



COURT OF APPEAL FOR ONTARIO

CITATION: Whiteside v. Celestica International Inc., 2014
    ONCA 420

DATE: 20140523

DOCKET: C56676

Blair, Watt and Lauwers JJ.A.

BETWEEN

Jim Whiteside
, Jason Wright, Steve Wilson
    and
3077187 Canada Ltd.

Plaintiffs (Appellants)

and

Celestica International Inc.

Defendants (Respondents)

Peter N. Mantas, for the appellants

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

Heard: January 20, 2014

On appeal from the judgment of Justice Paul Lalonde of
    the Superior Court of Justice, dated January 21, 2013, with reasons reported at
    2013 ONSC 323.

R.A. Blair J.A.
:

OVERVIEW

[1]

In August 2005, Celestica International Inc. acquired the shares of an
    Ottawa-based electronics company, CoreSim Inc.  Mr. Whiteside was the major
    shareholder of CoreSim.  Roger DHollander was the President and CEO of the
    company, although not a shareholder.  Through 3077187 Canada Inc., Mr. DHollander
    had a separate agreement with Celestica entitling the corporate appellant to
    receive certain monies that were tied to the purchase price in the CoreSim
    purchase agreement.

[2]

The Share Purchase Agreement between Celestica and the CoreSim
    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 the acquisition.  The Share Purchase Agreement also
    set out a formula for determining whether those targets were met.

[3]

Shortly after acquiring CoreSim, Celestica won a large contract to
    design a product for a Japanese company, NEC.  The project was run from
    CoreSims old offices in Ottawa and involved some of CoreSims former staff.  The
    dispute revolves around whether Lalonde J. was correct in refusing to include
    the revenue from the NEC project in the calculation of the Earn-Out Payment.  This,
    in turn, depends on the interpretation to be given to the term Total EBIAT of
    CoreSim as defined in the Share Purchase Agreement.  EBIAT is an acronym for earnings
    before interest, amortization and taxes.

[4]

Mr. Whiteside and the corporate appellant allege that the trial judge
    erred in arriving at this conclusion.  They assert that the revenue from the
    NEC project should have been included in the calculation of the Earn-Out Payment
    and that, had it been, they would have been entitled to their
pro rata
shares of the maximum Earn-Out Payment of $1.75 million.  In Mr. Whitesides
    case, as a 40.4% shareholder, the amount would be $707,792.23. The corporate
    appellant was entitled to 15% of the Earn-Out Payment under its Letter
    Agreement with Celestica  an amount of $262,000.

[5]

The trial judge ruled in favour of Celestica.  He concluded that the
    EBIAT of the NEC Project was not to be included in the calculation of the Total
    EBIAT for purposes of determining the Earn-Out Payment.  He also concluded
    that, even if it were, the threshold requirements for triggering the Earn-Out
    Payment had not been met.

[6]

Respectfully, in my view, the trial judge erred in two respects in
    arriving at these conclusions:

(i)  his
    interpretation of the Share Purchase Agreement failed to give effect to the
    contractual provisions governing the calculation of Earn-Out Payments, when the
    Shareholder Purchase Agreement is read as a whole and in context, and therefore
    the NEC Project EBIAT should have been included in the calculation of the
    Earn-Out Payments; and,

(ii)  he made
    palpable and overriding errors in assessing the evidence of the appellants
    expert, Mr. Clarke, and Celesticas witness, Mr. 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 were included in
    the calculation.

[7]

I would therefore allow the appeal, but I would order a new trial on the
    issue of whether the threshold requirements for triggering the Earn-Out Payment
    were met. The following are my reasons for arriving at this decision.

FACTS

Celesticas Acquisition of CoreSim

[8]

CoreSim was an Ottawa-based high-tech business formed in 2002 by Mr.
    Whiteside and others.  It specialized in providing value engineering and design
    analysis services to electronic companies, particularly those in the
    telecommunications and aeronautics sectors.  Value engineering involves analyzing
    the functions of an existing system, product or piece of equipment, with the
    goal of improving the items performance, reliability, quality safety, and/or
    cost. Design analysis involves analyzing a prospective products design with a
    view to discovering potential flaws and suggesting improvements to the product
    in advance, when those changes can be made in a more cost-effective manner.

[9]

The CoreSim business was successful.  It soon grew to be an operation
    with some 30 employees under the direction of Mr. Whiteside, as Chief
    Technology Officer and Chairman of the Board, and Mr. DHollander, as President
    and Chief Executive Officer.  Celestica became interested.

[10]

Headquartered
    in Toronto, Celestica operates a global manufacturing network that provides a
    wide range of services and solutions to original equipment manufacturers in the
    communications, computing, industrial, and consumer sectors.  It saw a fit with
    the specialized services and intellectual property provided by CoreSim.

[11]

In
    the negotiations that ensued, however, the parties could not agree on the value
    of CoreSims specialized services and intellectual property.  The end result
    was a Share Purchase Agreement dated August 5, 2005, in which Celestica
    acquired the vendors shares at an initial purchase price of $1,031,200 plus
    additional Earn-Out Payments, if the CoreSim business achieved certain
    specified performance targets over a stretch of three Earn-Out Periods.  The
    Earn-Out Payments were to be based upon the Total EBIAT Amount for the former
    CoreSim business.  The maximum Earn-Out Amount was fixed at $1,750,000.

[12]

This
    appeal is about how the Earn-Out Payment for the third period is to be
    determined.  Mr. Whiteside says the targets were met and that the shareholders
    are entitled to the full additional payment of $1,750,000.  Celestica says the
    targets were not met, and the appellants are entitled to nothing.  Both sides
    agree that the appellants entitlement to receive Earn-Out Payments was based
    upon the former CoreSim business meeting certain specified earnings targets in
    the years following its acquisition by Celestica.  However, for purposes of
    determining and calculating the Earn-Out Payments, they disagree on the whether
    those earnings targets were met for the relevant periods.

