worked closely with Mr. Ogilvie for many years. Mr. Carter was employed by ARO for  
some 23 years (1997 to 2020). He held senior management positions at ARO, including Senior  
Chief Operating Officer, Vice President and President. Mr. Carter testified that during those  
years he observed that Mr. Ogilvie regularly violated agreements with employees. When  
employees were entitled to certain bonuses under their employment contract, Mr. Ogilvie would  
instruct Mr. Carter not to pay the bonus. Such instructions often resulted in frustrated  
employees, resignations and lawsuits. According to Mr. Carter, the lawsuits were contested by  
ARO even if there was no reason to do so and even if a bonus should have been given to the  
employee. In one Court case involving a former employee’s lawsuit against ARO, Mr. Carter was  
called as a witness. ARO lost the lawsuit. Mr. Ogilvie reproached Mr. Carter for not embellishing  
the truth as a witness in Court in favour of ARO.  
[234] ARO’s attorney argued that the Court should not believe Mr. Carter’s testimony on the  
basis that he is a disgruntled former employee. The Court does not agree. The Court’s  
assessment is that Mr. Carter strove to present the facts of which he had personal knowledge in  
a truthful and balanced manner. Mr. Carter stated that he is serene and holds no ill will towards  
Mr. Ogilvie.  
[235] Second, the Polards’ attorney refers the Court to a judgment of the Superior Court of  
Quebec (Honourable Justice Danielle Mayrand, J.S.C.) in an employment matter. In that  
judgment, the Court made the following comments pertaining to Mr. Ogilvie, and in particular,  
his lack of credibility and his predilection to change the facts in order to suit his  
arguments208F[209]:  
«
[44] La preuve en demande est déficiente, les témoins principaux, Nadine Tawill et  
Michael Ogilvie ne sont pas crédibles, si bien que le procureur d’Aro, en plaidoirie,  
demande d’escamoter la preuve testimoniale et de ne tenir compte que de la  
preuve documentaire.  
[45] Quant à Michael Ogilvie, sa connaissance des faits, au moment des  
événements, est vague, imprécise et comprend des contradictions. Il dira, dans un  
premier temps, avoir écouté les enregistrements téléphoniques après la  
transaction avec BNC, pour ensuite tenter de corriger le tir et ne pas se rappeler  
quand ni comment.  
[46] Il minimise la faille informatique, décelée par Jocelyn Gagnon, qui permet aux agents  
d’envoyer des télécopies à l’externe parce que, quoi qu’il en soit, ils auraient pu utiliser des  
télécopieurs sur le plancher. La preuve révèle le contraire. Ces appareils ne sont accessibles  
qu’à des superviseurs ou à d’autres cadres munis chacun d’un code d’accès. Son témoignage  
est, somme toute, une plaidoirie et n’a aucune valeur. »  
[Emphasis added.]  
4.4.2.6 Mr. Ogilvie’s Unfounded Motivation to Revise the Interpretation of the  
Sentence in Issue  
[236] Mr. Ogilvie explained to the Court that after the transaction, he was dissatisfied with  
the financial benefits derived by ARO from the acquisition of ARC’s operations. He did also  
express the view that there were certain good results for ARO regarding the acquisition of  
certain clients. In particular, it is beneficial for ARO to now be able to carry on business in the  
United States since ARC had obtained the various licenses to do so.  
[237] Mr. Ogilvie expressed frustration that various computer, accounting and telephone  
systems of ARC did not easily integrate into those of ARO. As mentioned, that statement is  
contradicted by one of his own e-mails209F[210]. Mr. Ogilvie also stated that various provincial  
licenses in Canada issued to ARC were not easily transferable to ARO. Mr. Ogilvie states that  
both of these issues caused delays and costs to ARO.  
[238] In the judicial proceedings, there is no suggestion or allegation of any  
misrepresentation on the part of the Polards on any issue. Furthermore, assuming that these  
issues are real, it was the responsibility of ARO or its professionals to verify what it intended on  
purchasing before the sale.  
[239] ARO purchased ARC’s operations. As with any sale transaction, ARO (and Mr. Ogilvie)  
as buyer, stood to benefit exclusively from the profits potentially resulting from the acquisition  
of ARC. The seller (here the Polards) would not be able to make a claim to participate or share  
in the profits of the buyer after the transaction.  
[240] Mr. Ogilvie, with the assistance of ARO’s accountants, created various forecasts (5 or 6)  
as to the potential financial benefits for ARO of the proposed acquisition of ARC. Mr. Ogilvie  
acknowledges that none of these was shared with the Polards. The only projection that was filed  
into the Court Record by ARO specified a significant reduction of personnel of the combined  
operations in order to attain certain levels of profitability210F[211]. No evidence was adduced  
that those elements were ever followed by ARO. The only risk allocated by the terms of the  
transaction to the Polards was that the amount of the balance of sale would be determined by  
the extent to which the Performance Targets were met. According to the Arbitration Decision,  
based upon the evidence regarding the Performance Targets, the Adjusted Earnout Amount  
owed to the Polards as a balance of sale is $1,345,689.  
4.4.2.7 Conclusion  
[241] The Court concludes that the testimony of the Polards is credible and that the testimony  
of Mr. Ogilvie is not with regard to the interpretation of the terms of the agreement, including  
those of the Sentence in Issue. The Court concludes that, according to the common intention of  
the parties, the legal effect of ARO’s non-compliance with the Schedule B Financial Ratios was  
that the payments of the instalments of the Adjusted Earnout Amount were deferred for a  
maximum of 3 years, subject to interest being paid on that amount from the date of closing of  
the transaction.  
4
.4.3 The Circumstances in which the Contract was Formed (Art.  
1
426 C.C.Q.)  
“1426. In interpreting a contract, the nature of the contract, the circumstances in which it was  
formed, the interpretation which has already been given to it by the parties or  
which it may have received, and usage, are all taken into account.”  
[
[
Emphasis added.]  
243] ARO’s current interpretation of the Sentence in Issue is contrary to the one given by  
ARO for a period of two years (October 13, 2013 – September 22, 2015) after the conclusion of  
the transaction. On September 22, 2015, ARO change its position, in order to avoid payment of  
the Adjusted Earnout Amount.  
[244] As stated in Article 1426 C.C.Q., the Court should take into account the interpretation  
that a contract or a provision has already received or been given by the parties. That is therefore  
another reason to favour the interpretation proposed by the Polards.  
[245] Furthermore, the evidence is also uncontradicted that the parties never negotiated the  
Schedule B Financial Ratios. The Polards testified to that effect. In his examination out of Court,  
Mr. Ogilvie confirmed it as well211F[212]:  
“Q  
[…] Quand est-ce que les ratios, « Schedule B », stipulés dans la clause 4 du « Earnout  
Agreement » ont été introduits dans les négociations entre vous et les demandeurs?  
R
Ah! Ça n’a jamais été entendu entre moi et les demandeurs. Je n’ai jamais  
discuté des ratios avec les Polard, moi. Les ratios ont seulement été introduits dans les offres  
écrites qui ont été soumises aux avocats et comptables de Polard. Moi, je n’ai jamais discuté  
de ratios avec Maurice, Lionel ou Joe Polard, jamais.”  
[Emphasis added.]  
[246] That is diametrically opposed to what occurred regarding the Performance Targets. All  
parties agree that the Performance Targets were the result of protracted negotiations involving  
multiple persons from the negotiation teams of ARO and of the Polards.  
[247] If the parties had intended that ARO’s non-compliance with the Schedule B Financial  
Ratios could extinguish ARO’s obligation to pay the annual instalments of the Adjusted Earnout  
Amount, they certainly would have been subject to negotiations and discussions of the parties.  
[248] That is especially the case in light of the evidence, including that of Mr. Michelin that  
the financial ratios of a company are highly subject to potential manipulation on the part of the  
management of a company212F[213]. Joe stated in his testimony that he was aware at the time  
of the transaction that the financial ratios are subject to potential manipulation. In fact, he  
mentioned that in his response to the Sentence in Issue on the basis that a deferral of payment  
of the three annual instalments could be affected by potential manipulation by ARO of its  
financials (such as dividends and loans) after the sale213F[214]. It is precisely because the only  
agreed effect of ARO’s non-compliance with the Schedule B Financial Ratios was to temporarily  
defer payment of the annual instalments of the Adjusted Earnout Amount, and that the Polards  
would be compensated during such deferral period by the payment of interest on the full  
Adjusted Earnout Amount from the time of closing, that the Polards accepted that limited effect.  
[249] ARO presented to the Polards that the Schedule B Financial Ratios were simply a  
requirement of its lender IQ and that the only effect of ARO’s non-compliance would be to defer  
payment of the three annual instalments of the Adjusted Earnout Amount for a maximum of  
three years. Such deferral of exigibility would not affect ARO’s obligation to pay the Polards the  
full amount of the Adjusted Earnout Amount and the interest on it until payment thereof was  
made in full. This is in accord with Mr. Ogilvie’s own testimony during his out of Court  
examination214F[215]:  
“
[…] Les ratios n’ont rien à voir avec Michael Ogilvie, avec Aro ou avec ARC. Les  
ratios sont une condition de financement du prêteur. Ça n’a rien à voir avec le  
earnout », ça n’a rien à voir avec le contrat d’achat, ça n’a rien à voir avec la  
«
valeur de l’entreprise. La seule, seule chose que les ratios font, c’est les termes et  
les conditions d’un financement.”  
[Emphasis added.]  
[250] Other evidence confirms that the parties never intended that the effect of ARO’s non-  
compliance with the Schedule B Financial Ratios could extinguish liability for payment of the  
annual instalments of the Adjusted Earnout Amount. When ARO’s attorney forwarded the draft  
of the Earnout Agreement to the Polards’ attorney, Schedule B did not contain any text. It was  
blank. ARO’s attorney did not indicate that the Schedule B Financial Ratios would later be the  
subject of discussions. Instead, he wrote only that “the information required to complete”  
Schedule “B” “will need to be added when finalised.”215F[216]  
[251] When the SAPA was signed by the parties on August 13, 2013, the Schedule B Financial  
Ratios had not even been sent to the Polards or their attorney, in draft or in any other form,  
even though ARO already had in its possession versions of what IQ was requesting216F[217].  
The actual loan documents between ARO and IQ were only sent to the Polards through the  
arbitration process between 2015 and 2017217F[218], well after the conclusion of the  
transaction. At the end of the transaction process, when the Schedule B Financial Ratios were  
finally sent to the Polards simply “to be added” as a schedule of the Earnout Agreement, there  
were no discussions between the parties and it was simply confirmed that the completed  
Schedule B be added for purposes of finalization of the Earnout Agreement before  
signature218F[219].  
[252] Therefore, in accordance with Article 1426 C.C.Q., the interpretation previously given to  
the agreement by the parties and the circumstances in which it was formed confirm the  
interpretation of the Sentence in Issue proposed by the Polards.  
4
.4.4 The Court is to Read the Contract as a Whole (Articles 1427 and  
1
428 C.C.Q.)  
“1427. Each clause of a contract is interpreted in light of the others so that each is given the  
meaning derived from the contract as a whole.  
1
428. A clause is given a meaning that gives it some effect rather than one that gives it no  
effect.”  
[254] ARO and Mr. Ogilvie request that the Court apply a discrete and isolated sentence (the  
Sentence in Issue) in Section 4 of the Earnout Agreement and not consider the other clauses or  
sections of the transaction, be it those contained notably in the SAPA or in the Earnout  
Agreement. Articles 1427 and 1428 C.C.Q. instruct the Court to do otherwise.  
[255] ARO and Mr. Ogilvie suggest that the Sentence in Issue states that the obligation to pay  
the annual instalments of the Adjusted Earnout Amount is predicated on ARO’s respect of the  
Schedule B Financial Ratios. However, that interpretation is in conflict with other terms of the  
Earnout Agreement which do not refer to the Schedule B Financial Ratios as being relevant to  
ARO’s obligation to pay the Adjusted Earnout Amount. The Earnout Agreement stipulates:  
“WHEREAS pursuant to Section 2.3.1.1 of the Share and Asset Purchase Agreement, a portion  
of the Purchase Price of the Holdco Shares, being the sum of $1,500,000, is to be paid to  
the Shareholders pursuant to the provisions of this Agreement and the Earnout Note, such  
amount payable to be reduced to the extent certain Performance Targets are not  
achieved by the Operations as of the expiration of the Performance Period, all as set  
forth herein”  
[
[
Emphasis added.]  
256] The above paragraph states that $1,500,000 is to be paid to the Polards as a “portion of  
the purchase price” and can only be “reduced to the extent certain Performance Targets are  
not achieved by the Operations as of the expiration of the Performance Period”. According to  
the transaction, “Operations” means only the acquired business operations of ARC. Operations  
are defined as follows219F[220]:  
“
“Operations” means the Business, as a going concern, substantially as carried on immediately  
prior to Closing.”  
[257] The term “Business” is defined as follows220F[221]:  
“
“Business” means the business of ARC, ARC Nevada and ARC USA, being:  
1
.1.17.1 accounts receivable management and recovery, including (i) third party collections on  
behalf of financial institutions, Governmental Bodies and Individuals and (ii) recovery services  
on client purchased and third party purchased portfolios of accounts receivable; and  
1
.1.17.1 recovery of delinquent accounts receivable using clients’ names, trace services and  
investigations, and first party outsource services.”  
[258] It is clear that the Performance Targets have nothing to do with ARO’s financial results  
after the transaction.  
[259] Furthermore, the above paragraph “Whereas” does not state that the obligation to pay  
the $1,500,000 can be reduced or extinguished by ARO’s non-compliance with any financial  
ratios (or specifically the Schedule B Financial Ratios). The “Whereas” paragraph also states  
that the evaluation of the Performance Targets terminates at the time of the “expiration of the  
Performance Period” being one year after closing. The Performance Period is defined as  
follows221F[222]:  
“(x) “Performance Period” means the twelve (12) month period beginning on  
the  
Closing Date and terminating twelve (12) months thereafter.”  
[260] The Performance Targets are defined222F[223] at Section 2 of the Earnout Agreement  
as follows223F[224]:  
“(i) the number of Additional Staff who remain employees of ARO at the expiration of the  
Performance Period;  
(ii) a statement as to whether Additional Staff Retention Level 1, Additional Staff Retention  
Level 2 or Additional Staff Retention Level 3 was achieved;  
(iii) the number of Key Staff who have remained as employees of ARO throughout the  
Performance Period;  
(iv) a statement as to whether Key Staff Retention Level 1 or Key Staff Retention Level 2 was  
achieved;  
(
(
v) the calculation of Revenue From Clients for the Performance Period;  
vi) a statement as to whether Client Retention Level 1, Client Retention Level 2, Client  
Retention Level 3 or Client Retention Level 4 was achieved;  
(vii) the calculation of Revenue for the Performance Period; and  
(viii) a statement as to whether Tier 1 Revenue, Tier 2 Revenue or Tier 3 Revenue was  
achieved.”  
[
[
261] None of the Performance Targets pertain to the Schedule B Financial Ratios.  
262] Therefore, the criteria to consider for the determination of the Earnout Amount (and,  
after adjustment, the Adjusted Earnout Amount) are evaluated within 12 months of the  
transaction, namely on and before October 13, 2014. The Sentence in Issue regarding the  
Schedule B Financial Ratios refers to different dates, namely August 31, 2014, August 31, 2015  
and August 31, 2016. It is clear that the dates for the determination of ARO’s compliance with  
the Schedule B Financial Ratios are different and go well beyond the date for obtaining the  
relevant information to determine the Adjusted Earnout Amount.  
[263] The Earnout Amount is defined as follows224F[225]:  
“(p) “Earnout Amount” means, collectively, the Additional Staff Retention  
Earnout  
Amount, the Client Retention Earnout Amount, the Key Staff  
and the Revenue Goal Earnout Amount.”  
Retention Earnout Amount  
[264] The definition of the Earnout Amount in no way refers to the Schedule B Financial  
Ratios.  
