Whiteside et al. v. Celestica International Inc., 2014 ONCA 420

• Judge: Blair, Watt and Lauwers, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: January 20, 2014
• Jurisdiction: Ontario
• Citations: 2014 ONCA 420;(2014), 321 O.A.C. 132 (CA)

Whiteside v. Celestica Intl. Inc. (2014), 321 O.A.C. 132 (CA)

MLB headnote and full text

Temp. Cite: [2014] O.A.C. TBEd. MY.038

Jim Whiteside, Jason Wright, Steve Wilson and 3077187 Canada Ltd. (plaintiffs/appellants) v. Celestica International Inc. (defendants/respondents)

(C56676; 2014 ONCA 420)

Indexed As: Whiteside et al. v. Celestica International Inc.

Ontario Court of Appeal

Blair, Watt and Lauwers, JJ.A.

May 23, 2014.

Summary:

In August 2005, Celestica International Inc. ("Celestica") acquired the shares of an Ottawa-based electronics company, CoreSim Inc. Whiteside was CoreSim's major shareholder. D'Hollander was CoreSim's President, but not a shareholder. Through 3077187 Canada Inc. ("307"), D'Hollander had a separate agreement ("Letter Agreement") with Celestica entitling 307 to receive certain monies that were tied to the purchase price in the CoreSim purchase agreement. The Share Purchase Agreement (SPA) between Celestica and CoreSim's shareholders provided that Celestica would pay the shareholders: (i) an initial payment; and (ii) an "Earn-Out Payment" if the CoreSim business met certain performance targets after acquisition. The SPA also set out a formula for determining whether the targets were met. Shortly after acquiring CoreSim, Celestica won a large contract to design a product for a Japanese company (NEC). The project was "run" from CoreSim's old offices in Ottawa and involved some of CoreSim's former staff. At issue in this action was whether the revenue from the NEC project should be included in calculating the Earn-Out Payment. This, in turn, depended on the interpretation to be given to CoreSim's "Total EBIAT [earnings before interest, amortization and taxes]" as defined in the SPA.

The Ontario Superior Court, in a decision reported at [2013] O.T.C. Uned. 323, held that the NEC project's EBIAT was not to be included in calculating the Total EBIAT for purposes of determining the Earn-Out Payment; alternatively, the threshold requirements for triggering the Earn-Out Payment had not been met. The plaintiffs appealed.

The Ontario Court of Appeal held that while the plaintiffs were technically correct that the trial judge failed to deal with 307's claim in the context of the Letter Agreement, 307's claim was, in actual terms, derivative of the success of the shareholders' claims under the SPA. The court held that the trial judge erred in two ways: (i) his interpretation of the SPA failed to give effect to the contractual provisions governing the calculation of Earn-Out Payments, when the SPA was read as a whole and in context, and therefore the NEC Project EBIAT should have been included in calculating the Earn-Out Payments; and (ii) he made palpable and overriding errors in assessing the evidence of the plaintiffs' expert, Clarke, and Celestica's witness, Tareque, and therefore erred in concluding that the contractual thresholds for triggering entitlement to Earn-Out Payments were not met, even if the NEC Project EBIAT was included in the calculation. The court therefore allowed the appeal, but ordered a new trial on the issue of whether the threshold requirements for triggering the Earn-Out Payment were met.

Contracts - Topic 7406

Interpretation - General principles - Interpretation by context - [See Contracts - Topic 7409 ].

