IN THE SUPREME COURT OF BRITISH COLUMBIA
Newton v. Marzban,
2008 BCSC 328
Date: 20080318
Docket: S045960
Registry: Vancouver
Between:
Christine Diane Newton (also known as
Christine Beban)
Plaintiff
And:
Dinyar Marzban, Jenkins Marzban Logan,
Gordon F. Hubley, Bestwick & Partners, Gord Hubley Ltd.,
D. Jeffrey Harder and BDO Dunwoody LLP
Defendants
Before: The Honourable Madam Justice Neilson
Reasons for Judgment
Counsel for the Plaintiff
David A. Hobbs
Counsel for the Defendants,
BDO Dunwoody LLP and D. Jeffrey Harder
David B. Wende
& Emily Stock
Counsel for the Defendants,
Dinyar Marzban and Jenkins Marzban Logan
Counsel for the Defendants,
Gordon Hubley and Bestwick & Partners
Date and Place of Trial:
Leslie Muir
Michael Hewitt
& Michael Shirreff
January 15-19, 22-25, 29-31,
February 1, 5-9, 12-16, 19-23,
26, 27,
March 7, 26-30,
April 2-5, 10-13, 16-20, 23-27,
May 7-9, 14-18, 30
and June 1, 2007
Vancouver, B.C.
2008 BCSC 328 (CanLII)
Citation:
Newton v. Marzban
Page 2
INDEX
INTRODUCTION………………………………………………………………….… 3
CHRONOLOGY…………………………………………………………………….. 5
OBSERVATIONS ON WITNESSES – CREDIBILITY
AND ABSENCES ………………………………………………………………..… 81
THE NATURE OF THE PLAINTIFF’S MATRIMONIAL CLAIM ……………... 85
THE ALLEGATIONS AGAINST THE DEFENDANTS ………………………... 86
THE ALLEGATIONS AGAINST MR. HARDER ……………………………..… 93
THE ALLEGATIONS AGAINST MR. HUBLEY ……………………………..…162
THE ALLEGATIONS AGAINST MR. MARZBAN ……………………………..184
CAUSATION……………………………………………..………………………... 234
DAMAGES ……………………………………….………………………………... 271
CONCLUSION …………….…………………….………………………………... 273
2008 BCSC 328 (CanLII)
Page
Newton v. Marzban
Page 3
INTRODUCTION
In the spring of 2000, the plaintiff separated from her husband, Lyle Newton.
A matrimonial proceeding ensued to deal with division of family assets and spousal
support. A central issue was the valuation of the family logging business, comprised
of a group of companies collectively referred to as the Alliford Bay Group (the
“ABG”), in which the plaintiff and Mr. Newton were directors, officers, and equal
shareholders. The action was ultimately settled in October 2001 on the basis that
Mr. Newton paid the plaintiff $1.771 million. $1.6 million of that represented the
value of the plaintiff’s shares in the ABG. Other relatively minor family assets were
essentially split equally, and the plaintiff released her claim for spousal support.
[2]
In the course of reaching this settlement, the plaintiff received advice and
assistance from the defendants in this action. Mr. Gordon F. Hubley, a chartered
accountant and partner in Hubley Bestwick & Partners, provided early support to the
plaintiff, and ultimately became the principal negotiator of the settlement. Mr. D.
Jeffrey Harder, a chartered accountant and chartered business valuator, and a
partner in BDO Dunwoody LLP, did a valuation of the ABG. Mr. Dinyar Marzban, a
matrimonial lawyer and a partner in Jenkins Marzban Logan, was retained by the
plaintiff as her lawyer in the proceeding. In the balance of these Reasons, I use the
names of the personal defendants as representative of both the individuals and their
partnerships.
[3]
The plaintiff now brings this action against these advisors and their
professional firms, claiming damages for breach of contract and negligence. She
2008 BCSC 328 (CanLII)
[1]
Newton v. Marzban
Page 4
says that their advice and representation fell below the required standard of care in
that they failed to develop her best position, fully advise her of her options, and warn
result, she accepted an improvident settlement and lost the benefit of a materially
more favourable outcome at a trial, which she estimates would have been in the
range of $3 million to $4 million more than the amount for which she settled.
[4]
In response to the plaintiff’s claims, the defendants mounted a united
defence, arguing that she received a high standard of professional services from
each of them. As well, they say that the evidence clearly demonstrates that she
would have settled regardless of their actions. Mr. Hubley usefully summarized the
defendants’ collective position as follows in his closing argument:
These Defendants respectfully submit that an allegation of professional
negligence in a case of settler’s remorse requires far more than a
hindsight theory of what might have been tendered as evidence on one
party’s behalf at a trial. It requires proof of negligent errors or
omissions causing an identifiable loss to the Plaintiff. In this case, it
requires credible testimony from the Plaintiff that she would have acted
differently and compelling expert evidence that advice given was
flawed. The Plaintiff provided neither.
[5]
I have concluded that the services and advice provided to the plaintiff by the
defendants Gordon F. Hubley, Bestwick & Partners, Gord Hubley Ltd., D. Jeffrey
Harder, and BDO Dunwoody LLP met the required professional standard of care,
and the action against them is dismissed. I have found that the services and advice
provided by the defendants Dinyar Marzban and Jenkins Marzban Logan did not
meet that standard of care in certain respects. However, I have concluded that the
plaintiff has failed to prove that their negligence caused her to suffer any loss. Her
2008 BCSC 328 (CanLII)
her of the risks of settling without further investigation. She maintains that, as a
Newton v. Marzban
Page 5
action in negligence against those defendants is accordingly dismissed. She is
[6]
This action originally included other defendants as well, but the plaintiff
abandoned her claim against them before the trial proceeded. While this judgment
was under reserve, I received from counsel a Fourth Amended Statement of Claim
with amendments that reflect this development. Where it is necessary to refer to the
plaintiff’s pleadings, I accordingly use the paragraph numbers from this most recent
version (the “Statement of Claim”).
CHRONOLOGY
[7]
Credibility is a major issue in this case. I accordingly set out the parties’
varying accounts of the events in some detail.
Background prior to separation
[8]
The plaintiff was born in Nanaimo in 1966. She completed high school and
attended a community college for two years, but completed only one course. She
then moved to the Queen Charlotte Islands where she worked for her father’s
logging company.
[9]
While in the Queen Charlottes, she met Mr. Newton, who was working as a
logger for her father’s company. They were married on July 11, 1987. The plaintiff’s
father died shortly after the wedding, and she and Mr. Newton worked for his
company in 1988, commuting between Nanaimo, where she worked in the office,
and the Queen Charlottes, where Mr. Newton continued to log.
2008 BCSC 328 (CanLII)
entitled to recover nominal damages from them for breach of contract.
Newton v. Marzban
[10]
Page 6
In mid-1988, Mr. Newton had an opportunity to buy a 50% interest in a
logging company in the Queen Charlottes. The plaintiff says that they used
purchase price was a loan from her to him that he agreed to repay (the “Start-up
Loan”). They each owned a 25% interest in the company.
[11]
Both worked hard in the new business and Mr. Newton was able to increase
its productivity substantially. The plaintiff worked in the office. In 1989, they bought
out the other owner and each became a 50% shareholder in the business, which
they renamed Alliford Bay Logging Ltd. This company was the first of the group of
companies that ultimately comprised the ABG. Mr. Brewer, who had been the
accountant for the original company, became the accountant for the new company
and for Mr. Newton and the plaintiff personally.
[12]
Mr. Newton continued to expand the company’s logging operations. The
plaintiff says that the business did better each year and they had a very comfortable
lifestyle for the duration of the marriage.
[13]
In 1993, Mr. Newton and Mr. Brewer negotiated the purchase of a timber
company in Nanaimo that had logging interests in Clayoquot Sound. The plaintiff
and Mr. Newton relocated to Nanaimo where they purchased a home on
Stephenson Point Road (the “Matrimonial Home”) and set up the office of the ABG
on property purchased on Cienar Drive (the “Cienar Drive Property”). They also
purchased a property in Lantzville (the “Lantzville Property”). When the ABG began
2008 BCSC 328 (CanLII)
$175,000 from her inheritance to do so, and the $87,500 for Mr. Newton’s half of the
Newton v. Marzban
Page 7
logging in Powell River, they bought a house there in the plaintiff’s name to provide
[14]
From 1993 until the parties separated in 2000, the ABG continued to acquire
new assets and develop new businesses under the guidance of Mr. Newton and Mr.
Brewer. The plaintiff worked casually in various roles in the ABG’s office.
[15]
In late 1997 and early 1998, the ABG established Duke Point Custom Log
Sort Ltd., a dry land sorting operation at Duke Point on land belonging to the
Nanaimo Port Authority. The ABG invested a substantial amount in grading and
paving the property, and building a booming ground, spillways, and an office. Logs
from its operations and from other customers were dumped, sorted, scaled,
dewatered, and loaded onto trucks there. The ABG also set up Duke Point Shake
and Shingle Ltd. and a chipper plant at the Duke Point site. Later in 1998, the ABG
established Alliford Bay Transport Ltd., a hauling business to serve its own
companies and other customers. Another of the ABG’s companies, 545161 B.C.
Ltd., purchased a Bill 13 logging contract for $500,000 in 1998 that permitted it to log
in Boston Bar for J.S. Jones Timber Ltd. (“J.S. Jones”).
The ABG and the forest industry at the time of separation
[16]
When the plaintiff and Mr. Newton separated in the spring of 2000, the ABG
comprised 11 companies involved in a variety of activities related to the logging
industry. The plaintiff and Mr. Newton were equal shareholders and officers in each
company, and both were directors in most.
2008 BCSC 328 (CanLII)
accommodation for the logging crew (the “Powell River Property”).
Newton v. Marzban
[17]
Page 8
Mr. Newton was the central person in the operations of the ABG. Mr. Len De
Clark was the comptroller. Mr. Brewer remained the external accountant, although
[18]
The ABG’s chief assets were logging equipment, logging and road-building
contracts, and real estate. The equipment was by far its largest asset. A brief
description of the logging industry at the time of the relevant events is necessary to
provide context for the assets and activities of the ABG, as well as the subsequent
negotiations between the parties.
[19]
At that time, a few large forest companies (the “majors”) held most of the
timber tenures in British Columbia through license agreements with the provincial
government. These agreements provided for an annual allowable cut (“AAC”)
measured in cubic metres, which was set every five years.
[20]
The majors typically contracted out a portion of their logging and related road-
building operations to logging contractors such as the ABG through agreements
known as Bill 13 contracts. Mr. De Clark testified that these contracts gave the
contractor a right to a certain logging volume or road-building distance, usually over
a five-year period. He said, however, that the volume or distance permitted was not
necessarily the same every year. If the government reduced the logging volume of a
major, the contractor’s cut would be reduced proportionally. Thus, a Bill 13 contract
did not guarantee a consistent annual income.
[21]
Logging contractors often engaged in market logging to supplement Bill 13
income. This involved contracts to log private land, or bidding at government
2008 BCSC 328 (CanLII)
Mr. De Clark described his role as closer to a chief financial officer.
Newton v. Marzban
Page 9
auctions for blocks of cut available under a small business forestry enterprise
program. Mr. De Clark said that Mr. Newton was good at “chasing wood” through
[22]
Witnesses knowledgeable in the logging industry agreed that it is cyclical due
to a number of factors. Productivity and profitability vary due to seasonal and
climatic conditions, as well as economic factors such as fluctuating markets,
currency variations, trade agreements, and fuel costs. Changes in government
policies and regulatory measures also have a significant impact on the industry’s
performance.
[23]
During the 1990s, environmental concerns in the coastal forest industry
played a significant role in changing forest practices, resulting in a reduction of the
AAC in some locations, and increasing use of more environmentally sensitive and
costly logging methods, such as heli-logging. The result was a reduced profit margin
for the affected loggers.
[24]
Economic factors also created uncertainty in the coastal forest industry in
2000 and 2001. The impending impact of the expiry of the softwood lumber
agreement with the United States at the end of 2001 was unknown. As well, the
Japanese market was depressed.
[25]
Mr. De Clark acknowledged that the ABG was affected by these challenges.
He said that the majors were tightening up when negotiating rates, and it was
difficult to budget in advance what volume the ABG would receive from each of its
Bill 13 contracts. This contributed to a decreased profit margin and cash flow
2008 BCSC 328 (CanLII)
market logging opportunities, but their availability was unpredictable.