[265] The first sentence of Section 4 of the Earnout Agreement reads as follows:  
The Earnout Amount, as adjusted pursuant to Section 3 of this Agreement (the “Adjusted  
Earnout Amount”), shall be paid and payable by ARO to the Seller Representative (on  
st  
behalf of the Shareholders) by way of three (3) equal annual payments, with the first (1 ) of  
th  
such annual payments to be made on the fifteenth (15 ) Business Day following the final  
determination of the Earnout Schedule (whether by mutual agreement of ARO and the Seller  
nd  
Representative or pursuant to Section 2(d) of this Agreement) and the second (2 ) and third  
rd st nd  
3 ) annual payments to be made on the first (1 ) and second (2 ) anniversary, respectively,  
st  
(
of such first (1 ) payment.”  
[
[
Emphasis added.]  
266] At the time of signing the Earnout Agreement on October 11, 2013, the parties had  
already agreed and stipulated in the SAPA on August 23, 2013 at paragraph 2.3.1 that ARO had  
to pay the Polards, as part of the Purchase price, an amount up to $1,500,000 by way of an  
“earnout holdback agreement” to be entitled “Earnout Agreement”225F[226]. As such, ARO’s  
obligation to pay the Polards the balance of sale predates the signing of the Earnout Agreement.  
The Earnout Agreement simply stipulates the modalities regarding the payment of that pre-  
existing obligation to pay the balance of sale.  
[
267] Section 4 of the Earnout Agreement crystalizes and confirms in clear terms ARO’s  
imperative obligation to pay (“shall be paid”) the Polards the Earnout Amount as adjusted  
“Adjusted Earnout Amount”). Section 4 contains no language by which that imperative  
obligation of ARO would be, in part or in whole, extinguished.  
(
[268] Section 4 also states that:  
“Interest shall be paid by ARO on the Adjusted Earnout Amount, as and from the Closing Date,  
until payment in full at a rate per annum equal to five percent (5%), calculated and paid in  
the manner set forth in Section 9.4 of the Share and Asset Purchase Agreement.”  
[Emphasis added.]  
[269] Interest is to be paid on the Adjusted Earnout Amount from the closing date until  
payment in full, irrespective of the date upon which the 3 annual instalments of the Adjusted  
Earnout Amount become exigible.  
[270] There is no reference that interest is to be paid on only a part of the Adjusted Earnout  
Amount. Such a clarification would have been expected and necessary if it was envisioned that  
one or more annual instalments of the Adjusted Earnout Amount would be extinguished upon  
ARO’s non-compliance with the Schedule B Financial Ratios. Instead, Section 4 specifies that  
interest is payable on the entirety of the “Adjusted Earnout Amount” “until payment in full”.  
[271] As we have seen, ARO’s obligation to pay the Polards part of the purchase price by way  
of the Earnout Agreement is stipulated at Section 2.3.1 of the SAPA which reads as follows:  
“Subject to the provisions hereof, the Purchase Price shall be payable as follows:  
2
.3.1.1 as concerns the Holdco Shares, (i) by the Buyer, following its amalgamation with ARO  
Inc. and ARC Holdco, paying to the Shareholders, on the Closing Date, by wire transfer or  
certified cheque, the sum of $2,376,991 and (ii) the delivery by the Buyer, following its  
amalgamation with ARO Inc. and ARC Holdco, to the Shareholders of a promissory note in the  
amount of $1,500,000 in the form of promissory note annexed hereto as Exhibit 2.3.1.1(a)  
(the “Earnout Note”), to be allocated and paid by the Buyer pursuant to the terms, and  
subject to the conditions, of an earnout holdback agreement by and among the  
Shareholders, Companies, Rod and the Buyer, in the form of the earnout holdback  
agreement annexed hereto as Exhibit 2.3.1.1(b) (the “Earnout Agreement”);”  
[
[
Emphasis added.]  
272] Although the document is entitled “Earnout Agreement”, Section 2.3.1.1 refers to an  
“earnout holdback agreement”. The choice of the word “holdback” favours the interpretation  
proposed by the Polards. It is in line with ARO’s letter of February 25, 2013226F[227] sent to  
ARC which details for the first time the terms of the proposed earnout agreement. That letter  
referred to a “reversed earnout”. We have seen that a “reversed earnout” refers to a formula  
under which the seller is paid at closing the entire purchase price, subject to refunding the buyer  
a part thereof if the agreed performance targets are not satisfied after the sale. The initial  
concept for the applicable earnout formula confirms that the Adjusted Earnout Amount  
represents a balance of sale price since it was actually envisioned to be paid as part of the price  
at the time of closing.  
[273] The equivalence of the Adjusted Earnout Amount to a balance of sale is also confirmed  
by the choice of the words “earnout holdback agreement”. The term “holdback” refers to an  
amount which belongs of right to the seller but is “held back” by the buyer (or sometimes a third  
party, such as an attorney or a notary) until a certain condition is satisfied. The Court refers to  
the following definitions of the word “holdback”:  
Encyclopedic Dictionary of Canadian Law227F[228]:  
A noun denoting a deduction from a payment that is being made. 1. An amount retained  
from a payment made under a contract, generally as a security for the proper  
performance of the work done or the materials supplied. […] Holdback Pay: Employee  
wages held by an employer. Holdback pay is released to the employee when certain conditions  
are met. Commonly used at the beginning of employment when payroll is being set up or as  
security for advances in pay.  
Standard College Dictionary: Canadian Edition228F[229]:  
That which restrains or holds something back; a check.  
Canadian Oxford Dictionary229F[230]:  
[
…] a thing held back, e.g. a fee, tax, etc.  
The Houghton Mifflin Canadian Dictionary of the English language230F[231]:  
…] To save for future use; keep apart or aside; retain.  
[
Burton’s Legal Thesaurus231F[232]:  
Kept in reserve, reservation, reserved rights, withheld, withholding.  
[Emphasis added.]  
[274] The use of the word “holdback” confirms that the maximum amount of $1,500,000 was  
agreed by ARO as owing to the Polards as a balance of sale, subject to the satisfaction of the  
agreed Performance Targets. The amount of $1,500,000 was provisionally “held back” by ARO  
and would be paid following the determination of the extent to which the Performance Targets  
were met over a period of 12 months after the closing. The amount determined, namely the  
“Adjusted Earnout Amount”, belonged to the Polards and was to be paid in three annual  
instalments.  
[275] Finally, as part of the transaction, ARC requested that the amounts due by ARO, but not  
paid at the time of closing, be the subject of a personal guarantee of Mr. Ogilvie232F[233].  
Mr. Ogilvie was initially disinclined to give a personal guarantee233F[234]. The Polards  
responded that it was a critical request and that if a personal guarantee was not given, the  
transaction would not close234F[235]. On or around June 25, 2013, Mr. Ogilvie relented and  
accepted to give a personal guarantee with respect to most amounts owed under the transaction  
that were not paid at the time of closing. In particular, Mr. Ogilvie agreed to give and did give a  
personal guarantee to the Polards with respect to amounts owed under the Earnout Agreement,  
Maurice’s Bonus Agreement and the Consulting Agreement.  
[276] In his expert testimony, Mr. Michelin explained that the only reason for a seller to  
obtain a personal guarantee of a shareholder in the context of a sale of a business is that, in the  
event of insolvency or insufficient liquidity on the part of the buyer (here ARO), the amount  
remaining owed after the transaction, in particular the balance of sale, be paid by such  
shareholder. The respect of the Schedule B Financial Ratios serve the interest of the lender and  
favour the solvency of the borrower in order that the latter make the loan payments to the  
lender.  
[
277] Mr. Gilles Fagnan, the Chief Financial Officer of ARO more than one and a half years  
after the transaction, explained to the Court that ARO had during his 4 years of employment  
2014-2019) serious issues with insolvency since the purchase of ARC was financed entirely by  
ARO taking on additional debt.  
(
[278] In the circumstances, it would not make any commercial sense for Mr. Ogilvie’s  
personal guarantee to apply only if ARO complied with the Schedule B Financial Ratios. If the  
Schedule B Financial Ratios were respected, ARO would be in a solid financial position and  
would be able to pay the instalments of the Adjusted Earnout Amount. If on the other hand,  
ARO had a financial liquidity problem and consequently was not in compliance with the  
Schedule B Financial Ratios, it is precisely in those circumstances that there is a purpose and  
value for the Polards to have Mr. Ogilvie’s personal guarantee, notably for payment of the  
Adjusted Earnout Amount, with interest, after a three year deferral period for the payment of  
the annual instalments.  
[279] Under ARO and Mr. Ogilvie’s proposed interpretation, the effect of ARO’s  
non-compliance with the Schedule B Financial Ratios is the extinguishment of the obligation to  
pay the three annual instalments of the Adjusted Earnout Amount. That would mean that  
Mr. Ogilvie’s personal guarantee with respect to amounts owing under the Earnout Agreement  
would be without value or purpose and would not protect the Polards in the event of non-  
payment of the Adjusted Earnout Amount and liquidity problems or insolvency of ARO. As  
Mr. Michelin explained, such an interpretation is contrary to any commercial or economic  
sense, and does not conform to standard practice and usage for transactions concerning the sale  
of a business.  
[
280] According to Article 1427 C.C.Q., the Court should interpret the various clauses in a  
contract so that each is given the meaning derived from the contract as a whole. Article  
428 C.C.Q. instructs the Court to favour an interpretation of the various clauses of the contract  
so that a clause has some effect rather than none.  
1
[281] When Mr. Ogilvie called Maurice to tell him that he agreed to give him a personal  
guarantee for amounts not paid at closing, he assured Maurice that the latter should as a result  
feel very secure as to payment of the amounts to be paid only after the transaction, including  
those under the Earnout Agreement. Mr. Ogilvie told Maurice “You’re seeing my blood there so  
that for me proves a lot to you”. Mr. Ogilvie stated235F[236]:  
“Alright Maurice listen I got the communications through the lawyers and everything you  
wanted guarantees. I have absolutely no issues with that so let me just say I will be providing  
you a personal guarantee.  
[…]  
I’m doing it on a personal level Maurice because I want to prove to you that I am very very  
confident and very motivated and very confident of what we are going to be building so that you  
are very secure and feel that I am personally getting myself involved and not getting  
away from any guarantees that you would want. You’re seeing my blood there so that for  
me proves a lot to you.  
[…]  
I want to prove to you that I believe in that deal and I am very confident in that deal so I am  
going to put a personal guarantee there and you will find out that there is more  
than enough to secure yourself…”  
[
[
Emphasis added.]  
282] ARO and Mr. Ogilvie’s proposed interpretation of the effect of ARO’s non-compliance  
with the Schedule B Financial Ratios is irreconcilable with the existence of the personal  
guarantee given by Mr. Ogilvie to ensure that the payment of the full amount of the Adjusted  
Earnout Amount and the amount owing under Maurice’s Bonus Agreement, in the event that  
ARO had financial liquidity problems after the sale. ARO and Mr. Ogilvie’s proposed  
interpretation is also irreconcilable with the personal assurances that Mr. Ogilvie gave to  
Maurice regarding the effectiveness and purpose of the personal guarantee that he was giving.  
According to ARO and Mr. Ogilvie’s interpretation, contrary to his previous representations to  
Maurice, Mr. Ogilvie has no personal stake in the non-payment of the Adjusted Earnout  
Amount or a part of the amount owing under the Bonus Agreement as ARO was non-compliant  
with the Schedule B Financial Ratios on the dates mentioned in the Sentence in Issue. Instead,  
as a result of ARO’s non-compliance, Mr. Ogilvie’s personal guarantee is without effect, purpose  
or value.  
[283] All these clauses and terms of the transaction, when read together so as to give meaning  
derived from the contract as a whole in accordance with Article 1427 C.C.Q., support the  
Polards’ interpretation that the agreed legal effect of ARO’s non-compliance with the Schedule B  
Financial Ratios was only to defer the exigibility of ARO’s obligation to pay the annual  
instalments of the Adjusted Earnout Amount and not to extinguish them. The interpretation  
proposed by ARO and Mr. Ogilvie of the Sentence in Issue would prevent those other clauses  
and terms from having any effect, contrary to Article 1428 C.C.Q. That is another reason for the  
Court to favour the interpretation proposed by the Polards of the Sentence in Issue.  
4
.4.5 Words Susceptible of Two Meanings Receive the Meaning that  
Best Conforms to the Subject Matter of the Contract (Article  
429 C.C.Q.)  
1
“1429. Words susceptible of two meanings shall be given the meaning that best conforms to the  
subject matter of the contract.”  
[285] The parties disagree as to the meaning of the word “Payment” in the Sentence in Issue  
which reads as follows:  
“Payment of each of the annual payments is conditional upon ARO’s compliance, in all  
material respects, with the financial ratios set out in Schedule “B” attached hereto, such  
compliance to be determined based on the audited financial statements of ARO for its fiscal  
period ending August 31, 2014, August 31, 2015 or August 31, 2016, as applicable.”  
[Emphasis added.]  
[286] ARO and Mr. Ogilvie suggest to the Court that “payment” in the sentence means ARO’s  
obligation of payment236F[237]. They propose that ARO’s non-compliance with the Schedule B  
Financial Ratios has the effect of extinguishing the existence of the obligation to pay the annual  
instalments of the Adjusted Earnout Amount.  
[287] The Polards state that the word “payment” instead refers to the “act of payment”. They  
submit that ARO’s non-compliance with the Schedule B Financial Ratios simply defers the  
exigibility of the act of payment of the three instalments of the Adjusted Earnout Amount but  
that the actual obligation to pay the instalments or in total the Adjusted Earnout Amount is  
unaffected. For that reason, interest on the Adjusted Earnout Amount continues to run from the  
date of closing until payment in full.  
[288] ARO and Mr. Ogilvie do not provide reference or dictionary sources to support their  
interpretation of the word “payment”. Most dictionary sources support the Polards’s  
interpretation that the word “payment” means an “act of payment”. The Court refers to the  
following sources:  
Britannica Dictionary:  
the act of giving money for something: the act of paying237F[238].  
Oxford Advanced American Dictionary:  
the act of paying someone or something or of being paid238F[239].  
Collins English Dictionary:  
A payment is an amount of money that is paid to someone, or the act of paying this  
money239F[240].  
Cambridge English Dictionary:  
an amount of money paid, or the act of paying240F[241].  
HARRAP’S:  
Sum paid, act of paying241F[242].  
Macmillan Dictionary242F[243]:  
2
. the process of paying money.  
Webster’s Ninth New Collegiate Dictionary243F[244]:  
: the act of paying.  
1
A New English Dictionary on Historical Principles244F[245]:  
The action, or an act, of paying, the remuneration of a person with money or its equivalent;  
the giving of money, etc. in return for something or in discharge of a debt.  
[Emphasis added.]  
“1553. Payment means not only the turning over of a sum of money in satisfaction of an  
obligation, but also the actual performance of whatever forms the object of the  
obligation.”  
[Emphasis added.]  
[290] The Court concludes that the majority of the dictionary sources support the Polards’  
interpretation of the word “payment” as referring to an “act of payment”. To the extent that the  
word “payment” may also refer to the obligation of payment, such use is in the minority, and  
restricted to specific contexts.  
[291] As such, the meaning of the word “payment” supports the Polards’ interpretation that  
the effect of ARO’s non-compliance with the Schedule B Financial Ratios was only to defer  
payment and not to extinguish ARO’s obligation to pay the annual instalments of the Adjusted  
Earnout Amount.  
