DAVID Walsh v. LENORA WALSH, 2022 NLSC 6
Opinion
court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Walsh v. TRA Company Limited , 2022 NLSC 6 Date : January 19, 2022 Docket : 200101T1035 Between: DAVID Walsh and LENORA WALSH first Plaintiff And: TRA COMPANY LIMITED FIRST Defendant And: FOODLAND LIMITED SECOND Defendant And: SOBEYS GROUP INC. THIRD Defendant And: SOBEYS CAPITAL INCORPORATED FOURTH Defendant And: SOBEY’S LAND HOLDINGS LIMITED FIFTH Defendant And: JOSEPH GREEN SIXTH Defendant Before: Justice Glen L.C. Noel
Place of Hearing: St. John’s, Newfoundland and Labrador Dates of Hearing: November 23 – 27, 30; December 1 – 3, 7 – 11; 14 – 18, 2020; and January 4 – 8; March 29 – 31;June 28, 29; July 5 and 6, 2021
Summary: The Plaintiffs were the sole shareholders of corporations that owned and operated grocery stores in the Town of Bay Bulls under theFoodland banner and on Merrymeeting Road in St. John’s as Walsh’s Family Foods. They sold their shares in the corporations thatoperated the stores in 1995 and 1996, respectively. They claim their corporations were not supplied goods by Defendant TRA at the cost arrangement that TRA had promised them, and thatthey lost money on the sales of their shares in the corporations resulting from the Defendants’ failure to pay the promised trade deals.
Their action seeks damages from the Defendants for negligent or fraudulent misrepresentation. The Court held: 1. The Walshes have not established the elements necessary to prove negligent or fraudulent misrepresentations. 2. The Walshes’ claims for negligence, negligent misrepresentation, and personal losses for fraudulent misrepresentation are statute-barred by s. 5(
a) and (
b) of the Limitations Act. The only claim not time-barred (but dismissed for no liability) is for economic lossesarising from fraudulent misrepresentation governed by s. 6(
c) of the Limitations Act. 3. The Walshes failed to establish (
i) an independent and separate wrong to them personally as shareholders, and (ii) the claims for lossof share value are damages sustained by the Corporations and not a direct loss to them as shareholders. The common law rule in Foss v.Harbottle precludes their claims, and denying the claims cannot be considered “too flagrantly opposed to justice.” 4. The Walshes did not sustain any direct personal losses for which they can recover damages. 5.
The Walshes’ expert-opinion evidence is inadmissible, and the admissible evidence failed to prove the Walshes suffered lossesassociated with the sale of their shares in either of the Bay Bulls or Merrymeeting Road Corporations. The Court dismissed the action against the Defendants with no order as to costs for the reasons provided. Appearances: Paul D. Dicks, Q.C. and Megan S. Reynolds Appearing on behalf of the Plaintiffs Colm St. R. J. Seviour, Q.C., Jonathan D. Dale and Christopher D. Goodridge Appearing on behalf of the Defendants Authorities Cited: CASES CONSIDERED: Walsh v.
TRA Company Limited, 2016 NLTD(G) 119; Foss v Harbottle, (1843) 67 E.R. 189, (1843) 2 Hare461; Walsh v. TRA Co. [2006] N.J. No. 389, 2006 CarswellNfld 376 (N.L.S.C.(T.D.)); Walsh v. TRA Co., 2007 NLCA 50; Walsh v.T.R.A. Company Limited, 2015 NLTD(G) 27; H.(F.) v. McDougall, 2008 SCC 53; Queen v. Cognos Inc, (SCC), [1993]1 S.C.R. 87; Hercules Managements Ltd v. Ernst & Young, (SCC), [1997] 2 S.C.R. 165; Lam v. Chiu, 2012 BCSC 440;R. v. B. (K.G.), (SCC), [1993] 1 S.C.R. 740; Hennessey v Eastern Regional Health Authority, 2019 NLSC 239;Midland Resources Holding Ltd. v. Shtaif, 2017 ONCA 320; WEH Enterprises Ltd. v.
Squires, 2010 NLCA 41; Morgan v. Rogers, 2011NLCA 27; Central & Trust Co. v. Rafuse, (SCC), [1986] 2 S.C.R. 147; Ryan v. Moore, 2005 SCC 38; Grant Thornton
LLP v. New Brunswick, 2021 SCC 31; Bauer v. Erben, 2007 NBQR 299; Brunette v. Legault Joly Thiffault, s.e.n.c.r.l., 2018 SCC 55;NPV Management Ltd. v. Anthony, 2003 NLCA 41; Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44; Kosmopoulos v. ConstitutionInsurance Co. of Canada, (SCC), [1987] 1 S.C.R. 2; 642947 Ontario Ltd. v. Fleischer (2001), (ONCA), 209 D.L.R. (4th) 182, 56 O.R. (3d) 417 (C.A.); Salah v. Timothy’s Coffees of the World Iinc., 2010 ONCA 673; Yaiguaje v.Chevron Corporation, 2018 ONCA 472 Groupe d’action d’investisseurs dans Biosyntech c Tsang, 2016 QCCA 1923; MidlandResources Holding Ltd. v.
Shtaif, 2017 ONCA 320; Tran v. Bloorston Farms Ltd., 2020 ONCA 440; McGowan v. Bank of Nova Scotia,2010 PESC 17, aff’d 2001 PESCAD 20 , 2001 PECA 20; 3Com Corp. v. Zorin International Corp., (ONCA), 2006 CarswellOnt 3333, 148 A.C.W.S. (3d) 819 (C.A.), Catalyst Pulp & Paper Sales Inc. v. Universal Paper Export Co., 2008BCSC 515; Streamside Engineering & Development Ltd. v. Canadian Imperial Bank of Commerce, (NL SC), [1990]Nfld. & P.E.I.R. 220, 266 A.P.R. 220 (N.L.S.C.(T.D.)); Cuscuna c. Ferrarelli, 2017 QCCS 2475; Rogers v. Bank of Montreal (1985), (BC SC), 30 B.L.R. 41, 64 B.C.L.R. 63 (S.C.); Rogers v.
Bank of Montreal, (BC CA), [1987] 2W.W.R. 364, 9 B.C.L.R. (2d) 190 (C.A.); Scotia Mortgage Corp. v. Lockhart, 2011 CarswellOnt 15667, [2012] O.J. No. 1143 (Sup. Ct.J.); Scotia Mortgage Corp. v. Lockhart, 2012 ONCA 158; leave to appeal denied, 303 O.A.C. 400 (note), 440 N.R. 394 (note); MartinMarietta Materials Canada Ltd. v. Beaver Marine Ltd., 2016 NSSC 225; Piccolo v. Piccolo, 2014 ONSC 5280; White Burgess LangilleInman v. Abbott and Haliburton Co., 2015 SCC 23; Walsh v. TRA Company Limited, 2019 NLSC 131; Bye v. Newman, 2016 BSSC 267;Hiscott v. Hall, 2015 NLCA 1; Walsh v.
TRA Company Limited, 2019 NLSC 167 STATUTES CONSIDERED: Limitations Act, S.N.L. 1995, c. L-16.1; Limitation of Actions Act, S.N.B 2009, c. L-8.5; CorporationsAct, R.S.N.L. 1990, c. C-36; Judicature Act, R.S.N.L. 1990, c. J-4 RULES CONSIDERED: Rules of Supreme Court, 1986, S.N.L. 1986, c. C-42, Sch.
D TEXTS CONSIDERED: Bruce MacDougall, Misrepresentation, (Toronto: LexisNexis, 2016) REASONS FOR JUDGMENT Noel, J.: Table of Contents INTRODUCTION.. 8 BACKGROUND.. 10 How It Started for the Walshes and TRA Newfoundland. 11 The Walshes Becoming Independent Foodland Operators. 11 Merrymeeting Road Store Acquisition. 12 Walshes’ Sale of their Stores and Shares. 13 The Pleaded Causes of Action and Foundation of the Claims. 13 Legal Constraints on the Claims. 14 Documentary and Testimonial Evidence. 16 ISSUES. 17 ANALYSIS. 18 1.
Did the Defendants negligently or fraudulently misrepresent to the Walshes the terms and conditions of the Supply Arrangement?. 18 Context of the Two Alleged Misrepresentations. 19 Defendants’ Position on the Misrepresentation Allegations 20 Burden and Standard of Proof 21 Elements of Negligent Misrepresentation. 21
Duty of Care Based on “Special Relationship” or “Personal Relationship” . 22 No Untrue, Inaccurate or Misleading Representations . 24 The 1983 Foodland Presentation, Including the Foodland Brochure . 25 David Walsh . 25 Lenora Walsh . 26 Joseph Green . 27 The Secretly Taped Calls . 29 Russ Tiller 31 Foodland Brochure . 33 ‘Dead-Net’ Costing Commercially Unreasonable . 34 John Gardiner 34 Darrell Rushton . 35 Rushton as a Source of Alleged Misrepresentation . 35 Other Elements of Cognos Test – Negligence and Reliance . 35 Requirement to Show Damages 37 Elements of Fraudulent Misrepresentation . 37 The Alleged Deceitful Conduct 38 Sobeys Equivalent Cost or Pricing Misrepresentation after the Walshes Commenced Foodland Operations 38 Separateness of TRA and Sobeys Business Operations . 40 Joseph O’Leary . 41 1984 Sobeys Supply Agreement 42 Misrepresentation Claims Ignore Foodland Program Benefits Offered to the Walshes’ Corporations . 43 Karl Vokey . 44 Off-Invoice Allowance – Supplier’s Invoice Cost with 5% Upcharge Less the Deal 44 Additional Price Support to Foodland Operators 45 The Manual Override of the Supplier’s Invoice Cost on Non-Directs . 47 Rebates on Direct Products . 49 Walshes’ Acknowledgement of Foodland Program Benefits . 49 Retail-Oriented Differences between Sobeys (corporate stores) and Individual Operators (Foodland stores) 50 Walshes’ Reliance on the Sobeys Departmental Analyses (SDAs) 52 TRA Financial Records 54 2.