[13]

Roger
    DHollander had been a shareholder of CoreSim but was not a shareholder at the
    time of the Share Purchase Agreement.  His arrangement was incorporated into
    the Letter Agreement between Celestica and his corporation, the appellant
    3077187 Canada Ltd. (307 Canada) which, in turn, incorporated the provisions
    of an earlier Letter of Intent.  The Letter of Intent pre-dated the Share
    Purchase Agreement and set out the broad terms of the contemplated agreement.  307
    Canada was entitled to receive an initial amount of $150,000 plus 15% of any
    Earn-Out Payments made to the shareholders as a performance bonus for Mr.
    DHollanders management services.

[14]

After
    the closing, Celestica maintained the former CoreSim operations in Ottawa, but
    did so as a part of Celesticas Global Design Services group operating as the
    Celestica Ottawa site.

The NEC
    Project

[15]

All
    went well until Celestica won its very profitable contract with NEC.

[16]

NEC
    retained Celestica to design and build a highly-sophisticated
    telecommunications device which NEC would sell to telecommunications companies
    in North America.  The device was described as a packet and service aware
    transport platform and, although the project was generally known as the NEC
    Project, it was sometimes called the PSTP development project.

[17]

The
    Project came online in 2008 after a great deal of work and negotiations on the
    part of Mr. Whiteside and other former CoreSim employees, as well as by groups
    of Celestica designers and engineers in China, India, and New Hampshire.  It
    called for Celestica to design both hardware and software (about 35% and 65%,
    respectively) for NEC.  It is agreed that the hardware portion was led by Mr.
    Whiteside and his team in Ottawa and that some of the hardware used CoreSims
    former proprietary intellectual property.  The CoreSim technology did not
    relate to the software, although the software portion of the Project was also
    led by Ottawa-based employees working in conjunction with a Celestica joint
    venture partner in India.  There seems to be little doubt that the NEC Project
    was an Ottawa site project.

[18]

Celestica
    made a $15 million profit on the Project before it was terminated in late 2008
    and early 2009 because of the downturn in the global economy.  Whether those
    profits should have been included in the Total EBIAT of the Ottawa site is the
    crux of these proceedings.

The Share Purchase Agreement

[19]

Central
    to this appeal is the interpretation to be given to the terms of the Share
    Purchase Agreement relevant to the Earn-Out Amounts.  They are based on the
    Total EBIAT Amount for the relevant Earn-Out Period.

[20]

Here,
    the relevant Earn-Out Period is the Third Period.  Section 2.4(h) of the Share
    Purchase Agreement provides that if, during that Period, (i) the Total EBIAT
    Amount is equal to or greater than $4,500,000, and (ii) the Total EBIAT Amount
    for the last six calendar months is equal to or greater than $975,000, each vendor
    was to receive his or her percentage share of the maximum Earn-Out Amount, less
    any amounts previously paid.

[21]

Section
    1.1 defines Total EBIAT Amount:

Total EBIAT Amount means, for any period, the amount equal to
    the EBIAT of the Acquired Business for such period, determined in accordance
    with Section 2.5.

[22]

Section
    1.1 also defines other terms that matter to the appeal, as outlined below, and s.
    2.5 provides for the manner in which the Total EBIAT Amount is to be
    determined.  The relevant provisions of s. 2.5 are as follows:

2.5(a) The Total EBIAT Amount for the First Earn-Out Period,
    the Second Earn-Out Period, the Third Earn-Out Period or any portion thereof
    (each, an 
Earn-Out Period
) shall be
calculated
by
    the Purchaser
in accordance with GAAP
in a manner consistent with the
    accounting methods used by the Purchaser in the preparation of its audited
    financial statements,
as adjusted in accordance with sections 2.5(b),
    2.5(c) and 2.6.
[Emphasis added]

(b) [Not
    applicable]

(c) For the purposes of calculating the
    Total EBIAT Amount for any Earn-Out Period, the Purchaser shall include (i) all
    Qualified Overhead (but shall exclude all Non-Qualified Overhead), and (ii) any
    portion of the EBIAT of the Purchaser or any of its Affiliates for such
    Earn-Out Period that is attributable exclusively to the provision of NRE Design
    Services by the Purchaser or such Affiliate (or any business unit of any of the
    foregoing) using the Unique IP, provided that (x) the Purchaser or such
    Affiliate was awarded the NRE Design Services due specifically to the Unique
    IP, and (y) the Unique IP is required for the provision of such NRE Design
    Services.

The portion of the EBIAT of the Purchaser or any
    Affiliate to be included in any Total EBIAT Amount pursuant to clause (ii)
    above shall be based on the Purchaser's reasonable estimates, acting in good
    faith, based on the Purchaser's then current accounting policies, and shall not
    be subject to dispute by any Vendor pursuant to Section 2.7.

(d) Subject to the provisions hereof and Section 2.7(e), in
    order to facilitate the determination of the Total EBIAT Amount for any
    Earn-Out Period pursuant to the terms hereof, until December 31, 2008 the
    Purchaser shall maintain the financial records of the Acquired Business (or
    cause such records to be maintained) in a manner so as to permit the Total
    EBIAT Amounts for any Earn-Out Period to be readily calculated by it.

