2018 ONSC 7577, 2018 ONSC 7577

Prolink Broker Network Inc. v. Jaitley et al. [See Note 1 below] My Insurance Broker Corp. v. Prolink Broker Network Inc. [Indexed as: Prolink Broker Network Inc. v. Jaitley] Ontario Reports Ontario Superior Court of Justice R.F. Goldstein J. December 18, 2018 145 O.R. (3d) 277 | 2018 ONSC 7577 Case

Summary Corporations — Shares — Valuation — Court approaching opinion of plaintiff's expert on valuation of plaintiff's shares with some caution as he failed to disclose professional relationship between his partner and plaintiff and because his decision not to apply minority discount was highly unrealistic — Opinion of defendant's expert also weakened by fact that he erroneously valued defendant as start-up and that he chose comparable companies to calculate earnings multiples that were clearly not comparable — Evidence of defendant's expert preferred — Fair market value of shares being midpoint between midpoint of income/cash flow valuation and midpoint of market method valuation. [page278] The plaintiff sued the defendant successfully for breach of contract.

The only damages issue was the value of the plaintiff's shares in the defendant. In valuing the shares, the trial judge relied on a valuation clause in the agreement between the parties. The Divisional Court found that he erred in doing so as the valuation clause never came into effect, the plaintiff having repudiated the agreement and the defendant having accepted the repudiation. The Divisional Court referred the valuation of the plaintiff's shares back to the trial judge. Held , judgment should be granted in accordance with these reasons.

The parties' experts generally agreed that a combination of the income/cash flow method and the market method would yield the fair market value of the shares. However, each parties' expert offered radically different valuations. Both experts had weaknesses. The plaintiff's expert failed to disclose a professional relationship between his partner and the plaintiff, his decision not to apply a minority discount was highly unrealistic, and he refused to acknowledge that the financial crisis of 2008-2009 had any effect on the value of the defendant.

The defendant's expert valued the defendant as a start-up company, when in fact it was not a start-up. Generally, the evidence of the defendant's expert was preferred over that of the defendant's expert. However, a higher multiple than four to five times earnings was required. Six to seven times earnings would reflect the fact that there were risks associated with the defendant. The defendant's expert was ordered to recalculate the income/cash flow valuation accordingly.

The fair market value of the shares should be the midpoint between the midpoint of the recalculated income/cash flow valuation and the midpoint of the market method valuation. Cases referred to Carmen Alfano Family Trust (Trustee of) v. Piersanti , [2012] O.J. No. 2042 , 2012 ONCA 297 , 291 O.A.C. 62 , 2012 SOACQ para. 10 ,134; Kennedy v. College of Veterinarians of Ontario , [2018] O.J. No. 3049 , 2018 ONSC 3603 (Div. Ct.) ; Prolink Broker Network Inc. v. Jaitley , [2013] O.J. No. 3065 , 2013 ONSC 4497 (S.C.J.) ; Prolink Broker Network Inc. v. Jaitley , [2015] O.J.

No. 6108 , 2015 ONSC 6484 , 342 O.A.C. 68 , 260 A.C.W.S. (3d) 751 (Div. Ct.) , revg [2013] O.J. No. 4542 , 2013 ONSC 6253 (S.C.J.) ; White Burgess Langille Inman v. Abbott and Haliburton Co ., [2015] 2 S.C.R. 182 , [2015] S.C.J. No. 23 , 2015 SCC 23 , 383 D.L.R. (4th) 429 , 470 N.R. 324 , J.E. 2015-767 , 360 N.S.R. (2d) 1 , 67 C.P.C. (7th) 73 , 18 C.R. (7th) 308 , EYB 2015-251384 , 2015EXP-1385 , 251 A.C.W.S. (3d) 610 REHEARING on damages.

Richard P. Quance , for defendant by counterclaim, Prolink. Rahul Shastri and Kristie Jennings , for defendants/plaintiff by counterclaim MIB. [ 1 ] R.F. GOLDSTEIN J. : — In 2008, the defendant, Rick Jaitley, was an experienced Allstate Insurance agent. He ran his own brokerage, My Insurance Brokerage (I will refer to Mr. Jaitley and the two corporate defendants/plaintiffs by counterclaim collectively as "MIB"). In August 2008, he left Allstate and joined Prolink, a network of insurance brokers (Prolink is the plaintiff and defendant by counterclaim but for ease of reference, I will refer to "Prolink").