Are any of the claims out of time and barred by the applicable statutory limitation period? . 55 Limitations Decision . 55 Grant Thornton LLP v. New Brunswick . 58 Application of Discoverability to the Facts . 59 By-Cheque evidence . 60 Tiller’s 1997 No Net-Net Cost Advice . 62 Mr. Walsh’s Examination on Lunch Meetings in 1998 . 63
January 29, 1999 Meeting with Counsel and Bill Moulton . 64 Fraudulent Concealment Doctrine Has No Application . 66 3. Are the claims for losses to the Walshes’ Corporations precluded by the common law rule in Foss v. Harbottle , and if so, can this be considered “too flagrantly opposed to justice”? . 67 Sale of Shares in Bay Bull Store . 67 Sale of Shares Respecting Merrymeeting Road Store . 68 Application of Foss v Harbottle . 69 Piercing the Corporate Veil 70 ONCA Decisions in Midland Resources and Tran v.
Bloorston . 74 No Independent Wrong to the Walshes as Individuals . 77 Other Authorities Relied on by the Walshes . 80 4. Did the Walshes otherwise sustain any direct personal losses for which they can recover damages? 82 Derivative Claims Not Recoverable . 83 Claim for Mental Anguish . 84 Corporations Act Remedies Not Availed of by the Walshes . 86 5.
What, if any, damages can the Walshes establish through the admissible expert evidence for alleged losses resulting from having sold their shares at an artificially low price? . 86 Admissibility of Expert Opinion of Ashley Power-Stack for the Walshes . 87 The Guiding Authorities on Expert Opinion Evidence . 87 Power-Stack’s Engagement as an Expert 88 Trial Ruling on Threshold Qualification of Power-Stack . 90 Cross-examination of Power-Stack on her Analysis Approaches . 93 Defendants’ Case Law on Admissibility of Expert Opinion . 95 Accepted Criticism of the Allowance Analysis by Defendants’ Expert 96 (
i) The SDAs as compared to the financial statements of the Walshes’ Corporations . 97 (ii) The implied margins of the Walshes’ Corporations using Allowance Analysis . 98 (iii) The Implied Operating Profits of the Walshes’ Corporations . 99 Walshes’ Objections to the Admissibility of the Glass Report 100 Consideration Paid for the Shares . 102 The Joint Consulting Agreement for Merrymeeting Road Sale . 103 Other Material Points of Disagreement between the Experts . 104
a) Grouping of the “Bulk Sales” Department with the “Grocery” Department 105
b) The Issue Relating to Valuation of Past and Future Losses . 106
c) Accounting for Notional Salary . 107
d) Approach to Estimating Maintainable EBITDA .. 108 No Losses Established on either Share Sale . 110 Bay Bulls . 110 Merrymeeting Road . 111 COSTS . 111
CONCLUSION .. 113 INTRODUCTION [ 1 ] David Walsh is a persistent and strong-willed gentleman, formerly involved in the retail grocery business. He refuses to let go of his understanding of the wholesale grocery supply arrangement he thought and hoped he had secured with TRA and Sobeys dating back to 1983. [ 2 ] He and his wife Lenora Walsh have been married 53 years. They are both in their late seventies. They worked extremely hard, and generously supported their community throughout their working lives. They won numerous awards for their accomplishments in supermarket customer service.
They have endured much as a loving family, including the loss of their son to brain cancer before the Trial concluded. [ 3 ] Sobeys is a large successful national grocery wholesaler and retailer with several corporate arms, including TRA Newfoundland Limited and Foodland Limited. [ 4 ] The Walshes were the sole shareholders of corporations that owned and operated grocery stores in the Town of Bay Bulls and on Merrymeeting Road in St. John’s. They claim their corporations were not supplied goods and product by TRA at the cost arrangement they were promised.
Their action seeks damages from the Defendants in tort for negligent or fraudulent misrepresentation. [ 5 ] The matter for determination in this case, as framed by Counsel for the Walshes in their Closing Trial Submissions, is: Whether the Walshes lost money on the sales of their shares in two companies as a result of the Defendants’ failure to pay various trade deals to the Walsh companies, which owned stores at Bay Bulls and Merrymeeting Road in St. John’s. [ 6 ] Counsel for the Defendants submit the Walshes’ misrepresentation claims cannot succeed because:
a) the claims are for losses to their corporations, and the law does not permit the Walshes as shareholders to recover for a wrong to the corporations;
b) they are time-barred under the Limitations Act, S.N.L. 1995, c. L-16.1 ;
c) their misrepresentation allegations are demonstrably unfounded; and
d) even if their claims are somehow tenable, the Trial evidence confirms that no damages were incurred by either the Walshes or their corporations. [ 7 ] It is one of the longest active civil cases before our Court. The Walshes filed their action over 20 years ago, in 2001. There have been several filed decisions along the way in conduct of the proceedings. (see Appendix A) [ 8 ] A central figure in all of this is the Sixth Defendant, the late Joseph Green. He was the General Manager/President of TRA Newfoundland Limited until his retirement in 1990. He died long before the Trial commenced.
His answer to the Walshes’ allegations did not go without preservation. Mr. Walsh secretly recorded private conversations with Green, and at the age of 85, Green provided four days of Discovery testimony. For the Walshes to succeed in their claim, I would have to find that Green repeatedly lied to Mr. Walsh — a man he revered as a mentor and best friend. [ 9 ] Mr. Walsh’s preoccupation for all these years has been to expose and share in “all trade deals” that the buying power of TRA and Sobeys was able to generate.
He claims that is what the Defendants promised, never passed-on, and never shared with his corporations. If they had, the Walshes’ corporations would have been more profitable and the value of their shares much higher. [ 10 ] On a best-case scenario, their expert opinion evidence, if admissible (which the Defendants strongly contest), puts the loss at $1,715,000. [ 11 ] I searched long and hard to find a path for the Walshes to succeed. I would like to be in a position to award them some measure of damages.
But unfortunately, their claim is fraught with legal barriers and evidentiary shortfalls, and the damages not what the Walshes seek. [ 12 ] They had the finest of counsel in Paul D. Dicks, Q.C. and his extremely capable junior counsel, Megan S. Reynolds. Despite the very best in legal representation and an impressive expert witness, the law and established facts do not support any of the relief the Walshes are seeking. [ 13 ] The law restrains judges from doing what they prefer and their heart desires. I have to do what the law demands and the evidence reveals.
As much as I want the Walshes to be vindicated and succeed in this lawsuit, I cannot be governed by my sympathy for them. [ 14 ] Mr. Walsh, in his testimony, said he was not looking for sympathy or vengeance but justice. It is my duty to explain to him and Mrs. Walsh why justice requires that I dismiss their action. It is a judgment that I take no comfort in delivering.
[ 15 ] If there is any solace for the Walshes, for reasons that I will provide, I am not ordering costs against them. BACKGROUND [ 16 ] To appreciate the legal and factual issues engaged, I will lay out the chronology and background of the dispute. How It Started for the Walshes and TRA Newfoundland [ 17 ] Mr. Walsh in 1975 joined with three partners to incorporate Southern Discount Limited and purchase a convenience store business in Bay Bulls. Shortly thereafter, they built a 5000 square-foot Quonset hut (semi-circular metal building) and operated a supermarket. Mr.
Walsh and his partner Tony Barton bought out their other partners in Southern Discount. [ 18 ] TRA got its start in Newfoundland in the early 1980s when Sobeys purchased the assets of an insolvent wholesaler.
TRA with its warehousing capability began supplying product to the Sobeys stores; other Sobeys group banner stores, such as the Foodland; and some independents that included Southern Discount. [ 19 ] TRA and TRA Newfoundland Limited over the years went through various corporate amalgamations and renaming within the Sobeys group of companies, and ultimately amalgamated and continued as Sobeys Capital Incorporated (“Sobeys”). There is no dispute that the Walshes have named the responsible legal entities (I refer to TRA and TRA Newfoundland Limited interchangeably in these reasons). [ 20 ] In 1983, Mr.