Newton v. Marzban
Page 10
problems. However, he could not recall any time between 1999 and 2001 when the
ABG actually had its AAC reduced, although he said its cash flow was tight during
[26]
The financial state of the ABG in 2000 and 2001 was the subject of significant
controversy in this action. I will set out some aspects of its historical financial
performance as a reference point for issues that will be dealt with later in these
Reasons.
[27]
The ABG’s fiscal year end was October 31. Its combined financial statements
from 1994 to 2001 record its revenue and operating income as follows:
1994
1995
1996
1997
1998
1999
2000
2001
Revenue
11,345,726
11,728,827
16,899,627
24,346,283
11,220,404
17,734,367
29,325,198
22,902,270
Operating
Income
(134,943)
(869,144)
916,528
76,184
(618,689)
420,991
511,160
(29,387)
[28]
Management salaries for the plaintiff and Mr. Newton show significant
variation in those years:
Recorded
Management
Salary
[29]
1994
1995
1996
1997
1998
1999
2000
2001
$104,500
$70,700
$185,000
$186,600
$78,100
$92,100
$922,319
$947,500
For tax purposes, any ABG profit over $300,000 was typically split equally
between the plaintiff and Mr. Newton and paid out to them as a bonus. After
personal tax was paid on those funds, the plaintiff and Mr. Newton paid them back
into the shareholders’ loan account of the ABG to assist in maintaining cash flow.
2008 BCSC 328 (CanLII)
those years.
Newton v. Marzban
Page 11
As of October 31, 2000, and throughout the settlement negotiations, Mr. Newton and
the plaintiff each had a shareholder’s loan account of $408,775, and a net of
[30]
In early 2000, the ABG was relying on financing from the Royal Bank of
Canada (the “RBC”) to run its operations. In March 2000, the RBC advised that it
intended to pull the ABG’s credit as the ABG had breached one of its borrowing
covenants by failing to maintain the required debt service coverage ratio. As a
result, the ABG began a search for new financing at about the same time that the
plaintiff and Mr. Newton separated. As part of that process, the ABG retained
American Appraisals Canada, Inc. to appraise its equipment.
May to September 2000 - early negotiations
[31]
The plaintiff said that she left Mr. Newton because he joined the Hells Angels.
She testified that, while she still loved him, she was concerned about what the future
would hold with his new association. He had become verbally abusive, and she was
afraid of him.
[32]
After the separation, the plaintiff no longer worked in the ABG’s office, but she
continued to draw an income of $5,000 a month from the company. She said that
because Mr. Newton made it uncomfortable for her to be in the office, she developed
a practice of going in at night to copy information that she wanted.
[33]
The plaintiff and Mr. Newton initially attempted to negotiate a settlement
themselves, with assistance from Mr. Brewer. The plaintiff said that Mr. Newton and
2008 BCSC 328 (CanLII)
$182,300 due to them as their share of the 2000 bonus.
Newton v. Marzban
Page 12
Mr. Brewer told her that a settlement must be reached as soon as possible, as they
were concerned that the uncertainty arising from the separation would have a
efforts.
[34]
In early May 2000, Mr. Brewer presented a settlement proposal that valued
their joint net worth at $1,320,550, including $817,550 for the ABG shares. It gave
Mr. Newton the ABG and the plaintiff the Matrimonial Home, some other smaller
assets, and monthly payments of $5,074.70 for seven years.
[35]
Mr. Hubley became involved at this point. He had practised as a chartered
accountant in Nanaimo since 1981. He had a number of clients who were involved
in the logging business and, since the death of the plaintiff’s father in 1987, he had
provided accounting services to the plaintiff’s mother and sister related to the family
business and personal matters.
[36]
In late April 2000, Dolores Beban, the plaintiff’s mother, called Mr. Hubley and
asked if he would assist the plaintiff with her matrimonial dispute. She told Mr.
Hubley that the plaintiff had left Mr. Newton because of his association with the Hells
Angels, and warned him that she knew the plaintiff was sometimes difficult to deal
with. Mr. Hubley told Ms. Beban that he did not know how much he could help the
plaintiff, but he agreed to look at the offer she had received, and said that he would
likely refer her to matrimonial specialists for advice, as he did not know about
divorce situations. He said that he did this as a favour to an important client.
2008 BCSC 328 (CanLII)
negative impact on the ABG’s precarious position with the RBC, and its refinancing
Newton v. Marzban
[37]
Page 13
Mr. Hubley and the plaintiff met at his office on May 4, 2000. Mr. Hubley
testified that it was a short meeting, and the plaintiff appeared very anxious. He
try to help her. He told her that he could look at financial information related to the
ABG and give her some indication as to whether the current offer from Mr. Newton
was fair. He also said that he would try to find people who could help her. He asked
her to obtain the financial statements of the ABG to allow him to assess the offer, but
told her that he could not do a valuation of the ABG because he was not a trained
valuator. Mr. Hubley said that he did not enter into an engagement agreement with
the plaintiff as he was uncertain what services he would provide to her other than
referring her to professionals competent in the matrimonial field.
[38]
The plaintiff agreed that when she met Mr. Hubley she knew that he was a
chartered accountant who had worked with her family’s logging companies. She
was aware that he was not a lawyer, and understood the difference between these
professions. The plaintiff’s recollection of what occurred at their first meeting varied.
At her first examination for discovery, she said that she had no recollection of the
meeting, except that Mr. Hubley agreed to help her. At the trial, she provided more
details about it, but ultimately agreed that she could not testify under oath as to the
specifics of their discussions. However, she denied that Mr. Hubley told her he had
no experience in divorce cases.
[39]
On May 8, 2000, the plaintiff dropped off the ABG’s 1999 financial statements
at Mr. Hubley’s office. Mr. Hubley said that they discussed the offer that she had
2008 BCSC 328 (CanLII)
advised her that he was not experienced in matrimonial disputes, but that he would
Newton v. Marzban
Page 14
received from Mr. Newton, and she was looking to accept it, but wanted advice from
[40]
Mr. Hubley did an analysis of the ABG financial statements, and prepared a
spreadsheet setting out possible values of the plaintiff’s shares ranging from
$900,000 to $2 million, based on several hypothetical estimates of the fair market
value of the ABG’s assets. He described this as a “quick and dirty accountant’s
estimate” of what the ABG share value might be, and said that he prepared it to
show the plaintiff the impact that the equipment value had on the share value. He
and the plaintiff met on May 10, 2000 to review this, and he showed her that these
hypothetical estimates were significantly higher than the offer from Mr. Newton.
[41]
The plaintiff testified that Mr. Hubley told her at this meeting that he did not
know what her shares or the equipment were worth, and that the numbers in his
analysis were hypothetical, but he felt her shares were somewhere in that range.
She agreed that from that point on she understood that the value of her shares had
a direct relationship to the value of the ABG equipment, and that they were worth
considerably more than what Mr. Newton was offering her.
[42]
Shortly after this meeting, on a recommendation from a friend, the plaintiff
retained David Lobay as her matrimonial lawyer. On May 19, 2000, she and Mr.
Hubley met with Mr. Lobay at his office.
[43]
Mr. Lobay testified that the plaintiff wanted advice with respect to settling her
matrimonial dispute. He said that she gave him a handwritten list of her concerns
and some of the terms being discussed with Mr. Newton, and that he spoke with her
2008 BCSC 328 (CanLII)
him about whether it was fair.
Newton v. Marzban
Page 15
about these. He could not recall all of their discussion, but said that he did advise
her of her rights as a shareholder of the ABG, and gave her preliminary advice on
implications of a settlement, and told him that she wanted a lump sum settlement
without having to pay tax on it.
[44]
Mr. Lobay believed Mr. Hubley was present as a friend. He said that Mr.
Hubley did offer the view that the assets of the ABG were worth more than what was
being offered, and gave him a valuation of the company that demonstrated this. Mr.
Lobay saw the primary issue as the value of the ABG. In his view, any claim for
spousal support also depended on that valuation.
[45]
Mr. Hubley confirmed that he gave his spreadsheet to Mr. Lobay, and
explained the importance of the equipment value to the share value of the ABG. He
said that they discussed Mr. Newton’s offer, but felt that they did not have enough
information to value the plaintiff’s interest in the ABG or to advise her with respect to
the offer. Mr. Hubley said that Mr. Lobay recommended to the plaintiff that they get
financial disclosure from Mr. Newton.
[46]
The plaintiff’s recollection of this meeting was equivocal. She initially testified
that she did not recall very much about it apart from Mr. Lobay recommending that
she obtain financial disclosure. On cross-examination by Mr. Marzban’s counsel,
however, she identified the list that she had made for the meeting. It set out several
topics, among them alimony, a lump sum payout, interest, security, and the debt-toequity ratio of the ABG. The plaintiff said that this was just a list of things she was
2008 BCSC 328 (CanLII)
her spousal rights. He testified that the plaintiff was concerned about the tax
Newton v. Marzban
Page 16
throwing out, and she was unable to recreate her thought process at the time she
made it. She did not recall discussing these things with Mr. Lobay. In particular, she
[47]
Later, under cross-examination by Mr. Hubley’s counsel, the plaintiff
confirmed that at her examination for discovery she had testified that she
remembered nothing about this meeting of May 19, 2000. She said that she had
confused it with another meeting, and now she recalled that they had discussed her
separation, the offers that had been made, some background on the ABG, and Mr.
Hubley’s spreadsheet. She said that she did not recall telling Mr. Lobay what she
wanted. Nor did she recall him advising her about her rights. When Mr. Hubley’s
counsel put the same list to the plaintiff, she claimed that it was not the same
document that Mr. Marzban’s counsel had asked her about earlier.
[48]
This list also recorded personal threats made by Mr. Newton against the
plaintiff and anyone assisting her in asking for a larger settlement, as well as his
comment that “you’ve chosen the wrong time to do this. The company is worth
nothing.” The plaintiff said that Mr. Newton had told her that if she did not sign the
deal, the bank would cause the ABG to go bankrupt. She said that she told Mr.
Hubley and Mr. Lobay about this, and Mr. Hubley explained that the bank could not
just force the ABG into bankruptcy. It would have to follow proper protocol.
[49]
After this meeting, negotiations proceeded between Mr. Lobay and Mr.
Newton and his lawyer, Brett Vining. Mr. Hubley played no part in these.
2008 BCSC 328 (CanLII)
denied that he discussed her entitlement to spousal support at this meeting.
Newton v. Marzban
[50]
Page 17
Later in May, Mr. Newton bought a house and told the plaintiff that she must
sign a document for the credit union so that he could obtain a mortgage. This
ABG, and that he would not be paying spousal support.
[51]
On May 24, 2000, the plaintiff wrote Mr. Lobay asking whether she should
waive her rights to Mr. Newton’s personal income and to spousal support as he
requested. Mr. Lobay advised her not to do so. The plaintiff said she nevertheless
decided to give Mr. Newton what he wanted as she was afraid of him. Mr. Lobay
drafted a postponement of her claim to spousal support on her instructions, but
wrote to her on May 25, 2000 confirming his advice that she should not sign it. The
plaintiff nevertheless executed the postponement. At trial, she denied receiving that
letter.
[52]
On May 25, 2000, Mr. Lobay wrote to Mr. Newton with respect to resolving
the matter. The plaintiff received and approved a draft of this letter before it was
sent. In it, he referred to the ongoing appraisal of the ABG equipment, and the
difficulty of valuing the plaintiff’s shares until he has reviewed the appraisal with
independent accountants. He suggested a possible discount if Mr. Newton bought
out the plaintiff’s shares at that time. He invited interim monthly payments of $5,500
to the plaintiff, to be credited against her shareholder’s loan account and against any
settlement agreement. He closed by advising that he had recommended to the
plaintiff that she not settle quickly before a full review of the financial statements and
appraisal.
2008 BCSC 328 (CanLII)
document stipulated that he would receive a monthly salary of $10,000 from the
Newton v. Marzban
[53]
Page 18
The plaintiff testified that she had no recollection of this letter or advice of this
[54]
Mr. Lobay’s records indicate that on May 29, 2000, the plaintiff left him a
telephone message asking him to draft a separation agreement as soon as possible
for Mr. Newton to take to his lawyer. The plaintiff testified that she could not recall
leaving this message. She agreed, however, that despite Mr. Lobay’s advice not to
sign an agreement without getting full financial disclosure, she was going to sign it
anyway. She said that she did not understand what financial disclosure was, and
she was under a lot of stress and pressure. The plaintiff testified that she gave Mr.
