2024 MBKB 32, 2024 MBKB 32
Opinion
Date: 20240214 Docket: FD 18-02-08424 (Brandon Centre) Indexed as: Walshe v Walshe Cited as: 2024 MBKB 32 COURT OF KING’S BENCH OF MANITOBA B E T W E E N: ) Claire Diane Walshe , ) Rhea P. Majewski ) for the petitioner petitioner, ) ) -and- ) ) ) Niall Thomas Walshe, ) Jodi L.
Wyman ) ) for the respondent respondent. ) Report Issued: ) February 14, 2024 ) ) Deemed Confirmation Date: March 20, 2024 ASSOCIATE JUDGE PATTERSON INTRODUCTION [ 1 ] The Petitioner, Claire Diane Walshe (the “Wife”), and the Respondent, Niall Thomas Walshe (the “Husband”), separated on September 23, 2017 (the agreed date of separation or “valuation date”). [ 2 ] In 2021, the parties appeared before me for purposes of an accounting pursuant to The Family Property Act , C.C.S.M. c. F25 (the “ FPA ”).
My reasons for decision from that Reference (the “FPA Reference”) are reported at 2021 MBQB 197 (the “FPA Report on Reference”). [ 3 ] The Wife and the Husband are equal shareholders in 6228764 Manitoba Ltd. (the “Corporation”). V aluation of the Corporation was not an issue referred for determination at the FPA Reference. [ 4 ] In accordance with the Judgment, reported at 2021 MBQB 259 , the Honourable Justice Menzies made the following decision concerning the parties’ interests in the Corporation (commencing at paragraph 88): [88] The company no longer carries on its business.
The Respondent remarked he is unprepared to do any work in the name of the Corporation if the Petitioner is to share in the profits generated. [89] There can be little question that the reasonable expectations of the Petitioner as a shareholder have been breached. [90] The fact is that all of the actions taken by the Respondent in terminating the ongoing business of the Corporation and paying back the shareholder’s loan without consultation was oppressive and prejudicial to the interests of the Petitioner.
[91] By way of remedy, the Petitioner asks that the value of her portion of the Corporation be set as of the date of separation and that the Respondent be ordered to redeem her shares in accordance with that valuation. The Petitioner would be prepared to transfer her shares to the Respondent upon payment. [92] I agree that this proposal is the best manner to resolve the oppression claim.
I would order that the Respondent purchase the Petitioner’s shares at a value to be determined by the agreement of the parties or by way of further hearing before this court. [93] The further hearing will proceed as a trial of an issue necessitating further evidence and hopefully expert assistance.
The parties are directed to contact the trial coordinator to set up a further pre-trial conference respecting this outstanding issue if agreement cannot be reached by the end of 2021. (emphasis added) [ 5 ] During the Case Conference held before Justice Menzies on January 31, 2023, the Wife and the Husband confirmed that they were unable to agree upon valuation of the Corporation as of September 23, 2017. [ 6 ] As a result, Justice Menzies ordered on January 31, 2023 that valuation of the parties’ shares in the Corporation, as of the date of separation, shall be referred to a Master (Associate Judge) for determination.
REFERENCE HEARING [ 7 ] Jeff Hood, CPA, CA (“Hood”), an accountant with MNP LLP in Brandon, Manitoba, was the only witness at the hearing for this Reference. [ 8 ] Initially, counsel for the Wife objected to Hood’s intended expert testimony, citing grounds such as but not limited to late provision of a copy of his report dated March 11, 2023 (the “Report”), and there being no copy of Hood’s CV being included with the Report.
It was also emphasized by counsel for the Wife that Hood was not a chartered business valuator (“CBV”). [ 9 ] Counsel for the Husband responded by confirming that the Report was forwarded to counsel for the Wife eight days prior to commencement of the hearing for this Reference (at the above noted Case Conference, Justice Menzies had specified that any expert report was be provided a minimum of ten days prior to the hearing).
In addition to confirming that a copy of Hood’s CV had now been provided to counsel for the Wife, it was asserted by counsel for the Husband that an adjournment, with consideration of costs, could be requested if counsel for the Wife was not prepared to proceed. [ 10 ] Following further submissions, consensus was eventually reached, and it was stipulated by counsel that Hood was qualified to testify as an expert witness with respect to the following: An expert in preparation and analysis of financial statements, and applying information from third party sources, unverified and unaudited, to adjust for the difference between book value and fair market value. [ 11 ] Upon this basis, Hood’s CV was entered as Exhibit “1” in these proceedings, with the Report being Exhibit “2”.
A copy of Status of Title No. 2974488/2, for the lands and premises located at 935 - 2 nd Street North in Brandon, Manitoba (“2nd Street North”), is Exhibit “3”.
SUMMARY OF THE REPORT AND HOOD’S EVIDENCE Background [ 12 ] At the outset, Hood confirmed within the introductory portion of the Report that he had been “asked to reasonably value of the shares of 6228764 Manitoba Ltd. for the purpose of the division of assets between Niall Walshe and Clare Walshe as of September 23, 2017”. [ 13 ] It was clarified by Hood within the first page of the Report that he is not a CBV, and “therefore no report as such will follow using any valuation methodology or calculation of intangible assets”.
While Hood commented within the first page of the Report that he did not anticipate there were any intangible assets associated with the Corporation, he confirmed that “I have not performed a compilation, review or audit engagement and reserve no opinion as such, other than the information as provided below”. [ 14 ] Hood testified that he had only known the Husband for approximately two and a half months by the date of the hearing for this Reference (he had been retained by the Husband because the accounting firm with whom the Corporation had been working for some time, Rod and Deb Capon Ltd. (“Capon”) were not prepared to prepare a report for purposes of this proceeding).
