2011 QCCA 958, 2011 QCCA 958

Greenberg c. Capital d'Amérique CDPQ inc. 2011 QCCA 958 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-019920-099 ( 500-17-023925-053 ) MINUTES OF THE HEARING DATE: May 20, 2011 CORAM: THE HONOURABLE YVES-MARIE MORISSETTE, J.A. ALLAN R. HILTON, J.A. DENIS JACQUES, J.A. (AD HOC) APPELLANT(

S) ATTORNEY(

S) E. PHILIP GREENBERG GESTION PHILMAR LTÉE. Mtre Leon J. Greenberg STERNTHAL, KATZNELSON, MONTIGNY RESPONDENT(

S) ATTORNEY(

S) CAPITAL D'AMÉRIQUE CDPQ INC. Mtre François Giroux McCARTHY TÉTRAULT ATTORNEY(

S) On appeal from a judgment rendered on July 10, 2009 by the Honourable Mr. Justice Martin Castonguay of the Superior Court, District of Montreal. NATURE OF THE APPEAL : Civil liability action Clerk: MARC LEBLANC Court Room: PIERRE-BASILE-MIGNAULT HEARING File continued from May 17, 2011. Judgment rendered – see page 3. Marc Leblanc Clerk BY THE COURT JUDGMENT

[ 1 ] The judgment of the Superior Court, District of Montreal rendered on July 10, 2009 by the Honourable Mr.

Justice Martin Castonguay dismissed Gestion Philmar Ltée and Philip Greenberg's action in damages by which they claimed, respectively, $2,786,898.80 and $200,000 from Capital d'Amérique CDPQ inc. [1] arising out of its alleged refusal to respect the terms of what the appellants characterize as an enforceable agreement relating to the purchase of the shareholdings of Philmar in Ronor Innovations Inc. and the reimbursement of advances Philmar made to Ronor. [ 2 ] The principal issue on which the judgment of the Superior Court turned, and which is again before this Court, is whether a document dated January 17, 2002 that CDPQ prepared was fully enforceable such that CDPQ's failure to give effect to it entitles the appellant to the damages they seek.

In an elaborate judgment that was rendered following a ten-day trial, the trial judge concluded as a matter of fact that the agreement was in reality one that was merely precontractual to further more substantive agreements that were necessary to give effect to the January 17, 2002 document. [ 3 ] The trial judge's recitation of the facts is set out at considerable length in a neutral manner in paragraphs [3] to [116] of his judgment.

It suffices for present purposes to summarize them insofar as necessary as follows. [ 4 ] At the relevant time, Ronor was a company that imported, manufactured and distributed optical products. It was managed by Mr. Greenberg, whose initial investment in Ronor dates back to 1990. Through his investment company Philmar, he was Ronor's majority shareholder. Robert Charbonneau, Ronor's founder, was also a minority shareholder and the company president. [ 5 ] In November of 1996, CDPQ invested $1,000,000 in the business by acquiring 20% of Ronor's shares as well as a convertible debenture of $500,000.

At the same time, CDPQ was given a seat on Ronor's board of directors, which was to be occupied by its designee. Initially that responsibility fell to Éric Doyon, and then to Claude Lafond. [ 6 ] Beginning in the summer of 2001, Ronor began to experience cash flow difficulties. Its lender, the National Bank of Canada, took control of its margin of credit, and subordinated future lending to an annual review of the business.

Soon enough, CDPQ's reorganization unit, headed by Pierre Pharand, began to supervise the business activities of Ronor. [ 7 ] It was in this difficult context that the Bank insisted on the restructuring of the business, inasmuch as Ronor's use of the line of credit exceeded the value of the company. Of particular concern was the quality of the inventory, especially since a write-off of $500,000 was forecast as the result of Ronor's improvident acquisition of an optical frame company in 2000.

As subsequent events unfolded, the anticipated amount of this write-off increased to as much as $650,000 within the space of less than two months. [ 8 ] The Bank therefore required an injection of capital of $750,000 as a condition of any further financing.