Troubles developed. In March 2009, Mr. Jaitley [page279] repudiated his agreement with Prolink. In May 2009, Prolink accepted that repudiation. [ 2 ] Prolink sued Mr. Jaitley and the two corporate defendants. Prolink alleged breach of contract. In July 2013, I granted judgment to Prolink: Prolink Broker Network Inc. v. Jaitley , [2013] O.J. No. 3065 , 2013 ONSC 4497 (S.C.J.) . I required further submissions on damages, however. [ 3 ] The only damages issue was the value of shares. As part of the agreement, Mr.

Jaitley's company MIB caused 25 of its 100 issued and outstanding shares to be issued to Prolink. [ 4 ] In October 2013, I awarded damages of $12,656.38 plus prejudgment interest to Prolink: Prolink Broker Network Inc. v. Jaitley , [2013] O.J. No. 4542 , 2013 ONSC 6253 (S.C.J.) . That amount reflected my finding as to the value of the 25 shares of MIB. Prolink appealed my damages award to the Divisional Court. That court found that I had erred in my valuation of the shares and remitted the matter back to me for a re-hearing: Prolink Broker Network Inc. v. Jaitley , [2015] O.J. No. 6108 , 2015 ONSC 6484 (Div.

Ct.) . I heard evidence regarding the valuation of the 25 shares in June 2018. [ 5 ] For the reasons that follow, I find that the value of the 25 issued and outstanding shares of MIB is to be re-calculated by Mr. Strezos. I accept his valuation using the income/cash flow method. I also accept his valuation using the market method. However, in his income/cash flow valuation, I do not agree with his assumption that MIB's cash flow should be multiplied by four to five. He must recalculate using a multiple of six to seven times earnings.

The fair market value of the shares should be the midpoint between the midpoint of the recalculated income/cash flow valuation and the midpoint of the market method valuation. [ 6 ] These reasons explain how I arrived at this result. Background (

a) Trial and appeal [ 7 ] I originally valued the 25 shares on the basis of what I found to be the fair market value of the shares. I applied a clause of the agreement between Prolink and MIB.

The clause (which I will refer to as the "valuation clause") stated: After the Startup Period, if the majority Shareholders wish to purchase the shares held by [Prolink] or if [Prolink] wishes to sell its shares to the majority shareholders, then it is agreed that a Two Times Annual Earnings represents Fair Market Value (FMV) which has been established mutually, should the parties decide to sell its shares with the understanding that a minimum of $2.5 million of premium volume will have been achieved by the corporation. [page280] [ 8 ] At paras. 18 and 19 of my damages judgment, I made the following findings: There is no doubt that the customary meaning for "fair market value" is the one set out in Black's Law Dictionary, that of a price agreed to on the open market by arms-length parties.

Does that customary meaning reflect the intentions of the parties? In my view the traditional definition meets both the "business efficacy" test and the "officious bystander" test. There may well be situations where gross earnings, as opposed to net earnings, reflect fair market value but in this case the agreement of August 2008 speaks of fair market value being "established mutually". It seems unlikely that the purchaser of the shares, in this case My Insurance Broker, would have agreed to pay two times earnings on gross commissions when the business was barely profitable.

I find, therefore, that on the business efficacy test it makes sense that the definition of fair market value be the traditional one. The traditional definition also meets the officious bystander test simply by virtue of the fact that it is the one that most people would understand applies. [ 9 ] Prolink appealed my damages award. In November 2015, the Divisional Court found that I had erred in my calculation of damages. To greatly simplify, the Divisional Court found that I had erred by interpreting and applying the valuation clause.

That court found that I erred because the valuation clause never came into effect. The agreement was repudiated, and that repudiation accepted, before the expiry of the start-up period. The volume of $2.5 million was never achieved. The Divisional Court found that the business efficacy test and/or the officious bystander test simply did not apply.