[ 15 ] Within the first page of the Report, Hood confirmed that his review of the FPA Report on Reference issued in September of 2021, and the aforementioned decision of Justice Menzies from December of 2021, “as well as the accounting records provided by Andreas Wetstein of Rod and Deb Capon Ltd. indicated 3 main issues”, which he identified as being “the shareholder’s loan, the value of the remaining property in the Corporation and the profit in the project being built at 1439 - 6th Street in Brandon”. [ 16 ] It was acknowledged by Hood during his direct testimony, and under cross-examination, that the accounting records he had received were not compiled as he would have preferred or would have normally wanted.
Nonetheless, Hood advised that he could follow the details supplied in order to provide the requested valuation advice concerning the Corporation. [ 17 ] As confirmed within the first page of the Report, “the starting point” for Hood’s review was the balance sheet for the Corporation as of September 23, 2017 (the “Balance Sheet’), which was provided by Capon (a copy of which is attached as Exhibit “A” to the Report).
Shareholder’s Loan (Husband) [ 18 ] With respect to the shareholder's loan which was owing by the Corporation to the Husband at separation (the “Shareholder’s Loan”), Hood reviewed paragraph 167 on page 58 of the FPA Report on Reference, wherein it was determined that the value of the Shareholder’s Loan was in an amount of $583,295.08 as of the date of separation. [ 19 ] Hood testified that from his perspective, the aforementioned value of the Shareholder's Loan established by the Court was “non- negotiable”. [ 20 ] As set forth within first page of the Report, Hood confirmed that the Shareholder’s Loan is an asset of the Husband, and a liability to the Corporation, which needed to be properly recorded within the Balance Sheet for the Corporation.
Accordingly, Hood included the Shareholder’s Loan as “Entry 1” to the copy of the Balance Sheet that was attached to the Report.
Properties at 1st Street and 2nd Street North [ 21 ] With respect to 1118 and 1120 - 1 st Street in Brandon, Manitoba (collectively “1 st Street”), Hood confirmed within second page of the Report that the Corporation purchased 1st Street for an amount of $265,000.00 on July 24, 2017 (Exhibit “C1” to the Report sets forth that an amount of $269,578.18 was the total expense incurred by the Corporation to purchase 1st Street, which Hood presumed includes land transfer tax, legal fees and other related expenses). [ 22 ] Exhibit C1 also described that 1st Street was then sold by the Corporation to the Husband on February 2, 2018, for the sum of $265,000.00. [ 23 ] Accordingly, Hood valued 1st Street in an amount of $265,000.00 as of the date of separation. [ 24 ] Concerning 2nd Street North, Hood stated within the second page of the Report that the Husband informed him this property was purchased prior to separation, for an amount of $240,000.00. [ 25 ] Subsequent to its purchase, 2nd Street North was subdivided into two parcels, and Hood described that “a bare piece of property was sold for $70,000”, leaving the Corporation owning the remaining parcel (upon which a house was located) as of the date of separation. [ 26 ] Hood confirmed within the second page of Report that the remaining parcel and house at 2 nd Street North was sold to a third party on October 17, 2018, with the net proceeds received by the Corporation being in an amount of $172,913.38, as described within Exhibit “C2” to the Report (which Hood presumed was the net sale proceeds after payment of the applicable real estate commission, legal fees, GST, RST and any other related expenses). [ 27 ] Based upon the above noted details, Hood valued 2nd Street North in an amount of $173,000.00 as of the date of separation.
Profit allocation for 6 th Street [ 28 ] Hood made the following preliminary comments within the second page of the Report as it relates to 1439 - 6th Street (“6th Street”): The revenue recognition of the construction contract has its level of subjectivity and in this case, there is a discrepancy between where the parties thought the project was at. [ 29 ] It was confirmed by Hood that Appendix “D” to the Report was a
summary of the project at 6th Street “and how the unearned revenue was calculated.” [ 30 ] Hood explained his approach to valuation of 6th Street within the second page of the Report, noting as follows: The approach was to take the amount of project costs incurred to date of separation as indicated at paragraph 161 page 56 of the Master’s judgment dated September 8, 2021 as $228,355.62, referenced as Appendix D.1 As this has been ruled upon already, it makes sense that this is the starting point.
[ 31 ] During his testimony, Hood reiterated that he was not changing the Court’s ruling (pursuant to the FPA Report on Reference). [ 32 ] Hood provided the following further comments about expenses for 6 th Street within the second page of the Report: Per paragraph 162, page 56 of the Master’s judgment dated September 8, 2021, it is acknowledged that there were further expenses likely to be billed to the corporation.
The sum of the total project cost is represented on Appendix D, with references to the general ledgers for supporting documentation. [ 33 ] Within the second page of the Report, Hood reviewed the contract for sale of and construction at 6th Street: The contract for sale of the noted property appears to be in 2 parts; - the sale of the property for $205,000, no GST, paid in full. - the construction of the building for $615,000, including GST, for a revenue total of $585,714.30.
This was paid in 3 equal payments of $195,238.10 plus GST for a total payment of $205,000.00. [ 34 ] At the bottom of the second page of the Report, Hood confirmed the following in relation to the status of payment received for 6 th Street by the date of separation: As of September 23, 2017, two of the three payments had been received by the corporation, for a total of $390,476.20, with the most recent payment being received on September 22, 2017. [ 35 ] Hood noted within the top portion of the third page of the Report that an adjustment in connection with GST was warranted: Please note that the total cost presented in the judgment appear to include GST.