Lobay a monthly amount that she wanted, but could not recall the details of the
agreement, and said that he did not review it with her.
[55]
Mr. Lobay testified that he drafted a settlement agreement that reflected the
plaintiff’s instructions and sent it to Mr. Brewer on June 2, 2000. He said that the
terms came from the plaintiff, and were contrary to his repeated advice that there
must be a valuation of the company first.
[56]
In June, the plaintiff rented a condominium in Victoria. She said that she was
encountering financial difficulties as she was unable to withdraw funds from the ABG
as she had in the past. As a result, she cashed in investments of $65,000 that she
and Mr. Newton had at Midland Walwyn (the “Midland Walwyn Shares”), and also
borrowed $30,000 from her sister.
[57]
Mr. Vining, on behalf of Mr. Newton, commenced a matrimonial action against
the plaintiff on June 9, 2000. The statement of claim included a claim for dismissal
2008 BCSC 328 (CanLII)
nature from Mr. Lobay.
Newton v. Marzban
Page 19
of spousal support for both parties. The plaintiff testified that she could not recall
seeing this, and did not know that Mr. Newton was saying that he would not pay
[58]
On June 12, 2000, the parties obtained a declaration under s. 57 of the
Family Relations Act, R.S.B.C. 1996, c. 178, (the “F.R.A.”) by consent.
[59]
On June 13, 2000, Mr. Vining wrote to Mr. Lobay with Mr. Newton’s position
on the proposed settlement. His letter included these comments:
Mr. Newton basically told me what I am sure your client has told you,
the companies values are dictated by the market and Mr. Newton’s
ability to maintain the companies existence. In talking to my client, he
advises me that the companies are valued at anywhere between $1.00
and $816,000.00, which would be the combined shareholder’s values
of both himself and his wife. He feels that given his debt load in the
approximate amount of $11,000,000.00, that the agreement would
allow her to receive, at this time, approximately $190,000.00 over a
50% division between the parties, based on book value. To the matter
[sic] in its most blunt terms, our client, by retaining the companies, is
buying a “pig in a poke”. If he works hard and is lucky with the
economy, he will do well. If not, it could be disaster as Mr. Newton
could loose it all.
…
All claims of spousal support must be dismissed at this time. If Mr.
Newton has not paid the $420,000.00, it means that he has lost
everything, and your client will at least have salvaged the real property,
and he would be left with nothing. Why would Mrs. Newton be able to
come back after reaping the benefits of the tax free monies that she
had received, including the lion’s share of real property, and then ask
for maintenance when Mr. Newton would be unemployed and without
funds?
[60]
The plaintiff, Mr. Hubley, and Mr. Lobay met on June 13, 2000 to discuss Mr.
Vining’s letter. Mr. Hubley testified that both he and Mr. Lobay advised the plaintiff
2008 BCSC 328 (CanLII)
spousal support.
Newton v. Marzban
Page 20
that they did not have enough information to tell her whether the proposed
[61]
Mr. Lobay testified that he and the plaintiff discussed Mr. Newton’s position
that the ABG could become insolvent and that she was lucky to get anything, as well
as the fact that if the company was insolvent she may receive nothing for her shares.
He said that security was also a concern as the proposed settlement involved
payments by Mr. Newton personally over a significant period of time. Mr. Lobay
testified that the dismissal of claims for spousal support was a given from Mr.
Newton’s perspective. He said that he advised the plaintiff of her right to spousal
support, and she understood that she was releasing this claim under the proposed
agreement.
[62]
The plaintiff testified that she recalled some things about Mr. Vining’s letter,
but said that she did not really understand them. She could not recall reviewing the
letter with Mr. Hubley or Mr. Lobay. She acknowledged that Mr. Lobay was
concerned about the absence of financial disclosure. She denied that Mr. Newton
was suggesting that the value of the ABG could be variable, or that his position on
spousal support was discussed with her.
[63]
Mr. Lobay said that he told the plaintiff that he was concerned about the
speed at which things were moving, and gave her strong advice not to execute any
agreement until they had full financial disclosure of the ABG. However, on June 14,
2000, he wrote to Mr. Vining and advised that, contrary to his advice, the plaintiff
would sign the settlement agreement if some minor amendments were made.
2008 BCSC 328 (CanLII)
settlement was fair.
Newton v. Marzban
[64]
Page 21
Mr. Vining and Mr. Lobay finalized the proposed agreement on June 15,
2000. Under its terms, the plaintiff was to transfer her interest in the ABG to Mr.
ten years. That figure included her shares as well as her shareholder’s loan of
$408,775. There was no provision for interest on the unpaid balance. As security,
the plaintiff’s shares were to be held in escrow until she was paid in full. Mr. Newton
was to indemnify her for any tax liabilities arising. The plaintiff was to receive the
Matrimonial Home and Mr. Newton was to pay the mortgage on it. The Lantzville
Property was to be sold, the proceeds used to first pay the mortgage on the
Matrimonial Home, and the remainder to be kept by Mr. Newton. The plaintiff was to
transfer the Campbell River Property to Mr. Newton, and they would jointly own the
Cienar Drive Property through a new company. The plaintiff reserved her right to
spousal support until all payments had been made under the agreement, and then
provided a full release of that claim. Other provisions dealt with an equal division of
RRSPs, and less significant assets and liabilities.
[65]
Mr. Lobay testified that he reviewed this agreement with the plaintiff and it
remained his advice that she should not execute it. He wrote her a strongly worded
letter on June 15, 2000, advising her that the offer in the agreement appeared
substantially below her entitlement, and that it was impossible to assess it until he
had more financial information, particularly the asset appraisal.
[66]
The plaintiff said that she did not recall reading this letter. She agreed that
she reviewed the agreement with Mr. Lobay, and she recalled some advice not to
sign it without full financial disclosure. She said that she nevertheless signed it
2008 BCSC 328 (CanLII)
Newton in exchange for $650,000, payable in monthly instalments of $5,500 over
Newton v. Marzban
Page 22
because she wanted to have it over with, and Mr. Newton was making threats. She
testified that she did not know if it was a final settlement of all claims or not. She
[67] With respect to the release of spousal support, the plaintiff initially testified
that Mr. Lobay did not review this with her, and she did not understand that it meant
that her claim for support was gone. Later, she said that when she signed the
agreement, she did not understand the full extent of this provision; nor did she ask
anyone to explain it to her. She said that spousal support was not a concern in any
event because Mr. Hubley had earlier told her that she was not entitled to it. When
challenged on this, the plaintiff could not say whether he had told her that before she
signed this agreement. Finally, she said that she understood the agreement meant
that she was giving up “alimony”, but said that she did not understand what that
meant as no one discussed it with her.
[68]
Ultimately, the settlement fell apart as Mr. Newton requested a last minute
change, and the plaintiff instructed Mr. Lobay to reject the amendment because she
had second thoughts about the settlement.
[69]
Mr. Hubley was not involved in these negotiations, and was unaware that the
plaintiff had almost concluded an agreement until she told him some time later.
[70]
On June 26, 2000, the RBC advised the plaintiff and Mr. Newton that it would
no longer provide credit to the ABG, and demanded payment of its outstanding loan
by August 15, 2000.
2008 BCSC 328 (CanLII)
said that she did not think of that when she signed it, and no one told her that.
Newton v. Marzban
[71]
Page 23
The plaintiff agreed that she was concerned that there would be major
repercussions if the RBC pulled the ABG’s financing. She was also concerned that
risk. She contacted Mr. Hubley and, at her request, he contacted representatives of
the RBC. They confirmed that the RBC had pulled the financing because of a
breach of a covenant, but said that the bank was also concerned about Mr. Newton’s
relationship with the Hells Angels. They advised, however, that because the Beban
family’s logging companies were valuable clients of the RBC, it would give the ABG
time to find alternative financing.
[72]
Mr. Hubley reported this to the plaintiff. He then had no involvement with her
until mid-September.
[73]
On June 29, 2000, American Appraisals Canada, Inc. issued their appraisal
(the “AA Appraisal”). This valued 214 pieces of the ABG’s logging equipment, as
well as smaller miscellaneous equipment, at $10,580,000 on an auction basis and
$13,680,000 on an orderly liquidation basis as of June 2, 2000.
[74]
After the proposed settlement fell apart, the plaintiff told Mr. Lobay that she
had changed her mind and wanted to get financial disclosure from Mr. Newton
before settling. On July 10, 2000, Mr. Lobay wrote to Mr. Vining asking for a Form
89 Financial Statement, financial statements of the ABG, and a copy of the AA
Appraisal. They also exchanged correspondence as to the draws Mr. Newton and
plaintiff were entitled to take from the ABG pending settlement, in view of the
difficulties with the RBC. Mr. Newton was receiving $10,000 monthly, and the
2008 BCSC 328 (CanLII)
Mr. Newton’s connection to the Hells Angels was putting her interest in the ABG at
Newton v. Marzban
Page 24
plaintiff continued to receive $5,000. Their respective draws on the ABG beyond
[75]
Later in July, Mr. Newton changed the locks on the ABG’s offices. Mr. Lobay
advised the plaintiff that it may be necessary to take corporate action to ensure her
rights were protected. On July 31, 2000, he wrote to Mr. Brewer and advised that,
as an equal shareholder and director of the ABG, the plaintiff would take legal action
without further notice to ensure that she had access to the business. The matter
was rectified and the plaintiff received keys to the office.
[76]
The plaintiff, Mr. Newton, and their lawyers had an acrimonious meeting on
August 1, 2000. Mr. Lobay said that Mr. Newton’s position was that the company
was in financial trouble and the plaintiff would get nothing more than the last offer.
As nothing was accomplished, Mr. Lobay believed it was time to get on with
litigation, but had difficulty getting instructions from the plaintiff to do so. He had no
further substantive involvement in the matter. In mid-September the plaintiff met
with Mr. Hubley and told him that she wanted a new matrimonial lawyer.
[77]
Mr. Newton and Mr. Brewer continued to seek alternative financing for the
ABG. On August 1, 2000, HSBC Bank Canada (“HSBC”) offered credit of $4.7
million. The ABG was unhappy with some of the terms and conditions, however,
and turned this down. The RBC extended its demand for payment to October 15,
2000.
2008 BCSC 328 (CanLII)
those amounts remained a contentious topic throughout the ensuing negotiations.
Newton v. Marzban
Page 25
October to December 2000 – retaining Mr. Marzban and Mr. Harder
Mr. Hubley and the plaintiff agreed that they obtained Mr. Marzban’s name
from Peter Voith, a lawyer who had earlier acted for the ABG. They diverged,
however, as to Mr. Hubley’s role in this. The plaintiff was adamant that she obtained
Mr. Marzban’s name from Mr. Voith on her own. Mr. Hubley testified that he and the
plaintiff spoke to Mr. Voith together after the plaintiff made an initial telephone call to
him, and Mr. Voith agreed to help her find a matrimonial lawyer. Mr. Hubley said
they later received Mr. Marzban’s name from Mr. Voith when they met with him in
Vancouver.
[79]
Mr. Marzban is an experienced matrimonial lawyer who had been in practice
for almost 20 years at the time of these events. He became a Queen’s Counsel in
2004, and has been active in professional organizations related to matrimonial law.
He has also been a frequent speaker and writer on matrimonial issues.
[80]
On October 12, 2000, Mr. Hubley called Mr. Marzban at the plaintiff’s request,
gave him some background, and asked if he would represent her. Mr. Marzban
agreed to do so, and asked for a $5,000 retainer. Mr. Hubley relayed this request to
the plaintiff, and her mother provided the funds as the plaintiff could not afford it.
[81]
On October 13, 2000, the ABG succeeded in arranging new financing. GE
Capital Canada (“GEC”) agreed to provide it with a term loan of just over $4 million,
and HSBC committed to a $400,000 line of credit.
2008 BCSC 328 (CanLII)
[78]
Newton v. Marzban
[82]
Page 26
On October 17, 2000, the plaintiff told Mr. Hubley that Mr. Newton had
assaulted her at the ABG’s office. Mr. Hubley advised Mr. Marzban. The plaintiff
arrangements to go to Mexico to get away.