[292] To the extent that the word “payment” could also refer to the obligation of payment,  
Article 1429 C.C.Q. instructs the Court to give the word the meaning that best conforms to the  
subject matter of the contract. In light of the Court’s previous findings, in particular that the  
Adjusted Earnout Amount is a balance of sale, based upon the agreed price of $8 million  
($500,000 for Consulting Service Agreement with Maurice; $7,500,000 for value of ARC’s  
operations) and that the agreed maximum amount of the balance of sale was $1,500,000  
conditional upon the extent to which the Performance Targets were satisfied within one (1) year  
of the closing, the meaning of “act of payment” best conforms to the subject matter of the  
contract for the word “payment” in the Sentence in Issue. As such, the legal effect of ARO’s  
non-compliance with the Schedule B Financial Ratios was only to defer the exigibility or the act  
of paying by ARO of the annual instalments of the Adjusted Earnout Amount.  
4
.4.6 Usage (Article 1426 C.C.Q.)  
“1426. In interpreting a contract, the nature of the contract, the circumstances in which it was  
formed, the interpretation which has already been given to it by the parties or which it may have  
received, and usage, are all taken into account.”  
[
[
Emphasis added.]  
294] According to Mr. Michelin, over the course of his 35 year career as a Professional  
Chartered Accountant and his many years as a Transaction Advisor, he has never seen a clause  
in a contract of sale of a business by which a conditional balance of sale, subject to an earnout  
mechanism, is extinguished as a result of the buyer not being in compliance with financial ratios  
after the transaction. In his report, Mr. Michelin wrote245F[246]:  
“[…]  
Lastly, in our experience as financial advisors in a great number of transactions  
across a wide range of industries, we have never experienced a situation where  
failure to comply with financial ratios of the kind included in the Earnout  
Agreement would result in the liability being extinguished.”  
[
[
Emphasis added.]  
295] Ms. Gaudreault, CPA, was given many opportunities to deny or qualify that statement.  
Her second report was prepared and filed in reply to Mr. Michelin’s report. Ms. Gaudreault  
testified after Mr. Michelin and never countered his numerous statements to that effect.  
[296] The Court considers that the Polards have established relevant standard practice and  
usage in that regard. Although each commercial transaction between parties may contain  
unique features, the Civil Code of Quebec instructs the Court in interpreting ambiguous  
contractual documents to take into account relevant usage. Mr. Michelin’s uncontested  
testimony that ARO’s interpretation of the Sentence in Issue is unheard of in practice and  
contrary to established usage supports the Polards’ interpretation that the intended and agreed  
effect of ARO’s non-compliance with the Schedule B Financial Ratios was only to defer ARO’s  
obligation to pay the instalments of the Adjusted Earnout Amount for a maximum period of  
three (3) years.  
4
.4.7 ARO and Mr. Ogilvie’s Various Other Grounds of Defence  
4.4.7.1 Partial Prescription  
[297] ARO submits that if the Polards are correct in their interpretation of the Sentence in  
Issue, their action is partially prescribed with respect to the first instalment of the Adjusted  
Earnout Amount. ARO bases this argument on the allegation that its attorney informed the  
Polards by letter dated February 2, 2015246F[247], that the first instalment of the Adjusted  
Earnout Amount “would never be payable”247F[248]. ARO argues that the usual 3 year  
prescription (Article 2925 C.C.Q.) ran from that date248F[249]. Since the Polards filed their  
legal proceeding on June 1, 2018, ARO submits that the Polards’ claim for the first instalment  
was prescribed on February 2, 2018.  
[298] This ground of contestation is unfounded in fact and in law.  
[299] First, ARO’s attorney’s letter of February 2, 2015 does not state that the first instalment  
of the Adjusted Earnout Amount “would never be payable”. It only states that the instalment  
was not “payable” because of ARO’s non-compliance with the Schedule B Financial Ratios.  
Therefore, that letter is in accord with the Polards’ interpretation that the first instalment  
continued to be owed by ARO and that payment was simply deferred as a result of ARO’s non-  
compliance with the Schedule B Financial Ratios on August 31, 2014.  
[300] Second, it was not even possible for the Polards to institute legal proceedings on  
February 2, 2015 since the first instalment was not yet exigible. The exigibility was deferred as a  
result of ARO’s non-compliance with the Schedule B Financial Ratios on August 31, 2014. The  
Polards’ position is that the maximum deferral period was for 3 years on the condition that ARO  
was non-compliant with the Schedule B Financial Ratios on August 31, 2014, August 31, 2015  
and August 31, 2016. Three years before the Polards filed legal proceedings is June 1, 2015. As a  
result of the deferral, it is clear that the first instalment of the Adjusted Earnout Amount was  
not exigible until well after that date. That means that the Polards’ cause of action had not yet  
been born (Article 2880(2) C.C.Q.) on June 1, 2015 and the three-year prescription period had  
not yet begun to run on February 2, 2015249F[250].  
[
301] Third, on June 1, 2015, the exact amount of the first instalment was not known since the  
Adjusted Earnout Amount was not yet determined. That occurred only on March 17,  
017250F[251]. The knowledge of that amount was an essential element for the Polards’ cause  
of action to be born in accordance with Article 2880(2) C.C.Q.  
2
[302] For all these reasons, the Polards’ legal proceeding, instituted on June 1, 2018, was filed  
well within the three (3) year prescription period (Article 2925 C.C.Q.) for the entirety of their  
claim251F[252].  
.4.7.2 Interest  
303] The Polards claim compound interest at 5% on the unpaid Adjusted Earnout Amount  
4
[
since the closing on October 11, 2013. ARO and Mr. Ogilvie do not contest that that the  
applicable interest rate on the Polards’ claim for the unpaid Adjusted Earnout Amount is 5% nor  
that the Polards are entitled, pursuant to the terms of the SAPA, to compound interest on an  
amount due under the Earnout Agreement.  
[304] The relevant part of Section 4 of the Earnout Agreement reads as follows252F[253]:  
“Interest shall be paid by ARO on the Adjusted Earnout Amount, as and from the Closing  
date, until payment in full at a rate per annum equal to five percent (5%),  
calculated and paid in the manner set forth in Section 9.4 of the Share and Asset  
Purchase Agreement.”  
[
[
Emphasis added.]  
305] Section 9.4 of the SAPA reads as follows:  
“9.4 Payment and Interest.  
The Indemnifying Party shall reimburse on demand, if not contested, and following a settlement  
or a final judgment if contested, to the Indemnified Party the amount of each Loss suffered or  
incurred by the Indemnified Party, as of the date that the Indemnified Party incurs such Loss  
together with Interest thereon from the aforesaid date until payment in full at a rate per annum  
equal to the Prime Rate, plus three (3) percentage points. Interest shall be calculated and  
payable monthly on the last day of each month during which any amount in  
respect of any Loss remains unpaid, both before and after judgment, with interest  
on overdue interest calculated and payable at the same rate. The interest payable  
in any month shall be calculated on the average amount of all amounts in respect of  
any Loss that remains unpaid at any time during such month. This amount shall be  
calculated by (i) multiplying any amount in respect of each Loss that remains  
unpaid at any time during such month by the number of days that amount remains  
unpaid during such month and (ii) dividing the aggregate of all such products by  
the number of days in such month.”  
[Emphasis added.]  
[306] ARO and Mr. Ogilvie do not contest that the words “interest on overdue interest”  
creates an obligation to pay compound interest.  
[307] ARO and Mr. Ogilvie submit that there is an ambiguity between Section 4 of the  
Earnout Agreement and Section 9.4 of the SAPA regarding the date on which that interest  
should begin to run. The Polards submit that, as stated in Section 4, and as was specifically  
negotiated, interest runs “from the Closing date”. It is agreed, as determined by the arbitrator,  
that the closing date of the transaction was October 11, 2013253F[254].  
[308] ARO and Mr. Ogilvie submit that there is an ambiguity since Section 9.4 refers to a  
“judgment”. They argue that the Court should instead use the date of March 17, 2017, being that  
of the Arbitration Decision on the Adjusted Earnout Amount254F[255], as the date on which  
interest should begin to run. That submission is unfounded in fact and in law. With respect,  
there is no ambiguity. Section 9.4 refers to a judgment, not to an arbitration decision. The  
present Court is rendering the “judgment”. Section 9.4 of the SAPA states that interest is  
“calculated and payable” for “any amount unpaid, both before and after judgment”.  
[309] The text of Section 4 of the Earnout Agreement cannot be clearer:  
“Interest should be paid by ARO on the Adjusted Earnout Amount, as and from the Closing  
date”.  
[Emphasis added.]  
[310] The Court will therefore order ARO and Mr. Ogilvie to pay the Polards compound  
interest of 5% on the Adjusted Earnout Amount since the closing date, namely October 11, 2013.  
4
.4.8 Conclusion  
[311] The Court concludes that the common intention of the parties and the proper  
interpretation of the Sentence in Issue is that the legal effect of ARO’s non-compliance with the  
Schedule B Financial Ratios on August 31, 2014, August 31, 2015 and August 31, 2016 was to  
defer for a maximum of three years the exigibility of the payment obligation of ARO to the  
Polards to pay the three annual instalments of the Adjusted Earnout Amount. ARO owes the  
Polards compound interest of 5% on the Adjusted Earnout Amount of $1,345,689 since the  
closing date of October 11, 2013255F[256].  
[312] All deferrals have expired and the Adjusted Earnout Amount is exigible. ARO is in  
default to pay the amount of $1,345,689. As of June 30, 2022, the interest amount owed on the  
Adjusted Earnout Amount is $733,889.99256F[257]. On June 22, 2022, the total amount  
(capital and interest) owed by ARO and Mr. Ogilvie to the Polards for the Adjusted Earnout  
Amount is $2,079,578.99.  
[313] ARO is also in default to pay the outstanding amount due to Maurice under the Bonus  
Agreement. The Bonus Agreement is aligned with the percentage of the Adjusted Earnout  
Amount. Accordingly, ARO and Mr. Ogilvie owe Maurice the additional amount of $84,105.56,  
plus $4,205.28, which is the applicable Goods and Services Tax (GST)257F[258]. Under the  
SAPA, the amount owed under the Bonus Agreement also bears interest at a compound interest  
rate of 5%. That interest amount totals $20,937.97258F[259].  
[314] As of June 30, 2022, the amounts owed to the Polards by ARO and Mr. Ogilvie under  
the Bonus Agreement total $105,043.53 ($84,105.56 + $20,937.76 + $4,205.28 as GST).  
[315] Mr. Ogilvie is in default under his personal guarantees to pay the amounts due, namely  
the Adjusted Earnout Amount259F[260] and the Bonus Amount260F[261], with the stipulated  
compound interest rate of 5%. The total amount owing by ARO and Mr. Ogilvie to the Polards is  
therefore $2,184,622.53 ($2,079,578.99 + $105,043.53), which bears compound interest of 5%,  
plus $4,305.28 (GST). The Court will order ARO and Mr. Ogilvie to pay the Polards those  
amounts.  
4
.5 Did the Polards Renounce to Claiming the Unpaid  
Interest on the Capital of the Working Capital Amount  
Owed to Them by ARO?  
[316] The Polards claim the unpaid interest on the capital amount awarded to them by the  
arbitrator pursuant to his March 17, 2017 decision regarding the working capital  
dispute261F[262]. All parties acknowledge that on August 15, 2017, ARO paid the capital  
amount of the working capital dispute.  
[317] ARO claims that a transaction occurred pursuant Article 2631 C.C.Q. between the  
parties to the effect that the amount paid by ARO for the capital amount of the working capital  
claim also covered the Polards’ claim for interest on that amount. As the parties agree that the  
capital amount was paid, the Polards do not claim any interest on the capital amount since  
August 15, 2017, but the Polards do claim the interest which has accrued on the unpaid interest  
owed in accordance with Section 9.4 of the SAPA.  
[318] On March 31, 2017, PSB Boisjoli rendered two arbitration decisions, one on the  
Adjusted Earnout Amount dispute (being the “Arbitration Decision”)262F[263] and the other  
on the working capital dispute263F[264].  
[319] On May 4, 2017, the Polards’ attorney wrote to ARO’s attorney requesting payment of  
various claims. One of the claims was for the capital amount awarded to the Polards by the  
arbitrator regarding the working capital dispute264F[265]. Point 3 of the letter requested  
payment of the capital amount owed for the working capital dispute. That is the non-interest  
portion of that amount. The letter referred to the claim for the capital amount as follows:  
“3. As for the working capital decision of PSB Boisjoli, we hereby demand payment of  
$
325,963.78. This amount is calculated as set out in the attached calculation of net amount  
owing to seller upon closing before interest contained in the schedule titled “Summary of  
interest rates and basis of calculations”.”  
[
[
Emphasis added.]  
320] The claim at Point 3 specifically does not include interest (“before interest”).  
Furthermore, in the schedule attached to the letter of May 4, 2017, the reference to $325,963.78  
indicates that that amount does not include interest265F[266]:  
“Net amount owing to Seller upon closing before interest to Purchaser as of October 13,  
2
013.”  
[
[
Emphasis added.]  
321] In Point 4 of the May 4, 2017 letter, the Polards’ attorney made a separate claim for  
interest on the capital amount of the working capital dispute in accordance with Section 9.4 in  
the SAPA which states that compound interest is applicable. Point 4 reads as follows:  
“4. Pursuant to Section 9.4 of the Share and Asset Purchase Agreement, interest on the sum  
set out in paragraph 3 above is calculated based upon prime +3% and equates to $72,786.66  
due and owing as of March 31, 2017. We enclose the interest calculation schedule titled  
“Accrued Interest as of March 31, 2017 on Working Capital, Prepaid expenses and Cash and  
bank balances withheld by Purchaser”. The per diem thereafter is $61.98. We hereby  
demand payment of the said interest calculated to the date of payment forthwith.”  
[Emphasis added.]  
[322] On May 31, 2017, ARO’s attorney responded266F[267]. He only addressed payment of  
the claim for the capital amount of the working capital dispute. He makes no reference to the  
specific and distinct claim for interest on the capital amount made at Point 4. At paragraph 9 of  
his letter, ARO’s attorney wrote267F[268]:  
“According to PBS Boisjoli and according to your schedules, your clients owe $143,871.00 to  
ARO as for the working capital shortage and this amount should be paid according to  
sections 2.4.8 and 2.4.10 of the SAPA. ARO has to pay $81,418.00 to your clients for prepaid  
expenses as per PSB Boisjoli. Your clients owe $62,453.00 ($143,871.00 - $81,418.00) to ARO.  
ARO retained $141,817.13 as confirmed per your schedule. Therefore, ARO is ready to pay  
to the Seller $79,364.13 ($141,817.13 - $62,453.00) on receipt of your written  
acceptance of the amount.”  
[Emphasis added.]  
[
(
323] According to the schedules, none of the numbers mentioned above by ARO’s attorney  
$143,871268F[269], $81,418269F[270] or $141,817.13270F[271]) pertain to or include any  
interest component on the capital amount owed under the working capital dispute.  
[324] Therefore, after the Polards’ attorney had made a separate and specific claim for the  
interest owed on the capital of the working capital amount, ARO’s attorney, in his response, did  
not address it. Moreover, the letter from ARO’s attorney does not state that the amount offered  
includes interest or is a final offer or resolution on all claims arising out of the working capital  
dispute.  
[325] On August 11, 2017, the Polards’ attorney responded as follows271F[272]:  
“
With regards to paragraph 9 of said letter [ARO’s attorney’s letter of May 31,  
2017], concerning the working capital calculations, our clients accept the payment of  
$
79,364.13, and request that payment to be made without delay.”  
[
[
Emphasis added.]  
326] The Polards’ attorney made no reference that the proposed payment would or should  
cover the Polards’ separate claim at Point 4 above for the interest on the capital part of the  
working capital amount. That claim was not addressed at paragraph 9 of the ARO attorney’s  
letter of May 31, 2017.  
327] On August 15, 2017, ARO’s attorney sent an “in trust” cheque to the Polards’ attorney  
[
for the amount of $79,364.13. However, for the first time that letter refers to that amount as  
being “en guise de paiement final”272F[273]. To that effect, ARO’s attorney includes a “Mutual  
Release” document which includes a release by the Polards for any and all claims “in any way  
arising out of”273F[274] the working capital dispute as decided by the arbitrator’s March 17,  
2
017 decision. In the letter, ARO’s attorney asks that the Polards’ attorney not remit the amount  
of the payment cheque until the Polards sign the enclosed release document274F[275].  