The items noted in the general ledger are net of GST. To equally compare, I have removed the GST and the cost to date and the balance becomes $217,481.54. [ 36 ] In consideration of the foregoing details, Hood confirmed the following within the third page of the Report: Based on a total project cost of $619,502.75, the costs incurred to date were 35.11% of the total project costs. To properly recognize the corresponding revenue, we would multiply 35.11% by the total contract value of $585,714.30. This number ends up being $205,619.83.
To separation date, there had been $390,476.20 collected, however only $205,619.83 of that should be recognized as revenue.
This means that $184,856.37 of the payments received to date would be classified as a liability on the balance sheet under unearned revenue and would reduce the equity in the Corporation by the same amount. [ 37 ] Hood ultimately concluded (as confirmed within his testimony and on the third page of the Report) that “the estimated value of the Corporation is $206,364.30” as of the date of separation. [ 38 ] During his direct evidence, Hood was asked whether he had an opinion or comment concerning the Husband (through Walshe Construction) adding an additional 10% to invoices submitted to the Corporation, after the date of separation.
Hood advised that he had considered this practice of the Husband, and it was not a concern from his perspective. [ 39 ] When cross-examined, Hood admitted that had not testified in Court previously.
He did clarify, however, that he had experience with work-in-progress issues, even if he was not qualified as an expert in that specific area. [ 40 ] Hood acknowledged under cross-examination that his role was to assist the Court, not just the Husband who had retained him, and that he was to rely upon any facts already established within the FPA Report on Reference for purposes of the Report. [ 41 ] Upon being asked if his opinion would be impacted had the Court concluded that 6th Street was approximately two-thirds completed as of the date of separation, Hood advised that this was not his
interpretation of the FPA Report on Reference, as well as emphasizing that he did not ignore the findings within the FPA Report on Reference for purposes of preparing the Report.
[42] Hood confirmed, in response to questioning from counsel for the Wife, that he utilized the figures and information provided tohim through Capon, as well as from the Husband, and that he had not undertaken any independent analysis of these details (other than asspecifically noted within the Report). [43] In connection with 2nd Street North, counsel for the Wife pointed out, and Hood acknowledged, that the remaining parcel andhouse was sold for an amount of $205,000.00 on September 28, 2018, as evidenced by Exhibit 3 (a difference of $32,000.00 from thevalue of $173,000.00 which Hood had utilized for 2nd Street North within the Report).
SUMMARY OF SUBMISSIONS (HUSBAND) [44] The submissions made by counsel for the Husband can be summarized as follows:
a) It was argued that the Wife “cannot have it both ways”, in that the Husband retained Hood (at his expense solely) so there would beexpert evidence before the Court, which the Wife is not willing to accept, despite there being no expert report or testimony presented onher behalf.
b) Counsel for the Husband was adamant it was not concluded within the FPA Report and Reference that the construction project at 6thStreet was approximately 64% completed as of the date of separation.
c) From the Husband's perspective, review of the costs involved with construction of 6th Street within the FPA Report on Reference wasone variable, of many variables, that the Court considered in an effort to determine the amount owing to the Husband pursuant to theShareholder’s Loan as of September 23, 2017 (based upon review of paragraphs 161 through 166 thereof).
d) Counsel for the Husband stated that Hood’s opinion does not alter the determination made within the FPA Report on Referenceconcerning the value of the Shareholder’s Loan. In addition, it was noted that any adjustments made within the Report were fullyexplained by Hood, such as in relation to GST.
e) Ultimately, it was submitted that Hood considered the costs associated with the construction project at 6th Street in order to provide anopinion with respect to the amount of profit in existence for the Corporation as of the date of separation.
f) Counsel for the Husband candidly commented that the Report “may not be a perfect report”, but it was authored by an accountant,with qualifications confirmed by counsel (who concluded that the Corporation had a value of $206,364.30 as of the date of separation).
g) In rebuttal, counsel for the Husband emphasized that the status of the Shareholder’s Loan is a separate issue from the status of completion of construction at 6th Street by September 23, 2017. SUMMMARY OF SUBMISSIONS (WIFE) [45] The submissions advanced on behalf of the Wife can be summarized as follows:
a) Counsel for the Wife argued that an error had been made within the Report concerning valuation of 2nd Street (it had been sold for$205,000.00 as evidenced by Exhibit 3, such that a further amount of $32,000.00 should be included for purposes of valuing theCorporation).
b) The other material objection to the Report on the part of the Wife was in connection with the profit allocation for 6th Street. Counselfor the Wife asserted that the Husband cannot take the position (nor can the Report conclude) that the project was only 35.11% finishedas of the date of separation, when there was a finding of fact made within the FPA Report on Reference that 6th Street had beencompleted to a greater extent by the date of separation.
c) Within the FPA Report on Reference, it was established that an amount of approximately $228,000.00 in costs had been incurred for the construction project at 6th Street up to the date of separation, and that there could have been further costs billed to the Corporation thereafter (an amount of $354,031.01 was incurred for costs in connection with 6th Street to December 31, 2017).
d) It was noted by counsel for the Wife that there were certain percentages referred to concerning costs associated with 6th Street thatare contained within paragraphs 161 to 165 of the FPA Report on Reference (which it is argued relates to the extent of completion ofconstruction by the date of separation).
e) Citing the decision of the Supreme Court of Canada in R. v. Mohan, (SCC), [1994] 2 S.C.R. 9 (S.C.C.) (“Mohan”),counsel for the Wife argued that the testimony from Hood was not necessary (if a reasonable conclusion can be derived without experttestimony, the evidence of an expert is not necessary). Counsel for the Wife also questioned if the Report placed the Court any closer tomaking a determination of the legal issues involved with this case.