The Divisional Court also found that the parties had failed to call the right kind of evidence -- which would include actual evidence of the value of the shares (of which there was none) including an objective standard for calculating the fair market value of a start-up insurance brokerage. The Divisional Court found I should have re-opened the evidence rather than simply rely on the submissions of the parties. As a result, the Divisional Court ordered that the issue of the valuation of the 25 shares be remitted back to me for further determination. (

b) The damages re-hearing

[ 10 ] MIB was part of the Prolink network from August 1, 2008 to May 7, 2009. The damages re-hearing consisted solely of expert evidence and submissions. Each party called an expert valuator. Each party did not contest the expertise of the other party's expert. There was no disagreement that premium volume for the period was $1,219,619. [ 11 ] The two experts came up with radically different valuations. [page281] [ 12 ] Prolink's expert was Steven Frye of CW Corporate Partners Finance & Valuations. Mr. Frye found that MIB had commission revenue of $162,276 during the nine-month period.

He valued the 25 shares held by Prolink at $111,625 to $125,375. [ 13 ] MIB's expert was Tom Strezos of Deloitte. Mr. Strezos found that MIB had commission revenue of $178,666.67 during the nine- month period. He valued the 25 shares held by Prolink at $16,000 to $23,000. (

c) Prolink's expert [ 14 ] Prolink's expert, Mr. Frye, filed his valuation report as an exhibit. Mr. Frye ultimately determined that the value of MIB as of May 7, 2009 was $411,000 to $592,000 with a mid-point of $501,500. Based on that mid-point value, Prolink's 25 shares, being a one quarter interest in MIB, were worth $125,375. That value was based on commission revenue of $162,276 on premium volume of $1,219,619. [ 15 ] Mr. Frye reviewed several documents, including the book of business of MIB dated June 11, 2009.

That book of business showed total business of $1,564,632.66, which represented a decent small to medium sized brokerage. MIB had approximately 600 customers at that time. Mr. Frye also reviewed the financial statements. Finally, he reviewed publicly available information about the property and casualty insurance industry and general economic conditions. [ 16 ] Mr. Frye first considered whether MIB should be valued as a going concern or on a liquidation basis. Mr. Frye determined that MIB should be valued as a going concern.

He took that approach based on his knowledge of the industry and the available information. He then considered two methods of valuation appropriate for a going concern: the earnings capitalization method and the market multiple method. [ 17 ] The earnings capitalization method is commonly used in valuations of the insurance industry. The method is prospective: the valuator calculates earnings capacity and then applies a multiple that reflects what an investor would be prepared to pay. Using this method, Mr. Frye applied a benchmark level of maintainable earnings of 30 per cent of commission income.

In cross-examination, Mr. Frye stated that the 30 per cent figure was the industry standard, based on literature. Mr. Frye also considered the possibility that an investor would purchase MIB's customer list in a transaction known as a "tuck-in". In this scenario, Mr. Frye estimated that MIB's level of maintainable earnings would be 54 per cent. Mr. Frye also factored in the weighted average cost of capital ("WACC") multiple, using ten times for [page282] the benchmark scenario and eight times for the tuck-in scenario: he testified that this was an industry standard. In cross-examination, Mr.

Frye agreed that he used a WACC from 2016, when he did the calculation, rather than 2009, the operative date of the valuation. Using this method, Mr. Frye found that the fair market value of the 100 shares of MIB as of May 7, 2009 was $592,000 at the high end and $411,000 at the low end. The midpoint was $501,500. Prolink's 25 per cent of the shares was therefore valued at $125,375. [ 18 ] In cross-examination, Mr. Frye agreed that the net operating income of MIB was actually 3.4 per cent of commission income. That amount was based on the 2008 financials.

He agreed that the 3.4 per cent was, on the face of it, very different from the industry earnings benchmark of 30 per cent. He testified that the benchmark came from his experience in dealing with the insurance industry, and from discussions with industry players and a bank that funds insurance brokerages. He also testified that the statements have to be normalized. He also agreed that he valued MIB as if it were a mature business, although it was a start-up. For the tuck-in scenario, he derived calculations (found in

Schedule 4 of his report) from surveying about a half-dozen brokerages from the period leading up to 2009, but not including 2009. [ 19 ] Mr. Frye testified that the market multiple method is also commonly used in the brokerage world. The market multiple method determines the value of the brokerage by comparing it to brokerages that have recently sold on the market, analyzing the price paid for the brokerage in relation to the brokerage's gross commission income. Using the market multiple method, based on comparable transactions, Mr.