Walsh approached TRA for financial support to buy Tony Barton out of the Bay Bulls business. Mr. Walsh accepted TRA’s loan of $200,000 to allow him to buy out Barton for a total of $250,000. The Walshes Becoming Independent Foodland Operators [ 21 ] Foodland was a tradename owned by Sobeys and was used to expand sales in the province through the Foodland banner-store concept for small rural supermarkets. The “Foodland Program” was a retail program provided by TRA. [ 22 ] In the fall of 1983, the Foodland Program was presented to Mr. and Mrs. Walsh. The meeting occurred at TRA’s office in Donovans Business Park.
Mr. Walsh put the timing of this meeting as being in October/November 1983, shortly after the buyout of Barton. [ 23 ] Green and Russ Tiller of TRA, in the Foodland presentation meeting, reviewed and provided a brochure to the Walshes titled “The Foodland Program.” Following the meeting, Mr. and Mrs. Walsh, Green and his wife, and Tiller and his wife went out for a celebratory dinner. [ 24 ] The Walshes allege it was based on the representations made at the Foodland presentation meeting, together with discussions that Mr.
Walsh had with Darrell Rushton, Sobeys Vice-President and subsequent President of wholesale operations, that they decided to become an independent Foodland banner store on January 1, 1984. [ 25 ] Southern Discount was renamed Walsh’s Foodland Limited on February 29, 1984, and operated at Bay Balls as “Walsh’s Foodland.” The Walshes owned the shares of Davlen Holdings Limited, which held the shares of Walsh’s Foodland Limited. Merrymeeting Road Store Acquisition [ 26 ] In 1995, the Walshes incorporated DLW Investments Ltd. with the intent of purchasing a grocery business in St. John’s.
DLW Investments proceeded with this acquisition in mid-1995, purchasing the Merrymeeting Road store, which it operated as “Walsh’s Family Foods.” Although not a Foodland banner store, the supply arrangement also applied to Walsh’s Family Foods.
Walshes’ Sale of their Stores and Shares [ 27 ] The Walshes claim they relied on the representations of the Defendants to their detriment, resulting in the stores becoming unprofitable and forcing them to sell the stores. [ 28 ] On February 10, 1995, the Walshes sold their shares in Davlen Holdings, the company that owned the Bay Bulls store, to Sobeys, and on July 16, 1996, sold their shares in DLW Investments, the company that owned the Merrymeeting Road store to Colemans. (I will refer to Davlen Holdings and DLW Investments as the “Corporations”).
The Pleaded Causes of Action and Foundation of the Claims [ 29 ] The Walshes assert three causes of action: (
a) fraudulent misrepresentation; (
b) negligent misrepresentation; and (
c) negligence. [ 30 ] There is no pleaded claim for breach of contract. It was the Corporations, and not the Walshes, who are alleged to have been promised that TRA would pass along all trade deals, and/or TRA would charge the Corporations the same costs as the Sobeys stores. [ 31 ] The Walshes in their Further Amended Statement of Claim formally abandoned their prior-pleaded claim in contract.
[ 32 ] The supply arrangement was an agreement between TRA and the Corporations (the “Supply Arrangement”).
The Walshes as individuals and shareholders were not parties to any agreement or contract with TRA. [ 33 ] The Supply Arrangement consisted of TRA’s provision of products from TRA’s wholesale operations, called “Non-Directs,” and the supply of products from suppliers, such as dairy products, potato chips and soft drinks, delivered directly to the Walshes’ stores and billed to and paid by TRA, known as “Directs.” [ 34 ] For good reason, counsel for the Walshes did not purse the claim in simple negligence in their Trial Brief or Closing Submissions.
Nothing in the evidence otherwise supports a claim in negligence alone. In earlier proceedings before this Court ( Walsh v. TRA Company Limited , 2016 NLTD(G) 119, at para 33, and referred to below as the “Limitations Decision”), the Walshes acknowledged that there is no independent claim in negligence for pure economic loss. [ 35 ] The only ground for liability against the Defendants rests on the alleged misrepresentations.
Legal Constraints on the Claims [ 36 ] The Walshes’ claims are seriously constrained by the common law rule in Foss v Harbottle , (1843) 67 E.R. 189 , (1843) 2 Hare 461 , as well as prior judicial rulings in this matter. [ 37 ] Foss v. Harbottle stands for the fundamental principle of corporate law that a corporation and its shareholders are different entities and only the corporation can sue for a wrong done to it. Shareholders have no cause of action for wrongs done to their corporation.
Shareholders cannot sue for consequential losses to themselves resulting from damage inflicted on their corporation in which they own shares. [ 38 ] Orsborn J struck the entirety of this action in 2006. He concluded, when viewing the Statement of Claim contextual as a whole, it “is a corporate loss claim and is not maintainable by individual shareholders” ( Walsh v. TRA Co. [2006] N.J. No. 389, 2006 CarswellNfld 376 (N.L.S.C.(T.D.)). [ 39 ] On appeal, the action was reinstated: Walsh v. TRA Co ., 2007 NLCA 50 (“Reinstatement Decision”).
The Court of Appeal in the Reinstatement Decision was not prepared to find that the Walshes’ action could not succeed, given that they had pled certain personal duties owed to them and had alleged, in part, to have sustained personal damages. The Court held: 25. … The Walshes are not, in the allegations underlined in the excerpts from the statement of claim set out in paragraph 2 above, asserting a right to recover, in their capacity as shareholders, their share of any damages to which the corporation might be entitled if the pleaded allegations are made out.
They have alleged a special relationship, misrepresentation arising out of that relationship, reliance on those misrepresentations and, as a consequence, they claim, they have personally suffered damages. Whether they will be able to lead evidence to demonstrate such a personal relationship, in addition to or as opposed to a corporate relationship between the Walsh Companies on the one hand and the Sobey Companies and Green on the other hand, must await trial of the issues.
They are not to be precluded from having the opportunity to establish such a relationship, and presenting their argument as to entitlement at law, by the court anticipating that a Foss v. Harbottle defence will be presented and will be successful. [ 40 ] In 2015, in an application to strike the pleaded damages for “losses resulting from having sold their shares at an artificially low price,” Whalen CJ recognized the two legal pre-conditions to any claim advanced by the Walshes (at para. 32): (
a) an independent relationship or duty existing between them and the wrongdoer; and (
b) the damages represent a loss separate from that of their Corporations that is causally linked to the personal wrong done to the Plaintiffs: Walsh v. T.R.A.
Company Limited , 2015 NLTD(G) 27 (the “2015 Pleadings Decision”). [ 41 ] Whalen CJ went further and held (at para. 43) that the Walshes’ alleged losses resulting from having sold their shares at an artificially low price “are damages suffered by the Corporations and not the Plaintiffs.” Notwithstanding this finding, Whalen CJ was not prepared to hold on a striking of pleadings application that the Walshes had no chance of success. [ 42 ] In particular, Whalen CJ relied on appellate authorities for the proposition that treating the Corporations and the Walshes as one entity and refusing to permit their claim for the impugned damages may lead to a result “too flagrantly opposed to justice.” [ 43 ] Finally, McGrath J in the Limitations Decisions held that the Walshes’ claims, except for economic losses arising from fraudulent misrepresentation, are governed by a two-year limitation period, subject to the discoverability principle.
Documentary and Testimonial Evidence [ 44 ] The parties worked cooperatively and assembled a Common Book of Documents consisting of 13 Volumes, 332 Tabs, 4133 pages. This allowed for the convenience in the management of documentary exhibits at Trial and efficient use of court time in Trial spanning over the course of six weeks. The parties were not restricted from tendering other documents in evidence. [ 45 ] The parties agreed that documents under Category 1 in the Common Book would be entered as consent exhibits and form part of the Trial record for the truth of their contents.
Category 2 documents do not form part of the Trial record, unless a witness identified and spoke to the document, at which point it was entered as an exhibit through the first witness speaking to it. Documents noted as Category “X” in the Common Book were subject to the right of a party to object to admissibility. [ 46 ] The Walshes presented their evidence through Mr. Walsh’s seven days of testimony followed by Mrs. Walsh, and two former employees of TRA, Russ Tiller and Joseph O’Leary.
The Walshes called Ashley Power-Stack (her testimony lasted four days) as an expert in business valuations, and in particular, share valuations.
[ 47 ] Testimony from the Defendants came primarily from Karl Vokey (seven days duration) and two others, John Gardiner and Darrell Rushton, who through their roles with TRA or Sobeys had knowledge of the Supply Arrangement with the Walshes’ Corporations. The Defendants tendered Susan Glass as an expert in business valuation and damage quantification, and Glass testified for three days. [ 48 ] Counsel left no stone unturned in preparing their submissions for my deciding the issues.
I not only had the benefit of their detailed Trial Briefs but also lengthy written Closing Submissions of the Plaintiffs and the Post-trial Brief of the Defendants, together with closing oral submissions. At my request, counsel provided a complete transcript of the Trial proceedings. ISSUES [ 49 ] The issues for my determination are: 1. Did the Defendants negligently or fraudulently misrepresent to the Walshes the terms and conditions of the Supply Arrangement? 2. Are any of the claims out of time and barred by the applicable statutory limitation period? 3.