f) As Hood is not a CBV, it was asserted by counsel for the Wife that Hood had no special skills in relation to analysis of completion ofconstruction projects.
g) It was acknowledged by Hood that the accounting figures and information which he had received were not as he would have typicallyexpected or wanted for review purposes. As such, counsel for the Wife submitted that one could reasonably conclude that the detailsrelied upon by Hood for preparation of the Report were not sufficiently reliable (especially when no independent analysis of thesenumbers had been undertaken by Hood).
h) Counsel for the Wife stated that Hood had admitted during cross-examination that his opinion would vary if the project at 6th Streetwas completed to a greater extent by separation (although the Court notes Hood clarified that he did not share the same
interpretation of
the findings within the FPA Report on Reference as did the Wife and her counsel, and confirmed that there would only be a nominal adjustment to his opinion and calculations if 6th Street was indeed farther along as of the date of separation).
i) At the end of the day, it was submitted by counsel for the Wife that Hood had misinterpreted the findings of fact within the Report onReference insofar as the extent of completion of construction at 6th Street as of the date of separation. In addition, it was asserted thatHood's profit allocation calculations are not consistent with the evidence which served as the basis for pronouncement of the FPA Reporton Reference. ANALYSIS Expert evidence [46] First and foremost, I must address the issues raised on behalf of the Wife concerning reliance upon the Report and Hood’stestimony. [47] Ladco Company Limited v.
The City of Winnipeg, 2020 MBQB 101 , is a rather recent decision of the HonourableChief Justice Joyal, wherein he commented and found as follows with respect to admissibility of expert evidence (commencing atparagraph 80): Gatekeeper Function [80] Expert opinion evidence is admissible providing it is filed in accordance with the Queen’s Bench Rules and specifically Rule53.03. To determine admissibility, the onus is on the party who wishes to adduce expert opinion evidence to satisfy admissibility criteriaestablished in the leading authorities. (See R. v.
Mohan, (SCC), [1994] 2 S.C.R. 9 (S.C.C.) and White Burgess LangilleInman v. Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 S.C.R. 182 (QL)). In order for the expert opinion evidence to beadmissible, each of the following factors must be met:
a) the evidence must be relevant to some issue in the application;
b) the evidence must be necessary to assist the trier of fact;
c) the evidence does not contravene an exclusionary rule; and
d) the witness is a properly qualified expert. (See Mohan and The Law of Evidence in Canada 4th ed (Canada: LexisNexis, 2014) at para. 12.39) [81] Expert witnesses have a duty to give fair, objective and non-partisan opinion evidence. An expert witness who is unable orunwilling to fulfill this duty is not properly qualified to perform the role of an expert. Exclusion at the threshold stage of analysis shouldonly occur in very clear cases (See White Burgess Langille Inman, at para. 49). [82] The City filed affidavits by experts, Mr. John Hughes and Mr.
Mike Stevens attaching expert reports and their respectivecurriculum vitae. In performing the gatekeeper function, I accept that they both met the Mohan framework and as a result they werequalified as experts to give opinion evidence within their respective areas of expertise. [83] In performing the gatekeeper analysis, I must also consider the ability and willingness of the experts to give their evidence in a fair,objective and non-partisan manner in accordance with the additional threshold requirement outlined in White Burgess Langille Inman.
Iam satisfied that both experts met the required criteria such that their reports should not be excluded. The analysis concerning Mr.Hughes is somewhat unique in that he was retained by the City for the specific purpose of providing consulting services regardingmechanisms and regulatory fees for financing growth.
In my view, his evidence and opinions should not be excluded at the thresholdstage because the evidence does not satisfy me that this is a very clear case in which the expert is unable or unwilling to meet his primaryduty to the court. [84] As established in White Burgess Langille Inman, I am still required to take into account any evidence that the expert may not beobjective and impartial, in the overall weighing of the costs and benefits of receiving the evidence.
It is also important to recognize thatthe By-Law and Resolution were enacted, at least in part, based upon the Hemson reports and accordingly, the Growth Report and theTechnical Report are part of the Record that I must review in order to determine the issues before the court. The bottom line is that Iaccept Mr. Hughes was able and willing to carry out his primary duty to the court and his retainer and relationship with the City does notlead to the conclusion that his evidence should be excluded.
Nevertheless, it is a factor I considered in the overall weighing of the costsand benefits of receiving his opinion evidence. [48] Upon review of Ladco (as well as the factors for the Court to consider in accordance with Mohan and White Burgess Langille
Inman ), I have determined as follows with respect to the Report and Hood’s testimony:
a) The Report and Hood’s evidence is certainly of relevance to the focus of this Reference, namely, valuation of the Corporation as of the date of separation.
b) I find that the Report and Hood’s testimony is necessary, as it is of assistance to the Court. When saying this, I recognize that the amount of the Shareholder’s Loan owing in favour of the Husband as of September 23, 2017 w as confirmed within the FPA Report on Reference, and that valuation of 1 st Street and 2 nd Street North was based upon details set forth within available corporate ledgers. Nonetheless, the Report relies upon the aforementioned figures, and then proceeds to outline the methodology, facts and figures considered by Hood in arriving upon his opinion concerning profit allocation for 6th Street, and the ultimate value for the Corporation, as of the date of separation.
c) At the last Case Conference, it was clearly contemplated that there would be expert testimony presented at this hearing. Q uite frankly, when accounting advice is available, the Court is not about to make any assumptions or factual findings with respect to an issue such as profit allocation for a construction project that had not been completed by the date of separation.
d) In accordance with the latest version (August 2021) of the practice direction entitled “N ew M odel for S cheduling and C ase F low M anagement: Practice before the M asters ” (now Associate Judges), it is confirmed as follows within subparagraphs H and J thereof (pages 10 and 11): … H. If the value of a commercial property is an issue the parties will be required to obtain a joint appraisal it is binding on the parties, or to each obtain a certified appraisal. … J.