[83]
On October 25, 2000, before she left for Mexico, Mr. Hubley, Mr. Marzban
and the plaintiff met at Mr. Hubley’s office.
[84]
Mr. Marzban testified that at this first meeting he covered basic information
with the plaintiff, such as the history of the relationship, Mr. Newton’s association
with the Hells Angels, what had taken place to date including the earlier negotiations
and aborted settlement, the postponement of spousal support, and details of the
parties’ assets and income, including the ABG. Mr. Marzban said that they
discussed the corporate structure of the ABG, its component companies, and Mr.
Brewer’s role as the corporate accountant. Mr. Hubley said a broad “guesstimate” of
the share value was between $2 million and $4.5 million, and they discussed the
need to retain a qualified valuator to value the shares. The plaintiff told him that she
and Mr. Newton were comfortable with the values of the real property they owned.
[85]
Mr. Marzban testified that the basic situation appeared quite clear. The ABG
was the linchpin. The other assets were relatively small, primarily real property,
RRSPs, and vehicles. He recognized there was a question of spousal support, but
said there was not much discussion about that, other than he may have said that he
could not give the plaintiff any advice on support until he knew where the assets
would end up.
2008 BCSC 328 (CanLII)
reported it to the police, but was afraid to press charges. Instead, she made
Newton v. Marzban
[86]
Page 27
Mr. Marzban said that the plaintiff instructed him to get Mr. Lobay’s file, and to
send a letter to Mr. Vining advising that unless Mr. Newton made a more satisfactory
against this, as they did not know the value of the company and she had already
been through one failed settlement. He said that she was insistent, however, and so
he agreed to do this as he felt no harm would come of it.
[87]
Mr. Marzban testified that at the meeting of October 25, 2000 it was agreed
that he could communicate with the plaintiff through Mr. Hubley for reasons of
convenience. The same pattern later developed with Mr. Harder. As a result, Mr.
Hubley often acted as the plaintiff’s agent in her dealings with both of these advisors.
[88]
The plaintiff’s recollection of this meeting varied. In direct examination, she
recalled little of what was discussed, other than she had provided a brief history of
events, and Mr. Hubley had given Mr. Marzban an idea of the range of the value of
the ABG shares. She could not recall receiving any advice from Mr. Marzban or Mr.
Hubley during the meeting, and she was unsure if she gave any instructions to Mr.
Marzban. She was, however, able to provide a list of things that had not been
discussed at the meeting.
[89]
On cross-examination, the plaintiff agreed that at her first examination for
discovery she had testified that she had no recollection of this meeting with Mr.
Marzban, and her only recollection of dealings with him in 2000 was a telephone call
while she was in Mexico. She confirmed that at a later examination for discovery her
recollection expanded to include a general discussion about the background and
2008 BCSC 328 (CanLII)
offer she would pursue financial disclosure. Mr. Marzban said he advised her
Newton v. Marzban
Page 28
companies, and Mr. Marzban’s agreement to take over Mr. Lobay’s file. She agreed
that it made sense that they would have discussed past offers, her financial
Lobay’s correspondence, but said that she did not recall this. When pressed on
cross-examination as to whether spousal support was discussed, the plaintiff
conceded that there had been some mention of it, but said that she could not recall
the specifics.
[90]
After the October 25, 2000 meeting, Mr. Marzban arranged corporate and title
searches of the ABG companies and the real property in which the plaintiff held an
interest. He obtained and reviewed Mr. Lobay’s file, and filed a Notice of Change of
Solicitor. He also filed Certificates of Pending Litigation and a Statement of Defence
and Counterclaim, in which he included claims for spousal support and
reapportionment. Mr. Marzban testified that although he viewed this as a case for
equal division of assets, he included the claim for reapportionment in case such an
argument emerged.
[91]
On November 22, 2000 Mr. Marzban sent the plaintiff a letter providing the
advice on reconciliation mandated by s. 9 of the Divorce Act, R.S.C. 1985, c. 3 (2nd
supp.). On November 24, 2000, after first faxing it to her in Mexico for her approval,
he sent Mr. Vining a letter inviting an offer in accordance with the plaintiff’s
instructions.
[92]
The plaintiff recalled that she left for Mexico after the meeting, and that there
was some discussion about obtaining an offer from Mr. Newton and, if none came,
2008 BCSC 328 (CanLII)
situation, Mr. Newton’s use of company money, issues related to the RBC, and Mr.
Newton v. Marzban
Page 29
proceeding with financial disclosure. She agreed that it was her idea to invite this
offer, despite the fact that she was no further ahead in investigating the value of the
under a lot of emotional stress, she did not know what she wanted, and she felt that
this was one way of possibly obtaining a settlement. She denied that Mr. Marzban
advised her against this, or warned her of the risks of proceeding without financial
disclosure.
[93]
In December 2000, Mr. Newton retained Mr. Edward Mortimer, Q.C. as his
new counsel. Mr. Mortimer testified that he met with Mr. Newton and Mr. Brewer
around December 12, 2000. He said that Mr. Newton was very frustrated that the
action had not settled, and gave him instructions to make an offer to the plaintiff that
Mr. Newton said represented his “bottom line”. On December 14, 2000 Mr. Mortimer
sent Mr. Marzban an offer to settle on these monetary terms:
•
payment of $500,000 for the plaintiff’s shares in the ABG;
•
payment of the plaintiff’s shareholder’s loan of $408,775;
•
these amounts to be paid at $10,000 per month commencing
January 31, 2001, with no interest payable on the outstanding
balance, and payment in full to be made by January 31, 2006;
•
the Matrimonial Home and the Lantzville Property to be sold and
the proceeds shared equally;
•
the Powell River Property to be transferred to Mr. Newton in
consideration of payment of $13,000;
•
security by way of holding the plaintiff’s shares in escrow on
graduated release tied into payment amounts; and
•
mutual release of spousal support claims.
2008 BCSC 328 (CanLII)
ABG, and despite advice to the contrary. She said that she did so because she was
Newton v. Marzban
[94]
Page 30
Mr. Mortimer testified that he advised Mr. Newton that if they could not reach
a settlement and had to proceed to trial, he should offer to sell his shares to the
and leave the resolution of the matter to company law. He said that he also advised
Mr. Newton that if the plaintiff received more than a million dollars in assets at a trial
she would not receive support due to her age, the length of the marriage, her job
skills and family connections, and the fact that she had no children.
[95]
Mr. Marzban sent the offer to the plaintiff without comment or advice, as he
still had no information as to the value of the assets. The plaintiff testified that she
had a limited understanding of this offer, but decided to reject it without seeking
advice from Mr. Hubley or Mr. Marzban. She could not recall why. She advised Mr.
Marzban of this by leaving a message with his office on December 18, 2000.
[96]
Mr. Marzban then proceeded with obtaining financial disclosure. On
December 21, 2000, he wrote to Mr. Mortimer rejecting the offer and enclosing a
Demand for Discovery of Documents, Notice to Produce and Notice to File a Form
89 Financial Statement. Mr. Mortimer responded with similar demands on behalf of
Mr. Newton.
[97]
Mr. Hubley learned from Mr. Marzban that the plaintiff had rejected Mr.
Newton’s offer. They agreed that it was time to retain a valuator to value the ABG,
and that Mr. Harder would be an appropriate person to engage for that purpose.
Both had worked with him in the past and both held him in high regard as a valuator.
2008 BCSC 328 (CanLII)
plaintiff, or take the position that the parties should remain shareholders in the ABG
Newton v. Marzban
[98]
Page 31
Mr. Harder has been a chartered accountant since 1983, and a chartered
business valuator since 1987. He has fellowship standing in both professions, and
“CICBV”). He also holds specialty certifications as a fraud examiner and in
investigative and forensic accounting. Mr. Harder has had considerable experience
in valuing logging companies, and in doing valuations in matrimonial disputes.
[99]
Mr. Hubley spoke with Mr. Harder on December 21, 2000, and Mr. Harder
accepted the engagement. Mr. Hubley said that he also telephoned the plaintiff and
obtained her agreement to hire Mr. Harder.
[100] The plaintiff agreed that Mr. Hubley told her that Mr. Harder was a highly
regarded valuator in Vancouver who had experience with valuations of logging
companies, and that she agreed to hire him. She said that she understood that Mr.
Hubley was not a valuator, and Mr. Harder would value the shares of the ABG.
[101] Mr. Marzban spoke to Mr. Harder about his engagement, but did not discuss
it with the plaintiff. He and Mr. Mortimer agreed that Mr. Harder could contact Mr.
Brewer directly to obtain the necessary financial information to value the ABG. As a
result, neither of them pursued production of Lists of Documents or Form 89
Financial Statements. Mr. Mortimer testified that he did not think these steps were
necessary as the issue was simply how much compensation Mr. Newton was
prepared to pay the plaintiff for her shares.
[102] The plaintiff testified that she never withdrew her instructions to Mr. Marzban
to obtain financial disclosure. She said that he did not advise her about the different
2008 BCSC 328 (CanLII)
has held positions in the Canadian Institute of Chartered Business Valuators, (the
Newton v. Marzban
Page 32
means of doing that, and she did not know what steps he took. She said that at this
point she did not know what Mr. Marzban and Mr. Hubley were going to do, but she
January to March 2001 – preparation of the valuation of the ABG
[103] Mr. Hubley said that he met with the plaintiff on January 4, 2001 to explain the
valuation process, including the concept of fair market value as opposed to the
historic cost of equipment reflected on financial statements. The plaintiff had no
recollection of this meeting.
[104] On January 9, 2001, Mr. Harder faxed a draft of his engagement letter to Mr.
Hubley and Mr. Marzban. Mr. Hubley discussed with Mr. Harder what documents he
would review, and was satisfied to leave this to Mr. Harder’s discretion. He also
drew Mr. Harder’s attention to the importance of reviewing the AA Appraisal as Mr.
Hubley wanted him to use anything that would increase the value of the ABG.
[105] Mr. Hubley said that he reviewed Mr. Harder’s draft engagement letter with
the plaintiff, and sent it back to Mr. Harder with some notes to clarify the scope of his
valuation. In her evidence in chief, the plaintiff said that she did not recall Mr.
Hubley discussing the engagement letter with her. On cross-examination, however,
she agreed that she did review the letter with Mr. Hubley.
[106] The plaintiff signed Mr. Harder’s engagement letter on January 26, 2001. The
relevant portions stated:
2008 BCSC 328 (CanLII)
assumed they would carry on with what they were supposed to be doing.
Newton v. Marzban
•
Page 33
Mr. Harder would provide an estimate of the en bloc fair market value of
the shareholder interests in the ABG companies for the purpose of a
•
The valuation date would be October 31, 2000.
•
His valuation would include, among other things, a review of “corporate and
business documents” including property and equipment appraisals, as well
as interviews with management and a tour of the facilities.
•
He would provide a draft report following completion of his valuation, and
deliver a final report shortly thereafter.
[107] Valuators’ reports can provide three types of conclusions: a calculation, an
estimate, or an opinion. Mr. Harder’s report was to be an estimate, which provides
the middle level of assurance, analysis, investigation, and corroboration, and is
deemed suitable for pre-trial negotiations. It is often a preliminary step to an opinion,
which has the highest level of assurance.
[108] Mr. Marzban said that he reviewed Mr. Harder’s retainer letter and was
comfortable with its terms and the level of assurance at this stage. He did not
discuss it with the plaintiff.
[109] In January 2001, Mr. Marzban and Mr. Mortimer negotiated a consent
restraining order covering the family assets. The order inadvertently included an
unnecessary duplication of the earlier s. 57 declaration.
2008 BCSC 328 (CanLII)
division of matrimonial property.
Newton v. Marzban
Page 34
[110] On January 8, 2001, Mr. Harder met with Mr. Brewer to obtain preliminary
information about the ABG. He requested and received a substantial amount of
October 31, 2000 financial statements, which had just been completed. He spoke to
Mr. Newton to obtain additional information. He took steps to corroborate some of
the information provided by having his staff contact the majors in the forest industry
who were familiar with the ABG’s operations.
[111] Mr. Harder reviewed the AA Appraisal and concluded that it was not reliable.
He decided that he could not use it for his valuation. On January 24, 2001, he spoke
to Mr. Brewer about the AA Appraisal. Mr. Brewer advised him that it had been
done for financing purposes, and the values were high and unreliable. He said that
Mr. Newton would not accept it as the basis for any settlement. They discussed
having the ABG engage Cunningham Rivard to appraise the ABG’s real estate, and
Ritchie Bros. to do another appraisal of the ABG’s equipment for the purpose of Mr.