Are the claims for losses to the Walshes’ Corporations precluded by the common law rule in Foss v. Harbottle , and if so, can this be considered “too flagrantly opposed to justice”? 4. Did the Walshes otherwise sustain any direct personal losses for which they can recover damages? 5. What, if any, damages can the Walshes establish, through the admissible expert evidence, for alleged losses resulting from having sold their shares at an artificially low price? ANALYSIS 1.
Did the Defendants negligently or fraudulently misrepresent to the Walshes the terms and conditions of the Supply Arrangement? [ 50 ] There is a fundamental difference of understanding between the parties on what the Supply Arrangement was intended to mean and include. No documentation exists detailing the specific terms of the Supply Arrangement. [ 51 ] Mr. Walsh is an honest man. He believes firmly that TRA and Green misled him and Mrs. Walsh and deceitfully concealed from them the true cost of goods that their Corporations were paying compared to the Sobeys stores. Mr.
Walsh has a misguided understanding of the Supply Arrangement. His perception of the Defendants’ mistreatment of his Corporations is unsupported by the preponderance of evidence. [ 52 ] Mrs. Walsh’s credibility is beyond reproach. She presented as a quiet person who candidly acknowledged this dispute has consumed their lives. She spoke of them losing friendships over the years because Mr. Walsh would not stop talking about it. She put considerable time and hours into the stores, but she had limited knowledge and involvement in the Supply Arrangement the Corporations had with TRA.
Context of the Two Alleged Misrepresentations [ 53 ] Mr. Walsh’s motivation and purpose for pursuing the Foodland Program was to avail of TRA’s buying power, which was increased by having Sobeys within the buying group. TRA was able, because of its bulk purchasing power and warehousing capabilities, to purchase significant volumes (e.g. carloads) of grocery products at the lowest possible prices.
This enabled TRA to pass on preferred supplier pricing costs to the Walshes’ Corporations, spoken to in the evidence as the “Supplier’s Invoice Cost.” By themselves, the Walshes’ Corporations were limited to purchasing products on smaller volumes at higher supplier prices. [ 54 ] The Walshes claim their Corporations were enticed to enter the Supply Arrangement with TRA on two promises that turned out to be either negligent or fraudulent misrepresentations.
First, they claim their net cost for products purchased through TRA would include the full benefit of all supplier discounts (“trade deals”) — the ‘all trade deals off’ representation. Second, they would receive the same product cost arrangement as the Sobeys stores, that being TRA’s cost plus five percent — the ‘Sobeys equivalent cost’ representation. They allege the Sobeys stores received substantial trade deals that TRA did not pass on to their Corporations to reduce the cost of product. [ 55 ] The trade deals fell into three board categories: 1.
TRA invoiced the Walshes’ Corporations the Supplier’s Invoice Cost plus a 5% upcharge less the off-invoice supplier deal or allowances on products from TRA’s warehouse (the “Off-Invoice Allowance”). 2. Suppliers paid rebates to TRA on the products delivered directly to the Walshes’ stores (“Rebates on Directs”). 3.
Suppliers paid various allowances after they had issued the invoices, including by-cheques, volume discounts, co-op advertising, and other rebates (referred to collectively as “ Rebates on Non-Directs.” The Defendants also refer to these as Incremental Supplier Funding received by Sobeys stores, as reflected in the Sobeys Departmental Analyses (“SDAs”). Some of the witnesses at times referred to this as “inside monies.” [ 56 ] It is not in dispute that the Walshes’ Corporations received the benefit of the Off-Invoice Allowance.
They claim they never received their full entitlement to Rebates on Directs and Rebates on Non-Directs.
Defendants’ Position on the Misrepresentation Allegations [57] The Defendants submit the totality of evidence refutes the misrepresentation allegations. The contention that the Corporationswere to receive ‘all trade deals off’ would mean TRA promised to provide “dead net” costs (costs of product net of all trade deal) — acommercially absurd proposition. No other TRA customer, including the Sobeys stores, received such a deal.
Witnesses for TRA andSobeys testified that if TRA supplied the Walshes on such a basis, TRA would have lost money. [58] On the ‘Sobeys equivalent cost’ representation, the Defendants submit firstly, the evidence establishes that TRA invoiced theCorporations at exactly the same product prices as TRA charged the Sobeys stores; and secondly, there is no evidence that the Walshes’Corporations were promised Incremental Supplier Funding received by Sobeys stores. [59] The Defendants further summit the misrepresentation allegations ignore the substantial financial and price support TRAprovided to the Walshes’ Corporations as part of the Foodland Program benefits.
Burden and Standard of Proof [60] The Walshes have the burden of proving their misrepresentation allegations on a balance of probabilities. The standard ofproof is no different for negligent or fraudulent misrepresentations. While I have to remain mindful of the seriousness of the fraudulentallegations when assessing the evidence, the standard of proof does not change: H.(F.) v. McDougall, 2008 SCC 53, at para. 40.
Elements of Negligent Misrepresentation [61] I will review the elements and evidence pertaining to negligent misrepresentation, and then consider fraudulentmisrepresentation. [62] The Supreme Court of Canada set out the elements of negligent misrepresentation in Queen v.
Cognos Inc, (SCC), [1993] 1 S.C.R. 87, at para. 34, as follows: (1) there must be a duty of care based on a "special relationship" between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted.
In the case at bar, the trial judge foundthat all elements were present and allowed the appellant's claim. Duty of Care Based on “Special Relationship” or “Personal Relationship” [63] To hold that the Defendants were in a “special relationship” with the Walshes, two factors need to be present:
a) the Defendants ought reasonably to have foreseen that the Walshes would rely on their representations, and
b) the Walshes’ reliance would, in the particular circumstances of the case, be reasonable: Hercules Managements Ltd v. Ernst &Young, (SCC), [1997] 2 S.C.R. 165, at para. 24. [64] The Court of Appeal’s Reinstatement Decision provides additional direction on the nature of the relationship with theDefendants that the Walshes must establish.
The Walshes must demonstrate “a personal relationship, in addition to or as opposed to acorporate relationship between the Walsh Companies on the one hand and the Sobey[s’] Companies and Green on the other hand.”[emphasis added] [65] The Walshes have failed to demonstrate a special or personal relationship between them and the Defendants. While theWalshes came to form good friendships over time in their dealings with TRA Newfoundland, and especially Green, the representationsmade to the Walshes arise solely from a corporate relationship and not to them as individuals.
The Walshes as individuals did notcontract with TRA; the Supply Arrangement was strictly between Corporations and the alleged promises were made to the Walshes’companies. [66] On a broader basis, the Walshes allege the Defendants, knowing that the Walshes placed their trust in them during the courseof their relationship from 1983 to 1996, owed them a duty of care to be open and honest with them on matters relevant to their operations.
I find the duty of openness and honesty was to the Corporations, and the Defendants did not breach any duty of care to the Walshes asindividuals. [67] TRA and Foodland’s affiliation with Southern Discount evolved out of a corporate relationship. [68] Southern Discount, in becoming a Foodland affiliate in late 1983, was progressing from its status as an independent stand-alonestore to becoming a member of TRA’s Foodland Program. Southern Discount had a prior commercial relationship with TRA. Itcontinued its commercial dealings with TRA under the Foodland banner.
The relationship was not with the Walshes personally. [69] The Foodland presentation was made to the Walshes in their capacities as Southern Discount representatives, not asindividuals. TRA had no commercial interest in dealing with the Walshes as individuals. It was the business of Southern Discount thatwas the subject of the Foodland presentation. [70] In contrast with the commercial discussions involving Southern Discount becoming a Foodland affiliate, Mr. Walsh did have
personal dealings with TRA when it came to buying out his partner, Tony Barton. The financing of Barton’s buy-out was a commercial transaction between Mr. Walsh individually and personally with TRA, whereas the Sothern Discount–TRA connection was a corporate relationship. [ 71 ] The Walshes’ friendship with Green is of no assistance in establishing a “special” or “personal relationship.” When Green first made the representations to the Walshes to become part of the Foodland Program, they were not close friends but became so over the course of the business relationship. I accept Mr.
Walsh’s evidence that the respect he had for Green was a significant factor for the Walshes in joining the Foodland Program. He came to look up to Green as a trusted advisor and considered him like a father. That does not diminish that Green, in his capacity as TRA’s point person, was at all times dealing with the Walshes in a commercial capacity as representatives of their companies and not personally as individuals. [ 72 ] The Supply Arrangement did not engage the Walshes in their personal capacities. TRA invoiced the Walshes’ Corporations and not the Walshes personally.
The Walshes had no personal liability to pay invoices if their Corporations failed to pay. [ 73 ] It follows that there exists no duty of care owed by TRA and Green to the Walshes in their personal capacities. The Walshes’ claims fail on this essential threshold requirement. [ 74 ] If I am wrong and the Defendants did owe a duty of care to the Walshes as individuals separate from their Corporations, their claims still fail on the other elements of the Cognos test. No Untrue, Inaccurate or Misleading Representations [ 75 ] I must focus carefully on the actual representations.