In each of the situations presented in F to I above, or the parties do not obtain a joint appraisal, it will be the initial responsibility of the parties owns the asset to obtain independent appraisal, and only if the other party disputes that value will the other party be required to obtain his or her own appraisal… (emphasis added)
e) The Husband retained Hood, at his own expense, although Hood has acknowledged that his role was to also a ssist the Court with determining the value of the Corporation.
f) From the Wife’s standpoint, no accounting or expert evidence was presented in relation to the Corporation, despite being an equal shareholder with the Husband, and taking the position that portions of the Report are in error.
g) Other than the submissions made concerning the criteria to be considered pursuant to Mohan , c ounsel for the Wife did not specifically articulate or refer to any exclusionary rule that would be contravened should the Report and Hood’s testimony be admitted into evidence.
h) In the circumstances, it was expressly stipulated by both counsel that Hood was qualified as an expert in relation to preparation and analysis of financial statements, and applying information (that may be unverified and an audited) for purposes of adjusting the difference between book value in fair market value.
i) The Balance Sheet for the Corporation is a form of financial statement. It sets forth the assets, liabilities and equity associated with the Corporation . T he Report and Hood’s testimony focused upon what adjustments were necessary, from Hood’s perspective, insofar as profit allocation for 6th Street, and the value of the Corporation as of September 23, 2017 .
j) A ccording to Exhibit 1 (the CV of Hood), he has been a chartered professional accountant since 200 7 , working with MNP LLP for 12 years (8 years as a partner). Hood note d wit hin his CV that he has worked with “private corporate clients to meet their accounting, tax and advisory needs with a focus o n professional and construction clients”.
He a lso confirmed within his CV that he provides assistance “to other partners with quality review of independent review engagements in sectors such as construction, automotive, retail and professionals.” [ 49 ] Based upon the foregoing, I find that the Husband has met the applicable onus, and demonstrated that the Report and Hood’s testimony satisfies the required criteria for admissibility in these proceedings. 2 nd Street North [ 50 ] The first of two material challenges to the content of the Report and Hood’s testimony raised by counsel for the W ife is that the value utilized for 2 nd Street North was in error. [ 51 ] As confirmed earlier herein, Exhibit 3 is a copy of Status of T itle for 2nd Street North.
It confirms that a transfer of land (the “Transfer”) from the Corporation to Evan William Donald M arsh and Breanna Kimberley W orkma n (collectively, the “Purchasers”) was registered on September 28, 2018, for consideration of $205,000.00. The mortgage of the Purchasers from Westo ba C redit U nion Limited was registered in series with the Transfer , for the principal sum of $203,513.75. [ 52 ] While there is no appraisal or opinion as to value before the Court from on or around the date of separation, the Transfer for 2 nd
Street North, registered on September 28, 2018, represents evidence as to fair market value (by virtue of the arm ’ s length sale to the Purchasers approximately one year following the parties’ separation). Upon this basis, the W ife contends that Hood has undervalued 2nd Street North for purposes of the Report. [ 53 ] Appendix C.2 to the R eport, however , is a copy of a ledger for the Corporation, which as noted by Hood, confirms that an amount of $172,913.78 was received by the Corporation on October 17, 2018 from the law firm which had conduct of the sale of 2 nd Street North.
Hood conclude d that th e above noted sum represented the net proceeds from sale of 2nd Street North, after payment of any applicable real estate commission, legal fees, GST and other related expenses such as disbursements. [ 54 ] A copy of the solicitor ’s reporting letter that t he Corporation sh ould have received shortly following sale of 2 nd Street North wa s not an exhibit at this hearing , which is unfortunate, as this document would typically set forth all expenses associated with the sale which gave rise to there being net sale proceeds received in an amount of $172,913.38. [ 55 ] There is no evidence before the Court as to whether a real estate commission was payable, other than it being presumed to have been the case by Hood.
If a standard or average real estate commission of 5% was charged against the sale price of $205,000, the outcome would be a commission payable by the Corporation of $10,250.00, plus GST of $512.50, for a total of amount of $10,762.50.
Upon subtracting a commission payable for this sum against the sale price of $205,000.00, the result is an amount of $194,237.50 (which still leaves a difference of $21,324.12 from the net proceeds in an amount of $ 172,913.38 that were received from the law firm represe n ting the Corporation for this sale) . [ 56 ] If there was a mortgage or a secured line of credit to pay out with the proceeds of sale, E xhibit 3 does not contain any such details.
There is also no evidence as to whether there were outstanding real property taxes and utility accounts that had to be paid from the proceeds of sale (any of the foregoing expenses, if applicable, could assist with explaining the amount received for net sale proceeds by the Corporation). [ 57 ] While the sum invoiced to the Corporation for l egal services in connection with sale of 2nd Street North was also not clarif ied, it would not be unreasonable to expect that l egal fees for a residential sale would be in an amount of approximately $1,000.00, plus disbursements and GST as well as RST (a n all- inclusive sum in the range of $1,500.00 could be reasonably anticipated ).