[23]

The
    terms Acquired Business Business, Intellectual Property, NRE Design
    Services, and Unique IP are defined as follows:

Acquired Business
means the Business, as operated by the Purchaser or any of its Affiliates
    (including the Corporation) after the date hereof;

Business
means
    the business currently and heretofore carried on by the Corporation consisting
    of the provision of electronics design services utilizing schematic modeling,
    board vector capture and simulation, design verification, integrated static
    timing and signal integrity analysis, EMC/EMI analysis, power integrity
    analysis combined with the Corporations integrated design processes as applied
    to field programmable gate arrays (FPGAs) and application specific integrated
    circuits (ASICs), circuit board design and redesign, including electrical
    architecture, very-high-speed hardware description language (VHDL) and VERILOG
    coding and test bench simulation, schematic design, component selection and
    physical design;

Intellectual Property
means all domestic and foreign trade-marks, trade names, business names,
    patents, inventions (whether patentable or not), copyrights, service marks,
    brand names, industrial designs, Trade Secrets, urls, domain names and all
    other industrial or intellectual property owned or used by the Corporation, and
    all applications therefor and all goodwill in connection therewith, including all
    licences, registered user agreements and all like rights used by or granted to
    the Corporation;

NRE Design Services
means the design services that are provided by the Purchaser or any Affiliate
    of the Purchaser (other than the Acquired Business) using the Unique IP to any
    of their respective customers, for which the Purchaser or such Affiliate
    charges its customer on a "non-recurring expense basis", and for
    which it is not compensated as part of a "gain-sharing" or other
    profit-sharing arrangement with such customer;

Unique IP
means the proprietary Intellectual
    Property owned directly by the Business (as it exists on the date hereof) which
    neither the Purchaser nor any of its Affiliates uses or has the right to use on
    the date hereof.

[24]

The
    Corporation referred to in these provisions is CoreSim Inc.

[25]

Finally,
    the Share Purchase Agreement contains an entire agreement clause, as set out
    in section 1.6:

This Agreement constitutes the entire agreement between the
    parties with respect to the subject matter hereof and supersedes all prior
    agreements, understandings, negotiations and discussions, whether written or
    oral. There are no conditions, covenants, agreements, representations,
    warranties or other provisions, express or implied, collateral, statutory or
    otherwise, relating to the subject matter hereof except as herein provided.

307 Canada and the Letter
    Agreement

[26]

In
    addition to the Share Purchase Agreement with the CoreSim shareholders,
    Celestica entered into the Letter Agreement with Mr. DHollander, which
    provided for the performance bonus payments referred to above.  Paragraph 2 of
    the Letter Agreement sets out Celesticas commitment:

Consistent with the earn out mechanism identified in the Letter
    of Intent relating to the purchase of the equity of CoreSim by Celestica, or
    any subsequent definitive agreements, additional payments will become payable
    to 3077187 Canada Ltd. as a performance bonus for your management services if
    and when any earn out payments become payable to the shareholders of CoreSim,
    calculated as 15% of such earn out payments, and, if payable, will be paid at
    the time that such earn out payments are made.

[27]

The
    Letter of Intent referred to in this passage was a letter from Celestica to Mr.
    DHollander in his capacity as acting President of CoreSim.  Its purpose was to
    [outline] the business basis of [Celesticas] offer to acquire all the issued
    and outstanding shares of CoreSim Inc.  The letter listed the continued
    participation in the success of the CoreSim operations by way of an earn-out
    as one of the benefits to the CoreSim shareholders of the transaction.  It went
    on to outline in considerable detail the proposed earn-out scheme that was
    ultimately incorporated into the Share Purchase Agreement.

[28]

Some
    excerpts from the Letter of Intent are of interest:

Both earn out payments will be contingent upon achieving
    performance hurdles consistent with the management forecast [previously] put
    forward by CoreSim management.

...

The earn-out payments referred to above shall be released upon
    the successor within Celestica to the CoreSim business achieving, at the
    CoreSim site  the earnings before interest, amortization and taxes (calculated
    on a basis consistent with Canadian generally accepted accounting principles,
    and using accounting practices to be mutually agreed in the definitive
    documentation) (EBIAT) for the appropriate period as presented in the
    management forecast. The precise mechanics for making such calculations shall
    be developed and codified in the definitive documentation for the Transaction
    based on mutual agreement.



If the CoreSim technology or methodology acquired as a part of
    this transaction is deployed or employed at a Celestica site other than the
    CoreSim site and EBIAT is earned during the Earn Out Period at such other
    Celestica locations other than the CoreSim site from NRE related design
    projects which were awarded to Celestica by the customer due specifically to
    the unique CoreSim technology or methodology acquired as a part of this
    transaction and such technology or methodology was required for the completion
    of such projects, such EBIAT amount shall be counted in the total EBIAT used
    for the purpose of the earn out calculation above.

[29]

The
    appellants assert that the latter provision is what became the important s. 2.5(c)(ii)
    of the Share Purchase Agreement outlined above.

The Issues

[30]

Three
    issues raised by the appellants need to be addressed:

(i) Did the trial judge err in interpreting
    the Share Purchase Agreement for purposes of determining the correct Total
    EBIAT Amount to be applied to the Earn-Out calculation?

(ii) Did the trial judge err in failing to apply the
    correct agreement with respect to the claim of 307 Canada?

(iii) Did the trial judge make a palpable and
    overriding error in determining whether the Total EBIAT Amount met the
    threshold necessary to trigger the Earn-Out Payment?

[31]

The
    appellants also argued that the trial judge erred in law by accepting the
    non-expert testimony of Mr. Abu Tareque over that of the expert witness, Mr. David
    Clarke.  In my view, it is not necessary to resolve this legal question in
    order to determine the outcome of the appeal.

The Trial Judges Reasons


Total EBIAT and the Earn-Out Calculation

[32]

The
    trial judge concluded that the Total EBIAT Amount was to be calculated solely
    on the basis of s. 2.5(c) of the Share Purchase Agreement because it was that
    provision that details how to calculate the EBIAT for the purpose of the
    Earn-Out Payment.  In that respect, s. 2.5(c)(ii) was the relevant provision.

[33]

Unpacking
    s. 2.5(c)(ii), the trial judge listed the four requirements for determining
    whether EBIAT was eligible for an Earn-Out Payment:

(i)

The EBIAT must be attributable exclusively to     the provision of NRE
    Design Services;

(ii)

The charges must be for the use of the Unique IP;

(iii)

Celestica must have been awarded the NRE Design Services due
    specifically to the Unique IP; and

(iv)

The Unique IP was required for the provision of such NRE Design
    Services.