Frye calculated that the average market multiple is 2.5 and the high market multiple is 3.0. He multiplied these by commission revenue of $162,276. The result was that the average fair market value of MIB was $405,690. The high fair market value was $486,828. Using the midpoint between the two, Prolink's 25 per cent share would have a value of $111,625. [ 20 ] In cross-examination, Mr. Frye agreed that all of the exemplar transactions used to calculate the multiple are from 2008 except one in 2007. [ 21 ] Mr.

Frye testified that the value of Prolink's 25 per cent share should not be discounted because Prolink held the controlling interest in the company. He did not think a minority interest discount should be applied because he had a great deal of experience where purchasers did not apply a minority discount. Mr. Frye did not have any empirical evidence to back up [page283] that claim. He stated that his evaluation was based on 30 years of experience. (

d) MIB's expert [ 22 ] MIB's expert was Tom Strezos of Deloitte. His valuation report was also filed as an exhibit. He also wrote a critique and reply report to Mr. Frye's report. As noted, he ultimately determined that the range of value of the 25 shares of MIB was $16,000 to $23,000 based on revenue of $178,666.67 during the start-up period. [ 23 ] Mr. Strezos used two different approaches: the income/ cash flow approach; and the market approach. The value he arrived at was a combination of these two approaches.

The $16,000 figure was based on the cash flow approach, with an overall value of MIB of between $73,000 and $86,000. The mid-point was $79,500. The $23,000 figure was based on the market approach, with an overall value of MIB of between $74,000 and $104,000.

[ 24 ] The cash flow approach ascribes value to a business based on its ability to earn a reasonable return on investment. Mr. Strezos described the cash flow approach as follows: he determined the earnings before depreciation but after tax. He then applied a capitalization rate to reflect the rate of return expected by a prospective buyer reflecting the risk. The capitalization rate comprises the weighted average cost of capital net of the estimate for future growth.

The weighted average cost of capital is MIB's after-tax cost of debt and after-tax cost of equity. [ 25 ] For the cash flow multiple, he disagreed with Mr. Frye's use of eight to ten. He testified that the rate of eight to ten was appropriate for a more established business. MIB was a relatively risky start-up. He calculated that MIB's weighted average cost of capital would be 24 to 27 per cent. Net of an estimated 2 per cent future growth, this resulted in a capitalization rate of 22 to 25 per cent. The multiple is the inverse of the capitalization rate.

As a result, he testified that a multiple of four to five times earnings was more appropriate. [ 26 ] In cross-examination, Mr. Strezos conceded that MIB had a good book of business. He agreed that 600 customers was a "nice size to start". Although he valued it as a start-up, he agreed that Mr. Jaitley had a successful business. He questioned the high amount of the expenses, but he agreed that some of those high expenses included salaries and bonuses paid to Mr. Jaitley and his son, who was an employee. [ 27 ] Mr. Strezos also used a benchmark earnings rate of 18.9 per cent of revenue.

The 18.9 per cent was in contrast to Mr. Frye's use of 30 per cent maintainable earnings (54 per cent [page284] for the tuck-in scenario). Mr. Strezos did not consider a tuck-in scenario. He used a low, medium and high cash flow multiple. [ 28 ] Mr. Strezos was also critical of Mr. Frye's decision not to apply a minority discount. In cross-examination, he agreed that there was no discussion in any document that a minority discount would be applied to Prolink's 25 per cent share. In the end, he found that the value of MIB at the valuation date ranged from $73,000 to $86,000 based on the income/cash flow method.

Using a midpoint of $79,500 and a minority discount of 20 per cent, he calculated that Prolink's 25 per cent share would be worth $16,000. [ 29 ] In his report Mr. Strezos also described the market approach. Essentially, the method involves estimating the fair market value of a company based on the analysis of comparable market transactions or values. There are limitations to this approach. The chief limitation is identifying comparables. There are obvious differences between publicly traded companies and a small, privately held company like MIB.