The Supply Arrangement constitutes the contract, but the terms of the contract arose from pre-contractual representations and discussions. The representations that induced the Walshes into the contract were not untrue, inaccurate, or misleading. [ 76 ] TRA and Sobeys, however, could have perhaps avoided this costly litigation if they had taken care to document the Supply Arrangement, and had been more forthcoming and open with Mr. Walsh that he was not getting and was never going to get “net-net cost” of product as he envisaged.
The lack of openness does not lead to legal liability but goes to costs, as I will discuss when dealing with costs. [ 77 ] Mr. Walsh perceived, in his mind and heart, that the representations that were made to him and Mrs. Walsh were untrue, inaccurate, and misleading. The weight of the evidence refutes the assertions and perception that the Walshes erroneously held. [ 78 ] The Walshes must establish the Defendants made the representations and that the representations were false.
Whether there has been a representation of fact is determined on an objective basis on all of the evidence: Bruce MacDougall, Misrepresentation , (Toronto: LexisNexis, 2016) at 83, 85, and 128. [ 79 ] The Walshes rely on three principal sources of TRA representations: (
i) the 1983 Foodland presentation meeting, including the Foodland brochure; (ii) Mr. Walsh’s discussion with Darrell Rushton; and (iii) representations as to TRA’s pricing to the Sobeys stores after the Walshes’ Corporations entered into the Supply Arrangement. [ 80 ] Mr. Walsh’s recollections are challenged not only by TRA witnesses, Rushton, Green and John Gardiner, but also by Tiller called as a witness for the Walshes. [ 81 ] Mrs. Walsh could offer only vague remembrances of what Green and Tiller discussed with them in the Foodland presentation.
Her evidence is understandably of limited probative value in corroborating Mr. Walsh’s recollections of the misrepresentations. The 1983 Foodland Presentation, Including the Foodland Brochure David Walsh [ 82 ] At the Foodland presentation meeting Mr. Walsh attended with Mrs. Walsh, Green and Tiller went over the benefits to the Walshes of becoming a part of the Foodland Program. They would be joining one of the biggest buying groups in Canada. Mr. Walsh recalled being told, as the retailer, they would look after the customers, and the wholesaler, and TRA, in turn, would look after them.
By joining the Foodland Program, Mr. and Mrs. Walsh would be independent operators carrying the Foodland banner in their franchised area from Trepassey to Bay Bulls on the Southern Shore. [ 83 ] Mr. Walsh testified that that their “net cost” for products purchased through TRA would be the same as Sobeys and that they would receive the full benefit of all supplier discounts. In exchange, the Walshes were required to pay TRA’s net cost plus the same 5% upcharge that was charged to the Sobeys stores. Mr.
Walsh described in his cross-examination that there was “no doubt whatsoever that we were receiving exactly the same as Sobeys.” [ 84 ] Mr. Walsh’s understanding on “net costing” goes beyond the ability of the Walshes’ Corporations to purchase from TRA at carload prices (volume discounts) without buying carload volumes and the ability to get the “Off-Invoice Allowance.” Mr.
Walsh understood “net costing” to mean all deals and allowances would be “netted down” on the TRA invoice. [ 85 ] There would be no way for TRA to show on the upfront issued invoice for product supplied to the Walshes’ Corporations trade deals from suppliers that were subsequently accredited to TRA or Sobeys (the “inside monies”). However, I accept the submissions of the Walshes that TRA had the ability to track, account for, and provide the benefit of ‘all trade deals,’ if that was in fact what the Walshes’ Corporations were promised. [ 86 ] Mr.
Walsh did not state in his direct evidence the specific trade deals promised, but he acknowledged in cross-examination that his Corporations received many of the trade deals listed in his pleadings.
[87] He could not recall the discussion of By-cheques at the Foodland presentation. Prior to selling his shares, he assumed he wasreceiving the full amount of Rebates on Directs. Lenora Walsh [88] The Foodland presentation meeting came as a surprise to Mrs. Walsh. She was working as a nurse at the time and preoccupiedwith raising the Walshes’ young children as well as her nursing career. She had very limited involvement with Southern Discount or thegrocery business up to 1983. On the day of the meeting, she had worked an entire nursing shift, had returned home and was preparingdinner for her children when Mr.
Walsh informed her that they would be going for a meeting at TRA’s offices that evening. She had notpreviously discussed the opportunity to join the Foodland Program with Mr. Walsh. [89] Although Mrs. Walsh heard what was said at the meeting, she acknowledges she “didn’t know what it all meant.” She recallshearing that they were to pay “cost” plus the 5% upcharge less the deals. When asked about whether that was TRA’s cost, Mrs. Walsh’srecollection was that they were told that they would be paying the same as Sobeys.
She did not recall whether TRA’s invoice cost wasdiscussed nor whether the concept of ‘net-net’ pricing was discussed. She had no knowledge of what deals existed in the grocery storebusiness at the time of the meeting. [90] Mrs. Walsh indicated that Tiller went through the Foodland brochure with Mr.
Walsh, but that she was not paying closeattention to all of it. [91] She remembers the parties were excited about what they discussed at the meeting, and “how happy Dave was about it.” [92] When I turn to consideration of Green’s and Tiller’s evidence on the Foodland presentation, I find no support for the contentionthat the Defendants made the ‘all trade deals’ representation to the Walshes or that the Defendants represented the Walshes’Corporations were to receive Sobeys’ costs. Joseph Green [93] Green was first the General Manager, and subsequently the President of TRA, for the period of 1979 to 1990.
He had primaryresponsibility for the Foodland Program and its upcharge and royalty operators. [94] Green died in 2014. Pursuant to the Rule 46.11(2) of the Rules of Supreme Court, 1986, S.N.L. 1986, c. C-42, Sch. D, Sobeysgave the Walshes notice to enter Green’s Discovery testimony as Trial evidence. Rule 30.13(1)(
c) permits any part or all of a deposition,so far as admissible under the rules of evidence, where the deponent is dead, to be entered as evidence for any purpose by any party. There is no evidentiary rule precluding the admission of Green’s material evidence. [95] I accept Green’s evidence and find that after many years retired from TRA he had no reason to lie and did not lie or misleadMr.
Walsh in any way. [96] When Green was discovered in April 2010, he had no specific recollections of the Foodland presentation meeting, but he wasable to confirm what he would have told the Walshes about the Foodland Program and Supply Arrangement. [97] On the Off-Invoice Allowance, Green confirmed TRA would supply goods at supplier invoice cost, plus the 5% upcharge, lessany invoice deal. [98] TRA collected Rebates on Directs paid by suppliers and TRA then paid 50% to the stores.
He explained in his Discoverytestimony how all direct products that went to the stores were invoiced through TRA to achieve higher volume percentage rebates fromsuppliers than individual stores could get on their own. TRA shared the rebates evenly between the stores. [99] By-cheques were not offered to the Walshes or any Foodland stores. The money received from supplier By-cheques was usedby TRA as price support for Foodland stores; specifically on staple items that had no up-charge; on items advertised and sold by thestores at below cost as a loss leader; and on special in-store promotions and giveaways.
The Secretly Taped Calls [100] Mr. Walsh secretly recorded 18 persons. Mr. Walsh taped Green in three telephone calls, which occurred on May 28, 1999; May30, 1999, and June 18, 1999. These calls were transcribed. [101] Despite Counsel for the Walshes giving notice at a Pre-trial Case Management meeting of their intent to object to the entry oftranscripts of these calls, they did not raise objection at Trial to the admissibility of the transcripts as evidence. [102] I admit the taped and transcribed conversations on the “principled approach” to the admission of evidence.
Generally, hearsaystatements — out-of-court statements offered to prove the truth of the contents – are not admissible. What was said in the conversationsbetween Mr. Walsh and Green meets the principled approach requirements of relevancy, necessity, and reliability: Lam v. Chiu, 2012BCSC 440, at para. 8; and R. v. B. (K.G.), (SCC), [1993] 1 S.C.R. 740. The statements are highly probative and thereis no prejudice to the Walshes in the sense of unfairness by misuse, overconsumption of time, or distraction and confusion of issues. [103] I attach significant weight to Green’s statements.
The calls occurred prior to the Walshes commencing litigation. Green waslong-retired from TRA, with no residual connections to TRA and Sobeys. Green was wholly unaware that Walsh was taping him. Mr.Walsh challenged Green to tell the truth and Green confirmed each time, “I’m telling you the truth, Dave.” [104] Mr. Walsh’s purpose in making and taping the calls was to confirm the particulars of the 1983 Foodland presentation and to getGreen to admit the ‘all-trade deals off’ version of the Supply Arrangement. Mr.
Walsh failed in this effort. [105] Green confirmed what was promised was the Off-Invoice Allowance or “TRA’s invoice cost.” Walsh asked for clarification on
invoice cost and Green said, “invoice cost is the supplier’s invoice cost.” He explained Mr. Walsh and every other Foodland upcharge store received “the supplier’s invoice cost, less the off case deal.” Mr. Walsh asked, “okay, so all I got was the off-invoice allowance?” Green replied, “yes, the off case allowance, yes.” When Mr. Walsh specifically put to Green that he was to receive “all the deals,” Green categorically denied this: A. No, I didn’t say you got all … Q. Oh you did, Joe. A. All the off invoice deals, Dave, off invoice deals. [ 106 ] Mr.