[34]

After
    carefully reviewing the evidence, the trial judge concluded that the NEC
    project [did] not fit squarely into the earn-out provisions of the agreement. 
    Although the Project met the first requirement outlined above, it did not meet
    the second, third or fourth requirement.

The
    307 Canada Claim

[35]

Except
    to acknowledge it in his recitation of the facts, the trial judge did not address
    the Letter Agreement between Celestica and 307 Canada or the separate claim of
    the corporate appellant.  The appellants argue that he must therefore have
    applied the terms of the Share Purchase Agreement in determining the claim of
    the corporate appellant, and in doing so, he applied the wrong agreement.

Whether the Appellants Met the Thresholds Necessary
    to Trigger the Earn-Out Payments Even if the NEC Project EBIAT were Included in
    the Total EBIAT Amount

[36]

The
    trial judge answered this question in the negative, too.  After reviewing the
    evidence of the appellants Finance Controller for Global Design, Mr. Tareque,
    and the evidence of the appellants expert, Mr. Clarke, he found that the
    thresholds necessary to trigger an Earn-Out Payment had not been met, even with
    the total NEC Project EBIAT.  Central to this finding was his rejection of the
    appellants argument that Celestica had deferred approximately $2.2 million in
    NEC Project revenues from the 4
th
Quarter of 2008 (the end of the
    Third Earn-Out Period) to the 1
st
Quarter of 2009.  In doing so, he
    accepted the evidence of Mr. Tareque over that of Mr. Clarke.

ANALYSIS

[37]

Only
    the first and third of these issues needs to be analyzed further.  While the appellants
    are technically correct that the trial judge failed to deal with the claim of
    307 Canada in the context of the Letter Agreement, the reality is that 307
    Canadas claim is, in actual terms, derivative of the success of the
    shareholders claims under the Share Purchase Agreement.  If no Earn-Out
    Payment is triggered under the latter agreement, the corporate appellant has no
    claim to its performance bonus because the bonus is only payable if and when
    any earn out payments become payable to the shareholders of CoreSim, calculated
    as 15% of such earn out payments: Letter Agreement, at para. 2.

[38]

Accordingly,
    while the Letter Agreement and the Letter of Intent referred to in it may have
    some relevance to the exercise of interpreting the Share Purchase Agreement,
    nothing more need be said about it in this context.

Standard of Review

[39]

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:
Bell Canada v. The Plan Group
,

2009 ONCA 548,
    96 O.R. (3d) 81, at paras. 25-33.

[40]

Here,
    the factual findings underpinning the trial judges interpretation of the Share
    Purchase Agreement and related documents are not dispositive of the appeal.  The
    findings he made in this respect are supported by the evidence.  However, he gave
    an interpretation of the contract that was too narrow; this was an error in
    law.

[41]

On
    the second major issue on the appeal  whether the threshold for the Earn-Out
    Payments had been met even if the NEC Project revenues were included in the
    Total EBIAT  the trial judge made palpable and overriding errors of fact, in
    my view, and his decision on that issue cannot stand.

Total EBIAT and the Earn-Out Calculation

[42]

The
    trial judge focused on paragraph 2.5(c) of the Share Purchase Agreement in determining
    what was to be included in the calculation of the Earn-Out Amounts.  As noted
    above, he interpreted that provision as setting out four requirements that
    had to be met before revenues could be included in the Total EBIAT Amount.

[43]

I
    begin by observing that the trial judges findings of fact  which support his
    conclusion that those four requirements had not been met  were open to him on
    the evidence.  After reviewing the record, he found (i) that the earnings from
    the NEC Project were not attributable exclusively to the provision of NRE
    Design Services; (ii) that the charges were not for the use of the Unique
    IP; (iii) that Celestica had not been awarded the NRE Design Services due
    specifically to the Unique IP; and (iv) the Unique IP was not required for
    the provision of such NRE Design Services.  There is no palpable or overriding
    error with respect to these findings.

[44]

However,
    these findings of fact are not determinative of the contractual interpretation
    exercise and the trial judge erred in treating them as if they were.

[45]

The
    guiding principles relating to the interpretation of a commercial contract have
    been articulated in a number of authorities in recent years: the text of a
    written agreement is to be read as a whole, without considering one provision
    in isolation from the others, and in the context of the circumstances existing
    at the time the agreement was made:
Dumbrell v. The Regional Group of
    Companies Inc.
, 2007 ONCA 59, 85 O.R. (3d) 616,
per
Doherty J.A., at
    para. 53;
Tercon Contractors Ltd. v. British Columbia (Transportation and
    Highways)
, 2010 SCC 4, [2010] 1 S.C.R. 69,
per
Cromwell J., at para.
    64; and
Schneeberg v. Talon International Development Inc
., 2011 ONCA
    687, 343 D.L.R. (4th) 486,
per
Epstein J.A., at paras. 38-42.

[46]

The
    trial judge correctly acknowledged these guiding principles. Respectfully,
    however, he failed to apply them.  He took an approach that concentrated on s. 2.5(c)
    of the Share Purchase Agreement in isolation, without giving effect to the
    purchase-price provisions of the Share Purchase Agreement as a whole, and
    without adequate consideration of the factual matrix underlying the contractual
    arrangements between Celestica and the appellants.  I say this for the
    following reasons.

[47]

The
    overall scheme for determining the purchase price for the Vendors shares is
    set out in Article 2 of the Share Purchase Agreement.  For purposes of the
    appeal, the relevant provisions are those contained in ss. 2.2, 2.3, 2.4, and
    2.5.