Harder’s valuation.
[112] Mr. Harder passed this information on to Mr. Hubley, who said that Ritchie
Bros. was acceptable to him as he knew it to be a reputable outfit. Mr. Hubley said
that he discussed this with the plaintiff and she raised no objection. Ritchie Bros.
was accordingly retained to appraise the ABG equipment.
[113] The plaintiff’s evidence about her knowledge of the AA Appraisal was
inconsistent. At one point, she testified that Mr. Newton had told her that the AA
Appraisal was inflated and it was ridiculous to rely on it. However, she also
2008 BCSC 328 (CanLII)
financial information by mid-January, including a copy of the AA Appraisal and the
Newton v. Marzban
Page 35
maintained that, while she knew it had been obtained for financing purposes, she did
not know that such appraisals tend to be on the high side. She denied that Mr.
was too high. Instead, she said that he told her that Mr. Harder needed a value for
the equipment because the AA Appraisal was outdated and because of something to
do with market conditions. She said that Mr. Hubley told her that Mr. Newton had
recommended Ritchie Bros. and that this was what they would do for appraising the
equipment. She agreed that she did not object to this.
[114] Mr. Hubley testified that the plaintiff later raised a concern about using Ritchie
Bros. She felt that because Mr. Newton had used them to buy and sell equipment in
the past he would be able to influence the outcome of the appraisal in his favour,
and she asked if they could use someone else. Mr. Hubley said that he did not put
much stock in the plaintiff’s concerns due to the size and reputation of Ritchie Bros.,
but they discussed it, and he told her that Ritchie Bros. would provide a market value
appraisal which was likely to be lower than the AA Appraisal prepared for financing
purposes. He also explained to her that Ritchie Bros. and Mr. Harder were
independent, and it would ultimately be Mr. Harder’s decision as to whether the
Ritchie Bros. appraisal would be suitable for his valuation. It would then be up to her
as to whether she accepted his valuation. If she did not, she could go to court, or
get another valuation. He told her that he did not know of any legitimate commercial
reason to refuse an appraisal by Ritchie Bros., and at the end she agreed that they
would use Ritchie Bros.
2008 BCSC 328 (CanLII)
Hubley told her that Mr. Newton wanted another appraisal because the AA Appraisal
Newton v. Marzban
Page 36
[115] The plaintiff adamantly denied that this conversation took place, or that she
[116] The Ritchie Bros. appraisal (the “Ritchie Bros. Appraisal”) was delivered to
Mr. Newton and copied to Mr. Harder on February 7, 2001. It valued 166 of the
larger pieces of the ABG logging equipment at $4,673,200.
[117] On February 9, 2001, Mr. Harder went to Nanaimo and met with Mr. Newton
and Mr. Brewer at the ABG’s office. After a tour of the Duke Point site, they went
through the Ritchie Bros. Appraisal and reconciled it with the ABG’s capital asset list.
Ritchie Bros. had not appraised 253 pieces of equipment. Most of these were
smaller miscellaneous items. Mr. Newton, Mr. Brewer, and Mr. Harder came to an
agreed-upon value for most of these, in many cases using their net book value.
[118] On February 21, 2001, the plaintiff went to Mr. Marzban’s office in Vancouver
to advise him that Mr. Newton was improperly expensing things through the
company, and that she believed that Mr. Newton and the ABG were conducting
illegal activities. She testified that she told Mr. Marzban these things in case
something happened to her. Mr. Marzban had a limited recollection of this meeting.
He said he was not instructed to take any steps as a result of this information.
[119] On the same day, the plaintiff went to Mr. Harder’s office and met with him for
the first time. Mr. Harder testified that they discussed her view of the ABG and some
of its contracts and equipment, but her primary concern was Mr. Newton’s use of
corporate assets for his own purposes and whether he was hiding money. Mr.
Harder said that he told the plaintiff that she could hire him to do a forensic
2008 BCSC 328 (CanLII)
had objected to using Ritchie Bros.
Newton v. Marzban
Page 37
investigation to determine if Mr. Newton was hiding assets but that it would be
[120] The plaintiff had little recollection of this meeting. She did not remember
telling Mr. Harder of her concern that Mr. Newton was spending company money on
personal things. She was adamant that they did not discuss a forensic engagement.
[121] After that meeting, the plaintiff telephoned Mr. Hubley. Mr. Hubley testified
that she told him that she was concerned that Mr. Harder was biased against her
and was not listening to her position on the ABG’s assets. Mr. Hubley said that he
told her that they would have to wait and see the valuation but that, as the client, she
had every right to ask Mr. Harder for clarification and to find out exactly what was
going on. He also reiterated his previous advice that Mr. Harder was an
independent valuator and had to make up his own mind about the value of the ABG.
[122] The plaintiff agreed that she spoke with Mr. Hubley about her meeting with
Mr. Harder, but disagreed with his account of the discussion. She specifically
denied that she was unhappy with Mr. Harder.
[123] Neither Mr. Harder nor the plaintiff could recall whether they discussed the
large discrepancy between the AA Appraisal and the Ritchie Bros. Appraisal on
February 21, 2001. Mr. Harder testified that he was concerned about the
discrepancy, and so he contacted another appraiser, Mr. Robert Pearson of
Universal Appraisals, and sent him a portion of the AA Appraisal to review. Mr.
Harder said that Mr. Pearson reported to him that the AA Appraisal was too high and
2008 BCSC 328 (CanLII)
expensive. She did not engage him to do this.
Newton v. Marzban
Page 38
not supportable. Mr. Pearson also said that it would cost between $12,000 and
[124] The Matrimonial Home had been listed for sale by agreement, and was sold
in February. Another lawyer handled the conveyance, and the plaintiff and Mr.
Newton ultimately split the proceeds from the sale equally. Mr. Marzban testified
that he spoke with the plaintiff twice near the end of February about the conveyance
and the ongoing valuation.
[125] Mr. Hubley testified that on March 1, 2001, he had a long meeting with the
plaintiff to examine the Ritchie Bros. Appraisal at Mr. Harder’s request, and to
explain to her how the valuation process worked and where it might end up. He said
that the plaintiff was frustrated with the way the valuation was being conducted. Mr.
Hubley said that he used the ABG’s financial information and the Ritchie Bros.
Appraisal to formulate and explain to her a “guesstimate” of what Mr. Harder’s
valuation might produce. This suggested that the plaintiff’s interest in the ABG might
lie between $1.5 and $2.5 million. He testified that she knew that his calculations
were speculative, but she understood the process better as a result of this exercise.
He said that he told her several times during this process that if she was not happy,
she always had the opportunity to go to court.
[126] The plaintiff testified that she did not remember what was discussed at this
meeting. She nevertheless denied that they discussed Mr. Harder’s role or that she
could go to court if she did not like where the settlement discussions were going.
2008 BCSC 328 (CanLII)
$15,000 plus disbursements for Universal Appraisals to do another appraisal.
Newton v. Marzban
Page 39
[127] Mr. Marzban’s time records show that he had a meeting with Mr. Harder and
a telephone conversation with Mr. Hubley during the first week of March regarding
that it was not unusual for him to be updated regarding the status of things.
[128] Mr. Hubley testified that on March 5, 2001, the plaintiff came to see him and
told him that Mr. Newton was charging personal expenses to the ABG. She asked
him to relay that to Mr. Marzban, and he did so.
[129] Mr. Hubley testified that on March 12, 2001, the plaintiff came to his office,
and again raised issues regarding the valuation. She also told him that she was
unhappy with Mr. Marzban, and asked what his ethnic background was. Mr. Hubley
said that he reminded her that Mr. Marzban had come highly recommended by Mr.
Voith, and told her to bear with it and see what happens.
[130] The plaintiff could not recall this meeting, but denied that the conversation
about Mr. Marzban occurred.
[131] On March 15, 2001, the plaintiff and Mr. Hubley went to Vancouver to meet
with Mr. Harder. Before they left, they met at Mr. Hubley’s office and reviewed an
equipment list that recorded the Ritchie Bros. Appraisal values and the AA Appraisal
values for each piece of equipment. Mr. Hubley said that they together added a third
column of equipment values that he described as their “best guesstimate” of what
the equipment could be worth, based on their experience with logging equipment.
These revised equipment values totalled about $6.5 million. Mr. Hubley said that,
based on his experience in the logging industry, he felt that the Ritchie Bros.
2008 BCSC 328 (CanLII)
valuation issues. Mr. Marzban had no recollection of these discussions, but said
Newton v. Marzban
Page 40
Appraisal was fairly accurate, and he denied telling the plaintiff that their values were
too low. Nevertheless, he said that he and the plaintiff wanted to come up with a
Newton and Mr. Brewer in an effort to negotiate a higher settlement.
[132] The plaintiff testified that the revised equipment list was prepared because
Mr. Hubley felt the Ritchie Bros. values were too low and they wanted to create an
argument that higher numbers should be used in the negotiation. She denied that
she played any role in estimating the revised equipment values, or that she knew
anything about the value of logging equipment.
[133] Mr. Hubley testified that at their meeting with Mr. Harder later that day, they
presented the revised equipment values and asked him to send these to Mr. Newton
and Mr. Brewer. The plaintiff’s recollection of this meeting varied. At an early
examination for discovery, she did not recall the revised equipment list being at the
meeting at all. At a later discovery, and at trial, she testified that this document was
discussed briefly with Mr. Harder.
[134] Mr. Harder testified that they discussed the revised values and talked about
where he was in his valuation. He understood that they presented the new
equipment values because the plaintiff was concerned about the Ritchie Bros.
Appraisal, and she wanted him to use these values instead in his valuation. Mr.
Harder said he was not prepared to do that as they were clearly unreliable and
biased. However, he did agree to pass the list on to Mr. Newton and Mr. Brewer.
Mr. Harder also testified that they discussed obtaining another appraisal, and said
2008 BCSC 328 (CanLII)
reasonable alternative for the equipment value that Mr. Harder could present to Mr.
Newton v. Marzban
Page 41
that a reference in his notes of the meeting to “12 to 15 plus disbursements” refers to
[135] Mr. Hubley also testified that at this meeting they discussed the possibility of
the plaintiff obtaining a third appraisal, and that Mr. Harder told them this would cost
between $12,000 and $15,000.
[136] The plaintiff was confident that the topic of a third appraisal was not raised at
this meeting. She emphatically denied that Mr. Harder told her that another
appraisal could be obtained for $12,000 to $15,000 plus disbursements, or that she
ever discussed a third appraisal with him. She said that none of the defendants
advised her about contacting other equipment appraisers, and that Mr. Harder did
not tell her that he had contacted Mr. Pearson.
[137] The plaintiff was certain that she was the person who first raised the idea of a
third appraisal, and that this occurred later, after she heard from Mr. Hubley that Mr.
Newton would not accept the revised equipment values. She said that Mr. Hubley
told her that he would pose the idea of another appraisal to Mr. Newton and Mr.
Brewer. Later, he told her that they were not keen on her getting her own appraisal.
She said that was the end of it and she understood that Mr. Harder was going to
value the shares based on the Ritchie Bros. Appraisal. She said that none of the
defendants said anything else on the topic, and she did not know that she could
challenge that decision.
[138] Mr. Harder testified that he sent the revised equipment values to Mr. Newton
and Mr. Brewer. Mr. Brewer called him the following day and told him that they were
2008 BCSC 328 (CanLII)
Mr. Pearson’s estimate of the cost of another appraisal.
Newton v. Marzban
Page 42
unacceptable. Mr. Brewer also said that they were not pleased with the suggestion
[139] Mr. Hubley testified that on March 16, 2001 Mr. Harder called and told him
that Mr. Newton was very upset, and that he and Mr. Brewer were aggressive in
stating that the revised equipment values were a pipedream, and that they would
only consider the Ritchie Bros. values. He said they also indicated that if the plaintiff
wanted another appraisal she could go ahead, but it was irrelevant to them. They
suggested that they could liquidate the ABG and just get out of it, or the plaintiff
could buy out Mr. Newton. Mr. Brewer had said they would prepare an offer based
on Mr. Newton’s ability to pay.