[328] The Polards’ attorney deposited the “in trust” cheque into her office’s trust account. The  
Polards’ attorney did not agree with the wording of the proposed release document and in  
particular any language that would extinguish the Polards’ claim for unpaid interest on the  
capital amount of the working capital dispute. The deposited amount received was therefore not  
remitted to the Polards. The latter refused to sign the proposed release document275F[276].  
[329] According to the Polards’ attorney, she communicated to ARO’s attorney that her  
clients could not sign the proposed release as a result of its inclusion of a waiver of their interest  
claim. ARO refused to pay the interest and alleged that a transaction, pursuant to Article  
2
631 C.C.Q., had occurred276F[277].  
[330] It is clear that that proposed release document was never signed and that the amount  
sent by ARO was never remitted to the Polards. ARO’s attorney did not refer the Court to any  
letter by ARO requesting return of the funds or for a signed release. The parties were at an  
impasse.  
[331] On April 6, 2018, the Polards’ attorney wrote a second demand letter to ARO and  
Mr. Ogilvie requesting payment of various amounts owed. The Polards’ attorney requested  
payment of the interest amount claimed on the working capital (Point 4 referred to above). The  
Polards’ attorney wrote277F[278]:  
“We hereby Demand payment of the following:  
3
.
Pursuant to Section 9.4 of the Share and Asset Purchase Agreement, interest on the  
Working capital principal amount, is calculated based upon prime +3% and equates to  
19,843.54 as final interest owing on August 15, 2017.”  
$
[332] ARO’s attorney denied the claim for the interest amount and stated that a transaction  
had occurred and that final payment, including for interest, had already been made278F[279].  
[333] The Polards’ claim for the interest amount on the capital working amount is well  
founded in fact and in law for the following reasons:  
1
. The Polards have a right under the SAPA to accrued and unpaid interest on the capital  
amount of the working capital dispute. ARO does not deny that. ARO claims that the Polards  
have renounced that claim. A renunciation of a right must be clear, evident and  
unambiguous279F[280]. ARO has the burden to demonstrate by preponderance of the proof  
that the Polards renounced their right of interest on the capital amount of the working capital  
dispute. ARO has failed to discharge that burden. On the contrary, the Court’s review of the  
documents submitted by ARO in that regard, in particular regarding the documents exchanged  
between counsel of the parties, support the Polards’ position that they never renounced to the  
interest claim (Point 4) on the capital amount of the working capital dispute;  
2
. In the Polards’ May 4, 2017 letter of demand, they explicitly make two distinct claims  
regarding the working capital dispute, namely the claim for the unpaid working capital amount  
Point 3) and the claim for interest on the unpaid working capital amount (Point 4). ARO’s  
(
letter of reply dated May 31, 2017 did not address the Polards’ claim for interest on the unpaid  
capital amount of the working capital dispute. It only proposed to pay the claim for the unpaid  
capital amount of the working capital dispute. As such, the Polards’ acceptance on August 11,  
2
017 of the amount of $79,364.13 did not cover or extend to the Polards’ distinct claim for  
interest on the unpaid capital amount of the working capital dispute;  
3
. ARO claims that the deposit by the Polards’ attorney into her trust account of the “in trust”  
cheque prevents the Polards from denying that there is a settlement covering also the claim for  
interest on the unpaid capital amount. We do not agree. First, the only claim that was settled  
was for the capital amount of the unpaid working capital dispute. It was appropriate for the  
Polards’ attorney to deposit the cheque received to cover that claim. In fact, she was obliged to  
do so. Article 1561 C.C.Q. reads as follows:  
“
1561. A creditor may not be compelled to accept anything other than what is due to him, even  
though what is offered is of greater value.  
Nor may he be compelled to accept partial payment of an obligation unless the obligation is  
disputed in part. In that case, if the debtor offers to pay the undisputed part, the  
creditor may not refuse to accept payment of it, but he retains his right to claim  
the other part of the obligation.”  
[Emphasis added.]  
ARO’s attorney did not request that the Polards’ attorney not deposit the “in trust” cheque into  
her trust account until her clients signed the proposed release document. ARO’s attorney only  
requested that she not remit the amount received to the Polards until they signed the proposed  
release. The Polards’ attorney did not remit to her clients that amount since the Polards did not  
agree with the terms of the proposed release which exceeded what was settled in fact between  
them and ARO. ARO’s attorney therefore cannot complain that the amount was deposited into  
the Polards’ attorney’s trust account.  
4. ARO submits that certain comments made by the Polards’ attorney at the hearing on the  
Amended Application to Homologate an Arbitration Decision on the Adjusted Earnout Amount  
demonstrate that the Polards had renounced to the claim for interest on the working capital  
amount. The Court has reviewed the transcript of the hearing280F[281]. The Court disagrees  
with ARO’s submission. ARO quotes the Polards’ attorney out of context. That hearing had  
nothing to do with the Polards claim on the unpaid working capital amount or for interest on  
the unpaid working capital amount. The hearing only addressed the requested homologation of  
the Arbitration Decision regarding the Adjusted Earnout Amount. The Polards’ attorney’s  
comments on the working capital dispute were simply very general and introductory in nature  
for the purpose of situating the presiding judge on the precise issue before her on the basis of  
the Amended Application to Homologate an Arbitration Decision. The Polards’ attorney’s  
comments did not address any issue regarding the unpaid claim on interest on the capital  
amount of the working capital dispute since that was not an issue before the Court.  
As the Polards’ have not renounced to their claim for interest on the capital amount of the  
working capital dispute, such amount remains due and exigible against ARO pursuant to  
Section 9.4 of the SAPA, in particular for all interest accrued until the capital amount was paid  
on August 15, 2017 and the interest on the unpaid interest since that time. The amount owing  
for the interest to June, 2022 is $14,698.72281F[282].  
[334] Mr. Ogilvie did not give a personal guarantee for payment of the working capital  
amount282F[283]. The Court questioned the Polards’ attorney on the basis for Plaintiffs’  
Second Amended Originating Application requesting a solidary condemnation of ARO and  
Mr. Ogilvie for the unpaid interest on the capital amount of the working capital dispute. The  
Polards’ counsel responded that it was based on abusive conduct of Mr. Ogilvie283F[284]. The  
Polards’ attorney requested the Court to lift ARO’s corporate veil and condemn Mr. Ogilvie for  
that amount. She also alleged that Mr. Ogilvie had committed an extracontractual fault  
independent of the alleged contractual breach284F[285]. None of these grounds are valid with  
respect to the Polards’ claim for interest on the capital amount of the working capital dispute.  
First, there was no allegation in the Polards’ Second Amended Originating Application  
requesting the Court to lift ARO’s corporate veil, nor to the effect that Mr. Ogilvie had  
committed a separate extracontractual fault giving rise to his personal liability in that regard.  
There was no amendment to the Polards’ legal proceeding in that respect and no such  
amendment was sought by Polards’ counsel. Furthermore, with respect to the issue of the  
non-payment of the interest on the capital amount of the working capital dispute, there was no  
proof adduced at trial for the purpose of satisfying the conditions of Article 317 C.C.Q., nor to  
support the claim that Mr. Ogilvie had committed a distinct personal extracontractual fault in  
that regard.  
[335] For these reasons, ARO alone will be condemned to pay the unpaid interest amount on  
capital amount of the working capital dispute, namely $14,698.72. That amount is subject to  
compound interest pursuant to Section 9.4 of the SAPA at a rate per annum equal to the Prime  
Rate, plus 3%, as of June 30, 2022.  
[336] The SAPA defines the term “Prime Rate” as follows285F[286]:  
“
“Prime Rate” means the annual interest rate quoted publicly by the Buyer’s regular banker as  
the reference rate of interest used for determining the interest rate in charges on commercial  
demand loans made in Canadian dollars in Canada and commonly known as such bank’s prime  
rate, as adjusted from time to time;”  
4
.6 Are the Parties’ Respective Claims Against Each  
Other for Damages, Legal Fees and Non-judicial  
Disbursements Well Founded, and if so, What Amount  
Should be Granted?  
4
.6.1 Other Claims of Both Parties, Relevant Articles of the Code of  
Civil Procedure and Legal Principles  
[337] Both the Plaintiffs and the Defendants request that the Court declare the other to have  
acted abusively, notably within the meaning of Articles 51 and 54 C.C.P., and to have committed  
breaches in the conduct of the proceedings pursuant to Article 342 C.C.P. Both the Plaintiffs and  
the Defendants ask the Court to condemn the other to pay damages, including the refund of  
their legal fees.  
[338] Articles 51, 54 and 342 C.C.P. reads as follows:  
“51. The courts may, at any time, on an application and even on their own initiative, declare  
that a judicial application or a pleading is abusive.  
Regardless of intent, the abuse of procedure may consist in a judicial application or pleading  
that is clearly unfounded, frivolous or intended to delay or in conduct that is vexatious or  
quarrelsome. It may also consist in a use of procedure that is excessive or unreasonable or that  
causes prejudice to another person, or attempts to defeat the ends of justice, particularly if it  
operates to restrict another person’s freedom of expression in public debate.  
5
4. On ruling on whether a judicial application or pleading, including one presented under this  
division, is abusive, the court may order a provision for costs to be reimbursed, order a party to  
pay, in addition to legal costs, damages for any injury suffered by another party, including to  
cover the professional fees and disbursements incurred by that other party, or award punitive  
damages if warranted by the circumstances.  
If the amount of the damages is not admitted or cannot be easily calculated at the time the  
application or pleading is declared abusive, the court may summarily determine the amount  
within the time and subject to the conditions it specifies or, in the case of the Court of Appeal,  
refer the matter back to the court of first instance for a decision.  
342. The court, after hearing the parties, may punish substantial breaches noted in the conduct  
of the proceeding by ordering a party to pay to another party, as legal costs, an amount that it  
considers fair and reasonable to cover the professional fees of the other party’s lawyer or, if the  
other party is not represented by a lawyer, to compensate the other party for the time spent on  
the case and the work involved.”  
[339] Article 1621 C.C.Q. sets out guidelines for the Court to consider in the event that  
punitive damages are awarded and, if so, the amount of such damages:  
“
1621. Where the awarding of punitive damages is provided for by law, the amount of such  
damages may not exceed what is sufficient to fulfil their preventive purpose.  
Punitive damages are assessed in the light of all the appropriate circumstances, in particular the  
gravity of the debtor’s fault, his patrimonial situation, the extent of the reparation for which he  
is already liable to the creditor and, where such is the case, the fact that the payment of the  
reparatory damages is wholly or partly assumed by a third person.”  
340] The Court of Appeal has confirmed that a declaration of abuse does not require bad  
[
faith on the part of the person undertaking the judicial procedure. In Procureur général du  
Québec v. Lamontagne, the Court of Appeal stated the following with respect to the concept of  
abuse and liability under Article 51 C.C.P. and following286F[287]:  
“[55] Dans l’arrêt El-Hachem c. Décary, la Cour élargit le périmètre d’application de la  
déclaration abusive du droit d’ester en justice en reconnaissant qu’une partie « même sans  
mauvaise foi ou intention de nuire », peut adopter un « comportement blâmable » en mettant  
de l’avant « des allégations qui ne résistent pas à une analyse attentive et qui dénotent une  
propension à une surenchère hors de toute proportion avec le litige réel entre les parties ». Dans  
l’arrêt Charland c. Lessard, la Cour réaffirme que l’utilisation déraisonnable ou excessive de la  
procédure, même introduite « de bonne foi et sans intention malveillante », peut également  
constituer un abus de procédure.  
[56] La notion « d’abus » énoncée à l’article 51 C.p.c. vise donc un large spectre. À l’une  
extrémité, on peut concevoir un acte de procédure, introduit de bonne foi, sans malveillance ni  
témérité, mais qui s’avère « manifestement mal fondé », et, à l’autre extrémité, « une utilisation  
excessive et déraisonnable par un plaideur de la procédure, caractérisée par la quérulence ».”  
Blameworthy conduct (“comportement blâmable”) includes the making of allegations which are  
not serious and which escalate out of proportion the conflict between the parties regarding the  
real legal issues that divide them.  
[341] The Court of Appeal has stated that a sanction for abuse under Article 51 C.C.P. is  
generally consistent with blameworthy or faulty conduct of a party or of an attorney acting on  
behalf of the party287F[288]:  
“[80] Un tribunal peut déclarer une demande en justice ou un autre acte de procédure abusif  
même en l’absence d’une intention malveillante, l’article 51 C.p.c. s’appliquant à un vaste  
spectre de situations. Par contre, cet article ne crée pas un régime de responsabilité stricte en  
regard du versement de dommages-intérêts et seul un comportement fautif peut justifier une  
telle condamnation monétaire.  
[81] À cette fin, la jurisprudence de la Cour renvoie à l’état du droit établi dans les arrêts Viel c.  
Entreprises immobilières du terroir Ltée (« Viel ») et Royal Lepage commercial inc. c. 109650  
Canada Ltd. (« Royal Lepage »). Dans l’arrêt Viel, la faute est établie dans le cas où la  
contestation judiciaire est, au départ, de mauvaise foi, soit en demande ou en défense. Ce sera  
encore le cas lorsqu’une partie de mauvaise foi multiplie les procédures ou poursuit inutilement  
et abusivement un débat judiciaire.  
Dans Royal Lepage, la Cour ajoute que l’abus constitue un comportement blâmable s’il est  
empreint de mauvaise foi ou exhibe des indices de témérité. Quant à cette notion de témérité,  
c’est le fait de mettre de l’avant un recours ou une procédure alors qu’une personne raisonnable  
et prudente, placée dans les circonstances connues par la partie au moment où elle dépose la  
procédure ou l’argumente, conclurait à l’inexistence d’un fondement pour cette procédure. Il  
s’agit d’une norme objective, qui requiert non pas des indices de l’intention de nuire, mais  
plutôt une évaluation des circonstances afin de déterminer s’il y a lieu de conclure au caractère  
infondé de cette procédure.”  
4
.6.2 Polards’ Claims  
4.6.2.1 Claim for Punitive Damages  
[342] Pursuant to Articles 51 and 54 C.C.P., Maurice, Lionel and Elizabeth Polard each claim  
$
100,000 as punitive damages against the Defendants, therefore in total $300,000288F[289].  
The Polards offer little detail or justification with respect to the financial breakdown to justify  
the distinct claims for these amounts. Maurice and Lionel state that they have suffered much  
stress individually and as part of a family unit by the lengthy arbitration and Court  
procedures289F[290].  
[343] The Polards’ judicial application does not include in its conclusion a claim for  
compensatory damages, only a claim for punitive damages based on Articles 51 and 54 C.C.P.  
Article 54 C.C.P. allows the Court to condemn a party to punitive damages for abuse. The  
Polards submit that ARO and Mr. Ogilvie never had the intention of respecting the Earnout  
Agreement and have acted throughout the arbitration and judicial proceedings in bad faith. In  
support of that position, the Polards invoke the testimony of Gregory Carter290F[291].  
Certainly Mr. Carter’s testimony discredited ARO and Mr. Ogilvie’s claims of acting in good  
faith. The Polards also submit that although Mr. Ogilvie promised that ARO would employ  
various Polard family members after the acquisition of ARC, Mr. Ogilvie proceeded to terminate  
each and every one within one year of the transaction291F[292].  
[344] It is also true that the proof showed that ARO and Mr. Ogilvie’s version of the  
interpretation of the Earnout Agreement evolved over time. However, in principle, abuse of  
right on the merit (or the substance of the right) or the existence of bad faith upon violation of a  
contractual right does not in itself give rise to a sanction for abuse under Articles 51 and  
54 C.C.P.292F[293]. These articles codify a right to claim damages resulting from an abuse of  
process after proceedings are instituted.  