[48]

Section
    2.2 defines the purchase price to include a closing date payment of $1,031,200
    (to be divided amongst the shareholders in accordance with s. 2.3), together
    with 
any additional amounts
(collectively, the Earn-Out Payments)
determined
    to be payable in accordance with Section 2.4
to a maximum aggregate
    addition amount of $1,750,000 [Emphasis added.].  Section 2.4 sets out the
    parameters for paying the additional earn-out amounts for the three Earn-Out
    Periods (we are only concerned with the Third Earn-Out Period here).  Those
    payments are triggered by the Total EBIAT Amounts reaching the thresholds
    described above.

[49]

Section
    2.5 is the provision which, as a whole, describes how the Total EBIAT Amounts
    are to be determined.  In this respect, s. 2.5(
a
) is very important.  To
    repeat, it says:

The Total EBIAT Amount for the First Earn-Out Period, the
    Second Earn-Out Period, the Third Earn-Out Period or any portion thereof (each,
    an Earn-Out Period)
shall be calculated
by the Purchaser
in
    accordance with GAAP
in a manner consistent with the accounting methods
    used by the Purchaser in the preparation of its audited financial statements,
as
    adjusted in accordance with Sections 2.5(b), 2.5(c) and 2.6
. [Emphasis
    added.]

[50]

Total
    EBIAT Amount means the amount equal to the EBIAT of the Acquired Business
determined
    in accordance with Section 2.5
: Share Purchase Agreement, s. 1.1 (emphasis
    added).  Significantly, the EBIAT of the Acquired Business is not to be
    determined in accordance with s. 2.5
(c)
only, but in accordance with s. 2.5
    as a whole.

[51]

The
    trial judges focus on the language of s. 2.5(c) alone, without regard to the
    context of s. 2.5 as a whole, in order to determine how the Total EBIAT Amount
    was to be calculated, led him mistakenly to miss the subtlety of the mechanism
    created for that purpose.  As the overarching provisions of s. 2.5(a) make
    clear, Total EBIAT Amounts are not
calculated
in accordance with s.
    2.5(c); they are
calculated

in accordance with GAAP
, generally,
    and then
adjusted
for the items referred to in ss. 2.5(b), 2.5(c), and
    2.6.

[52]

Sections
    2.5(b) and 2.6 are not relevant for purposes of the appeal.  The former deals with
    adjustments for bad accounts receivable and for software licensing amortization
    considerations.  The latter pertains to adjustments for various losses.

[53]

Section
    2.5(c) is relevant, however, because it provides for an adjustment of the Total
    EBIAT Amount, once calculated, to account for what is in essence the use of
    CoreSim IP in sites other than the Ottawa site where CoreSims Unique IP is
    used exclusively.  In addition, s. 2.5(d) is important because in order to
    facilitate the determination of the Total EBIAT Amount, Celestica was required
    to maintain separate financial records for the CoreSim business, as operated by
    Celestica, in a manner so as to permit the Total EBIAT Amounts for any
    Earn-Out Period to be readily calculated by it.  No such provision would have
    been needed if the s. 2.5(c) adjustment were the only calculation to be made,
    because s. 2.5(c) contemplates a self-contained and easily ascertainable item.

[54]

To
    understand the basis for arriving at an Earn-Out Payment, it is necessary to
    understand the notion of Total EBIAT Amount and to what that notion refers.  In
    my opinion, it is a reference to the EBIAT generated by Celesticas Ottawa
    site.

[55]

The
    Letter of Intent, cited above, is of some assistance in this regard.  It states
    that [t]he earn-out payments  shall be released upon the successor within Celestica
    to the CoreSim business
achieving, at the CoreSim site
, [the requisite
    EBIAT amounts] (emphasis added.).  It also distinguishes between the CoreSim
    site and other Celestica locations in the provision that appears to have
    formed the basis for s. 2.5(c) of the Sale Purchase Agreement.

[56]

Total
    EBIAT Amount is determined on the basis of the EBIAT of the Acquired
    Business. The Acquired Business means the former CoreSim business as
    operated by [Celestica] or any of its Affiliates.  The Ottawa site was that
    business.  As Mr. Tareque, the respondents witness, explained, there was only
    one business unit in Ottawa and the Earn-Out calculations were based on the
    Ottawa site only, until the NEC Project was undertaken:

A.

Let me put it this
    way, okay? Until we have the NEC project, everything was in order.
There was
    only one business unit
. Okay? And theres only  the direction from the management
    was  the earn-out only 
you calculate it based on the Ottawa site only
.
    There was no NEC.
After
NEC comes on board and we won the project and,
    as the NEC, the Master Agreement was signed,
management decided we should
    track NEC project separately and NEC project
, PST project,
will not be
    included in  in our earn-out statement
. [Emphasis added.]

[57]

The
    Third Earn-Out Statement  prepared by Celestica and delivered to Mr. Whiteside
    after the commencement of these proceedings  confirms this approach and
    reinforces the calculation-subject-to-adjustments paradigm of s. 2.5(a).  It
    shows revenues less expenses to arrive at the EBIAT Calculation per Agreement
    (the Ottawa site EBIAT) and then provides for further Items for Adjustment at
    year-end.  Included in those items for adjustment is a line item for EBIAT
    incurred at other sites as a result of deploying CoreSim (i.e., the
    application of s. 2.5(c)(ii)).

[58]

Conduct
    of the parties to an agreement subsequent to the execution of the agreement is
    helpful in interpreting the provisions of that agreement where competing
    interpretations arise.  As Laskin J.A. put it, in
Montreal Trust Co. of
    Canada v. Birmingham Lodge Ltd.
, [1995] 24 O.R. (3d) 97 (C.A.), at p. 108:

Subsequent conduct may be used to interpret a written agreement
    because it may be helpful in showing what meaning the parties attached to the
    document after its execution, and this in turn may suggest that they took the
    same view at the earlier date: S.M. Waddams,
The Law of Contracts
, 3d
    ed. (1993), at para. 323.  Often, as Thomson J. wrote in
Bank of Montreal v.
    University of Saskatchewan
(1953), 9 W.W.R. (N.S.) 193 at p. 199 (Sask.
    Q.B.): there is no better way of determining what the parties intended than to
    look to what they did under it.