Ronor was given until December 21, 2001 to provide a letter of intention in this respect, with January 31, 2002 being set as the outside date for the receipt of the new capital. [ 9 ] The trial judge found as a fact that the role of CDPQ as a minority shareholder with a representative on the board of directors changed at this stage to that of a party that was proactively involved in finding new investors. In that context, it became aware of certain deficiencies in Mr.

Greenberg's management of the company that explained the difficulties facing Ronor. [ 10 ] On December 18, 2001, three days before the deadline the Bank established for securing a letter of intention for new investments, Mr. Charbonneau presented an offer from Groupe Laco inc., the effect of which would, if accepted by Mr. Greenberg, exclude the reimbursement of advances Philmar had made to Ronor and oust him from the future management of the company. Mr. Greenberg was annoyed that Mr. Charbonneau had solicited this offer unbeknownst to him, and he rejected its content. [ 11 ] The next day, Mr.

Greenberg offered to transfer his interest in Philmar to Mr. Charbonneau for $597,500, an amount that would include the reimbursement of Mr. Greenberg's advances to Ronor, but no agreement was reached. [ 12 ] Thus, December 21, 2001 came and went without the Bank having received a letter of intention that would contemplate a further injection of capital, which resulted in the Bank requiring the presence of a consultant at Ronor to assess its ongoing financial situation. With the situation continuing to deteriorate and the Bank being all the more concerned with Ronor's solvency, the Bank made it clear to Mr.

Greenberg by letter dated December 21, 2002 that the financing necessary to satisfy it would have to be obtained by the end of January of 2002. [ 13 ] The Bank further reminded Ronor on January 10, 2002 of the impending deadline of January 31, 2002, while at the same time freezing its line of credit at a maximum of $4,840,000. [ 14 ] The situation having reached a critical stage, Mr. Pharand of CDPQ convened a meeting of his restructuring team with Messrs. Greenberg and Charbonneau on January 17, 2002. Mr.

Greenberg reiterated his disinterest in the Laco proposal, and indicated he was not disposed to make any further investment of his own. These discussions led to the elaboration of a scenario whereby CDPQ would reimburse Philmar's advance of $187,500, and Philmar's shares in Ronor would be purchased by CDPQ and Mr. Charbonneau, with new management taking over. [ 15 ] A document reflecting the foregoing was prepared after the meeting and presented later the same day to the Bank, with the mention that it was subject to the approval of CDPQ's investment committee.

The document was not signed by any of the parties, but a copy was given to Mr. Greenberg. The minutes of the CDPQ investment committee on January 25, 2002 authorized an investment of up to $1,562,000, (more than what was required to carry out the scenario contained in the January 17, 2002 document) but noted "l'importance de deux elements, soit la vérification diligente dans le cadre de cet investissement et le suivi rigoureux du dossier." [ 16 ] CDPQ then informed the Bank of its approval to make a further investment in Ronor, subject however to certain conditions.

These included renegotiation of credit terms with the Bank, the hiring of a new president of Ronor to its satisfaction, the preparation of legal documents to its satisfaction to give effect to the agreement, and the absence of any adverse change prior to closing. Accordingly, the Bank extended the delay it initially imposed from January 31 to February 15, 2002.

[17] The numerous contractual documents necessary to give effect to the proposed transaction were prepared, and drafts wereexchanged and amended, some of which even took account of proposals from Mr. Greenberg that were not in the January 17, 2002document. The contractual documents, however, were never executed. The main obstacle was the evaluation of Ronor's inventory andthe representations and warranties CDQP sought from Mr. Greenberg in this regard. Mr.

Greenberg's insistence that he would not, inparticular, provide an unqualified representation and warranty as to the value of Ronor's inventory led to CDQP abandoning theinvestment project. Ronor subsequently went bankrupt later that year. The damages the appellants claim proceed on the assumption thatif the agreement they say is reflected in the January 17, 2002 document had been implemented, Ronor would not have become bankruptand they each would have benefited to the extent of the respective amounts claimed. [18] A suit the appellants brought against Mr.