He therefore used a combination of the market approach and the income/cash flow approach. [ 30 ] Mr. Strezos found that the earnings multiple for comparable public companies was 1.5 times commission income, and the earnings multiple for comparable transactions was 1.2 times commission income. He took a 50 per cent discount off of these multiples based on the market conditions prevailing in May 2009 (the time of the financial crisis). He also took account of the following facts: MIB was a private company, MIB was reliant on Mr.

Jaitley's personal goodwill; and MIB had negative before-tax earnings in its first year. As a result, he used multiples of 0.8 times earnings based on comparable public companies and 0.6 times earnings based on comparable transactions. Using the market approach, he found that as of the valuation date MIB had a valuation range from $74,000 to $104,000. Analysis (

a) What is the proper framework for a judge hearing damages evidence? [ 31 ] In its decision, the Divisional Court found that the appropriate measure of damages was the loss suffered by Prolink in respect of the shares. That was the loss as a result of the breach by MIB. The Divisional Court found that as the trial judge, I am required to determine fair market value of the shares based on objective evidence. That is objective evidence applying to [page285] a start-up insurance brokerage. In coming to my determination, the agreement between the parties is not relevant. (

b) What is the appropriate valuation method? [ 32 ] Both experts relied on the income/cash flow method and variations of the market multiple method. Their valuations were based on a combination of the two. I agree with Mr. Shastri's colourful comment that this exercise is not a baseball arbitration: I don't simply look at the two numbers and pick one. Mr. Quance said more or less the same thing: I make my own evaluation guided by the experts, but not bound by them. [ 33 ] The experts generally agreed that a combination of the two approaches would yield the fair market value of the shares. The Divisional Court implicitly shared that view. That is the approach I will take. (

c) How should I approach the expert opinions? [ 34 ] I found that both experts were knowledgeable and experienced. They approached the valuation problem in similar ways -- which makes sense, because they are, of course, both professional business valuators. The key difference between them was in their assumptions. Their assumptions were largely responsible for the difference between the two valuations. [ 35 ] I would never discount the experience of professionals like Mr. Frye and Mr. Strezos. That experience entitles both experts to consideration, but not deference.

For example, I found that both experts frequently relied on their experience as a justification for their assumptions, Mr. Frye in particular. There is certainly nothing wrong with doing so. Indeed, experience is one of those things that makes an expert an expert. That said, I found that there were times -- such as with the minority discount -- where Mr. Frye used experience for justification rather than assumption. [ 36 ] Both experts had weaknesses. I turn to Mr. Frye first. [ 37 ] I was struck by the fact that Mr. Frye wrote a publication in 2017 called "All About Estates". In that publication Mr.

Frye indicated that a lack of control is an important factor in valuing a business. I understand that the estates context is different, but Mr. Frye did not qualify his opinion regarding a minority discount. I have some real reservations about accepting his evidence on that point. I have

reservations not only because of his position in the publication, but because it seems highly counter-intuitive that a minority interest --one without a shareholder's agreement -- would attract no discount. [38] I also have some reservations about Mr. Frye's connection to Prolink. Mr. Frye's partner at CW Partners is the accountant [page286]for Prolink. Mr. Frye did not know how long there had been a relationship, but it pre-dated the valuation. The relationship had not beendisclosed to Mr. Shastri, MIB's counsel, or to the court. Mr.

Frye testified that he did not think that it was important that there was anongoing relationship between Prolink and CW Partners. Mr. Frye also did not answer when Mr. Shastri asked him in cross-examinationwhether he would have disclosed the relationship if he had not been asked about it. [39] In my view, Mr. Frye's firm had an undisclosed ongoing relationship with Prolink. I disagree with Mr. Frye that the undisclosedrelationship is not relevant. It obviously does matter. Experts have a duty to give fair, objective and non-partisan evidence: White BurgessLangille Inman v.

Abbot and Haliburton Co., 2015 SCC 23 , [2015] 2 S.C.R. 182, [2015] S.C.J. No. 23. An experiencedbusiness professional like Mr. Frye is capable of giving an independent opinion even in the context of an existing business relationship:Kennedy v. College of Veterinarians of Ontario, [2018] O.J. No. 3049, 2018 ONSC 3603 (Div. Ct.), at para. 20. The existence of the pre-existing relationship usually goes to the weight of the opinion, not to the admissibility.