See also
Canadian National Railways v. Canadian
    Pacific Ltd
. (1979), 95 D.L.R. (3d) 242, at p. 262 (B.C.C.A.), affirmed [1979]
    2 S.C.R. 668; and
Arthur Andersen Inc. v. Toronto-Dominion Bank
(1994),
    17 O.R. (3d) 363, at p. 372 (C.A.).

[59]

The
    evidence of Mr. Tareque and the Third Earn-Out Statement support the appellants
    interpretation of the Share Purchase Agreement.  So, too, does the language of
    the Letter of Intent, which formed part of the factual matrix underlying the signing
    of the Share Purchase Agreement.  So, too, as well, does the fact that several other
    projects similar to the NEC Project and performed at the Ottawa site  but
    where the sales lead came from Celestica, not CoreSim  received full EBIAT
    credit for purposes of calculating the Total EBIAT Amount under s. 2.5.  Many
    of those contracts did not involve the exclusive use of CoreSims Unique IP and
    some did not involve any such use (for example, a contract with Nortel known as
    Nortel s8000).  However, all received full EBIAT credit for purposes of the
    Earn-Out calculation.  This confirms that contracts other than those that met the
    four requirements of Section 2.5(c)(ii) were being credited.  The only
    contract that was not included was the one that would have made a difference in
    calculating the Earn-Out: the NEC Project.

[60]

The
    evidence of Paul Barsley, the Vice-President of Design Services for Celestica
    and the person responsible for Celesticas Global Design Services at the
    relevant time, supports the evidence of Mr. Whiteside with respect to the foregoing.
     At para. 50 of his affidavit sworn on September 14, 2012, Mr. Barsley said:

Mr. Whiteside alleges that Celestica awarded CoreSims former
    shareholders 100% credit for other projects similar to NEC where the lead was
    generated outside of Ottawa.
I agree that there were cases in which projects
    owned by Celestica Ottawa arose from leads generated by other parts of
    Celestica
. Celestica Ottawa had its own dedicated sales team for design
    analysis and cost reduction projects. As a result, many of the projects the
    site owned were projects it won through its own sales efforts.
Other
    projects came in through the work of the rest of my business development team
    which promoted value engineering and design analysis services.


[These
    types of projects] were assigned to Celestica Ottawa since it had the available
    project managers and resources needed to carry out the projects.
To the
    extent the earnings generated by the projects met the requirements set out in
    the Agreement
they formed part of the calculation of EBIAT for the purposes
    of the Earn-Out Calculation. [Emphasis added.]

[61]

Interestingly,
    Mr. Barsley did not deny Mr. Whitesides evidence that these other projects
    received full EBIAT credit.  He merely says that to the extent the earnings
    generated met the requirements of the Share Purchase Agreement they were
    credited.  He stated specifically that [t]he NEC project as a whole was
    different than those projects because ultimately the work involved with it did
    not all meet the test in the Agreement.

[62]

Whether
    that is so or not is the nub of the issue, of course.

[63]

For
    the reasons articulated above, I conclude that a proper interpretation of the
    Share Purchase Agreement results in the profits from the NEC Project being
    included in the calculation of the EBIAT of the Ottawa site and, therefore, in
    the Total EBIAT Amount to be applied in determining the relevant Earn-Out
    Payments.

Whether
    the Appellants Met the Thresholds Necessary to Trigger the Earn-Out Payments Even
    if the NEC Project were Included in the Total EBIAT Amount

[64]

The
    trial judge also found that, even if the NEC Project were included in the Total
    EBIAT Amounts, those earnings were not sufficient to meet the threshold
    necessary to trigger the Earn-Out Payments.  In making this finding, he relied
    principally on the evidence of Mr. Tareque, which he accepted over that of the
    appellants expert, Mr. Clarke.

[65]

This
    issue turned on whether Celestica had understated the NEC Project earning for
    the 4
th
Quarter of 2008 and deferred those revenues to the 1
st
Quarter of 2009.  December 31, 2008 was the last date of the Third Earn-Out
    Period and therefore earnings after that date were not to be included in the
    calculation of the Earn-Out Amounts.  The appellants alleged that approximately
    $2.25 million in earnings were deferred.  Mr. Tareque denied there had been any
    revenue deferral.  Mr. Clarkes expert opinion, as expressed in his Original
    Report, was that the appellants were correct.  In his Supplementary Report 
    prepared following the production of a newly revised NRE Tracker ver. 17  Mr.
    Clarke testified that at least $1 million had been deferred, which was enough
    to trigger the Earn-Out Payments.

[66]

Needless
    to say, it is within the purview of a trial judge to weigh and assess the
    evidence and to prefer the testimony of one witness over another in making his
    or her findings.  Absent a palpable and overriding error, a trial judges
    findings are entitled to deference and this Court will not interfere with them
    or substitute its own view of the facts.

[67]

Respectfully,
    however, the trial judge made two palpable and overriding factual errors in assessing
    the evidence. In addition, he failed to consider an important piece of evidence.
     These errors significantly affected his review of the evidence and it follows
    that his findings and conclusions on the threshold issue cannot stand.

The
    Clarke Methodology and the SAP Data


[68]

First,
    the trial judge criticized Mr. Clarkes methodology on the basis that he had failed
    to base his opinion on what is known as the SAP data and that he had not
    reviewed the affidavit of Mr. Tareque before providing his opinion.

[69]

The
    SAP document was an internal Celestica document containing data showing
    Celesticas actual revenue and expenses.
[1]
This was in contrast to another internal document, the NRE Tracker document, which
    everyone agreed was a project management tool containing only projections.  Or
    at least, it contained only projections until the final NRE Tracker document 
    NRE Tracker ver. 17 (new)  was produced on the eve of trial.