[140] Mr. Hubley testified that on March 26, 2001 he met with the plaintiff to discuss
Mr. Harder’s call, and they talked about the issue of another appraisal again. He
said that they discussed the fact that Mr. Newton and Mr. Brewer were already
unhappy with the numbers that were being advanced by Mr. Harder, which were
based on the Ritchie Bros. Appraisal. Since they were trying to negotiate a
settlement, Mr. Hubley said that he and the plaintiff were unsure whether a further
appraisal, which could be higher or lower, would advance anything. Cost was also a
factor. Mr. Hubley said that he told the plaintiff that if she did not feel that she was
being treated fairly she could always take the matter to court. She said that she
understood this.
[141] Mr. Harder testified that the uncertainty regarding a third appraisal left him in
some difficulty. He was trying to get on with his valuation but knew the plaintiff was
2008 BCSC 328 (CanLII)
that the plaintiff would not accept the Ritchie Bros. Appraisal.
Newton v. Marzban
Page 43
unhappy with the Ritchie Bros. Appraisal and was looking at other options. She did
[142] Although the source of this information was unclear, it is apparent that by late
March the parties had sufficient information about Mr. Harder’s preliminary views to
suspect that his valuation might put the plaintiff’s interest in the ABG, including her
shareholder’s loan and 2000 bonus, in the neighbourhood of $2 million.
[143] Mr. Harder testified that he had a long phone call with Mr. Newton and Mr.
Brewer on March 27, 2001. They wanted him to pass on an offer to the plaintiff.
They were not keen on her getting another appraisal. They said that Mr. Newton
was considering a job offer that would see him making the same salary and doing
the same kind of work as managing the ABG. They also said that if the plaintiff
wanted to buy Mr. Newton’s shares, Mr. Newton would not sign a non-compete
clause. Finally, they threatened liquidation as Mr. Newton could not afford to pay the
plaintiff anything close to $2 million.
[144] On March 28, 2001, Mr. Brewer faxed Mr. Mortimer asking him to speak to
Mr. Marzban to ensure that any settlement discussions between Mr. Brewer and Mr.
Harder for the next ten days would be without prejudice. That was done. Mr.
Brewer’s fax also indicated that he felt that negotiations with Mr. Harder and Mr.
Hubley were likely to be more productive than dealing with Mr. Marzban. No reason
was given for that.
[145] On March 30, 2001, Mr. Harder received an offer from Mr. Brewer for
$1,364,660 for the plaintiff’s interest in the ABG. This included $600,000 for her
2008 BCSC 328 (CanLII)
not, however, provide instructions to proceed with another appraisal.
Newton v. Marzban
Page 44
shares. The balance was comprised of her shareholder’s loan and 2000 bonus.
The payment plan included application of Mr. Newton’s share in other assets that
per month plus an amount based on cubic metres logged, with no interest on the
outstanding balance. The plaintiff’s shares were to be held in escrow as security.
Other adjustments were suggested to less significant assets and liabilities.
[146] Mr. Harder calculated the tax-adjusted offer of the plaintiff’s interest in the
ABG to be $1,201,000, and forwarded the offer to her through Mr. Hubley, with a
memorandum reporting on his March 27, 2001 conversation with Mr. Newton and
Mr. Brewer. He suggested they should review their position in a conference call.
[147] Mr. Hubley said that he discussed the offer and Mr. Harder’s memorandum
with the plaintiff. They both thought that the offer was low, given the preliminary
information they had from Mr. Harder about the plaintiff’s likely share value. They
discussed Mr. Newton’s threat that he would be better off to liquidate the ABG,
rather than assume the debt implicit in the plaintiff’s position. Mr. Hubley advised
the plaintiff that he did not believe that there was a large enough difference between
Mr. Newton’s offer and what they expected Mr. Harder’s going concern value would
be to provide an incentive to wind up the ABG; nor was he concerned that Mr.
Newton would remove himself from the ABG and accept a management contract
elsewhere. He said that the plaintiff observed that Mr. Newton had enough pride in
the ABG that he would not wind it up unless Mr. Brewer said that was the better
course.
2008 BCSC 328 (CanLII)
were sold to the purchase price, with the balance of $830,775 to be repaid at $5,000
Newton v. Marzban
Page 45
[148] The plaintiff testified that she recalled receiving an offer in late March 2001
and discussing it with Mr. Hubley, but she could not remember its terms or their
was rejected. The next step was to wait for Mr. Harder’s valuation.
April 2001 – the valuation, Westwood, and negotiation strategy
[149] Mr. Hubley, Mr. Harder, Mr. Marzban, and the plaintiff scheduled a
conference call for April 2, 2001. Mr. Marzban did not get connected to it for
unknown reasons.
[150] Mr. Hubley testified that they discussed the latest offer, Mr. Newton’s job
prospect elsewhere, and his threat of liquidation. Neither Mr. Hubley nor Mr. Harder
believed that liquidation was a serious threat, and both accepted that the ABG
should be valued as a going concern. They agreed, however, that Mr. Harder
should obtain a liquidation value from Mr. Brewer just to assess the downside risk.
[151] Mr. Harder testified that he was seeking instructions about how to continue
his engagement, and directions as to whether the plaintiff was going to get another
appraisal, accept the Ritchie Bros. Appraisal, go to court, or accept Mr. Newton’s
offer. However, he could not recall what was actually said or decided during the call.
[152] The plaintiff testified that she had no recollection of this conference call.
[153] Mr. Hubley said that he called the plaintiff after the conference call. She was
not happy with the offer, based on the preliminary numbers they had from Mr.
Harder, and so they discussed the option of having examinations for discovery and
2008 BCSC 328 (CanLII)
discussion. She could only say that he had some concerns about the offer and it
Newton v. Marzban
Page 46
going to court. Mr. Hubley told her that he believed that Mr. Harder’s valuation
would drive the outcome in court, but that going to court involved matters with which
Hubley said that the plaintiff told him that she wanted a settlement of $1.8 million,
and if she could not get near that she would go to court. She also asked him about
the payment of the start-up loan that she had made to Mr. Newton in 1988. Mr.
Hubley testified that he told her that they should raise that issue with Mr. Marzban,
and that he wrote “Dinyar!!” in large letters at the bottom of his notes of the call.
[154] The plaintiff testified that she did not recall this telephone call. When she was
shown Mr. Hubley’s notes of the conversation, she claimed that it was she who had
written the word “Dinyar!!” on the page, although she had no recollection of why or
how that could be, given that they were Mr. Hubley’s notes of a telephone call to her.
[155] Mr. Hubley testified that he had several calls with Mr. Marzban in early April to
update him on the conference call and other events. He also asked him to consider
the issue of the start-up loan and let them know what to do with respect to it. He
said that subsequently Mr. Marzban told him that it may or may not be a family
asset.
[156] Mr. Marzban appears to have received Mr. Harder’s memorandum of March
30, 2001 from Mr. Hubley on April 2, 2001. He could not specifically recall his
telephone conversations with Mr. Hubley during this time, but testified that he was
kept apprised of the issues being raised.
2008 BCSC 328 (CanLII)
he was unfamiliar, and she needed to speak to Mr. Marzban about these. Mr.
Newton v. Marzban
Page 47
[157] Mr. Hubley testified that by this point, the relations between the plaintiff and
Mr. Newton had improved, and she periodically told him about conversations she
that Mr. Harder’s draft numbers had upset him and Mr. Brewer. As a result, she was
worried she would not get a good settlement if they had to sell the company because
there was no incentive to carry it on. She said that there was a lot of acrimony
between Mr. Harder and Mr. Brewer and, contrary to her earlier concerns, she was
now worried that Mr. Harder’s valuation was too high. Mr. Hubley said she was
becoming very frustrated, nervous, and concerned about the process.
[158] The plaintiff denied that she was concerned that Mr. Harder was inflating his
values. Nor did she recall being nervous about the process.
[159] Mr. Mortimer testified that, following the s. 57 declaration, Mr. Brewer on
behalf of Mr. Newton had sought his advice as J.S. Jones wanted to hire Mr. Newton
to manage a logging operation because of his expertise. He wanted to know if this
could be done through a company without it becoming a family asset. Mr. Mortimer
said that he advised Mr. Brewer of Mr. Newton’s rights under s. 59 of the F.R.A. He
told him that, although Mr. Newton had an obligation to the ABG as a director and
shareholder, he was not in servitude to the company, and could operate this new
venture without it becoming a family asset as long as he did not use or encumber
any family assets, notably the ABG, in doing so.
[160] In early April, the plaintiff went to the ABG’s offices at night and obtained
some documents. These suggested that Mr. Newton had incorporated two new
2008 BCSC 328 (CanLII)
had with Mr. Newton. Around this time, she advised him that Mr. Newton told her
Newton v. Marzban
Page 48
companies. They also led her to believe that he was going to buy another business
and not continue with the ABG, and that he was charging personal expenses to the
discuss them, and then faxed copies to him.
[161] Mr. Hubley testified that on April 10, 2001, the plaintiff called him and asked
him to call Mr. Voith to get his advice on whether they should proceed to court or try
to settle. The plaintiff also expressed concern about whether Mr. Marzban was the
appropriate person to take the case to court. Mr. Hubley said that they discussed
the fact that Mr. Newton needed to have some incentive to settle. The situation had
been going on for a year, and she had just obtained information of concern from the
ABG’s offices. She now wanted Mr. Marzban to show Mr. Newton that they were
serious about litigation. Mr. Hubley called Mr. Voith, who told him that if the
numbers are close, it is always better to settle than litigate because you never know
where the litigation will lead you. Mr. Hubley said he passed that advice on to the
plaintiff.
[162] The plaintiff denied that the conversation with Mr. Hubley on April 10 took
place, or that she had concerns about Mr. Marzban. She could not recall Mr. Hubley
reporting to her about a conversation with Mr. Voith.
[163] Mr. Harder obtained a liquidation calculation from Mr. Brewer, which valued
the plaintiff’s 50% interest in the ABG at $1.023 million, including her shareholder’s
loan and 2000 bonus. Mr. Harder also prepared his own liquidation calculation, to
2008 BCSC 328 (CanLII)
ABG. On April 9, 2001, she brought these to Mr. Hubley who called Mr. Marzban to
Newton v. Marzban
Page 49
show the plaintiff his view of her downside risk. Mr. Harder’s liquidation value was
[164] On April 14, 2001, Mr. Hubley sent Mr. Harder an e-mail to provide him with
an update on the plaintiff’s position and strategy for advancing her claim. He said
that he did not send it to Mr. Marzban as he had apprised him of the same matters
by phone. The e-mail starts by mentioning the plaintiff’s frustration with the process.
It then states:
True to his word Lyle is getting on with things. The documents that
Christine obtained were information on two new companies that Lyle
has incorporated within the last two weeks. These appear to be
incorporated in order for him to acquire other logging assets outside of
the Aliford Bay Group. In addition one of the companies is now
currently charging Duke Point Shake & Shingle with equipment rentals.
Needless to say Christine was livid. She was not consulted with
respect to contracting out of any services to these numbered
companies. She is also very concerned with an offer made by Lyle
through the Aliford Bay Group to acquire another logging contractor
and the diverting of that offer to the number company that Lyle has
recently incorporated. Her concerns are the [sic] Lyle is using Aliford
Bay’s assets to secure financing to acquire another logging
contractor’s contract and assets.
…
Christine has requested of Dinyar to proceed with the legal process for
the division of matrimonial assets. She is very concerned that Lyle will
over the course of the next several months divert assets and value
away from the Aliford Bay Group. As I stated earlier she is extremely
frustrated at her inability to prevent any of Aliford Bay’s assets being
used to finance these new ventures. She is convinced that Lyle is
proceeding with the negotiating process as a front to allow him to do
what he would like to do and thereby reduce her value in Aliford Bay.
She is not interested in accepting his offer of $1.2 million. A counter
offer at this point in time appears to be pointless. Christine would
entertain settling the value at the $2 million range as determined by
your estimated value. The $2 million is arrived at by taking one half of
the company’s value as you determined which would be approximately
2008 BCSC 328 (CanLII)
$1.308 million. Mr. Harder sent both calculations to Mr. Hubley on April 12, 2001.