Walsh, who later attended all of Green’s Discoveries, confirmed that Green was consistent “to the grave” with his version of the Foodland presentation. Mr. Walsh testified that Green had a “fantastic memory.” [ 107 ] In the conversations with Green, Mr. Walsh did not challenge him on the other central allegation that the Walshes make that they were promised they would get Sobeys’ cost. [ 108 ] It is simply untenable that Green would turn on Mr. Walsh and lie to him as Mr. Walsh alleges. I asked Mr. Walsh during his testimony why a man that he revered turned on them. This was his reply: A.
Well, I guess the only answer I can give you, that Joe Green was Newfoundland’s answer to Sybil. Q. To? A. Sybil, the movie where they had multiple personalities. The man—there was a side of him that I know now that was the hardest working, kindest man, considerate man you ever met in your life, and the other side that [you] didn’t know, he was cunning and baffling, and you believe him. … [ 109 ] I cannot accept Mr. Walsh’s explanation. Green had no reason to lie to Mr. Walsh. Green spoke the truth in his taped conversations with Mr. Walsh, and the truth of his statements undermines Mr.
Walsh’s own memory of the Foodland presentation. Russ Tiller [ 110 ] Neither did Tiller’s evidence lend support to Mr. Walsh’s recollections. [ 111 ] Tiller was a former TRA management employee that the Walshes called as a witness. He was with TRA in 1983 and 1984, until Green asked him to leave the company. Subsequently, he had supply arrangements with TRA in Nova Scotia for his own business operations. [ 112 ] Tiller had good recall of the Foodland presentation and was familiar with the Foodland Program, having presented it to others on many occasions. I find his evidence was balanced.
He had previously given Discovery testimony and Mr. Walsh had also secretly taped his conversation with him. [ 113 ] Tiller related that the meeting included a “page-by-page” review of the Foodland brochure. [ 114 ] He emphasized to the Walshes that TRA had the ability to buy in bulk (carloads of grocery items) and provide the Walshes with volume-purchasing advantage, including lowest available prices from suppliers and the security of supply.
He explained to them how the Off-Invoice Allowance would involve the supplier published timeframe deals off the supplier’s invoice. [ 115 ] He was unsure how By-cheques came up in the discussions, but Green did say the Walshes would get credit for By-cheque deals and it was something he would further discuss with Mr. Walsh. He related By-cheques at the time were not a big part of the business in Newfoundland. [ 116 ] Tiller’s understanding of the “Trade Deals are Passed On”
section of the Foodland brochure was that it was confined to the off- invoice deals. [ 117 ] Sobeys’ internal costing, merchandising, and trade deals were not the subject of the Foodland presentation. [ 118 ] Nevertheless, his evidence on the ‘Sobeys equivalent cost’ representation helps explain why the Walshes came away with a different understanding than he and TRA had on what Sobeys’ cost meant. They were told they would get the “same price as Sobeys.” Tiller understood this to mean “the same going-out cost.” The invoice price for both Sobeys stores and the Walshes’ store was the same.
The term, ‘net cost’ or ‘net-net cost’ was never used. [ 119 ] Tiller confirmed he did not dwell on cost that much because “it’s like opening a can of worms” and “someone’s definition of cost was different than somebody else’s.” He wanted to avoid the part on cost. He “went by as quickly as possible” knowing it could not “be avoided forever.” He confirmed whatever cost meant he understood it could not mean “TRA’s net cost” for supplying product to Foodland operators.
[ 120 ] Tiller was aware that one of Mr. Walsh’s goals in wanting to join the Foodland Program was to compete with Bidgoods’ store, a supermarket within driving distance of customers for the Walshes’ Bay Bulls store. Tiller made the odd comment in his testimony, about Mr. Walsh wanting to compete against somebody like Bidgoods that “he’s smarter than I thought he was initially.” Throughout all of Mr.
Walsh’s testimony, I never once doubted his resolve and astuteness in going after what he wanted to achieve. [ 121 ] Rather than glossing over and avoiding the discussion on cost (whether competing with Bidgoods was a realistic possibility or not), I would have expected Tiller to give Mr. Walsh a more fulsome explanation of how supplier cost and trade deals worked in the industry. Mr.
Walsh then would probably not have come away from the presentation with the impression that he was getting the same cost treatment as Sobeys. [ 122 ] Tiller was unsure of how much concentration or explanation either he or Green put on the issue of Rebates on Direct at the Foodland presentation. He recalled there had been previous discussion with Mr. Walsh about Rebates on Direct when he was operating as Sothern Discount. I take from Tiller’s evidence there was general discussion with Mr.
Walsh prior to the Foodland presentation about the ability of TRA to generate volume discounts from suppliers and manufacturers of both direct and non-direct products. [ 123 ] The most Tiller could say was that during his short time with TRA the Walshes’ Bay Bull store would have received from TRA a percentage of the Rebates on Directs like others. Foodland Brochure [ 124 ] I can see in reference to the “Trade Deals Are Passed On”
section of the Foodland brochure, how the Walshes would be left with some confusion that they would be receiving ‘all trade deals off.’ But putting the brochure in the context of the evidence does not bear out the ‘all trade deals off’ or the ‘Sobeys equivalent cost’ misrepresentations. [ 125 ] The brochure reads: TRADE DEALS ARE PASSED ON • Manufacturer and suppliers deals are passed on to the retailer • Allowances are deducted from the invoice • “Buy in” Opportunities are provided before the deal or promotion termination… [ 126 ] The wording does not state all deals or allowances are passed on or deducted.
The brochure makes no reference to Sobeys price equivalency. [ 127 ] My conclusion on the Foodland presentation evidence is that TRA, through Green and Tiller, promised the Walshes the Off- Invoice Allowance deals and some portion of monies from By-cheques and Rebates on Directs. Tiller and Green could have done better explaining to the Walshes what was in their contemplation, so Mr. Walsh would not have had the confusion and unrealistic commercial expectation about the Supply Arrangement. ‘Dead-Net’ Costing Commercially Unreasonable [ 128 ] Effectively, what Mr.
Walsh contends the Walshes were promised — ‘dead-net costing’ — is commercially unreasonable. I accept the evidence of both John Gardiner and Rushton that it would not have been economically viable for TRA to fulfil Mr. Walsh’s expectation of ‘all-trade deals off’ at a 5% upcharge. John Gardiner [ 129 ] Gardiner joined TRA Newfoundland in 1986 as Vice-President of Operations and succeeded Green as President of TRA in 1989.
He described the concept of “dead-net costing” to mean stripping out any and all subsidies (trade deals) a product could possibly garner on receipt in the warehouse or after performance sales to get it to the absolute lowest cost to TRA. He testified, “it would be ludicrous” to expect TRA to promise the Walshes’ companies would be charged on a dead-net cost basis. He explained TRA’s operating cost would be in the six-and-a-half to seven percent range, so at dead-net cost on a 5% upcharge TRA would be selling products at a loss. TRA did not have a dead net cost arrangement with any of its retailers.
Darrell Rushton [ 130 ] Rushton likewise confirmed TRA “wouldn’t have a wholesaler or warehouse business,” if it supplied the Walshes’ Corporations based on product costs net of all TRA’s trade deals, allowances, and other product subsidies. Rushton as a Source of Alleged Misrepresentation [ 131 ] The Walshes’ pleadings (at para. 18) identify Rushton as a principal source of misrepresentations. Rushton was just short of turning 83 when he testified. He was with Sobeys for 43 years until his retirement in 2000. He was articulate, and after all these years, still had reasonable recall of his interactions with Mr.
Walsh. [ 132 ] Mr. Walsh’s evidence is somewhat confusing as to the timing of meetings with Rushton. He is clear Rushton was not present during the Foodland presentation meeting. In answer to a question on re-direct, he said he talked to Rushton “a bit before” his meeting with Green and Tiller, and Mrs. Walsh was not present. They both confirmed that Mr. Walsh on some unknown date gave Rushton a ride to the airport, and Rushton told him he was doing the “right thing” joining the Foodland Program.
[ 133 ] Walsh gave no testimony to support Rushton made the ‘all trade deals off’ or ‘Sobeys equivalent cost’ representations. Rushton confirmed he had no discussions with Mr. Walsh about trade deals other than the capability of buying at container-load prices. Other Elements of Cognos Test – Negligence and Reliance [ 134 ] The remaining elements of the Cognos test only come in play if the Walshes had satisfied the Defendants owed them a duty of care and made false or misleading representations.
The Walshes must prove the Defendants acted negligently in making the alleged misrepresentations and that the Walshes were reasonable in their reliance on the negligent misrepresentations. [ 135 ] The standard of care expected ( Cognos at para. 56) on the Defendants is “a duty to exercise such reasonable care as the circumstances require to ensure that representations made are accurate and not misleading.” [ 136 ] While TRA could have done better explaining and documenting terms of the Supply Arrangement, the evidence does not meet the burden of establishing on a balance of probabilities that the Defendants were negligent in failing to take reasonable care in dealing with the Walshes. [ 137 ] The Walshes’ reliance on the alleged misrepresentations was not reasonable in all the circumstances.