Charbonneau for his failure to acquire further shares in Ronor in accordance with anagreement between them executed on March 11, 2002 was eventually settled.

Nevertheless, the appellants' distinct claim against CDQP,which was filed almost two years later, proceeded to trial and resulted in the adverse judgment now appealed to this Court. [19] The trial judge was sensitive to the urgency of the situation when the parties met on January 17, 2002, inasmuch as the Bankwas insisting on an injection of new capital by the end of the month, Ronor was experiencing major cash flow difficulties and Mr.Greenberg had refused any further investment of his own.

He also took account of the fact that all of the participants were experiencedbusinessmen. [20] The trial judge also concluded as a matter of fact that the tenor of the discussions at the January 17, 2002 meeting with theBank, at which Mr.

Greenberg was present, made it clear that CDQP's additional financial commitment would necessitate due diligence.Its insistence on representations and warranties was therefore necessary in light of the rapidity with which events were unfolding. [21] The trial judge further rejected the appellants' argument that CDPQ's enhanced post-January 17, 2002 involvement in the dayto day affairs of Ronor, such as the co-signing of cheques and involvement in the search for a new CEO, was consistent with their viewthat the deal was done on that day.

On the contrary, the trial judge concluded that these factors were not incompatible with ongoingnegotiations of substance between the parties. [22] He thus considered the January 17, 2002 document as reflecting a precontractual agreement in the sense of this Court'sjudgment in Rainville v. Jolicoeur,[2] that is, one in which "une

partie importante de son contenu obligationnel restait encore à convenir."In his view, the establishment of the value of inventory was essential, albeit for different reasons, for both CDPQ and Mr. Greenberg. Hecould not believe, given Mr.

Greenberg's degree of business acumen and sophistication, that he could have seriously thought that theJanuary 17, 2002 scenario was anything other than a precontractual agreement. [23] Although the appellants have urged several grounds of appeal, in reality they can be reduced to two: whether the trial judgeerred in his conclusion that the January 17, 2002 agreement was a precontractual one; and, if so, what the extent should be of thedamages to which each of the appellants is entitled. [24] The Court has concluded that the appellants have failed to demonstrate a palpable and overriding error in the trial judge'sinterpretation of the facts that would justify setting aside his conclusions and substituting those they propose.

Rejecting the first groundof appeal, as the Court has described it, suffices to dispose of the appeal. [25] It can never be forgotten that an appeal is a trial of the judgment, not a retrial of the case as if, in this instance, the judgment ofthe Superior Court had never been rendered. Nor should the underlying rationale for this limitation of the role of appellate courts inrelation to findings of fact be forgotten, as explained by Iacobucci and Major, JJ. for the majority in Housen v. Nikolaisen:[3] 3 The role of the appellate court was aptly defined in Underwood v.

Ocean City Realty Ltd. (1987), (BC CA), 12B.C.L.R. (2d) 199 (C.A.), at p. 204, where it was stated: The appellate court must not retry a case and must not substitute its views for the views of the trial judge according to what the appellatecourt thinks the evidence establishes on its view of the balance of probabilities. 4 While the theory has acceptance, consistency in its application is missing. The foundation of the principle is as sound today as100 years ago. It is premised on the notion that finality is an important aim of litigation.

There is no suggestion that appellate courtjudges are somehow smarter and thus capable of reaching a better result. Their role is not to write better judgments but to review thereasons in light of the arguments of the parties and the relevant evidence, and then to uphold the decision unless a palpable error leadingto a wrong result has been made by the trial judge. 5 What is palpable error? The New Oxford Dictionary of English (1998) defines “palpable” as “clear to the mind or plain to see” (p.1337).