There may ( or may not) have been outstanding legal and surveying expenses that had to be paid pertaining to the prior subdivision of 2nd Street North, which c ould further explain the amount of net sale proceeds received by the Corporation. [ 58 ] Accordingly, there is a certainly an argument to be made tha t 2 nd Street North should be valued in an amount of $205,000.00 as of September 23, 2017 (in reliance upon the arm ’ s length sale that was completed in October of 20 18).
No supporting documentation is in evidence to clarify what expenses for sale were incurred. [ 59 ] Nonetheless, it is equally understandable that Hood decided to value 2 nd Street North by virtue of the net sale proceeds received by the Corporation on October 17, 2018 from the law f irm wit h conduct of the sale . [ 60 ] If the Court was to value 2 nd Street North at $205,000.00 for these purposes, the concern with doing so is that it would not fairly reflect the actual net sale proceeds received by the Corporation after attending to any necessary expenses associated with th is property. [ 61 ] Even though further details from the parties or the solicitor representing the Co rporation c ould have provided clarification, Appendix C.2 to the Report does record the precise sum that was received by the Corporation upon sale of 2nd Street North.
I t is also of significance that the amount of $172,913.38 was received directly from the law firm representing the Corporation (it is not as if there was deposit of a personal cheque of the Husband for the aforementioned sum to the account of the Corporation). [ 62 ] Accordingly, I am prepared to accept the determination m ade by Hood within the Report that 2nd Street North should be valued in an amount of $173,000.00 as of the date of separation.
Profit allocation for 6th Street [ 63 ] With respect to the second material challenge to the content of the R eport and Hood’s testimony that has been advanced on behalf of the Wife, the key portions of the FPA Report on Reference that are of relevance to this hearing (and which have been referred to by Hood as well as both counsel) are paragraphs 149 and 151, as well as paragraphs 161 through 167: [149] Upon review of Exhibit "F" to the Wife's Affidavit, the ongoing or continuing total of expenses concerning 6 th Street, calculated as of the end of each month, from May, 2017 to the end of December 2017, were as follows: a) $3,517.50 to the end of May, 2017; b) $3,788.17 to the end of June, 2017; c) $18,892.61 to the end of July 2017; d) $84,662.30 to the end of August 31, 2017; e) $137,025.74 to the end of September 30, 2017; f) $285,453.91 to the end of October 2017; g) $311,743.55 to the end of November, 2017; and
h) $354,031.01 to Dec. 31, 2017. … [151] Based upon the foregoing, the total costs incurred by Walshe Construction for 6 th Street to September 30, 2017, which should have been included when the Husband subsequently billed the Corporation (and represented part of the Shareholder's Loan owing to the Husband), amounts to $137,025.74.
This sum equals 38.7% of the total of costs for which there were records presented in evidence, for May 2017 to December 31, 2017 (which totaled $354,031.01, as confirmed within paragraph 149 herein, although there may have been further construction work at 6 th Street into 2018, which if so, has not been factored into this calculation). … [ 161] Pursuant to the calculations set forth at paragraph 149 of this decision (the total costs incurred by Walshe Construction and the Husband for 6 th Street to September 30, 2017 was $137,025.74), the amount of the Shareholder Loan outstanding as of the date of separation would be $137,025.74 plus $91,329.88, for a total of $228,355.62. [ 162] The foregoing sum of $228,355.62 represents 64.5% of the total expenses incurred by Walshe Construction and the Husband at 6 th Street to December 31, 2017, which was in an amount of $354,031.01 (reviewed at paragraph 149 of this decision).
It is recognized, however, that there may have been further expenses associated with 6 th Street into 2018 (Invoice No. 155 for labour and materials at 6 th Street was not billed by the Husband on behalf of Walshe Construction to the Corporation until January 29, 2018). [ 163] In the alternative, the sum of $228,355.62 works out to 53.9% (54%) of the total represented by Invoice Nos. 098 and 155, both of which involve work and services at 6 th Street that were billed to the Corporation following separation, and were of a total combined amount of $423,102.86. [ 164] The Court is not about to do so arbitrarily, but for illustration purposes only, and recognizing the evidence suggests there was more than insignificant construction work ongoing at 6 th Street following separation (and given the reality all of the calculations within this portion of the decision were derived as best as possible from the available evidence, without expert assistance), it is noteworthy that an amount equivalent to 50% of $423,102.86 works out to $211,551.43 (a difference of only $16,804.19 from $228,355.62 as calculated). [ 165] It is this sum of $423,102.86 (from Invoice Nos. 098 and 155) which is at the core of this issue, and in particular, whether all, some or none of that amount should be excluded when calculating the Shareholder’s Loan owing to the Husband as of the date of separation. [ 166] At the end of the day, the Court does not accept the Husband’s position that the sums billed in accordance with Invoice Nos. 098 and 155 should be excluded entirely when calculating the amount of the Shareholder’s Loan owing to the Husband at separation.
The Husband admitted that 25% of the construction at 6 th Street was completed by September 23, 2017. At the same time, the Court does not agree with the contention of the Wife that the evidence supports a conclusion that work at 6 th Street was largely finished by the date of separation.
Conclusion [ 167] The end result is that I find the amount of the Shareholder’s Loan owing to the Husband amounted to $583,295.08 as of the date of separation (the minimum agreed amount of $354,939.46 plus $228,355.62 as calculated). [ 64 ] The Report and Hood’s testimony being available for consideration by the Court to assist with determination of the value of the Corporation at separation stands in stark contrast to the situation faced by the Court in relation to the FPA Report on Reference. [ 65 ] While fully appreciating that counsel had to work with what information was available (as well as their respective instructions), there were certain limitations to the evidence presented by the parties at the hearing before me in 2021 with respect to the contested issue of determining the value of the Shareholder’s Loan owing by the Corporation in favour of the Husband as of the date of separation.