Mr. Walsh simply heard what he wanted to hear and believe that he was getting all the deals and same pricing treatment as Sobeys stores. The evidence put forth by the Defendants demonstrates that was not commercially attainable or reasonable. [ 138 ] The evidence also demonstrates that a reasonable and prudent person in Mr. Walsh’s circumstances, while operating the stores and buying from TRA, would have taken steps to inquire if he was receiving all the trade deals. [ 139 ] Numerous TRA invoices to the Walshes’ companies entered as evidence state “Less Deal” and not “Less Deal s .” [ 140 ] Mr.
Walsh had some knowledge of By-cheques and Rebates on Direct at the time of the Foodland presentation. It was only after he sold his shares and started working with a competitor grocery retailer, Colemans, that he became more knowledgeable of the extent that all trade deals or “inside monies” could generate. Gardiner and Ruston confirmed that Mr. Walsh never asked them whether he was receiving all trade deals or “inside monies.” [ 141 ] The Supply Arrangement offered to the Walshes was not what Mr. Walsh honestly believed he had secured and wished he had with TRA.
In the non-exclusive Supply Arrangement that the Walshes had with TRA, it was incumbent on Mr. Walsh to raise with TRA and insist he get all trade deals and the same cost equivalency as Sobeys. He could have walked away from the business arrangement he had with TRA and become affiliated or deal with another wholesaler, or attempted to negotiate a more economically favorable Supply Arrangement with TRA. Instead, he chose to sell his shares in the Walshes’ Corporations.
Requirement to Show Damages [ 142 ] I will deal with the final element of Cognos , that the Walshes show damages resulted, when addressing damages under Issue 3. Elements of Fraudulent Misrepresentation [ 143 ] To establish fraudulent misrepresentation, or deceit, the Walshes must prove the following five elements: Hennessey v Eastern Regional Health Authority , 2019 NLSC 239 at para. 34 ; and Midland Resources Holding Ltd. v. Shtaif , 2017 ONCA 320 , at para. 162 . (
i) a false representation of fact by the defendant to the plaintiff; (ii) knowledge the representation was false, absence of belief in its truth, or recklessness as to its truth; (iii) an intention the plaintiff act in reliance on the representation; (iv) the plaintiff acts on the representation; and (
v) the plaintiff suffers a loss in doing so… [ 144 ] It is apparent that there is substantial consistency in the elements of negligent misrepresentation and fraudulent misrepresentation. The principal difference is the intention of deceit, which is required to ground fraudulent misrepresentation.
The Alleged Deceitful Conduct [ 145 ] The Walshes in their Closing Submissions maintain that TRA and Sobeys took active and deliberate steps to conceal from the Walshes the nature, extent, and value of the Trade Deals they received and deliberately, deceitfully, and fraudulently misrepresented that the Walshes’ stores were paying the same net costs for products as the Sobeys stores.
They allege that, in response to inquiries about competitors selling at lower prices, TRA employees, including Green and Gardiner, consistently, deliberately, knowingly, and fraudulently misrepresented that the Walshes’ stores were paying the same product costs as TRA/Sobeys. And finally, the Walshes rely on the 1984 Sobeys Supply Agreement as evidence of a fraudulent scheme to artificially inflate the Sobeys invoices to make it appear that Sobeys was paying the same as the Foodland stores.
[ 146 ] Mr. Walsh in his testimony accused the TRA senior personnel of creating “a Ponzi scam that would make the Mafia blush.” In his younger days, Mr. Walsh fought in the boxing ring and he had no trouble facing anybody coming at him, but he said, “I was not prepared for my corner to be doing a number on me.” [ 147 ] There was no “Ponzi scam” and Mr. Walsh’s corner did not turn on him. The Walshes have failed to prove deceitful conduct on the part of the Defendants.
Sobeys Equivalent Cost or Pricing Misrepresentation after the Walshes Commenced Foodland Operations [ 148 ] I have addressed that the ‘all trade deals off’ representation was not made to the Walshes, and now turn to the representation that TRA deceitfully misrepresented to the Walshes that they were receiving the same equivalent cost or pricing as the Sobeys stores, after the Walshes’ Corporations entered into the Supply Arrangement. [ 149 ] The Walshes alleged in their Trial Brief that TRA/Sobeys went to great lengths to hide “all trade deals” were not passed on to the Walshes’ Corporations, including generating false invoices.
Their Further Amended Statement of Claim (at para. 28) pleads that the Defendants took active and deliberate steps to prevent the Walshes from ascertaining the actual and/or nature of the various trade deals, and this amounted to “fraudulent concealment” and “an abuse of high level of trust.” The Walshes led no evidence to establish the creation of false invoices, nor any evidence of fraudulent concealment, nor an abuse of trust on the part of the Defendants. [ 150 ] Mr.
Walsh testified that five or six years after commencing as a Foodland operator, he questioned Bidgoods’ ability to undersell him on popular selling items, Tetley Tea and Fraser Farms Meatballs. This occurred at a time when he said, “I was making a few dollars, we were doing half decent, as I thought, and I wanted to build on.” [ 151 ] He challenged Pat O’Keefe, TRA’s new head buyer, on the Tetley and Fraser Farms pricing issue at the TRA offices. Green joined the discussion and showed Mr.
Walsh that the Foodland price book and the Sobeys price book were the same. [ 152 ] Gardiner related in his evidence how he similarly showed Mr. Walsh the Sobeys price book and the Foodland price book, which were the same. [ 153 ] The Closing Brief of the Walshes notes that TRA failed to produce any Sobeys invoices or price books in the Defendants’ document production or as Trial exhibits. However, Mr. Walsh admitted that TRA management showed him the Sobeys price book and the invoices were the same for Sobeys stores as Foodland operators.
Despite the absence of corroborating documentary proof, I am satisfied on the testimony at Trial that the Sobeys stores were invoiced on the same basis as Foodland stores (with the exception of staple items — milk, sugar and flour, which the Foodland stores were not charged the 5% upcharge). [ 154 ] There was therefore no false or deceitful representation of fact made to the Walshes. [ 155 ] Likewise, TRA and its management did not have knowledge the representation was false, absence of belief in its truth, or recklessness as to its truth. [ 156 ] The evidence fails to support a finding that the Defendants took active and deliberate steps to conceal the true nature of its cost arrangement with the Sobeys stores from the Walshes.
Separateness of TRA and Sobeys Business Operations [ 157 ] Notwithstanding their connection as part of the buying group, TRA and Sobeys businesses were separate operations. TRA, as the warehouse operator and supplier for the Sobeys stores, had no influence on Sobeys’ management, operations, merchandising, and prices. The Sobeys stores were not part of the Foodland Program, and did not receive the benefits of the Foodland Program. [ 158 ] Green consistently indicated that he was not involved with the Sobeys stores and did not have knowledge of or a role in their operations or business.
When asked about the deals Sobeys stores were getting, he stated, “I don’t know … I was not associated with Sobeys stores.” In discussing rebates, he said, “I was never involved with Sobeys’ business. I don’t know what they did.” And he testified further, “I had no arrangement with Sobeys, I didn’t do any dealings with Sobeys on anything really.” [ 159 ] Gardiner similarly had no involvement with the Sobeys stores management or operations, and had no knowledge of the SDAs. [ 160 ] Rushton had no involvement with the operations of the Sobeys stores.
Asked about TRA’s ability to influence the cost of product sold in Sobeys stores, he stated it was up to Sobeys “to do whatever they felt was necessary to compete” with competitor stores. He had no knowledge of SDAs and no reason to have access to any of the retail operations information. Joseph O’Leary [ 161 ] TRA hired Joseph O’Leary in 1979 as a buyer, and he became the Director of Purchasing for TRA Newfoundland in the early 1980s. He worked with TRA until 1990 reporting to the General Manager, Green.
The Walshes called O’Leary as a witness. [ 162 ] His evidence confirms that TRA invoicing (on non-staple products) was the same for Foodland operators as the Sobeys stores. He made the interesting observation in support of the Walshes’ position that the invoices did not accurately represent the true cost of product for the Sobeys stores. He stated: “Because it can show that you are getting the same price as Sobeys.
There’s a front door and there’s a back door, but what goes in the front door is not the same as what goes in the backdoor.” [ 163 ] I accept the invoicing would not show additional monies in other deals and allowances potentially available and that were in fact paid over to Sobeys. There is nothing nefarious or fraudulent about the manner of TRA’s invoicing. O’Leary acknowledged in cross- examination that TRA’s management was not colluding and contriving to produce a method of invoicing to deceive Mr. Walsh. 1984 Sobeys Supply Agreement
[ 164 ] Mr. Walsh testified in relation to the agreement between Sobeys Stores Newfoundland, Lofoods Newfoundland (a Sobeys subsidiary), as Buyers, and TRA Newfoundland, as Seller, from 1984 (the “1984 Sobeys Supply Agreement”). Significantly, it post- dates the 1983 Foodland presentation, and it did not pertain to the Foodland stores or other TRA banner stores. [ 165 ] Mr.