[345] Article 51 C.C.P. states that abuse (or abuse of procedure) consists of a procedure being  
“clearly unfounded” (“manifestement mal fondée”) or frivolous. With the exception of issues to  
which the Court will return later293F[294], the Court is of the view that the various legal  
positions taken by ARO and Mr. Ogilvie do not on their face meet that standard.  
[346] ARO and Mr. Ogilvie proposed to the Court a very literal and restrictive interpretation  
of the Sentence in Issue. Their interpretation was based on an isolated and secondary meaning  
of the word “payment”. When the Sentence in Issue is read on its own, in isolation and without  
context, there is an ambiguity. However, when read in light of the other terms of the Earnout  
Agreement and the SAPA, and the overall context of the transaction, ARO and Mr. Ogilvie’s  
proposed interpretation was improbable, perhaps even highly improbable. But that is not the  
same as “clearly unfounded” or “frivolous”. As a result of the full trial, the hearing of the  
witnesses, the review of the precontractual documents and the analysis of the contractual  
documents, the proof is now abundant and overwhelming that the common intention of the  
parties regarding the Sentence in Issue was the one proposed by the Polards. The perception of  
the seriousness and validity of ARO and Mr. Ogilvie’s submissions have now changed but the  
Court should be cautious in applying such hindsight to a claim for abuse under Article 51 C.C.P.  
and following before that determination was made.  
[347] The Polards also submit that ARO and Mr. Ogilvie’s contestations regarding the  
protracted arbitration and litigation should be sanctioned as they were “intended to delay”  
(
[
Article 54 C.C.P.) the judicial resolution of the legal issue.  
348] The Court has decided not to make an order on the basis of punitive damages for  
abusive conduct intended to delay the resolution of the legal issue for the following reasons in  
the present matter:  
1
. Although the arbitration process was protracted and took almost two (2) years, it was not  
argued and there was no evidence that the process was delayed or prolonged by abusive tactics  
of ARO or Mr. Ogilvie. The arbitration clause did not include a firm deadline for the arbitrator  
to render a decision after the service of the Notice of Arbitration. That was a matter of  
contractual choice between the commercial parties;  
2
. The Polards appear to have, at least initially, agreed that the arbitrator would not decide on  
the exigibility of the Adjusted Earnout Amount to be determined pursuant to the Sentence in  
Issue. That may have been an error on their part. That gave rise necessarily to a two-step  
st  
nd  
process (1 arbitration proceedings; 2 judicial proceedings) and extended delays. The Polards  
submit that they were in good faith and were manipulated by ARO and Mr. Ogilvie who were in  
bad faith since they had not yet disclosed that they intended on arguing that the Adjusted  
Earnout Amount instalments were extinguished. But the trust relationship between the parties  
had already broken down at that point. Both sides were represented by attorneys who should  
have advised their clients of the consequences of agreeing to a two-step process, including  
additional delays;  
3
(
. The Polards made no proof that the Court process in the present Court case  
500-17-103513-183) was delayed by ARO or Mr. Ogilvie, either during proceedings or with  
respect to setting the date for trial. After the setting of the first date for trial and substitution of  
Defendants’ initial attorneys for the present attorneys, the latter did attempt to postpone the  
trial. However, that application was dismissed. Thereafter, for reasons unrelated to ARO and  
Mr. Ogilvie, the trial was postponed;  
4. Article 1621(2) C.C.Q. states that in the assessment of the amount of punitive damages, the  
Court should take into account “the extent of the reparation for which he [the party at fault] is  
already liable to the creditor”. The ground for the request for punitive damages is that ARO and  
Mr. Ogilvie contested the proceedings in order to delay adjudication and payment. But under  
Section 9.4 of the SAPA, the Polards are entitled not only to simple interest on the amount due  
but also to compound interest294F[295]. ARO and Mr. Ogilvie do not contest that, either in  
their proceedings or before the Court295F[296]. According to the Polards’ evidence with respect  
to the amount of overall interest due, they claim the amount of $733,889.99 of accrued interest  
on the capital amount of $1,345,689 of the Adjusted Earnout Amount296F[297]. The Court is of  
the view that the effect of the application of the compound interest clause, agreed to by the  
parties, compensates sufficiently at this point the Polards for the additional delay, if any, caused  
by the conduct of Defendants.  
4.6.2.2 Claims for Legal and Other Extrajudicial Fees  
4
.6.2.2.1 Fees Paid for Arbitration  
[349] The Polards claim under Articles 54 C.C.P. and following a refund of the various fees  
paid for the arbitration process. The amounts are as follows:  
Fees Paid to Arbitrators (PSB Boisjoli) $55,683.01297F[298]  
Legal Fees Paid to Fasken  
$83,592.69298F[299]  
$
6,545.09299F[300]  
Legal Fees Paid to Pearlman Lindholm $42,046.67300F[301]  
Total $187,867.46  
[350] There were three separate disputes submitted for arbitration to PSB Boisjoli: the  
earnout dispute, the closing date dispute and the working capital dispute. There were separate  
decisions rendered for each dispute.  
[351] The Polards do not allege nor do they prove an abuse by the Defendants with regard to  
the closing date dispute or the working capital dispute.  
[352] Regarding the earnout dispute, the Earnout Agreement states that the parties agree to  
share equally the costs of the arbitrator as well as to pay their own costs of representation.  
Section 2(d) of the Earnout Agreement reads in part301F[302]:  
“The costs and expenses of the Accountants will be borne equally by the Shareholders, on one  
hand, and ARO, on the other. However, the Shareholders and ARO shall each bear their own  
costs in presenting their respective cases to the Accountants.”  
[
353] The present dispute is of a commercial nature. Each party was represented by attorneys  
during the transaction. Each party entered freely into the Earnout Agreement regarding clause 2  
d). The express agreement of the parties on this point is not dissimilar to the default rule in  
(
arbitration matters under Quebec law302F[303]. The normal rule is that the parties express  
agreement be followed. The Polards have not convinced the Court that it should in the  
circumstances modify the express agreement on the point between the parties.  
4
.6.2.2.2 Attorney Professional Fees Regarding the Application for Homologation of the  
Arbitration Decision on the Adjusted Earnout Amount  
[354] The Polards claim a refund of the legal fees of $40,396.51303F[304] paid for the legal  
proceedings requesting homologation of the Arbitration Decision of March 17, 2017 on the  
Adjusted Earnout Amount.  
[355] On October 18, 2017, the Polards filed an Application for Homologation of the  
Arbitration Decision. The application requested that ARO and Mr. Ogilvie be condemned to pay  
the Adjusted Earnout Amount304F[305].  
[356] On February 5, 2018, that Application was amended to withdraw the conclusion  
requesting that ARO and Mr. Ogilvie be condemned to pay the Adjusted Earnout  
Amount305F[306].  
[357] The Court, presided over at the time by Justice Chantal Tremblay, J.S.C., only took act  
of the agreement between the parties that the arbitrator had decided that the Adjusted Earnout  
Amount was $1,345,689306F[307]. The Court rendered its judgment “without costs”.  
[358] There does not appear to have been abuse of Defendants in the proceedings regarding  
the Application for Homologation of the Arbitration Decision. None was shown or pleaded by  
the Polards. Furthermore, had there been abuse, it would have been appropriate to seek an  
order from Justice Tremblay recognizing such abuse and ordering compensation for the  
Polards. None was requested and none was made. On the contrary, the contestation of the  
initial Application for Homologation appears to have been well founded in part in that the  
Polards withdrew their conclusion requesting a monetary condemnation of ARO and  
Mr. Ogilvie.  
[359] The Court will therefore not grant any compensation for the Polards with regard to  
these claimed professional fees.  
4
.6.2.2.3 Attorney Professional Fees and Disbursements for the Present Court Proceedings  
[
360] The Polards claim for refund of the legal fees and non-judicial disbursements incurred  
to institute and pursue the present Court proceedings. The total amount incurred is  
358,935.80307F[308]. This is made up of two amounts. A first amount of $207,802.85 covers  
$
services rendered up until the preparation for trial308F[309]. A second amount of $151,132.95  
is claimed for services rendered for the preparation and pleading of the trial309F[310].  
[361] ARO and Mr. Ogilvie’s counsel objected verbally to the Polards’ claim for legal fees for  
abuse, notably on the basis that the Polards did not pay the claimed legal fees or disbursements.  
Thereafter, the Polards filed the proof of payment of all of these fees310F[311]. This proof  
showed that the Polards did in fact effectively pay for these amounts. The payments were made  
by legal persons who are alter egos of the Polards. The first amount ($207,802.85) was paid by  
A.R.C. Properties Ltd. The directors, officers and shareholders of A.R.C. Properties Ltd. are the  
Polards311F[312]. The second amount ($151,132.95) was paid by M. Polard & Associates Ltd  
whose directors and shareholders are also Plaintiffs312F[313].  
[362] Furthermore, in 2015, the Supreme Court unanimously ruled that civil procedure rules  
on abuse of process operate independently of who paid the legal fees of the victim of abuse.  
[363] In Hinse v. Canada (Attorney General), the Supreme Court stated313F[314]:  
“[177] Litigants are required to refrain from conduct that would amount to an abuse of process.  
A litigant who defaults on this obligation commits a fault and may be ordered to pay damages.  
By virtue of art. 1608 C.C.Q., the litigant’s obligation to pay damages to the other  
party is neither reduced nor altered by the fact that the latter received a gratuitous  
benefit from his or her counsel. The rationale for art. 1608 C.C.Q., which is  
explained in the Minister of Justice’s commentary, applies with equal force in a  
case of abuse of process: damages must be allowed to fully perform their  
preventive function, and a person who causes an “injury” must not be exempted  
from liability.  
[178] Article 1608 C.C.Q. also attests to the legislature’s intention not to relieve debtors of their  
obligation to compensate even if this may result in double recovery for the victim.”  
[
[
Emphasis added.]  
364] Furthermore, the Superior Court has decided that amounts of legal fees and  
non-judicial disbursements paid by related parties or companies, including parties that are alter  
egos of a claiming party, may be obtained by a litigant as compensation for abuse and  
sanctionable conduct committed by another party.  
365] In Abandonato v. 9227-1584 Quebec Inc., the Superior Court decided314F[315]:  
[
“[45] Même si M. Nadon n'a pas payé pour sa propre défense, il est en droit de réclamer les  
honoraires extrajudiciaires qui ont été engagés pour son compte. […]”  
[366] In 9092-8953 Quebec Inc. v. Camerano, the Superior Court decided315F[316]:  
“[377] Au niveau des dommages compensatoires, 9189 et 9092 étant des alter ego ou 9189  
pouvant être considérée comme ayant payé les honoraires pour 9092, tel que déjà vu, les  
honoraires extrajudiciaires assumés par 9189 aux fins de la saisie avant jugement sont acceptés  
comme preuve d’un dommage subi par 9092.”  
[
367] As already stated, the Court is of the view that certain positions and conduct of ARO  
and Mr. Ogilvie in the present proceedings do constitute an abuse pursuant to Articles 51 and  
4 C.C.P. as well as substantial breaches of procedure pursuant to Article 342 C.C.P. and justify  
an order to compensate the Polards for a part of their legal fees.  
5
[
368] First, it was clearly unfounded and frivolous in accordance with Article 54 C.C.P. in fact  
and in law for ARO and Mr. Ogilvie to contest that the effective sale price of the transaction was  
8 million and that the declared sale price was $7,5 million.  
$
[369] Second, it was clearly unfounded and frivolous in fact and in law for ARO and  
Mr. Ogilvie to plead that the Adjusted Earnout Amount was not a balance of sale under the  
transaction.  
[370] It was clear that the parties had agreed to a sale price of $8 million. Furthermore, that  
price was validated by a due diligence process executed by ARO’s accountants to purchase the  
operations of ARC. It was also clear that $500,000 would be paid and, in fact, was paid to  
Maurice under a Consulting Service Agreement to be signed at the closing of the  
transaction316F[317]. It was clear that the declared purchase price was for an amount of  
$
7,500,000317F[318]. It was also clear that $6 million of the purchase price was paid at the  
time of closing318F[319]. It was clear that the parties agreed that payment of a $1,500,000  
balance of sale amount was subject to an Earnout Agreement319F[320]. It was clear that the  
exact amount of the maximum balance of sale of $1,500,000 payable under the Earnout  
Agreement would be determined by the satisfaction of Performance Targets calculated in the 12  
months following the closing of the transaction. The extent to which the Performance Targets  
were met was compiled under the Earnout Schedule and determined the Adjusted Earnout  
Amount owed to the Polards.  
[371] It was a separate issue whether ARO’s non-compliance with the Schedule B Financial  
Ratios had the legal effect of deferring or extinguishing the obligation for the payment of three  
annual instalments of the Adjusted Earnout Amount.  
[372] The nature of the Earnout Agreement to validate a maximum earnout amount of  
$
1,500,000 as a balance of sale should never have been contested by ARO or Mr. Ogilvie. It was  
clear that it was a balance of sale both under the SAPA and the Earnout Agreement. It was  
clearly stated in the precontractual documents. It was clearly acknowledged as such twice in  
ARO’s 2014 and 2015 Financial Statements prepared by the same accountants of ARO as those  
who advised ARO on the transaction. That description of the liability only changed when ARO  
changed its accountants for the 2016 and following Financial Statements. The change in  
wording of the 2016 Financial Statements and the subsequent Financial Statements was  
transparently made to obfuscate or deny the factual, legal and commercial reality of the  
transaction.  
[373] In order to counter ARO and Mr. Ogilvie’s pleadings and affirmations that the effective  
sale price was not $8 million, that the declared sale price was not $7,5 million and that the  
Adjusted Earnout Amount was not a balance of sale, the Polards’ attorneys had to expend  
considerable time and resources, including working with their accounting expert, Andrew  
Michelin. The Court is of the view that ARO and Mr. Ogilvie’s clearly unfounded and frivolous  
pleadings and submissions on these points constitute an abuse under Articles 51 C.C.P. and  
following and also constituted blameworthy conduct which should be sanctioned. The Court  
arbitrates that the abuse regarding the issues of the purchase price and the balance of sale  
accounts for 20% of all of W Legal’s legal fees and extrajudicial disbursements for the present  
Court proceedings. As such, the Court will order ARO and Mr. Ogilvie solidarily to pay the  
Polards $71,787.16 ($358,935.80 x 20%) in that regard.  
[374] Third, the Court also observed three other acts of abuse of procedure320F[321] and  
substantial breaches321F[322] on the part of Defendants and their counsel which justify  
additional compensation for the Polards with respect to legal fees and non-judicial  
disbursements incurred.  
[375] The first procedural abuse of Defendants related to a tardy massive production of  
additional documents as exhibits immediately before the trial. Under the rules of civil  
procedure, the attorneys were required to serve exhibits to which they intended to refer at trial  
before setting the case down for trial322F[323]. Furthermore, the case was already set down for  
trial and was only postponed the previous time immediately before the trial was scheduled to  
proceed.  
[376] Immediately prior to the trial before the undersigned, ARO and Mr. Ogilvie’s attorney  
served on the Polards’ counsel voluminous additional exhibits (more than 350 pages) regarding  
the negotiations of the transaction of the sale of ARC323F[324]. No justification was offered as  
to why the additional documents were not communicated earlier. The Polards’ attorney  
described it as a “document dump” in order to distract her from trial preparation. The Polards’  
attorney was required to review the documents and to submit to the Court reasons why they  
should not be adduced as evidence324F[325].  
[377] The second procedural abuse of Defendants was a tardy parallel verbal application of  
ARO and Mr. Ogilvie’s attorney at trial to reject from the Polards’ exhibits their documents  
regarding the negotiations and other precontractual documents of the transaction325F[326].  
This was in direct contradiction with the Defendants’ own production of voluminous documents  
(including the tardy voluminous additional documents326F[327]) which are extraneous to the  
written contract between the parties327F[328]. Defendants’ verbal application to reject from  
the Court file the Polards’ exhibits was dismissed at trial as being unfounded in fact and in law,  
notably on the basis of Article 1426 C.C.Q. and Supreme Court jurisprudence328F[329]. That  
verbal application was also a violation of the judicial contract between the parties. The joint  
declaration of the parties to set down the case for trial and judgment329F[330] had previously  
admitted these documents into evidence, without objection by Defendants.  