The Cambridge International Dictionary of English (1996) describes it as “so obvious that it can easily be seen or known” (p.1020). The Random House Dictionary of the English Language (2nd ed. 1987) defines it as “readily or plainly seen” (p. 1399). 6 The common element in each of these

definitions is that palpable is plainly seen. […] [26] Reference to the same effect may also be made to H.L. v. Canada (Attorney General),[4] in which Fish, J., writing for themajority, said this: 53 The standard of review for error has been variously described. In recent years, the phrase “palpable and overriding error”resonates throughout the cases.

Its application to all findings of fact — findings as to “what happened” — has been universallyrecognized; its applicability has not been made to depend on whether the trial judge’s disputed determination relates to credibility, to“primary” facts, to “inferred” facts or to global assessments of the evidence. 54 Nor has the standard been said to vary according to whether we are concerned with what Hohfeld long ago described as“evidential” or “constitutive” facts (see W. N. Hohfeld, Fundamental Legal Conceptions as Applied in Judicial Reasoning and OtherLegal Essays (1923), at p. 32).

Nor, put differently, has the standard been said to vary according to whether our concern is with direct

proof of a fact in issue, or indirect proof of facts from which a fact in issue has been inferred. 55 “Palpable and overriding error” is at once an elegant and expressive description of the entrenched and generally applicable standard of appellate review of the findings of fact at trial. But it should not be thought to displace alternative formulations of the governing standard. In Housen , for example, the majority (at para. 22) and the minority (at para. 103) agreed that inferences of fact at trial may be set aside on appeal if they are “clearly wrong”.

Both expressions encapsulate the same principle: an appellate court will not interfere with the trial judge’s findings of fact unless it can plainly identify the imputed error, and that error is shown to have affected the result. [ 27 ] The appellants certainly propose a different view of the evidence than that entertained by the trial judge, but nothing that reaches the level of errors he would have made being "plainly seen".

In rejecting their submission in this respect, the role of the Court is not to decide whether it or a different trial judge might have agreed with the appellants' view of the evidence, but rather, whether the appellants succeeded in showing that the findings of this judge are not grounded in the evidence, and that the conclusions he drew therefrom cannot be sustained. [ 28 ] The appellants have failed in that task. Indeed, as counsel for the respondent observed at the opening of his oral submissions, the appellants' counsel hardly mentioned the existence of the trial judgment during his oral argument.

That argument, and the factum on which it was based, as skillful as they may have been undertaken, more resembled one presented at the close of a trial rather than at the hearing of an appeal. [ 29 ] In addition, as CDPQ points out in its factum, the evidentiary burden to establish that the January 17, 2002 document constituted an enforceable agreement was on the appellants. Since the trial judge did not believe Mr. Greenberg could have conceived this document as anything but precontractual in light of his sophistication in financial matters and his own subsequent conduct, that burden has not been discharged.

It would be inconceivable for this Court to substitute its view of Mr. Greenberg's perception for that of the trial judge, who had the benefit of observing him testify, which we do not. [ 30 ] In short, much like the situation that presented itself in Rainville v. Jolicoeur , [5] it cannot be said in this case that all of the essential elements of an agreement that were objectively necessary to have been mutually agreed upon were in place once the CDPQ investment committee gave its approval.

The mere fact that the CDQP indicated, when it wrote to the Bank on February 1, 2002, that its approval required further adjustments with the Bank insofar as the credit agreement is concerned, shows the conditional nature of the approval. Moreover, to the extent that the appellants attribute errors to the trial judge in his

interpretation of the evidence, such as by confusing the concept of due diligence with that of representations and warranties, they are neither palpable nor overriding as those terms are understood, nor can they be said to be determinative of the outcome. [6] FOR THESE REASONS, THE COURT: [ 31 ] DISMISSES the appeal with costs. YVES-MARIE MORISSETTE, J.A. ALLAN R. HILTON, J.A. DENIS JACQUES, J.A. (AD HOC) [4] [2005] 1 S.C.R. 401 , 2005 SCC 25