Newton v. Marzban
Page 50
Jeff, Christine would like for you to communicate to Gary that we
cannot accept their offer as presented. However, before you contact
Gary Christine would appreciate you discussing with Dinyar the timing
of when Lyle’s lawyer will be served with the notice to proceed with the
legal process for the division of matrimonial property. She does not
want to provide any advanced warning to Lyle regarding the serving of
those papers. Once they have received those papers then she
believes it would be an appropriate time to have you contact them and
let them know that Christine has rejected the offer. Christine believes
that the only way that she will be able to get Lyle to truly come to the
table is to have the legal proceedings commence while at the same
time leaving the door open for them to make a better offer to you on
Christine’s behalf. The message we would like you to deliver to them
is that she is open for a fair and reasonable offer however given the
inadequate offer presented so far she has no option to commence with
the legal process.
[165] The plaintiff agreed that Mr. Hubley’s e-mail accurately summarized her
instructions, concerns, and frustration at that time, and that she came up with the
figure of $2 million herself. She also agreed that throughout the whole process she
was hoping to obtain a settlement.
[166] Mr. Hubley testified that he did not know what the upcoming legal process
would be. He saw his role as just assisting the plaintiff in communicating her
position as she asked. He said that in their discussions leading up to the e-mail, the
plaintiff had told him that she had a strong preference to settle, rather than go to
court. While her feelings about this did fluctuate during the negotiations, he said that
her most consistent theme was that she wanted a settlement as long as it was fair to
her. She told him that her desire to settle was influenced by her wish to stay on
good terms with Mr. Newton, and to receive compensation for her shares in the ABG
sooner rather than later.
2008 BCSC 328 (CanLII)
$1.3 million plus her shareholder’s loans plus her share of the October
31, 2000 bonus.
Newton v. Marzban
Page 51
[167] Mr. Harder testified that he chose not to accept the instructions in Mr.
Hubley’s e-mail to respond to the offer, or to negotiate on behalf of the plaintiff. It
involved in the negotiations. However, since it appeared that the plaintiff planned to
continue to negotiate, he was concerned that she should have some idea of where
he was in the valuation process. He knew that Mr. Newton was suggesting that he
may liquidate, or walk away and get another job, and that Mr. Brewer was pushing to
get a settlement by April 30, 2001 for tax reasons. Mr. Harder said that he was
essentially prepared to issue his estimate report, subject to resolution of the issue of
whether the plaintiff wanted another appraisal. He therefore decided to prepare a
memorandum about issues related to the negotiation of the share value, including
his view of the value of the ABG at that point based on the Ritchie Bros. Appraisal.
[168] Up to this point, Mr. Hubley had had no direct dealings with Mr. Newton or Mr.
Brewer. On April 18, 2001, he had an unexpected call from Mr. Newton who asked
if he could assist in settling the value of the ABG. Mr. Newton told him that Mr.
Harder and Mr. Brewer were at loggerheads, and were not making any progress in
the negotiation. He felt that Mr. Harder’s values were grossly inflated and said that
he could not buy the ABG on those numbers. Mr. Newton expressed his frustration
with the whole process, the time it was taking, and the uncertainty. He said he was
afraid that it was all going to go down the drain unless a more reasonable
negotiation took place, and he asked Mr. Hubley for his help.
[169] Mr. Hubley said there was nothing threatening in the conversation. He told
Mr. Newton that he did not know if he could help, and that he would have to talk to
2008 BCSC 328 (CanLII)
was his view that he was engaged to do a valuation, and he did not want to become
Newton v. Marzban
Page 52
the plaintiff. Mr. Hubley then called the plaintiff and Mr. Marzban and told them
[170] The plaintiff denied that Mr. Hubley ever told her about any conversation he
had with Mr. Newton.
[171] On April 20, 2001, Mr. Harder sent the plaintiff, Mr. Hubley and Mr. Marzban a
memorandum with his opinion as to the value of the ABG shares, and his thoughts
on the negotiations. Although it was not his final valuation, it was not marked “draft”.
He attached to it schedules of his valuation calculations of the ABG on both a going
concern basis and a liquidation basis, and a comparison of those to Mr. Brewer’s
liquidation calculation and Mr. Newton’s offer of March 30, 2001.
[172] The key paragraphs read:
For purposes of our negotiations Gerry Brewer has valued Alliford on a
liquidation basis. I have told Brewer that we disagree with using
liquidation versus a going concern approach. However, BDO prepared
both a going concern and liquidation valuation for Alliford as a point of
comparison with Brewer. Both BDO valuations are based on the
Ritchie Bros. equipment appraisal and my valuation for Alliford’s
logging contracts. Brewer’s en bloc (total company) liquidation share
value is $895 thousand while BDO’s is $1.465 million. Lyle’s offer to
Christine multiplied by two is $1.2 million for all of the Alliford shares.
BDO’s going concern value is $2.635 million. Gerry Brewer did not
complete a going concern valuation. If we were to litigate this matter,
BDO’s opinion would be that a going concern valuation is most
appropriate.
My view is that we should counter Lyle’s offer with a value for
Christine’s shares of between $700 thousand and $1.3 million as
opposed to the offer of $600 thousand. I believe that it will be difficult
to deal with Lyle if we ask for $1.3 million for shares, and a total
consideration of $1.9 million. Our best position is probably $1 million
for shares, which would mean a total consideration to Christine of $1.6
million as opposed to the $1.2 million implicit in Lyle’s offer. The price
2008 BCSC 328 (CanLII)
about Mr. Newton’s call.
Page 53
Christine will accept from Lyle for her shares is obviously Christine’s
decision and if her position is $1.3 million for shares and she does not
want to compromise on price it is still worthy of a counter offer. We
would also counter requesting $409 thousand for Christine’s one half
of the shareholder loan and the fiscal 2000 bonus, which will be $171
thousand net of tax.
[173] Mr. Harder’s memorandum also offered a number of suggestions as to terms
and conditions for an offer, including a payment schedule, and provisions for security
and interest.
[174] After delivering this memorandum, Mr. Harder had no further contact with the
plaintiff. His involvement was limited to periodic conversations with Mr. Hubley. He
did not complete a final report.
[175] Mr. Hubley testified that he met with the plaintiff on April 23, 2001 to review
Mr. Harder’s memorandum. He said that they talked about the reports they had both
heard from Mr. Newton that Mr. Harder and Mr. Brewer were unable to negotiate
productively because they were too confrontational. Mr. Hubley said that the plaintiff
then asked if he would undertake the negotiation of her interest in the ABG for her.
She told him that the major reason she wanted him to get involved was that she did
not want to take the time to go through the court process, as long as she could
receive a fair settlement. She also said that she wanted to remain on good terms
with Mr. Newton. Mr. Hubley said that she told him that because he understood the
issues faced by logging contractors, she thought that he would be in a better position
than Mr. Marzban to counter the issues being raised by Mr. Brewer and Mr. Newton.
[176] Mr. Hubley said he and the plaintiff then discussed Mr. Harder’s
memorandum. They decided that they would not consider Mr. Brewer’s view that
2008 BCSC 328 (CanLII)
Newton v. Marzban
Newton v. Marzban
Page 54
the shares should be valued on a liquidation basis, but would base their position on
Mr. Harder’s going concern calculation. Mr. Hubley said that they looked at Mr.
would do their best to get $1.3 million. When the plaintiff’s shareholder loan and
2000 bonus were added, the potential total was $1.89 million. Mr. Hubley said that
the plaintiff then told him that she would like to settle for as close as possible to $2
million, but she would be happy if she could get around $1.8 million for her share in
the ABG.
[177] Mr. Hubley testified that he told the plaintiff that he felt comfortable accepting
her instructions to negotiate the value of the ABG, as long as it was a commercial
negotiation. He advised her that he could not deal with the personal assets as he
did not have a background in that and did not know what her entitlements would be.
He also told her that he would only get involved if Mr. Brewer and Mr. Newton
agreed to establish ground rules for a principled negotiation. Mr. Hubley said that at
the end of the meeting the plan was that he would undertake negotiations on the
terms they had discussed.
[178] The plaintiff’s evidence about this meeting and Mr. Harder’s April 20
memorandum was variable and confused. She testified in chief that she did not
have any discussions with any of the defendants about how to proceed after the
March 30, 2001 settlement offer and Mr. Harder’s memorandum. She said that,
after receiving the memorandum, the defendants just continued to do what they
were supposed to do, and she did not know what that was. She agreed that after
April 20, 2001 Mr. Hubley began negotiating directly with Mr. Brewer on her behalf.
2008 BCSC 328 (CanLII)
Harder’s value range of $700,000 to $1.3 million for the shares and agreed that they
Newton v. Marzban
Page 55
When asked why that was so, she said that she just assumed everybody was
[179] On cross-examination, the plaintiff agreed that she discussed the
memorandum with Mr. Hubley at a meeting on April 23, 2001, but said that she did
not recall him telling her what they should do next. She denied that she was
concerned at that point that Mr. Harder and Mr. Brewer could not productively
negotiate, and said that she did not recall asking Mr. Hubley to negotiate on her
behalf. Nor did she recall telling Mr. Hubley that she wanted to settle for $1.8
million, or Mr. Hubley telling her that he would try to get her the amount she wanted,
and that he would establish some ground rules with Mr. Brewer for the negotiations.
[180] As for Mr. Harder’s memorandum itself, at her examination for discovery, the
plaintiff said that she saw it in Mr. Hubley’s office but she did not know if he said
anything about it. At trial, she initially testified that all she could recall about the
memorandum was that there were some share values, and some information
regarding negotiations. After reviewing it, she said that she recalled Mr. Hubley
recommending an offer between $700,000 and $1.3 million for her shares. She
agreed that she understood that Mr. Harder’s valuation was based on the Ritchie
Bros. Appraisal. She agreed that she knew that Mr. Harder was not finished and
that he still had to prepare a formal report. She said that no one told her that his
numbers might change, or that the conclusions in the memorandum had any
shortcomings. Nor did any of the defendants discuss with her the underlying
valuation premises and how they related to the ABG, although she did recall Mr.
2008 BCSC 328 (CanLII)
working together throughout the process.
Newton v. Marzban
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Harder mentioning in one memorandum that if they went to court the ABG would be
[181] On cross-examination, the plaintiff said that she did not understand that Mr.
Harder was including liquidation values in his memorandum only as a point of
comparison with Mr. Brewer’s analysis. She said that she quite often got documents
like this and read them but did not fully understand them. For example, she said that
she did not understand the term “litigate” in Mr. Harder’s memorandum. She said
that while people talked about going to court, no one discussed “litigation” with her.
Nor did she ask anyone to explain it. She said that she did not feel that was her
responsibility as she had three advisors who she assumed were working in her best
interests and she did not feel she had to question them on everything. She said that
she never understood that, if the case went to court, Mr. Harder would say that the
value of the ABG shares was $2.6 million. She agreed that she understood the
memorandum provided a range within which to negotiate, but said that she did not
know precisely how much her shares were worth.
[182] Mr. Marzban testified that he did not discuss Mr. Harder’s memorandum with
the plaintiff. Nor did they discuss her choice of Mr. Hubley as negotiator. He said
that he knew that she had asked Mr. Hubley to negotiate for her, and he was not
concerned about this. He thought it was a good idea, given Mr. Hubley’s
qualifications, and it was understood that he would review any deal reached by Mr.
Hubley before it was finalized.
2008 BCSC 328 (CanLII)
valued as a going concern.
Newton v. Marzban
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[183] Mr. Marzban had reviewed the documents obtained by the plaintiff from the
ABG offices earlier in April, and did company searches that showed that one of the
other was controlled by Mr. Newton and was renamed Westwood Logging Ltd
(“Westwood”). Some of the documents suggested that Mr. Newton was offering to
purchase a substantial logging contract through this new company. Others indicated
that he may be improperly expensing things through the ABG.
[184] Mr. Marzban felt that the evidence regarding diversion of the ABG assets by
the new companies was thin, and that the plaintiff had a big problem in asserting a
claim to Westwood, unless it made improper use of the ABG’s opportunities or
assets. He also felt that there were risks in bringing an application too early to find
out more. The company had no track record yet. Its value might lie in
demonstrating that Mr. Newton had additional income which strengthened a claim
for spousal support. However, Mr. Newton might not develop this business
opportunity if he thought that the plaintiff was seeking an interest in it. As well, the
application could negatively impact the negotiations. Regardless, he advised the
plaintiff that an application should be brought to get documents related to these
ventures, and to obtain joint signing authority on the ABG cheques to prevent
improper spending by Mr. Newton.