Contracts - Topic 7409

Interpretation - General principles - Subsequent conduct of parties - Celestica International Inc. acquired the shares of an Ottawa-based electronics company, CoreSim Inc. - Whiteside was CoreSim's major shareholder - D'Hollander was CoreSim's President, but not a shareholder - Through 3077187 Canada Inc. ("307"), D'Hollander had a separate agreement ("Letter Agreement") with Celestica entitling 307 to receive certain monies that were tied to the purchase price in the CoreSim purchase agreement - The Share Purchase Agreement ("SPA") between Celestica and CoreSim's shareholders provided that Celestica would pay the shareholders: (i) an initial payment; and (ii) an "Earn-Out Payment" if the CoreSim business met certain performance targets after acquisition - The SPA also set out a formula for determining whether the targets were met - Shortly after acquiring CoreSim, Celestica won a large contract to design a product for a Japanese company (NEC) - The project was "run" from CoreSim's old offices in Ottawa and involved some of CoreSim's former staff - At issue was whether the revenue from the NEC project should be included in calculating the Earn-Out Payment - This, in turn, depended on the interpretation to be given to CoreSim's "Total EBIAT [earnings before interest, amortization and taxes]" as defined in the SPA - The trial judge held that the NEC project's EBIAT was not to be included in calculating the Total EBIAT for purposes of determining the Earn-Out Payment; alternatively, the threshold requirements for triggering the Earn-Out Payment had not been met - The plaintiffs appealed - The Ontario Court of Appeal held that the parties' conduct subsequent to the agreement's execution was helpful in interpreting the agreement's provisions where competing interpretations arose - The court held that the trial judge erred in two ways: (i) his interpretation of the SPA failed to give effect to the contractual provisions governing the calculation of Earn-Out Payments, when the SPA was read as a whole and in context; therefore the NEC Project EBIAT should have been included in calculating the Earn-Out Payments; and (ii) he made palpable and overriding errors in assessing the evidence of the plaintiffs' expert, Clarke, and Celestica's witness, Tareque; therefore, he erred in concluding that the contractual thresholds for triggering entitlement to Earn-Out Payments were not met, even if the NEC Project EBIAT was included in the calculation - The court therefore allowed the appeal, but ordered a new trial on the issue of whether the threshold requirements for triggering the Earn-Out Payment were met.

Contracts - Topic 7431

Interpretation - Ambiguity - Choice between alternative interpretations - [See Contracts - Topic 7409 ].

Contracts - Topic 7468

Interpretation - Interpretation of words - Whole of contract to be considered - [See Contracts - Topic 7409 ].

Practice - Topic 8808

Appeals - General principles - Duty of appellate court respecting conclusions or interpretation of trial judge (incl. contractual interpretation) - The Ontario Court of Appeal stated that "The interpretation of a contract is very much a legal issue. The standard of review is therefore at or towards the correctness end of the standard-of-review spectrum. However, factual findings, on which the interpretation is based, are to be reviewed with deference. Generally, factual findings may only be interfered with in the case of a palpable and overriding error on the part of the trial judge ..." - See paragraph 39.

Cases Noticed:

Plan Group et al. v. Bell Canada (2009), 252 O.A.C. 71; 96 O.R.(3d) 81; 2009 ONCA 548, refd to. [para. 39].

Dumbrell v. Regional Group of Companies Inc. et al. (2007), 220 O.A.C. 64; 85 O.R.(3d) 616; 2007 ONCA 59, refd to. [para. 45].

Tercon Contractors Ltd. v. British Columbia (Minister of Transportation and Highways) (2010), 397 N.R. 331; 281 B.C.A.C. 245; 475 W.A.C. 245; 2010 SCC 4, refd to. [para. 45].

Schneeberg v. Talon International Development Inc. (2011), 285 O.A.C. 287; 343 D.L.R.(4th) 486; 2011 ONCA 687, refd to. [para. 45].

Canadian Pacific Ltd., Re (1979), 95 D.L.R.(3d) 242 (B.C.C.A.), affd. [1979] 2 S.C.R. 668; 30 N.R. 541, refd to. [para. 58].

Andersen (Arthur) Inc. v. Toronto-Dominion Bank et al. (1994), 71 O.A.C. 1; 17 O.R.(3d) 363 (C.A.), refd to. [para. 58].

Counsel:

Peter N. Mantas, for the appellants;

R. Seumas M. Woods and Dustin Kenall, for the respondent.

This appeal was heard on January 20, 2014, by Blair, Watt and Lauwers, JJ.A., of the Ontario Court of Appeal. Blair, J.A., delivered the following decision for the court on May 23, 2014.