In particular:
a) The Corporation’s accountant did not testify or provide any report;
b) Neither party retained an accountant to testify and provide a n opinion;
c) There were no specific work in progress (“WIP”) or accounts receivable (“AR”) summaries from on or around the date of separation presented in evidence from the Husband (Walshe Construction), or the Corporation;
d) No photographs or video from on or around the date of separation was presented, which if available, may have assisted the Court with determining the extent of costs incurred or level of completion of 6th Street as of on or around the date of separation.
e) There were no collateral witnesses who testified, such as employees of Walshe Construction or other contractors and suppliers who may have been on site, for purposes of potentially establishing the extent of costs incurred or status of construction of 6th Street as of on or around September of 2017.
f) No analysis was undertaken of available invoices, receipts or other documentation with respect to what products had been delivered to 6th Street, in an effort to possibly determine the extent of costs incurred or construction completed as of on or around the date of separation.
g) There was no evidence provided with respect to issuance of any interim and/or final occupancy certificate(
s) by Development Services for the City of Brandon in relation to 6th Street (which, if available, may have been of assistance to the Court by clarifying the extent of work that had been completed and what work was deficient or outstanding as of the date of issuance).
h) As confirmed within the FPA Report on Reference, the Husband (through Walshe Construction) did not always invoice the Corporation immediately upon or shortly following completion of certain work or a project (which was relevant to determination of the amount of the Shareholder’s Loan owing in favour of the Husband at separation). [ 66 ] In recognition of the above noted evidentiary constraints, the FPA Report on Reference (including determination of the amount of the S hareholder’s L oan owing by the Corporation to the Husband as of the date of separation) was completed, as best as possible, in reliance upon what evidence had been presented at the FPA Reference. [ 67 ] Analyzing costs incurred (whether by Walshe Construction and invoiced by the Husband to the Corporation, or by the Corporation itself) was one method to derive a value for the Shareholder’s Loan as of th e date of separation, in the absence of accounting advice and expert evidence.
Subject to the limitations insofar as available evidence (as reviewed herein), another approach , in tandem with tracking costs , was to consider the general status of construction that had been completed at 6th Street by on or around the end of September in 2017. [ 68 ] Based upon the foregoing, and as it relates to the Wife’s challenge to the Report and Hood’s testimony concerning profit allocation for 6 th Street, it must be confirmed that I did not make a speci fic factual finding or determination within the FPA R eport on R eference concerning the extent or level of completion of 6th Street as of the date of separation. [ 69 ] It is set forth within paragraphs 151 and 161 of the FPA Report on Reference that the total costs incurred in relation to 6th Street were in an amount of $137,025.74 up to September 30, 2017.
When this sum was added to the further amount that had been calculated of $91,329.88, the total equaled $228,355.62. Upon including the amount of $228,355.62 with the sum already agreed upon by the parties ($354,939.46), I ultimately determined that the Shareholder’s Loan owing by the Corporation in favour of the Husband was outstanding in an amount of $583,295.08 as of the date of separation.
This was the finding of fact which I had made. [ 70 ] At paragraph 162 of the FPA Report on Reference, it does not say that 6th Street was 64.5% completed, or approximately two- thirds finished, as of the date of separation.
I did not find or determine that 6th Street was 64.5% completed or about two-thirds finished by September 23, 2017. [ 71 ] Rather, paragraph 162 of the FPA Report on Reference confirmed that the costs incurred to the date of separation, which I had calculated to be in an amount of $228,355.62, were equivalent to 64.5% of the total expenses incurred at 6th Street up to December 31, 2017 (which was an amount of $354,031.01). [ 72 ] It is also confirmed within paragraph 162 of the FPA Report on Reference that there may have been further expenses associated with 6th Street, that were billed in 2018, but involved expenditures incurred prior to or on or around the date of separation. [ 73 ] Within paragraph 163 of the FPA Report on Reference, it is noted that an amount of $228,555.62 was equivalent to approximately 54% of the total represented by the two invoices for work and services at 6th Street that were billed to the Corporation by the Husband (on behalf of Walshe Construction) following separation.
These two invoices totaled an amount of $423,102.86. [ 74 ] A t paragraph 166 of the FPA Report on Reference , it is confirmed that the Court did not accept the H usband’s position that the two invoices b illed by the Walshe C onstruction to the C orporation in 2018 should be excluded entirely whe n calculating the amount of the Sh areholder’s L oan owing to the H usband at separation. While the Husband would only admit that 6 th Street was approximately 25% completed by September 23, 2017, the Court did not accept the Wife ’s position that 6th Street was largely finished by separation.
There was not, however, an y definitive finding made as to the extent or level of construction that had been completed at 6th Street by the date of separation. [ 75 ] It should also be recognized that just because a certain amount of expenditures in relation to a project were incurred as of a particular date, it may, or may not, have cor res ponded with the status of completion at 6th Street at that particular point in time .
As an illustration, the re could be certain initial work involved with construction of a building that consumes a considerable portion of project expenses, and yet, there may still be a considerable amount of other work which is outstanding and must be completed to finalize the overall project. [ 76 ] A ccordingly, it is not at all accurate for it to be suggested that the FPA Report on R eference concluded ( or should be interpreted a s determining) that the construction project at 6 th Street was 64.5% completed , or approximately two-thirds finished, by the date of the parties’ separation.