[378] Polards’ counsel again had to prepare and argue these new objections to the bulk of the  
Polards’ evidence at trial.  
[379] In order to ensure that all parties could bring to the attention of the Court all  
documents which could be relevant to the interpretation of the contract, the Court allowed ARO  
and Mr. Ogilvie’s tardy application to file their requested additional documents.  
[380] The third procedural abuse of Defendants was a tardy and last minute “Application to  
Dismiss the Plaintiffs’ Expert Report”330F[331]. That Application was made presentable on the  
first day scheduled for the trial. Defendants’ attorney alleged an irregularity in the expertise  
filed on behalf of the Polards in that the expert (Mr. Michelin) purportedly exceeded his role of  
enlightening and assisting the Court331F[332]. At a preparatory conference before the  
trial332F[333], the Polards’ attorney contested the Application to Dismiss her clients’ expertise  
not only on the ground that it was unfounded in fact and in law but that its tardy presentation  
was a violation of the rules of procedure, in particular Articles 241 and 294(2) C.C.P.:  
“
241. Before the trial begins, a party may apply for the dismissal of an expert  
report on the grounds of irregularity, substantial error or bias, in which case the  
application must be notified to the other parties within 10 days after the party  
becomes aware of the grounds for dismissing the report.  
If the court considers the application well-founded, it orders that the report be corrected or that  
it be withdrawn. In the latter case, the court may allow other expert evidence to be appointed. It  
may also, to the extent it specifies, reduce the amount of the fee payable to the expert or order  
that the expert repay any amount already received.  
294. Each of the parties may examine an expert that it has appointed, a joint expert or a  
court-appointed expert to obtain clarifications on points covered in the expert report or to  
obtain the expert’s opinion on new evidence introduced during the trial; they may also  
examine such an expert for other purposes, with the authorization of the court. A party adverse  
in interest may cross-examine an expert appointed by another party.  
The parties cannot, however, raise a ground of irregularity, substantial error or bias  
against the expert report unless they were unable, despite their diligence, to know of  
the irregularity, substantial error or bias before the trial.”  
[
[
Emphasis added.]  
381] Mr. Michelin’s expertise was served on Defendants’ counsel more than three years  
before trial, namely on March 26, 2019333F[334]. There is no question that Defendants’  
counsel could have presented an application to dismiss the Polards’ expertise at that time and  
any time before the parties filed various joint declarations334F[335]. Furthermore, in the joint  
application filed, Defendants admitted into evidence the Polards’ expertise.  
[382] The Polards’ attorney had to prepare to contest the Application to Dismiss the  
Plaintiffs’ Expert Report and forwarded to the Court authorities to support the dismissal of that  
application.  
[383] Articles 241 and 294 C.C.P. require that a party who wishes to contest an expert report  
present an application before trial and not at the trial. That rule is made to allow the party  
affected, if necessary, to retain a new expert and not cause a delay during the trial or a  
postponement of the trial.  
[384] As Defendants’ counsel insisted on presenting its application to dismiss the Polards’  
expertise, a time was scheduled for that purpose during the trial. Subsequently however,  
Defendants’ counsel announced that he would no longer present the application to dismiss the  
Polards’ expertise. The whole process regarding the Defendants’ tardy and unfounded  
Application to Dismiss the Plaintiffs’ Expert Report required multiple interventions,  
preparations and presentations to the Court by Polards’ counsel335F[336].  
[385] These three interventions were either tardy or tardy and manifestly unfounded on the  
part of ARO and Mr. Ogilvie. They were procedurally abusive in virtue of Articles 51 C.C.P. and  
following and also constituted substantial breaches pursuant to Article 342 C.C.P. The Court is  
of the view that they constituted blameworthy conduct (“comportement blâmable”) which  
should be sanctioned. They justify compensation to the Polards for the additional legal fees and  
non-judicial disbursements incurred. The Court arbitrates an amount of $20,000 in favour of  
the Polards in that regard.  
[386] For these reasons, the Court will award the Polards an amount of compensation for  
professional legal fees and non-judicial disbursements of $91,787.16 ($71,787.16 + $20,000).  
4
.6.3 ARO and Mr. Ogilvie’s Claims  
4.6.3.1 ARO’s Claim for Damages to Reputation and Trouble and Inconvenience  
[387] ARO claims $100,000 against the Polards for damages to its reputation and $50,000  
for trouble and inconvenience. The claim is based on two grounds. First, ARO state that the  
Polards have put forward an “entirely baseless claim and that that constitutes a fault on the part  
of the Plaintiffs”336F[337]. Second, ARO submits that the legal proceedings hindered its  
normal business operations with its clients and lenders337F[338]. Both this claim and these  
grounds are unfounded in fact and in law.  
[388] As the Court has ruled, the Polards’ principal claims are well founded in fact and in law.  
Furthermore, ARO did not make proof of any loss or prejudice caused by the Polards, either by  
the latter’s legal proceedings or by alleged prior or subsequent actions on their part. ARO  
claimed that the Polards had circulated in the collection industry that ARO was refusing,  
without right, to pay amounts owed to the Polards under the contract of sale of ARC338F[339].  
In their testimony, Maurice, Joe and Lionel denied having done this. ARO accused in particular  
Lionel of conducting himself in this way. But Lionel’s testimony was clear, unequivocal and  
convincing that he had not.  
[389] Moreover, with respect to the $50,000 claimed by ARO for “trouble and  
inconvenience”, these are moral damages. They were not presented as material damages with  
respect to any loss of time or efficiency of the part of ARO. A legal person, such as ARO, cannot  
claim moral damages339F[340].  
4.6.3.2 Mr. Ogilvie’s Claim for Damages to Reputation, Psychological Distress and  
Inconvenience  
[390] Mr. Ogilvie claims $50,000 for damage to his reputation and for distress and  
inconvenience allegedly suffered as a result of the Polards’ proceedings. No breakdown of the  
amount of $50,000 for the various heads of damages was offered. The basis of this claim is the  
same as that for ARO’s claim for damages, including that the Polards’ judicial proceeding  
constitutes a fault as being an “entirely baseless claim”, that the claim affected ARO’s business,  
that the Polards acted improperly in circulating news of their legal proceedings within the  
collection industry and that the whole caused psychological distress and inconvenience to  
Mr. Ogilvie340F[341].  
[391] The Court has ruled that the Polards’ principal claims are well founded in fact and in  
law. As such, it is clear that there is no legal basis for Mr. Ogilvie’s claim. The Court has also  
ruled that there is no evidence that the Polards improperly or unlawfully circulated in the  
collection industry information about their dispute with ARO and Mr. Ogilvie. Mr. Ogilvie’s  
claim is dismissed.  
4.6.3.3 ARO’s Claim for Refund of its Legal Fees  
[392] ARO claims refund of its legal fees on the basis that the Polards’ legal proceeding  
constitutes an abuse pursuant to Articles 51 and 54 C.C.P. ARO claims for legal fees paid for the  
present legal proceedings (not for the arbitration proceedings nor for the contestation of the  
Application for Homologation of the Arbitration Decision).  
[393] ARO requests refund of the previous law firm’s invoices in the amount of  
$
$
152,493.17341F[342], and those of its current attorneys in the amount of  
261,764.88342F[343], for a total of $414,258.17.  
[394] The Court concludes that this claim is unfounded in fact and in law. For the reasons  
expressed above, there is no proof that any claim made by the Polards was abusive pursuant to  
Article 51 C.C.P. and following.  
4
.7 Legal Costs, including the Costs of Expertise  
[
395] Article 340(1) C.C.P. reads as follows:  
340. Legal costs are owed to the party that was successful, unless the court decides otherwise.”  
396] The Polards’ principal claims are well founded in fact and in law. The Court will grant  
“
[
them legal costs in respect of both their principal application and the dismissal of the  
Defendants’ Cross-Application.  
[397] Legal costs include expert fees343F[344]. Article 339(2) C.C.P. defines expert fees as  
follows:  
“Expert fees include the costs related to the drafting of the report and, if applicable, preparing  
testimony, and remuneration for the time spent testifying and, to the extent useful, attending  
the trial.”  
[398] The Polards file Andrew Michelin’s, CPA, paid invoices totalling $88,944.75344F[345].  
These invoices include the costs of drafting his report, his testimony and his attendance at trial.  
[399] The Court is of the view that Mr. Michelin’s expert report and expert testimony were  
relevant, useful and essential for the Court to properly assess the evidence before the Court. The  
Court is also of the view that Mr. Michelin’s fees are reasonable in light of the issues before the  
Court and the positions taken by the parties. All of Mr. Michelin’s fees are recoverable as legal  
costs in favour of the Polards.  
400] As the amounts owed by Defendants are subject to compound interest, the Court will  
[
not add the additional indemnity provided by Article 1619 of the Civil Code of Quebec to the  
conclusions.  
FOR THESE REASONS, THE COURT:  
[401] MAINTAINS in part Maurice Joseph Claude Polard, Lionel Polard, Elizabeth Victoria  
Polard and the Polard Family Trust (Plaintiffs’) Second Amended Originating Application;  
[402] DECLARES that Section 4 of the Earnout Agreement (Exhibit P-8) obligates  
Defendant ARO Inc. to pay the Plaintiffs the full Adjusted Earnout Amount as established by the  
Arbitration Decision dated March 17, 2017 (Exhibit P-15);  
[403] CONDEMNS Defendant ARO Inc. pursuant to the Earnout Note (Exhibit P-4) to pay  
to the Plaintiffs $1,345,689 representing the Adjusted Earnout Amount as determined by the  
Arbitration Decision dated March 17, 2017 (Exhibit P-15), plus compound interest at the rate of  
5% pursuant to Section 4 of the Earnout Agreement (Exhibit P-8) and calculated in the manner  
set forth in Section 9.4 of the Share and Asset Purchase Agreement (Exhibit P-1) in the amount  
of $733,889.99, accrued as and from October 12, 2013 and up to June 30, 2022, for a total  
Adjusted Earnout Amount in capital and interest of $2,079,578.99, and after June 30, 2022, to  
pay Plaintiffs interest in accordance with the said Sections 4 and 9.4;  
[404] CONDEMNS Michael Ogilvie pursuant to the Personal Guarantee on the Earnout  
Amount (Exhibit P-5.2) to pay to the Plaintiffs $1,345,689 representing the Adjusted Earnout  
Amount as determined by the Arbitration Decision dated March 17, 2017 (Exhibit P-15), plus  
compound interest at the rate of 5% pursuant to Section 4 of the Earnout Agreement (Exhibit  
P-8) and calculated in the manner set forth in Section 9.4 of the Share and Asset Purchase  
Agreement (Exhibit P-1) in the amount of $733,889.99, accrued as and from October 12, 2013  
and up to June 30, 2022, for a total Adjusted Earnout Amount in capital and interest of $  
2
,079,578.99, and after June 30, 2022, to pay Plaintiffs interest in accordance with the said  
Sections 4 and 9.4;  
[
[
405] The condemnations in the two preceding paragraphs are solidary;  
406] CONDEMN Michael Ogilvie and ARO Inc. solidarily, pursuant to the Personal  
Guarantee on the Bonus Agreement (Exhibit P-5.1) to pay to the Plaintiffs $84,105.56  
representing the additional management Bonus Fee owing plus the Goods and Services Tax  
(
GST) in the amount of $4,205.28 plus compound interest at the rate of 5% pursuant to  
Section 3.1 of the Bonus Agreement (Exhibit P-3) and to Section 4 of the Earnout Agreement  
Exhibit P-8), calculated in the manner set forth in Section 9.4 of the Share and Asset Purchase  
(
Agreement (Exhibit P-1) in the amount of $20,937.97, accrued as and from the Arbitration  
Decision on the Adjusted Earnout Amount dated March 17, 2017 (Exhibit P-15) and calculated  
up to June 30, 2022, for a total Bonus Fee amount in capital and interest of $105,043.53 plus  
GST ($4,205.28), and after June 30, 2022, to pay Plaintiffs interest in accordance with the said  
Sections 4 and 9.4;  
[407] FOR FURTHER CLARITY the interest on the Adjusted Earnout Amount and the  
Bonus Fee is calculated at a rate of 5% pursuant to Section 4 of the Earnout Agreement (Exhibit  
P-8) and is calculated as compound interest in the manner set forth in Section 9.4 of the Share  
and Asset Purchase Agreement (Exhibit P-1), as follows:  
a) Section 4 of the Earnout Agreement (Exhibit P-8) states that “Interest shall be paid by ARO  
on the Adjusted Earnout Amount, as and from the Closing Date (October 11, 2013), until  
payment in full at a rate per annum equal to five percent (5%), calculated and paid in the  
manner set forth in Section 9.4 of the Share and Asset Purchase Agreement.”;  
b) Section 9.4 of the Share and Asset Purchase Agreement (Exhibit P-1) states “Interest shall  
be calculated and payable monthly on the last day of each month during which any amount in  
respect of any Loss remains unpaid, both before and after judgment, with interest on overdue  
interest calculated and payable at the same rate”;  
[408] CONDEMNS ARO Inc. to pay to Plaintiffs the final accrued compound interest on the  
Adjusted Working Capital amount ($79,364.13) decided by Arbitration Decision dated  
March 17, 2017 (Exhibit P-17) calculated up to August 15, 2017 at the Prime Rate (as defined  
below) plus 3% in the manner set forth in Section 9.4 of the Share and Asset Purchase  
Agreement (Exhibit P-1) in the amount of $14,698.72;  
[409] The interest on the preceding amount, namely the Working Capital amount, is also  
calculated as compound interest pursuant to Section 9.4 of the Share and Asset Purchase  
Agreement (Exhibit P-1) but at the Prime Rate plus 3%, as of June 30, 2022;  
[410] Section 1.1.67 of the Share and Asset Purchase Agreement defines the Prime Rate set  
forth in Section 9.4 of the said Agreement as follows345F[346]:  
“
“Prime Rate” means the annual interest rate quoted publicly by ARO Inc.’s regular banker as  
the reference rate of interest used for determining the interest rate it charges on commercial  
demand loans made in Canadian dollars in Canada and commonly known as such bank’s prime  
rate, as adjusted from time to time;”  
[411] DECLARES that ARO Inc. and Michael Ogilvie’s Defence and Cross-Application were  
in part abusive pursuant to Article 51 of the Code of Civil Procedure and following and that ARO  
Inc. and Mr. Ogilvie’s conduct constituted in part substantial breaches in the conduct of the  
proceedings pursuant to Article 342 of the Code of Civil Procedure;  
[
(
412] CONDEMNS solidarily ARO Inc. and Michael Ogilvie to pay Plaintiffs $91,787.16  
$71,787.16 + $12,000) with legal interest at 5% per year, plus the additional indemnity  
provided at Article 1619 of the Civil Code of Quebec since the date of the present judgment;  
[413] ORDERS the refund to the Plaintiffs of any amount given by them as provision for  
costs346F[347];  
[
[
414] DISMISSES ARO Inc. and Michael Ogilvie’s Cross-Application;  
415] WITH LEGAL COSTS on the Plaintiffs’ Principal Application and the Defendants’  
Cross-Application, including the expert costs of Andrew Michelin, CPA, solidarily against ARO  
Inc. and Michael Ogilvie.  
__________________________________  
JEFFREY EDWARDS, J.S.C.  
Me Sharon Citrom  
Me Damian Czaputowicz  
W Legal  
Attorneys for Plaintiffs/Cross-Defendants  
Me Gary S. Rosen  
Miller Thomson SENCRL / LLP  
Attorneys for Defendant/Cross-Plaintiffs  
Dates of hearing:  
May 31, June 6, 7, 8, 9, 10, 13, 14, 15, 16 and 17, 2022  
Production by parties of  
Supplementary Exhibits and  
Submissions:  
June 22, 28 and 30, 2022;  
July 15 and 20, 2022;  
August 4, 22 and 23, 2022  
[
[
[
1] Exhibit P-2.  