That said, a court retains a residual discretion toexclude an expert opinion that is highly tainted by bias or partiality such that it is of no assistance: Carmen Alfano Family Trust (Trusteeof) v. Piersanti, [2012] O.J. No. 2042, 2012 ONCA 297, at paras. 110-111. [40] The problem in this case is not the relationship between Prolink and Mr. Frye's partner. The problem is that it was not disclosed. I donot find that Mr. Frye's report is so tainted by actual bias such that it is of no help. I accept that Mr. Frye sincerely believes that he isobjective.

The non-disclosure of the pre-existing relationship does, however, give me pause. The non-disclosure causes me to approachhis report with some caution. [41] There were other weaknesses in Mr. Frye's opinion. [42] In my respectful view, Mr. Frye's decision not to apply a minority discount was highly unrealistic. Mr. Strezos testified that in thecase of MIB, the 75 per cent owner gets full control. If a minority owner needed a remedy, he or she would have to start an oppressioncase. There are few ready buyers for a 25 per cent share. I prefer Mr. Strezos's evidence on this point.

A minority buyer would surelywant a discount based on the lack of control. [43] I also find that the analysis based on the tuck-in scenario is unrealistic. In a tuck-in, a larger brokerage purchases the entire smallerbrokerage. The larger brokerage folds the smaller into its existing operations. Here, the valuation is based on a 25 per cent share. Itherefore give no weight to the analysis of the tuck-in scenario.[page287] [44] Another weakness was Mr. Frye's reliance on the 30 per cent earnings benchmark rate. He could produce no analysis other than hisexperience and knowledge of the industry.

I would not discount Mr. Frye's experience -- as I have mentioned. That said, Mr. Strezos's18.9 per cent earnings benchmark rate is a calculation based on an analysis of comparable transactions. Given the other issues with Mr.Frye's evidence, I prefer Strezos's evidence on this point, as well. [45] The final weakness in Mr. Frye's opinion was his refusal to acknowledge that the financial crisis of 2008-2009 had any effect on thevalue of MIB. He agreed that American Insurance Group had a loss of about $62 billion.

He was not aware of the impact on theinsurance industry, although he was aware that the U.S. government put together a rescue package of $160 billion. He was also awarethat the Canadian government also backstopped financial transactions. I think that any Canadian or American who was not living under arock in the fall of 2008 and the spring of 2009 was aware that there was a major crisis in world financial markets. Investment banks (suchas Lehman Brothers) collapsed and all major Western governments were forced to provide liquidity to their financial systems.

This is notthe place to examine any particular rescue package or to debate what happened, or take judicial notice of anything beyond the fact thatthere was a serious financial crisis -- which both parties agree occurred. Mr. Frye testified that the Canadian insurance and financialindustries were well-regulated and somewhat insulated from the crisis.

That is no doubt true, but to me, it is simply unrealistic to supposethat a major financial crisis seriously affecting financial markets in the United States could have no effect at all on the large andimportant insurance industry, which is certainly related to -- if not a part of -- the broader financial industry. I prefer Mr. Strezos'sevidence on this point. [46] I turn now to Mr. Strezos. [47] The main weakness in Mr. Strezos's opinion was that he valued MIB as a start-up company. MIB was not a start-up. MIB was anAllstate affiliate. Mr.

Jaitley was an experienced insurance broker with an existing book of business. When he left Allstate, he took hisexisting business relationships with him. Mr. Strezos himself agreed that it was "nice" book of business. That certainly affected hisassumptions with regard to cash flow, and the risk premium. As Mr. Strezos explained, a start-up business investor will expect a higherrisk premium than an existing business investor. Thus, a valuator will value a more established business with a higher multiple ofearnings. A start-up will attract a lower multiple.

He used a cash-flow multiple of four to five, which [page288] reflected a risky start-up.In my respectful view, the evidence is clear that MIB could rely on a steady cash-flow as a result of its existing book of business. I do notagree with the multiple of four to five times earnings. [48] The other weakness was Mr. Strezos's choice of comparable companies to calculate earnings multiples that were clearly notcomparable. The comparables involved large publicly traded companies, most of which were outside Canada.