[70]

The
    trial judge was under the impression, erroneously, that Mr. Clarke had not
    considered the SAP documentation and information in arriving at his opinion.  This
    was an important consideration in his rejection of Mr. Clarkes evidence.  At para.
    114 of his reasons, the trial judge observed that [a] serious issue in this
    case is the fact that in his expert report, Mr. Clarke did not take the SAP document
    into account and concluded, at para. 117, that Mr. Clarkes failure to take
    the SAP into account in his expert report renders his expert report incomplete.

[71]

The
    finding that Mr. Clarke did not take the data in the SAP document into account
    is contrary to the evidence.

[72]

First,
    it was on the basis of the SAP records that Mr. Clarke initially opined that
    the $2.25 million had been deferred.  His Original Report contains the
    following statements:

II - Executive Summary and Conclusions

The CoreSim Shareholders allege that Celestica deferred between
    $2.5 million and $2.7 million in revenues from the 2008 fiscal year to the
    first two quarters of Celesticas 2009 fiscal year. The effect of the revenue
    deferral was to reduce the EBIAT such that no further earn-out amount was owed
    to the CoreSim shareholders.

Our analysis of the revenues and expenditures for the NEC PST
    project as recorded in the general ledger (
referred to as SAP lines
    information
) reflected an understatement of revenues in the 2008 fiscal
    year end of approximately $2.2 million. The understatement consisted of an
    under billing for work to the end of fiscal 2008 of approximately $2.7 million
    less 2008 accrued revenue of approximately $0.5 million. [Emphasis added.]

IV  Scope of Review

Information Relied Upon

During the course of this assignment we have reviewed and relied
    upon the following information:

i)

A copy of the spreadsheet titled 
NEC PL HC Ottawa from celine.xls


V  Background

NEC PL HC Ottawa from celine

The
NEC PL HC Ottawa from celine
(the NEC PL)
    spreadsheet was provided to us. The NEC PL is the internal Celestica accounting
    record for the PST project.
The spreadsheet includes the detailed SAP
    (Celesticas accounting software) accounting output related to Celesticas
GCS
    Division, which includes all North American design sites, including
Ottawa
    and the NEC PST project
. [Emphasis added.]

The spreadsheet reports quarterly P&Ls for the NEC project
    for all of Celesticas sites servicing the NEC contract including NEC Ottawa. In
    addition, to the P&L,
the spreadsheet contains the detailed SAP lines
    (or general ledger account details) for PST contract transactions specific to
    NEC Ottawa.

The quarterly P&L account totals for NEC Ottawa
    can be agreed to the total SAP lines related to that account number in the SAP
    Line detail for the same quarter.
We note that the NEC Project entries
    start in mind-January 2008. [Emphasis added.]

[73]

Secondly,
    it is quite clear from Mr. Clarkes testimony at trial  both in chief and in
    cross-examination  that he did in fact rely on the SAP documents in
    formulating his opinions.  Counsel for Celestica at trial appears to have
    accepted this and was careful to clarify that Mr. Clarkes opinion was based on
    two documents:

Q.  Your  your report, fair to say is predominantly based on 
    on two documents: the NRE Tracker  Youre agreeing with that?

A.  Yes, I am.

Q.   and then the  the SAP lines.

A.  Yes.

[74]

The
    trial judge placed considerable emphasis on the difference between the NRE
    Tracker documents (containing projections only) and the SAP documents (containing
    actual financial data).  In his view, Mr. Clarke had not taken the latter into
    account.  The appellants counsel at trial conceded that, if that were the case,
    it would undermine Mr. Clarkes opinion.  However, the foregoing excerpts from
    the Original Report and the testimony at trial confirm that that was not the
    case.  The trial judge mistakenly found that it was.

The Failure to Consider Mr. Tareques Affidavit

[75]

Mistaken,
    too, was the trial judges conclusion that Mr. Clarkes report could not be
    said to be entirely comprehensive because, among other things, he did not
    review  the affidavit of the defendants finance controller Mr. Tareque
    before preparing it.

[76]

However,
    Mr. Clarke could not have reviewed Mr. Tareques affidavit at the time he
    prepared his Original Report because Mr. Tareques affidavit had not yet been
    sworn.  Mr. Clarkes Supplementary Report  prepared after disclosure by
    Celestica of the new NRE Tracker ver. 17  refers specifically to Mr. Tareques
    affidavit.  Mr. Clarkes testimony at trial confirmed this and, indeed, he was
    cross-examined at some length about what he had or had not done following
    receipt of a copy of the affidavit.

NRE Tracker ver.17 (new)

[77]

Finally,
    the trial judges failure to consider the significance of the revised NRE
    Tracker ver. 17, on which Mr. Clarkes Supplementary Report was based, significantly
    undermines his findings on this issue as well.  He makes no reference to the
    new version in this part of his analysis.

[78]

Central
    to the trial judges finding that the threshold for triggering the Earn-Out
    Payment had not been met was his view that Mr. Clarke did not take the SAP
    document into account but instead relied on the NRE Tracker ver. 17 which
    [was] a cost projection document only whereas the SAP document [was] the
    document to rely on to find out what happened financially.  For the reasons
    explained above, the first of these findings is incorrect.  The second is as
    well.

[79]

The
    trial judge appears to have been under the misapprehension that Mr. Tareques
    evidence in his affidavit and at trial established that all of the NRE Tracker
    documents were projections.  However, that is not the case.

[80]

It
    may well be that earlier versions of the NRE Tracker were based on projections to
    be used as project management tools because they came from the project manager.
     Whatever may have been the case with earlier versions of the NRE Tracker
    documents, however, the NRE Tracker ver. 17 (new) was different; on Mr.
    Tareques own evidence, it was prepared by him and it showed
actual
expenses
    and revenue recognition.