2] Exhibit P-8.  
3] Mr. Ogilvie told the Court that he was more comfortable in French and he did testify in  
French.  
[
[
[
[
4] Collège d’enseignement général et professionnel.  
5] Exhibit P-6.  
6] Exhibit D-26.1, p. 310.  
7] Exhibit P-46, Plaintiffs’ Submissions, par. 12 and 13. The only objection of the Polards’  
attorney was with respect to additional e-mails on the basis that their production was tardy. We  
will return to this point later, infra, par. 376. Defendants’ attorney at trial requested from the  
Polards still further e-mails exchanged between them. The Polards stated that they had none.  
See Defendants’ Submissions, Exhibit D-63, par. 244 and 245.  
[
[
[
[
[
8] Exhibit D-26.2 (p. 321).  
9] Exhibit D-26.2 (p. 321).  
10] Exhibit D-52.  
11] Exhibit P-1.  
12] There were separate discussions that an earnout formula would also be used regarding  
the payment of a surplus of working capital paid (Exhibit D-27.4, p. 320). Those discussions  
and that issue are not relevant in the present case.  
[
[
[
[
[
[
[
[
[
[
13] Exhibit P-2.1.  
14] Exhibit P-25.4.  
15] Exhibit P-25.1.  
16] Exhibit P-25.1, p. 1 (p. 575).  
17] Exhibit P-25.1, p. 2 (p. 576).  
18] Exhibit P-25.1, p. 1 (p. 575). Footnote 1.  
19] Exhibit P-25.1, p. 2.  
20] Exhibit P-25.1, p. 2.  
21] Exhibit P-25.1, p. 4.  
22] Exhibit P-25.1, p. 4, footnote 7 referenced in point 17. Note that the formulation by the  
accountants is to “ARC2”.  
[23] Although Mr. Michelin did acknowledge that this document was not a full valuation of  
ARC and would be used for tax planning, it remains that ARO’s accountants, who carried out  
the due diligence of ARC, proposed to structure the transaction to the effect that ARC’s fair  
market value was $7,5 million. And that payment of the purchase price includes the separate  
payment of $1,500,000. That is consistent with the two letters of Mr. Ogilvie sent, 4 days before  
(February 21, 2013), confirming a total price and consideration of $8 million to be paid to the  
Polards for the sale of ARC.  
[
[
24] Exhibit P-8, Section 1, (x).  
25] Exhibit P-8, Section 1, (p), Section 2.  
[
[
[
26] Exhibit P-8, Section 1.  
27] Exhibit P-1, p. 5 (p. 9).  
28] Exhibit D-8; Exhibit D-26.11 (p. 338). The Performance Targets appear to be revised on  
minor details after that date. Exhibit D-26.17.  
[
[
[
[
[
[
29] Exhibit P-8, Section 2.  
30] Exhibit P-8, Section 3.  
31] Exhibit P-8, Section 4.  
32] Exhibit P-3.  
33] Exhibit P-3, Sections 11 and 12.  
34] Exhibit P-3, Section 3.1. It should be noted that Performance Targets were also listed in  
the bonus contracts of certain key employees of ARC, including Joe. These contracts are not  
before the Court.  
[
[
[
[
[
35] Exhibit D-26.1, p. 310.  
36] Exhibit P-1, Section 9.4 (p. 60); Exhibit P-8, Section 4.  
37] Exhibit D-26.12.  
38] Exhibit D-26.14.  
39] Exhibit D-56. This is from a non-official transcript of a recording, made by counsel of  
ARO and Mr. Ogilvie, of the conversation.  
[
[
[
[
[
40] Exhibits P-5.1 and P-5.2.  
41] Exhibit P-4.  
42] Exhibit D-26.15 (p. 344).  
43] Exhibit D-26.20 (p. 373).  
44] Exhibit D-26.20 (p. 371 and 372). These were forwarded to ARO’s attorneys on July 2,  
2
013 but sent by Joe on June 20, 2013.  
[45] Exhibit D-26.20, p. 374: “We are not in control of how much they borrow or take out of  
the company after completion of the transaction”.  
[
[
[
[
[
[
46] Exhibit D-26.20 (p. 371).  
47] Exhibit D-26.22 (p. 376).  
48] Exhibit D-26.22 (p. 406).  
49] Exhibit D-8.  
50] Exhibit D-8.  
51] Exhibit D-26.22 (p. 376). Some of ARO’s attorneys’ language refers to time requirements  
«
imposed » by IQ.  
[
[
[
[
52] Exhibit P-28, p. 37, lines 3 to 12.  
53] Exhibit D-26.24 (p. 408).  
54] Exhibit D-26.24 (p. 421 and 434).  
55] Exhibit D-26.25.  
[
[
[
[
[
[
[
[
[
[
[
[
[
[
[
[
[
[
56] Exhibit D-26.27 (p. 440).  
57] Exhibit P-1, p. 1, 68, 69.  
58] Exhibit D-26.40 (p. 478).  
59] IQ. These references were not included in the final signed text.  
60] Exhibit D-26.40 (p. 495).  
61] Exhibit D-26.40 (p. 493).  
62] Exhibit D-26.42 (p. 541).  
63] Exhibit D-26.42 (p. 540).  
64] Exhibit P-8, p. 1 (p. 131 and 139).  
65] Exhibit D-14, p. 228.  
66] Exhibit P-8, Section 1, paragraph (x).  
67] Exhibit P-8, Section 2a).  
68] Exhibit P-9.  
70] Exhibit P-10.  
71] Exhibit P-22.  
72] Exhibit D-1.  
73] Ibid.  
74] Exhibit P-8, 1(a), 2(d). « Accountants ». The name of the individual accountant arbitrator  
at PSB is Patrick Grosjean, CPA.  
[
[
[
[
[
[
[
[
[
75] Exhibit P-12.  
76] Exhibit P-14.  
77] Exhibit P-13, p. 2 (p. 282).  
78] Exhibit P-11, p. 11 (p. 166. See conclusions.  
79] Infra, par. 199 to 205.  
80] Exhibit P-16.  
81] Exhibit P-16, p. 10 (p. 332).  
82] Exhibit P-15 (p. 305).  
83] Exhibit P-17. The arbitrator concluded that it was $656,129 and determined that  
Designated Prepaid Expenses were $81,418. See Exhibit P-17, p. 16 (p. 351).  
[
[
[
[
[
84] Exhibit P-15, p. 9 (p. 301).  
85] Exhibit P-22, p. 403.  
86] Mr. Ogilvie’s testimony at Court.  
87] Exhibit P-22, p. 15 (p. 418).  
88] Exhibit P-22, p. 407.  
[
[
[
[
89] Ibid.  
90] Exhibit P-22, p. 11 (p. 414).  
91] See Exhibit P-22, p. 469; Exhibit P-22, p. 12, Testimony of Mr. Ogilvie.  
92] ARO’s financial statement for the year ended August 31, 2016 are dated December 20,  
2
016 (Exhibit P-22, p. 495). They were prepared by KPMG.  
[
[
[
[
93] Exhibit P-22, p. 1 (p. 496).  
94] Exhibit P-22, p. 13-14 (p. 508-509).  
95] Exhibit P-22, p. 518.  
96] Exhibit P-22, p. 12 and 13 (pages 519 and 520); ARO’s 2018 Financial Statements are to  
the same effect, except that there is no reference to an amount of interest. Exhibit P-22, p. 18 (p.  
26). There is also a reference that there is litigation between the parties.  
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97] Exhibit D-22, Point 1 (p. 293).  
98] Id., Point 3.  
99] Exhibit D-4. ARO’s attorney noted that the Schedule B Financial Ratios were not  
respected either on August 31, 2015 or August 31, 2016.  
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100] Exhibit D-4, p. 2 (p. 147).  
101] Exhibit D-5.  
102] Exhibit D-5, p. 155.  
103] Exhibit D-5, p. 154.  
104] Exhibit D-42.  
105] Ibid. See p. 4.  
106] Exhibit P-19.1.  
107] The parties erroneously referred to the « Revised Earnout Amount ».  
108] Exhibit P-19. Justice Chantal Tremblay, J.S.C. Judgment rendered on minutes.  
109] Exhibit P-7.  
110] Exhibit P-7, Point 3.  
111] Exhibit P-27.1, p. 2.  
112] Exhibit P-27.1, p. 2.  
113] Exhibit P-27.2.  
114] Exhibit P-27.2.  
115] Exhibit P-27.2, p. 2.  
116] See Court Docket, no. 41.  
117] Note that at the time, the professional regulatory bodies granted the designation of  
Chartered Accountant (CA). See summary curriculum vitae at p. 19 (Appendix 3) of expertise  
(Exhibit P-30). See detailed curriculum vitae at Exhibit D-44.  
[118] Ihag-Holding, ag v. Intrawest Corporation, 2009 QCCS 2699.  
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119] Id. See notably paragraphs 162 to 165.  
120] Ihag-Holding, ag v. Corporation Intrawest, 2011 QCCA 1986. It should be noted that the  
facts in Ihag were substantially different from those in the present case. In Ihag, the attorney in  
the transaction representing Intrawest acknowledges that she had made a mistake in the  
drafting. See Section 2.11.1 of the Superior Court judgment (par. 91 to 107). ARC makes no such  
submission but instead argues that its interpretation of Section 4 of the Earnout Agreement is  
correct.  
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121] Minutes of hearing, June 13, 2022.  
122] See curriculum vitae attached to her expertise (Exhibit D-32, Appendix 3). See updated  
curriculum vitae (Exhibit D-32.1).  
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123] Minutes of hearing, June 15, 2017, p. 3.  
124] Exhibit P-30.2. See detailed explanation of Mr. Michelin.  
125] Exhibit P-22, p. 406 (2014), p. 472 (2015) and p. 428 (2016).  
126] Exhibit D-53, General Accounting Section 1582 « Business Combinations”:  
“
.47 If the initial accounting for a business combination is incomplete by the end  
of the reporting period in which the combination occurs, the acquirer shall  
report in its financial statements provisional amounts for the items for which the  
accounting is incomplete.  
During the  
measurement period, the acquirer  
shall retrospectively adjust the  
provisional amounts recognized at the  
acquisition date to reflect new information obtained  
about facts and  
circumstances that existed as of the acquisition date and, if known, would  
have resulted in the recognition of those assets and liabilities as of that date. The  
measurement period ends as soon as the acquirer receives the information it was seeking  
about facts and circumstances that existed as of the acquisition date or learns that more  
information is not obtainable. However, the measurement period shall not exceed one year from  
the acquisition date.  
.
48 The measurement period is the period after the acquisition date during which the  
acquirer may adjust the provisional amounts recognized for a business combination. The  
measurement period provides the acquirer with a reasonable time to obtain the information  
necessary to identify and measure the following as of the acquisition date in accordance with  
the requirements of this  
Section:  
(a) The identifiable assets acquired, liabilities assumed and any non-controlling interest in the  
acquire;  
(b) The consideration transferred for the acquire (or the other amount used in measuring  
goodwill);  
(c) In a business combination achieved in stages, the equity interest in the acquire previously  
held by the acquirer; and  
(d) The resulting goodwill or gain on a bargain purchase.  
.
49 The acquirer shall consider all pertinent factors in determining whether  
information obtained after the acquisition date should result in an adjustment to  
the provisional amounts recognized or whether that information results  
from events that occurred after the acquisition date. Pertinent factors include the  
date when additional information is obtained and whether the acquirer can identify a reason  
for a change to provisional amounts. Information  
acquisition date is more likely to reflect circumstances that existed at the acquisition date than  
is information obtained several months later. For example, unless an intervening event that  
that is obtained shortly after the  
changed its fair value can be identified, the sale of an asset to a third party shortly after the  
acquisition date for an amount that differs significantly from its provisional fair value  
determined at that date is likely to indicate an error in the provisional  
amount.  
DISCLOSURE  
.61 The acquirer shall disclose information that enables users of its financial statements to  
evaluate the nature and financial effect of a business combination that occurs either:  
(a) During the current reporting period; or  
(b) After the end of the reporting period but before the financial statements are  
completed.  
.62 To meet the objective in paragraph 1582.61, the acquirer shall disclose the following  
information for each material business combination:  
(
(
(
(
a) The name and a description of the acquire;  
b) The acquisition date  
c) The percentage of voting equity interest acquired;  
d) The acquisition-date fair value of the total consideration transferred and the acquisition-  
date fair value of each major class of consideration, such as:  
(
(
(
i) Cash;  
ii) Liabilities incurred (for example, a liability for contingent consideration); and  
iii) Equity interests of the acquirer, including the number of instruments or interests issued or  
issuable; and  
(e) A description of the arrangement and the basis for determining the amount of the payment  
for contingent consideration arrangements and indemnification assets.”  
[127] « .60 Some changes in the fair value of contingent consideration that the  
acquirer recognizes after the acquisition date may be the result of additional  
information that the acquirer obtained after that date about facts and  
circumstances that existed at the acquisition date. Such changes are measurement  
period adjustments in accordance with paragraphs 1582.47-51. However,  
changes resulting from events after the acquisition date  
such as meeting an  
earnings target, reaching a specified share price or reaching a  
research and development project are not measurement period  
milestone on a  
adjustments.  
The acquirer shall account for changes in the fair value of contingent  
consideration that are not measurement period adjustments as follows:  
(a) Contingent consideration classified as equity shall not be remeasured and its subsequent  
settlement shall be accounted for within equity.  
(b) Contingent consideration classified as an asset or a liability shall be remeasured at fair  
value when the contingency is resolved with any gain or loss recognized in net income. The  
resulting asset or liability, if a financial instrument shall be accounted for subsequently, in  
accordance with financial instruments, Section 3856, with any gain or loss recognized in net  
income.” [Emphasis added.]  
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128] Infra, par. 222 to 230.  
129] White Burgess Langille Inman v. Abbott and Haliburton Co, 2015 SCC 23.  
130] Ihag-Holding, ag v. Intrawest Corporation, 2009 QCCS 2699, par. 165; Confirmed by  
Ihag-Holding, ag v. Corporation Intrawest, 2011 QCCA 1986. See also Sobeys Québec Inc. v.  
Coopérative des consommateurs de Ste-Foy, 2005 QCCA 1172.  
[
131] Exhibit P-8, p. 1: “Whereas pursuant to Section 2.3.1.1 of the Share and Asset Purchase  
Agreement, a portion of the Purchase Price of the Holdco Shares, being the sum of  
1,500,000, is to be paid to the Shareholders pursuant to the provisions of this Agreement  
$
and the Earnout Note, such amount payable to be reduced to the extent certain performance  
targets are not achieved by the Operations as of the expiration of the Performance Period, all as  
set forth herein.” [Emphasis added.]  
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132] Exhibit P-30, p. 14.  
133] Exhibit P-7, p. 151, Ratio no. 2 of Schedule B.  
134] Exhibit P-30, p. 14.  
135] Exhibit P-22, p. 431, 2016 Financial Statements of ARO.  
136] Exhibit P-30, p. 10.  
137] As stated, the Court is of the view that in order to decide on the issue of whether ARO’s  
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014 and 2015 Financial Statements are consistent with its proposed interpretation regarding  
the effect of non-compliance with the Schedule B Financial Ratios, it is not necessary to decide  
which accounting standard applies regarding « measurement period adjustments ». The Court  
will return to that issue of inconsistency later.  
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138] Uniprix Inc. v. Gestion Gosselin et Bérubé Inc., 2017 CSC 43.  
140] Exhibit P-1, p. 19 (p. 23).  
141] Exhibit P-8, p. 131.  
142] Exhibit P-8, Section 1 (p) (p. 132).  
143] Exhibit D-63, par. 217 and 218, Written Submissions of Defendants.  