Walsh did not see the 1984 Sobeys Supply Agreement while he was operating as a Foodland, only acquiring it after he sold his stores. [ 166 ] The Walshes submit firstly, it is proof of the type and nature of rebates that TRA was supposed to pay the Walsh stores.
Secondly, it demonstrates that TRA/Sobeys must have had the capacity to track products purchased and the amount and types of Trade Deals, discounts and rebates available on which the percentages could be calculated. [ 167 ] The Walshes point to the strong language that “Under no circumstances will by cheque allowances be used to net out the product cost,” as evidence that the By- cheque amounts were known and calculable at the time of sale.
Otherwise, there would be no need to specify that they not be used to net out the product cost. [ 168 ] The Walshes go further and argue the strength of the language is evidence that TRA and Sobeys were likely concerned that its invoices might become known to its other customers, and see that Sobeys was charged less than the Foodlands, contrary to the TRA representations.
They allege this is evidence of a fraudulent scheme to artificially inflate the Sobeys invoices to make it appear that Sobeys was paying the same as the Foodland stores. [ 169 ] I am unable to accept the Walshes’ position on their view of what the 1984 Sobeys Supply Agreement proves. In his direct evidence, Mr. Walsh confirmed, “our Foodland Program compared perfectly with this.” He confirmed that the Sobeys stores upcharge was 5% and By-cheques were not to be provided to buyers.
What it does reflect is substantial benefits were accruing to TRA as the wholesaler for Sobeys, thus providing TRA with more discretionary funds to administer to the Foodland Program. [ 170 ] Respecting the quarterly rebate in Clause 7, Gardiner and O’Leary testified this payment to Sobeys was to offset freight charges Sobeys incurred. Sobeys incurred its own fright charges in transporting goods from TRA’s warehouse to the Sobeys stores. Foodland stores received the benefit of no transportation charge to their stores.
Misrepresentation Claims Ignore Foodland Program Benefits Offered to the Walshes’ Corporations [ 171 ] The claims of fraud, deceit, and concealment are erroneously premised on the understanding that the Walshes’ Corporation would be treated the same as Sobeys stores not just on the Off-Invoice Allowance, but also in every respect on the manner of allocation of Trade Deals and for netting down the cost of product.
This is an erroneous misconception, and seriously ignores the Foodland Program price support and other benefits the Walshes’ Corporations received. [ 172 ] The Foodland benefits reflect an alternate financial support program for the Foodland stores, including the Walshes’ Corporations. The evidence confirms their Corporations received substantial forms of additional price support in a different manner than the Sobeys stores. [ 173 ] The Defendants tendered evidence as to the Supply Arrangement and other aspects of the Foodland Program from Green, Rushton, Gardiner, and most extensively Karl Vokey.
Karl Vokey [ 174 ] Vokey first joined TRA in 1988 after completing university. He was directly involved and oversaw the pricing as provided to the Walshes’ Corporations and other Foodland stores. He testified in his capacity as the Senior Vice-President, Grocery Merchandising and National Resourcing with Sobeys. Off-Invoice Allowance – Supplier’s Invoice Cost with 5% Upcharge Less the Deal [ 175 ] Vokey spoke in considerable detail on the workings of the Off-Invoice Allowance. It started with the Supplier’s Invoice Cost.
Suppliers would publish a price list typically once a year of the product case cost based on the volume-buying bracket of TRA and Sobeys. TRA would work with brokers and agents or suppliers directly to achieve the most favorable case price. The case cost would then be entered in TRA’s computer system. [ 176 ] As a starting point, Foodland and other upcharge customers of TRA would be availing of the optimal case cost in the system.
They could purchase on a one-case order. [ 177 ] The “deal,” or sometimes referred to as the “published deal,” was a temporary per-case reduction of the Supplier’s Invoice Cost that would be in effect for a limited period of time.
It directly and immediately reduced the amount that TRA had to pay the supplier for the product. [ 178 ] TRA communicated and circulated monthly the pricing available to the Foodland operators in a “Regular Price Book.” It would show the product cost (Supplier’s Invoice Cost) and any applicable Off-Invoice Allowance. [ 179 ] The Off-Invoice Allowance was thereby tied to each individual case of product purchased during the deal period. TRA accounted for the Off-Invoice Allowance at the time of TRA’s receipt of the product in the warehouse.
Generally, suppliers promoted the product through the published deal and did not require retail performance. [ 180 ] For other rebates, deals, and allowances, suppliers often required retail performance activity measured through, among others, product display, carrying periods, and competitive consumer pricing. On such rebates and allowances, unlike the Off-Invoice Allowance, TRA had to track and make an after-purchase reconciliation.
[ 181 ] In addition to the benefit of Foodland and Sobeys having the lowest upcharge of any of TRA’s customers, TRA provided additional price support to Foodland operators, in which the Walshes’ Corporations participated. TRA did not provide this additional price to the Sobeys stores.
Additional Price Support to Foodland Operators [ 182 ] The purpose for providing the additional price support, and one of the key aspects of the Foodland Program, was to ensure Foodland operators remained competitive on a per-item basis without having to incur specific losses on sales that would otherwise have been loss leaders. [ 183 ] There were certain staple and high-demand items that were price sensitive and commonly sold at a loss to drive consumer demand and sales on higher-margin items.
Promotional activity played a significant part of it. [ 184 ] The forms of the additional price support was retail-focused, and included the following: TRA’s Every Day Low Price Program (the “EDLP Program”), the Weekly Flyer Program, Store Credits, and discretionary price reductions. [ 185 ] The EDLP Program was designed to make products perceived to be price-sensitive for consumers (local grocery shoppers) available to Foodland stores on a monthly basis. It made certain high-volume products, in the range of 1500 – 2000 items, available to the Foodland Stores at a further discounted price.
The prices available to the Walshes’ Corporations through the EDLP Program were lower than the prices for those same products as set out in the Regular Price Book, and represented a discounting of price beyond the Off-Invoice Allowance. TRA communicated the EDLP Program to Foodland operators by way of an additional price book (the “EDLP Price Book”). [ 186 ] TRA prepared weekly flyers for the Foodland stores to increase consumer activity in the stores.
At the relevant timeframe, flyers were the number one tool for communicating and promoting products to consumers. [ 187 ] The Weekly Flyer Program, as well as the EDLP Program, both played into the 80-20 rule that Vokey and certain others spoke to in their testimony.
The 80-20 rule is the general principle that 20% of a store’s product would result in 80% of the stores sales, and that the pricing on these staple 20% products was extremely competitive. [ 188 ] Consistent with the objective of keeping individual operators whole on loss leaders, TRA provided additional price support to the Foodland stores to help maintain the margins achieved by the Foodland stores on products while on special. [ 189 ] The Weekly Flyer Program included the provision of a third price book, called the “Merchandising Planner.” The Merchandising Planner, which supplemented the Regular Price Book and the EDLP Price Book, showed the products that would be in the flyer for a specific week and the special pricing available to the Foodland Stores during the applicable period.
The products in the Merchandising Planner under “Special Cost” frequently had prices discounted beyond the prices as reflected in the Regular Price Book. [ 190 ] The Merchandising Planner set out the precise amount of additional price “allowance” or subsidization (beyond any applicable Off-Invoice Allowance) that was being provided on each product. Vokey, Gardiner, and Tiller confirmed the use of “allowance” as used in the Merchandising Planner to show the Foodland operators the “Landed Store Cost” of the product from the Regular Book Cost is not to be confused with the Off-Invoice Allowance . Mr.
Walsh acknowledged he had the opportunity to buy as much of a particular item at a lower cost as he wanted, and sell at a higher cost after the flyer expired. [ 191 ] TRA gave Store Credits (not including those credits for damaged product or incorrect shipments) to account for situations where a Foodland operator sold staple and/or price-competitive items at what would otherwise have been a loss.
The principal difference between Store Credits as compared to the additional price support through the EDLP and Flyer Program is that the Store Credits actually resulted in credits from TRA to the Walshes’ Corporations in reference to their purchases and were initiated by the Foodland operator itself. [ 192 ] Tiller and Vokey said Store Credits on staple competitive items sold at a loss could amount to hundreds of dollars per week payable by TRA to individual Foodland operators. TRA tendered documentary evidence of credits of this nature payable to the Walshes’ stores.
An example of a Store Credit to the Walshes’ Corporations was subsidization of the unit cost of a carton of milk sold at less than what they paid because of market conditions. [ 193 ] There were additional discretionary reductions of the Off-Invoice Allowance on occasions, including reimbursement for special event promotions and more significantly, the manual override of the Supplier’s Invoice Cost on the supply of Non-Direct products.
The Manual Override of the Supplier’s Invoice Cost on Non-Directs [ 194 ] All of the evidence from people familiar with TRA’s pricing system, including Tiller, testified to the fact that, at the material time, the Supplier’s Invoice Cost was entered into TRA’s system, customers were put into pricing groups based on their applicable upcharge, and invoices were automatically generated according to those pricing groups.
Similarly, the evidence established that the only way to provide additional price support to a customer of TRA was to do a manual price override in TRA’s system. [ 195 ] Business records entered at Trial showed this form of additional price support being provided to the Walshes’ Corporations, as discussed more fully below. [ 196 ] Gardiner sp
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