[81]

That
    this is so is clear from Mr. Tareques cross-examination on NRE Tracker ver. 17
    (new) and on the new information it disclosed:

Q. Okay? Do you recognize this document (NRE Tracker 17 (new))?

A. Yes.

Q. Okay. And the new  the boxes  the bottom three boxes here.

A.  Okay.

Q. Okay?
I can tell you they werent in the previous
    version of the NRE Tracker version 17
.

A.  I think I explained that why 
because the previous
    versions of the NRE Tracker came from the program officer, not from me
. So
    the process is we get the NRE Tracker from the program office and then we
    create at the bottom table so that we can book our accounting entry.

Q.
So this is something that you, your team, created, not
    the project team.

A.  Bottom part
.

Q.  Just the bottom part.

A. Taking their data, the same data, and just summarizing in
    there
so that we can book accounting entry
.

Q.  Okay. So to some degree, you are using the NRE Tracker.

A.  We are using NRE Tracker
for recognizing revenue
for
    labour, recognizing revenue for travel, reimbursement  consultant, and to some
    degree, material.

Q.  And  and the figures that are here, they would be more
    recent and therefore more accurate than what we would find in version 13.1.

A.  Because version 13, December was projected. So

Q.
And this one now has got
    figures that were projected then, have now become actual
.

A.
Actual.

[Emphasis
    added.]

[82]

This
    was a meaningful admission because it cast the latest NRE Tracker ver. 17 in an
    entirely different light than the previous versions, which were projections
    only.  NRE Tracker ver. 17 (new) recorded actual financial information, not
    projections.  Given the importance placed by the trial judge on the distinction
    between relying on documents that were projections only (the previous NRE
    Tracker documents) and on those that provided actual financial data (the SAP
    documents), this development  and the fact that NRE Tracker ver. 17 (new) showed
    understated revenues of a little over $1 million in the fourth quarter of 2008
     may well have changed his views on the evidence of Mr. Clarke and on the
    appellants arguments.  In Mr. Clarkes opinion, the application of these
    additional revenues to the calculation of the Earn-Out Amount would have been
    sufficient to trigger the Earn-Out Payments.

Remedy
    in Relation to the Threshold Issue


[83]

I
    have concluded that the trial judges misapprehension of the evidence led him
    into palpable and overriding error on two of the main factual pillars
    underlying his acceptance of Mr. Tareques evidence over that of Mr. Clarke: 
    his finding that Mr. Clarke did not take the SAP documents into account in
    arriving at his opinion; and his finding that Mr. Clarke failed to consider the
    affidavit evidence of Mr. Tareque, Celesticas main witness on this issue.  In
    addition, the trial judges failure to consider the newest version of NRE
    Tracker ver. 17 and to recognize its difference from earlier versions and its
    potential significance for the deferral-of-revenue argument may well have
    affected his assessment of the competing testimonies of Mr. Clarke and Mr.
    Tareque as well.

[84]

At
    the very least, these errors call into question the trial judges findings and
    conclusions in determining whether the threshold for payment of the Earn-Out
    Amounts had been met.  In my opinion, those findings and conclusions must be
    set aside.

[85]

That
    said, I do not think this Court is in the position to substitute its own view
    on whether the threshold has been met.  It is one thing to conclude that the
    trial judges findings on the assessment of the evidence should be set aside.  It
    is quite another thing for an appellate court to speculate on what different
    findings may have been made or, indeed, whether the findings would ultimately
    have been different if it cannot be clearly determined on the record.  Here, it
    cannot be determined on the record.  Mr. Clarke and Mr. Tareque were each
    cross-examined effectively by opposing counsel and there may be issues arising
    with respect to the testimony of each of them, as well as with respect to the
    calculation of the Total EBIAT itself.

[86]

As
    a result, I would set aside the trial judges ruling that the threshold
    necessary to trigger the Earn-Out Payment had not been met, even if the total
    NEC Project EBIAT were included in the Total EBIAT Amount.  And I would order a
    new trial for the determination of that issue alone.

Choosing
    Between an Expert and a Non-Expert Witness

[87]

In
    light of the foregoing conclusions it is not necessary to deal with the
    discrete issued raised by the appellants with respect to whether the trial
    judge erred in law in favouring the evidence of a non-expert witness over that of
    an expert witness.  The trial judge erred in misapprehending the evidence, as
    explained above.  That error is sufficient to dispose of the appeal.

DISPOSITION

[88]

For
    the foregoing reasons, the appeal is allowed, the order of the trial judge is
    set aside, and judgment is granted:

(a)

declaring that the
    total NEC Project EBIAT is to be included in the calculation of the Total EBIAT
    Amounts for purposes of determining the appellant Whitesides entitlement to Earn-Out
    Payments and the corporate appellants entitlement to its contractual percentage
    of any such Earn-Out Payments;

(b)

setting aside the trial judges finding that, even if the total NEC
    Project EBIAT were included in the calculation of the Total EBIAT Amounts, the
    thresholds necessary to trigger the Earn-Out Payments had not been met, and
    directing a new trial for the determination of that issue; and

(c)

declaring that the appellant Whiteside is to be paid his
pro rata
share of any Earn-Out Payments found to be payable under the Share Purchase
    Agreement, and that the appellant, 307 Canada is to be paid 15% of any such
    Earn-Out Payments.

[89]

We
    were provided with draft bills of costs by counsel for each party.  However, in
    view of the disposition above  if they are unable to agree  the parties may
    make brief further submissions as to costs, not to exceed four pages in length,
    within two weeks of the release of these reasons.

Released: May 23, 2014

(R.A.B.)                                                                              
    R.A. Blair J.A.

I
    agree David Watt J.A.

I
    agree P. Lauwers J.A.





[1]
The SAP document is described in its electronic format as NEC PL HC Ottawa from
    celine.xls.