144] Exhibit P-46, par. 1, p. 111, Plaintiffs Argument Plan.  
145] PF Résolu Canada Inc. v. Hydro-Québec, 2020 CSC 43.  
146] Exhibit D-29.  
147] Page 31, line 22 to page 32, line 7.  
148] Page 33, line 5 to page 34, line 2.  
149] Page 35, lines 6 to 25.  
150] Page 36, lines 5 to 9.  
151] Page 36, lines 23 to page 37, line 11.  
152] Page 40 line 22 to page 41, line 9.  
153] Page 43, lines 6 to 7.  
154] Exhibit D-30.  
155] Page 27, line 7 to page 28, line 12.  
156] Page 30 line 24 to page 32, line 14.  
157] Page 33, line 10 to page 34, line 7.  
158] Page 43, lines 6 to 17.  
159] Exhibit D-26.22, p. 406 (July 4, 2013).  
160] Exhibit P-9 (January 26, 2015).  
161] Exhibit P-12 (June 22, 2015). No mention is made of the financial ratios only the  
Performance Targets. The only reference to financial ratios pertains to interest due. See  
conclusions at p. 16 (p. 279).  
[162] Polards « Originating Application », docket no. 1 of the Court file (May 30, 2018), par. 40  
and following.  
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163] See above noted extracts of pre-trial examination (September 17, 2018).  
164] Exhibit D-26.22, p. 406.  
165] Exhibit D-26.22, p. 376 (July 4, 2013).  
167] Exhibit P-9.  
168] Exhibit P-10, p. 2.  
169] Exhibit P-22. There is no mention that the first instalment will never be paid. See also  
letter dated March 10, 2015 of ARO’s attorney which only states that since the financial ratios  
were not met “there is no payment to make” currently, but not that the obligation to do so is  
extinguished.  
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170] Exhibit P-11, par. 78.  
171] Exhibit P-27.1.  
172] Before the date of August 31, 2016 and therefore before it was certified by auditors that  
ARO failed to meet the Schedule B Financial Ratios on that date.  
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173] Exhibit P-11.2, par. 118.  
174] Exhibit P-27.1 (April 20, 2018).  
175] Docket no. 12 of Court file.  
176] Id., par. 29.  
177] Id. par. 43.  
178] Id. par. 45.  
179] Exhibit P-28, page 37, lines 16 to 22.  
180] Exhibit P-28, page 38, lines 5 to 24.  
181] Exhibit P-28, page 39, line 21 to page 40, line 1.  
182] Exhibit D-63, par. 217.  
183] Exhibit D-56. See also Exhibit D-63, par. 119 (p. 14) of Defendants Submissions.  
184] Exhibit P-28, p. 37, lines 3 to 12.  
185] Exhibit D-56, p. 2.  
186] Exhibit P-28, page 37.  
187] Exhibit P-28, page 38.  
188] Exhibit D-15.  
189] Exhibit P-1, Section 1.18, p. 17 and 18 (p. 21,22); Exhibits 7.2.19 and 7.3.8 of the SAPA  
190] Exhibit D-9.  
191] Exhibit P-25.5, Letter of Intent, p. 619.  
192] Exhibit D-52.  
193] Exhibit P-2.1.  
[194] Exhibit P-25.4.  
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195] Exhibit P-25.1, par. 17, p. 4, p. 578. The Court was referred to a text by Kiri Buchanan  
Norton Rose Fulbright) « Earn-out and Reverse Earn-out” (2021): “Earn-out vs. Reverse Earn-  
out – [A] classic earn-out refers to a post-closing increase in the purchase price based on the  
achieving of certain Performance Targets, while a “reverse earn-out” refers to a decrease in the  
purchase price if the Performance Targets are not achieved. For treater clarity, in a reverse  
earn-out scenario, the purchaser pays the maximum amount for the target at closing and if the  
agreed upon Performance Targets are not met, the vendor must re-pay an agreed portion of the  
purchase price, reducing the overall price of the target. Reverse earn-outs are used less often  
because the risk resides with the buyer, rather than the seller.”  
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196] Exhibit P-39.  
197] Exhibit P-30.3. Wilma Broat (MNP) « Faster Closing : Make it easier for buyers to agree  
on price in M & A negotiations » (2018) : « Earn Out – If a seller is confident about the future  
performance of the business, part of the purchase price can be contingent on the company  
achieving performance goals after the sale. Earn outs usually last one to three years, so if the  
business grows substantially, the seller could end up with quite a bit more than the cash on  
close.”  
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198] Exhibit P-1, SAPA, Section 2.3.1.1, p. 19 (p. 23).  
199] Exhibit P-8, p. 131.  
200] Exhibit P-22 (2014), p. 11 (p. 414). The same text appears for 2015 (Exhibit P-22, p. 19 (p.  
488)).  
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201] Exhibit P-11, par. 63, 80.  
202] Defence of ARO and Mr. Ogilvie, paragraphs 47 to 57.  
203] Exhibit D-63, par. 256 and following.  
204] And logically a further $500,000 in 2016.  
205] Exhibit P-22, p. 14 (p. 509).  
206] 2017: Exhibit P-22, p. 13 (p. 520); 2018: Exhibit P-22, p. 18 (p. 526).  
207] Exhibit P-30, p. 6.  
208] Id., p. 7.  
210] Exhibit D-14.  
211] Exhibit D-33.1 and Appendix 2 of D-33.  
212] Exhibit P-28, page 37, lines 3 to 12.  
213] Supra, par. 162 (4) of this judgment.  
214] Exhibit D-26.20 (p. 374), Point 4, second paragraph.  
215] Exhibit P-28, p. 37, lines 16 to 22.  
216] Exhibit D-8.  
217] Exhibit P-25.2. Letter from IQ dated July 31, 2013. See clause 5.1.4 (Exhibit D-28 (April 3,  
2
013). See page 626.  
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218] Testimony of Joe at trial.  
219] Exhibit D-26.42.  
220] Exhibit P-8, Section 1 (w).  
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221] Exhibit P-1, Section 1.1.17, p. 5 (p. 9).  
222] Exhibit P-8, Section 1 (x), p. 133.  
223] Exhibit P-8, p. 133.  
224] Exhibit P-8, Section 2.  
225] Exhibit P-8, Section 1 (p), p. 132.  
226] Exhibit P-1, p. 19 (p. 23).  
227] Exhibit P-25.1. The Polards’ legal proceeding refers to an “earnout holdback agreement”.  
228] Kevin P. McGuiness, The Encyclopedic Dictionary of Canadian Law, vol. 2, Toronto,  
LexisNexis, 2021, p. H-92.  
[229] Standard College Dictionary: Canadian Edition, Funk & Wagnalls, Toronto, Longmans,  
1
963, p. 639.  
[230] Katherine Barber (dir.), Canadian Oxford Dictionary, Toronto, Oxford University Press,  
1
998, p. 673.  
[231] William Morris (dir.), The Houghton Mifflin Canadian Dictionary of the English  
Language, Markham, Ontario, 1980, p. 628.  
[232] William C. Burton, Burton’s Legal Thesaurus, 4th Ed., New York, McGraw-Hill, 2007, p.  
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85.  
[233] An exception to this general rule is the amount owed for Working Capital. The personal  
guarantees given by Mr. Ogilvie do not mention that liability. See Exhibits P-5.1 and P-5.2.  
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234] Exhibit D-26.12 (p. 339).  
235] Exhibit D-26.14 (p. 343).  
236] Exhibit D-56.  
237] See paragraph 29 of the Amended Defence and Cross-Application.  
238] Britannica Dictionary, “Payment” (2022) at britannica.com.  
239] Oxford Advanced American Dictionary, “Payment”, (2002) at  
oxfordlearnersdictionaries.com. In accordance with the Canadian Guide to Uniform Legal  
Citation, 8th Ed, Thomson-Reuters, Toronto, 2014, p. 133, p. 6.4.1 and 6.4.2, it is sufficient to  
refer to the name of the dictionary, the year of publication and the word.  
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240] Collins English Dictionary, “Payment” (2002), at collinsdictionary.com.  
241] Cambridge English Dictionary, “Payment”, (2002) at dictionary.cambridge.org.  
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242] HARRAP’S Shorter, 9th Ed., Edinburgh, Chambers Harrap, 2009.  
243] MacMillan Dictionary, « Payment », (2002) at macmillandictionary.com.  
244] Webster’s Ninth New Collegiate Dictionary, Springfield, Massachusetts, Merriam  
Webster, 1985.  
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245] A New English Dictionary on Historical Principles, Oxford, Clarendon Press, 1909.  
246] Exhibit P-30, p. 11.  
247] Exhibit P-21.  
248] Amended Defence and Cross-Application, par. 67; Exhibit D-63, Defendants  
Submissions, par. 277.  
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251] Exhibit P-15.  
252] Exhibit P-7, p. 2 (p. 129), point 2.  
253] Exhibit P-8.  
254] Exhibit P-16.  
255] Exhibit P-15.  
256] Exhibit P-16 : « Closing Date Arbitration Decision”, p. 10 (p. 332).  
257] Exhibit P-38, p. 1.  
258] Exhibit P-7, p. 2, point 4.  
259] Exhibit P-38, p. 1.  
260] Exhibit P-5.2.  
261] Exhibit P-5.1.  
262] Exhibit P-15; Exhibit P-1, SAPA. See notably sections 1.1.95, 1.1.96 and 2.4.1 to 2.4.8.  
263] Exhibit P-15.  
264] Exhibit P-17.  
265] Exhibit D-22.  
266] Exhibit D-22, p. 295.  
267] Exhibit D-4.  
268] Exhibit D-4, p. 2, par. 9.  
269] Exhibit D-22, p. 295.  
270] Exhibit D-22, p. 295.  
271] Exhibit D-22, p. 296.  
272] Exhibit D-5, p. 153.  
273] Exhibit D-5, p. 154.  
274] Exhibit D-5, p. 156, Point 1.  
275] Exhibit D-5, p. 154, par. 3.  
276] Exhibit P-27.2, p. 2.  
277] Exhibit P-46, par. 131.  
278] Exhibit P-7, p. 2 (p. 126).  
279] Exhibit P-27.1, p. 2 (p. 627).  
281] Exhibit D-2, hearing on February 9, 2018.  
282] Exhibit P-38, p. 1.  
283] The personal guarantees of Mr. Ogilvie were limited to amounts owing pursuant to the  
Earnout Agreement (Exhibit P-8), the Bonus Agreement (Exhibit P-3) and the Consulting  
Service Agreement (Exhibit P-2). See paragraph 10 of the Second Amended Originating  
Application and Exhibits P-5.1 and P-5.2.  
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284] Exhibit P-64. See rebuttal of Defendants’ counsel (Exhibit D-67).  
285] Id. See also case referred to by Plaintiffs’ counsel.  
286] Exhibit P-1, Section 1.1.67, p. 11 (p. 15).  
287] Procureur général du Québec v. Lamontagne, 2020 QCCA 1137.  
289] See Second Amended Originating Application, p. 15.  
290] Id., par. 92.  
291] Exhibit P-46, Plaintiffs’ Written Submissions, par. 145.  
292] Id., par. 143 and 144.  
294] The Court is of the view that it is more appropriate to deal with this issue regarding the  
Polards’ claim for legal fees so as to avoid a duplication of compensation.  
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295] Exhibit P-1, SAPA, Section 9.4. Under Section 4 of the Earnout Agreement, the rate is 5%.  
296] Exhibit D-63, par. 279.  
297] Exhibit P-38.  
298] Exhibit P-62, tabs 1 and 2;  
299] Exhibit P-62, tabs 1 and 6;  
300] Exhibit P-62, tabs 1 and 6;  
301] Exhibit P-62, tabs 1 and 7;  
302] Exhibit P-8, p. 135-136.  
303] Article 637 of the Code of Civil Procedure.  
304] Exhibit P-62, tabs 1 and 4.  
305] Exhibit D-42.  
306] Exhibit P-19.1.  
307] Exhibit P-19.  
308] Exhibit P-62, tabs 1 and 5.  
309] Exhibit P-52.  
310] Exhibit P-59.  
311] Exhibit P-61.  
312] Exhibit P-59; Exhibit P-61, tab 1.  
313] Exhibit P-59; Exhibit P-61, tab 1.  
314] Hinse v. Canada (Attorney General), 2015 CSC 35.  
316] 9092-8953 Quebec Inc. v. Camerano, 2018 QCCS 5011. See also Sommet Prestige Canada  
Inc. v. Ville de Saint-Bruno-de-Montarville, 2019 QCCS 3491, par. 48: “Selon nous, le paiement  
total ou partiel des honoraires d’avocats, par les défendeurs ou par d’autres, n’est pas un fait  
pertinent, car l’article 54 C.p.c. édicte uniquement que des honoraires doivent avoir été  
encourus, pour pouvoir être réclamés, comme le souligne à bon droit notre collègue le juge  
Morrison, dans la décision Thériault-Martel.”  
[317] Exhibit P-2.1: “… in order to bring the Purchase Price to $8,000,000.00, an additional  
amount of $500,000.00 will be payable to you”.  
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318] Exhibit P-25.4.  
319] Exhibit P-25.4.  
320] Exhibit P-25.4.  
321] Articles 51 and 54 C.C.P.  
322] Article 342 C.C.P.  
323] Article 246 C.C.P. and following.  
324] See Exhibits D-26.1 to D-26.42 and D-27.1 to D-27.51. All Defendants’ Exhibits were  
revised and resequenced.  
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325] Exhibit P-31.  
326] Exhibits P-11, P-11.1, P-11.2, P-18, P-23, P024, P-24.1, P-24.2, P-25 and P-26.  
327] Exhibits D-26.1 to D-26.42 and D-27.1 to D-27.51.  
328] Exhibits D-6, D-7, D-8, D-9, D-10, D-11, D-12, D-13, D-14, D-15, D-18 and D-19. The  
Defendants also filed Exhibit D-24, telephone recordings regarding the interpretation to be  
given to the contractual documents.  
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329] Uniprix Inc. v. Gestion Gosselin et Bérubé Inc., 2017 CSC 43.  
330] See Court file, Docket no. 34.  
331] Court Docket no. 54.  
332] See par. 2 of the Application.  
333] On May 31, 2022. See Minutes of Hearing in the Court file.  
334] Docket no. 22 of the Court File.  
335] The first joint application was filed on April 29, 2019. See Docket no. 34.  
336] Defendants’ counsel nonetheless announced his intention to represent on the merits these  
grounds of dismissal and requested that the Court reject the admissibility of large parts of  
Mr. Michelin’s expertise. The Polards’ attorney argued that in so doing, the Defendants’ counsel  
was seeking to do indirectly what the rules of procedure prohibit him from doing directly. It is  
not necessary for the Court to decide this supplemental procedural issue since the present Court  
has decided on the merits that all of Defendants’ grounds in that regard are unfounded in fact  
and in law.  
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337] Amended Defence and Cross-Application, par. 92.  
338] Ibid.  
339] Amended Defence and Cross-Application, par. 95 to 97.  
340] Huiles MRG Drouin Inc. v. Cain Lamarre Casgrain Wells, 2018 QCCS 1648; 9209-1537  
Quebec Inc. (Habitations du Sud-Ouest) v. Lombardo, 2015 QCCS 4266; Entreprises Beau-Voir  
Inc. v. De Koninck, 2012 QCCS 3445 (appeal dismissed: 2014 QCCA 739); 9081-2439 Québec  
Inc. v. Montréal (Ville de), 2007 QCCS 6668 (appeal dismissed: 2009 QCCA 714).  
[341] Amended Defence and Cross-Application, par. 92 and following.  
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342] Exhibit D-58, Lapointe Rosenstein.  
343] Exhibits D-57 ($123,462.88) and D-65(f) ($138,302.12).  
344] Article 339(1) C.C.P.  
345] Exhibits P-48, and P-56.  
346] Exhibit P-1.  
347] Court Docket no. 11, Decision of August 9, 2018.  


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