One does not need to be anexpert to see that large publicly traded companies are very different from small, private ones, at least in terms of valuation. Their sharesare traded in public markets that are large, deep and liquid. The shares are traded at arm's-length. There are ready-made buyers andsellers, which may not be true for small private companies with diffuse ownership. Although the use of these comparables wasproblematic, it was compensated for somewhat by Mr. Strezos's use of a 50 per cent discount. That discount was taken to reflect theimportance of Mr.

Jaitley; the market conditions prevailing in 2008-2009; the lack of transactions during the time period; and the factthat the comparable transactions involved different types of companies. [49] At the end of the day, I generally preferred Mr. Strezos's evidence over Mr. Frye's evidence. I acknowledge the weaknesses in both.As noted, I must approach Mr. Frye's evidence with some caution based on the undisclosed relationship between CW Partners and

Prolink. I also preferred the evidence of Mr. Strezos on the point of the minority discount and the discount rate. I found weaknesses in the market approach of both experts. Moreover, in reading the two reports, I found Mr. Strezos's seemed to rely more on quantitative analysis than experience. Again, I do not discount the value of experience, but where there are hard numbers to back up an assertion, that is obviously preferable. Finally, notwithstanding the over-reliance on non-comparable comparables, the earnings multiplier in Mr. Strezos's report seemed much more realistic to me. (

d) What was the value of Prolink's 25 per cent interest in May 2009? [ 50 ] Where does that leave me in terms of valuing Prolink's interest? There were differences between the overall amounts of earnings and commission revenue found by the two experts. The differences are not major. Mr. Frye and Mr. Strezos both based their calculations on premium volume of $1,219,619. Mr. Frye found commission revenue of $162,276 for the period from August 2008 to May 2009. Mr. Strezos found commission revenue of $178,666.67 for the same period based on the affidavit of [page289] Virginia Mavroudi.

Given the importance of the premium volume to the calculation, I do not think it is necessary to examine why there is a difference of about $16,000 in commission revenue. [ 51 ] The two main differences between the experts are found in

Schedule 1 of each of their reports.

Schedule 1 of Mr. Frye's report is entitled "Earnings Capitalization Method".

Schedule 1 of Mr. Strezos's report is entitled "Capitalized Cash Flow". They are essentially the same thing. The first difference is this: Mr. Frye used a 30 per cent earnings benchmark rate (54 per cent for the tuck-in scenario) whereas Mr. Strezos calculated the earnings benchmark rate at 18.9 per cent of revenue. The second difference is in the cash flow multiples. Mr. Frye used eight to ten times earnings; Mr.

Strezos used four to five times. [ 52 ] The differences are clear from the following contrast, taken from their reports (I have summarized the tables greatly and left out several rows for the sake of simplicity, and bolded the key differences): [QL:GRAPHIC NAME="145OR3D277-001.jpg"/] [ 53 ] For the reasons I have set out, I generally prefer the evidence of Mr. Strezos. I prefer his evidence in most of the areas of controversy. Accordingly, I would accept his valuation of Prolink's interest at $16,000 to $23,000 but for one caveat. As I have mentioned, I do not agree with Mr.

Strezos that MIB should be valued as a start-up business. I think a higher multiple than the four to five times earnings is required. I do not think that it is as high as the eight to ten times mentioned by Mr. Frye. I would settle on six to seven times earnings as a reasonable mid-point that reflects the fact that there were risks associated with MIB. [page290] [ 54 ] Mr. Strezos will re-calculate the income/cash flow valuation using cash flow multiples of 6.0, 6.5 and 7.0. He will take the midpoint. His market method calculation will not change.

The midpoint between the midpoint of the recalculated income/cash flow valuation and the midpoint of the market method valuation ( i.e. , $23,000) will be the fair market value of the 100 per cent of the shares and 25 per cent of that amount will be Prolink's damages. Disposition [ 55 ] Judgment along with prejudgment interest is granted as set out in these reasons. The parties will take out a draft order reflecting the new calculation and prejudgment interest. If the parties are unable to agree on the terms, they may request a further attendance through my assistant to settle the order.

Costs [ 56 ] Costs have already been ordered for the original trial and Divisional Court hearing. If the parties are unable to agree on costs for this evidentiary hearing, they may each file a costs outline and costs submissions of no more than two pages within 30 days of the release of these reasons. Order accordingly. Notes 1 Vous trouverez la traduction française à la p. 290, post.

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