[ 77 ] Upon this basis, and with respect t o the Report, H ood utilize d the sum incurred for costs of $228,355.62 as a starting point. [ 78 ] In reliance upon Appendix D, and with reference to the corporate general ledgers, Hood ascertained that the land at 6th Street was sold for $205,000.00, while construction of the building at this site was to be for a price of $615,000.00 (including GST), with there to be three equal payments made totaling $205,000.00 each (inclusive of GST). [ 79 ] Ultimately, Hood concluded that with a total project cost of $619,502.75, the expenses that were tracked and incurred to the date of separation represented 35.11% of the total project costs. [ 80 ] In order to determine the corresponding revenue associated with 6th Street as of the date of separation, Hood used the percentage of 35.11% against the total contract value of $585,714.30, resulting in an amount of $205,619.83. [ 81 ] Hood then proceeded to confirm that as of the date of separation, an amount of $390,476.20 had been collected, such that when considering revenue received of $205,619.83, the outcome was a sum of $184,856.37 in unearned revenue. [ 82 ] Pursuant to the above noted figures , Hood adjusted the B alance S hee t, and reached the conclusion that the Corporation had a value of $206,364.30 as of September 23, 2017. [ 83 ] Much criticism has been levelled on behalf of the Wife with respect to there being no independent analysis undertaken by Hood, and that he relied upon unverified and unaudited figures provided by the accountant for the Corporation, as well as from the Husband.
In this regard, Hood was candid in that what he had received for financial information concerning the Corporation was not ideal. Hood was equally clear, however, that he believed sufficient information had been received in order to provide the requested valuation opinion. [ 84 ] In the circumstances, I do not find that Hood materially misinterpreted the findings within the FPA Report on Reference concerning 6th Street (as alleged on behalf of the Wife).
Hood focused upon costs incurred, and revenue earned as well as unearned revenue, not the extent or level of completion of construction. [ 85 ] Based upon the foregoing, I am prepared to accept Hood's approach to determination of the value attributable to profits for 6th Street as of the date of separation. [ 86 ] Should I be in error, however, it is noteworthy that when questioned during cross-examination as to the impact upon his conclusions if it was determined that 6th Street was approximately two-thirds completed at the date of separation, Hood responded by indicating that only a minor adjustment would be applicable to his opinion (in addition to clarifying that he did not interpret the findings within the FPA Report on Reference in the same manner as the Wife and her counsel). [87] Justice Menzies made a finding within the Judgment from 2021 that the Husband’s conduct was oppressive and prejudicial to the interests of the Wife as a shareholder of the Corporation. [88] As a result, it is appreciated that relying upon the statutory rights available to the Wife, in accordance with The Corporations Act , C.C.S.M. c.
C225 (the “ MBCA ”), may not have yielded much more in the way of relevant details that could have been of assistance in determining the value of the Corporation. [89] The Wife could have, however, sought out her own accounting advice or an expert opinion. For whatever reason, she did not do so.
While counsel for the Wife attempted to skillfully cross-examine Hood, a more compelling case could perhaps have been advanced on behalf of the Wife had there been a competing opinion secured on her behalf. [90] It is also acknowledged that there can be considerable expense associated with retaining experts to complete a report, as well as to testify. That being stated, the Husband went ahead and retained Hood, bearing the expense solely.
CONCLUSION [91] The Court accepts Hood's conclusion as to valuation contained within the Report, and hereby determines that the value of the Corporation was in an amount of $206,364.30 as of the date of separation (September 23, 2017). [92] Subject to any agreement reached by the parties, the result of this particular Reference (given the Judgment and directions of Justice Menzies) would be that the Husband is required to pay the Wife the sum of $103,182.52 with respect to the value of her shares in the Corporation. The Wife's shares are to be redeemed upon payment in full being provided by the Husband.
The documentation involved for such purposes is minimal and should be able to be completed promptly. [93] Whether interest should apply to the required payment to be made by the Husband (for redemption of the Wife’s shares in the
Corporation) was not an issue referred for determination pursuant to this Reference. [94] Nonetheless, pursuant to section 79(1) of The Court of King’s Bench Act , C.C.S.M. c. C280 (the ” KB Act ”), the pre-judgment and post-judgment rates set forth below are of relevance:
a) October 1, 2017 (shortly after the date of separation); 1.5%;
b) January 1, 2022 (around the time of the Judgment pronounced by Justice Menzies): 0.5%; and
c) January 1, 2024 (the rate increased to 1.5% as of July 1, 2022, and continued to increase thereafter): 5.0%. [95] For illustration purposes solely, and if a mid-range rate of interest of 3.0% was utilized based upon the foregoing, the Husband could be called upon to provide a further sum in an amount of $19,604.87 for interest (for ease of calculation, on a simple interest basis, and not compounded, over a period of six years and four months, or from September 23, 2017 to January 26, 2024).
Added to the above noted amount of $103,183.52, the outcome is a total of $122,788.39. [96] In any event, it is sincerely hoped that payment can be arranged by the Husband on a timely basis in an effort to complete all outstanding issues in dispute between the parties. COSTS [97] The Husband has been successful in consideration of the positions advanced on his behalf for the Reference. [98] Should the parties be unable, however, to reach consensus concerning the issue of costs for this Reference, a further brief hearing may be scheduled before me.
CONFIRMATION OF REPORT [99] Pursuant to Rule 54.08(1), this report shall be deemed to be confirmed upon the date which is 35 days after the date this report was signed (the “Deemed Confirmation Date”), unless a notice of motion to oppose confirmation is filed and served before the Deemed Confirmation Date in accordance with Rule 54.10(1). ______ _____ R. L. Patterson Associate Judge
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