[185] The plaintiff instructed Mr. Marzban to proceed. She agreed that she was
concerned that Mr. Newton might divert assets and value away from the ABG, and
she was frustrated at her inability to prevent this. She was also convinced that he
2008 BCSC 328 (CanLII)
two numbered companies incorporated by Mr. Newton belonged to his brother. The
Newton v. Marzban
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was using the negotiation process as a front to allow him to do what he wanted and
[186] On April 20, 2001, Mr. Marzban faxed a draft affidavit to the plaintiff and Mr.
Hubley. The plaintiff made a note on this fax stating “Alimony – now? On top of
salary”. She testified that she could not remember what the note meant, but said
she was sure that she did not discuss it with Mr. Marzban. She said that she
reviewed the draft affidavit with Mr. Hubley and provided Mr. Marzban with her
comments.
[187] Mr. Hubley agreed that he reviewed parts of the affidavit with the plaintiff, but
said that he did not discuss how it would be used, and did not know what was
ultimately done with it.
[188] The plaintiff reviewed the final form of her affidavit with Mr. Marzban, and
swore it on April 27, 2001. It exhibits the documents that she had obtained, and sets
out her concerns that Mr. Newton was withdrawing company funds for personal use
while limiting her access to funds, diverting income from the ABG through the new
companies, and making substantial financial commitments without her knowledge.
[189] Mr. Marzban testified that ultimately he was instructed not to proceed with the
motion as the settlement negotiations resumed. He did not recall who gave him
those instructions.
[190] The plaintiff denied that she gave those instructions to Mr. Marzban. She
said that nothing happened with the affidavit and she did not know why. Mr.
2008 BCSC 328 (CanLII)
to reduce her value in the ABG.
Newton v. Marzban
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Marzban did not say anything more to her about the numbered companies and the
matters raised in the affidavit. She said that when she spoke to Mr. Newton he just
and Mr. Brewer had set it up so that she would not have a claim to it. She said that
she told Mr. Hubley this, but he gave her no advice about it.
May to August 2001 – the settlement negotiations
[191] The plaintiff testified in chief that from May until August she understood that
the defendants were continuing to value her shares, and Mr. Brewer and Mr. Hubley
were working to come up with an agreement. She said that all she recalled was an
offer in May, and an issue about security later in the summer. She said that she did
not remember specific conversations or receiving any information from Mr. Hubley.
Nor did she recall being at his office. She did agree that they communicated by
phone several times a month.
[192] On cross-examination, however, the plaintiff agreed that in some respects
there was a fairly constant back and forth discussion and negotiation from May to
August. She also acknowledged that Mr. Hubley was in contact with her throughout
that process, and that he kept her well apprised of what was going on. However,
she had little recollection of their discussions, and said that she did not recall him
reviewing offers and counteroffers with her.
[193] Mr. Hubley’s timesheets indicated that during those months he spent over 16
hours with the plaintiff at 12 different meetings, and they spoke on the telephone at
least 26 times. His testimony and file documents provided specific details of the
2008 BCSC 328 (CanLII)
told her that he was going to do a “labour only” contract with J.S. Jones, and that he
Newton v. Marzban
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advice he gave her and the instructions he received during the negotiations with Mr.
[194] Mr. Hubley said that the plaintiff’s instructions throughout the negotiations
remained that she wanted a fair and quick settlement, but if she could not get that
she wanted to be sure that court proceedings were being advanced to minimize
delay. She told him that she was having some financial difficulty as she no longer
had the funds or the lifestyle that she had enjoyed during the marriage. Mr. Hubley
said that he was not aware of the steps being taken in the matrimonial litigation
during this time, but the plaintiff told him that she was in contact with Mr. Marzban.
[195] The plaintiff testified that apart from some discussion about setting a trial
date, she had few conversations with Mr. Marzban between May and August 2001.
She believed that Mr. Hubley kept Mr. Marzban in the loop on the negotiations. She
said that she did not talk to Mr. Marzban about how to proceed with her action
against Mr. Newton, but agreed that there were times when he applied pressure on
Mr. Newton by heating up the court process.
[196] Mr. Marzban testified that during the negotiations the plaintiff and Mr. Hubley
called him periodically to report on their status and seek his advice.
His time
records show sporadic communication. Mr. Marzban said that there was some
“slippage” as he did not record all telephone calls, particularly when they were brief.
Mr. Hubley’s time records support that, as they record calls with Mr. Marzban that do
not appear in Mr. Marzban’s records. Mr. Marzban recalled little of the content of
these calls.
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Brewer and Mr. Newton.
Newton v. Marzban
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[197] Mr. Hubley testified that on May 1, 2001 he and the plaintiff met with Mr.
Newton and Mr. Brewer to discuss an approach to the negotiations. He said that Mr.
and that they wanted to settle rather than go to court. They were firm that some
consideration for Mr. Newton’s income tax issues would be important in reaching a
settlement. Mr. Hubley said that he made it clear that they must negotiate on the
basis that the ABG was a going concern. They agreed that Mr. Hubley and Mr.
Brewer would meet as soon as possible to exchange their positions.
[198] The plaintiff testified that she could not recall this meeting, and denied that
she was involved in a discussion about negotiating using commercial principals.
[199] Mr. Hubley testified that on May 2, 2001 he met with the plaintiff to discuss
their negotiation strategy. He said that they spoke about Mr. Brewer’s stubbornness,
and the need to come up with arguments that would allow him to save face if he
moved from his liquidation position. They identified some strategies to accomplish
that.
[200] The plaintiff testified that she could not recall this meeting, but denied that
they discussed giving Mr. Brewer options to allow him to save face as a settlement
strategy.
[201] Mr. Hubley testified that on May 7, 2001 he met with the plaintiff and her
mother. He had prepared a detailed two-page analysis of the parties’ needs,
objectives and purposes as a guide for the negotiation. This defined the plaintiff’s
objectives as fair compensation and certainty of payment, and Mr. Newton’s
2008 BCSC 328 (CanLII)
Newton and Mr. Brewer agreed that they would negotiate on commercial principles,
Newton v. Marzban
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objectives as affordability and flexibility. He also prepared a schedule outlining five
potential scenarios based on the numbers that had been discussed up to that point.
ensure that the plaintiff knew how he was going to approach the negotiations. He
said that he told the plaintiff that, at the high end, he thought she could get close to
$1.7 million in a negotiation based on Mr. Harder’s top numbers, a tax concession
for Mr. Newton, and an acknowledgement of the $87,500 Start-up Loan.
[202] The plaintiff initially testified that this meeting on May 7, 2001 did not happen,
and said that her mother was never at a meeting with her and Mr. Hubley. Under
cross-examination, however, she did recall her mother being at a meeting, and
discussing some of the objectives set out in Mr. Hubley’s notes.
[203] Mr. Hubley and Mr. Brewer met on May 10, 2001. They did not discuss
numbers, but focused on the terms and conditions that would satisfy each side in a
settlement. The following day, Mr. Hubley sent Mr. Brewer a memo summarizing
their discussions, and setting out the terms that were necessary to satisfy the
plaintiff’s need for certainty of payment. These included a general security
agreement and holding her shares in escrow until full payment was made. The
memo proposed using asset sales to pay the plaintiff, and suggested limits on Mr.
Newton’s draws beyond a base salary of $10,000 unless the plaintiff received equal
payments. It stated a requirement for a significant down payment and stipulated that
the plaintiff would be paid the balance in monthly instalments of $5,000 + $0.75 per
cubic metre logged. It conceded that interest would not be payable on the
outstanding balance for two years. Finally, it raised the concern that Mr. Newton not
2008 BCSC 328 (CanLII)
Mr. Hubley testified that he reviewed this analysis with the plaintiff and her mother to
Newton v. Marzban
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divert logging activities from the ABG to Westwood after the settlement, thereby
limiting the plaintiff’s payments based on monthly logging revenue. Mr. Hubley
Westwood but they did not know what it was doing.
[204] Mr. Hubley said that he reviewed this memo with the plaintiff and discussed
the need for security, but at this point she was more concerned about the amount of
her settlement. She began to appreciate the importance of security as the
negotiations proceeded.
[205] The plaintiff testified that she could not recall discussing the issues set out in
this memo with Mr. Hubley.
[206] On May 18, 2001, Mr. Brewer called Mr. Hubley and told him that he was
concerned that the company could not afford Mr. Harder’s going concern value, and
that Mr. Harder had over-valued the Duke Point operation. He took the position that
the Start-up Loan was a family asset and said Mr. Newton would not repay it. He
asked for a list of all of the family assets from the plaintiff before the negotiations
went further.
[207] Mr. Hubley said that he asked the plaintiff to prepare a list of the family
assets, but told her several times that he did not know what her entitlements to those
would be. He understood that she was dealing with Mr. Marzban about them.
[208] The plaintiff prepared a list of the family assets of both parties, comprised of
real estate, vehicles, personal effects, and Westwood. She also listed their values,
2008 BCSC 328 (CanLII)
testified that he and the plaintiff knew that Mr. Newton had just incorporated
Newton v. Marzban
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which totalled $605,000, including an estimate of $60,000 for Westwood, $80,000 for
equity in Mr. Newton’s new home, and $87,500 for the Start-up Loan. The plaintiff
corporate, family assets. She gave the list to him, and he sent it on to Mr. Brewer.
[209] Mr. Hubley said that he and Mr. Brewer had agreed that he was to present an
offer. On May 24, 2001, the plaintiff left him a voice mail message that she would
accept $1.75 million for her share in the ABG.
[210] Mr. Hubley relayed that to Mr. Brewer, who replied that Mr. Newton did not
want to negotiate in two stages, and he wanted an all-inclusive number that included
all family assets. Mr. Hubley discussed this with the plaintiff on May 25, 2001, and
she told him she would accept $2 million for her interest in all of the family business
and personal assets. Mr. Hubley passed that on to Mr. Brewer.
[211] The plaintiff testified that she chose the $1.75 million figure on her own, and it
did not arise from a recommendation by Mr. Marzban or Mr. Hubley. She said that
she based it on the information she received from Mr. Harder, and it looked like a
good number to her. She agreed that when the other family assets were introduced
to the negotiation, she added another $250,000, and instructed Mr. Hubley to offer
an all-inclusive settlement of $2 million without any discussion or advice. She said
that she gave these instructions because she did not know how the legal process
worked, or what she should do, and she was not getting any help with it. She was
trying to do anything to come up with a settlement.
2008 BCSC 328 (CanLII)
agreed that Mr. Hubley gave her no advice about these personal, as opposed to
Newton v. Marzban
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[212] Mr. Hubley made an offer of $2 million to Mr. Brewer on May 25, 2001. Mr.
Hubley said that Mr. Brewer telephoned him and complained that the plaintiff was
there was movement there was no sense in negotiating any further.
[213] Mr. Hubley said he discussed this with the plaintiff. They saw no point in
bidding against themselves by making another offer, and they agreed that Mr.
Hubley and Mr. Brewer should meet again.
[214] On May 28, 2001, Mr. Marzban’s office booked a five-day trial for the week of
January 14, 2002 in Vancouver on the plaintiff’s instructions.
[215] Mr. Hubley and Mr. Brewer had a lengthy meeting in June. Mr. Hubley said
that for the first time Mr. Brewer was willing to discuss valuing the plaintiff’s shares at
$1.3 million, but he wanted a deduction from that representing a tax concession for
Mr. Newton. He offered two different scenarios with respect to taxes.
[216] The scenario to which the plaintiff later agreed gave her approximately $1.08
million for her shares. She was to apply her available capital gains exemption of
about $400,000 to the share value of $1.3 million, so that only $900,000 of the
purchase price would be taxable. This would give Mr. Newton the benefit of
bumping up the adjusted cost base of the shares that he would receive from the
plaintiff. There would be a spousal rollover under s. 73 of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.) with respect to the remaining $900,000. Mr. Newton
would also receive a deduction of $220,000 from the purchase price, representing
the potential tax that he would have to pay on the $900,000 if he sold the company.
2008 BCSC 328 (CanLII)
not negotiating, as she was still stuck at $2 million. Mr. Brewer warned that unless
Newton v. Marzban
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[217] Mr. Hubley said that Mr. Brewer gave him Mr. Newton’s list of personal
assets, which totalled $278,000. The list did not include Westwood, Mr. Newton’s
Shares that the plaintiff had cashed in for $65,000 in June 2000 without Mr.
Newton’s knowledge. It also indicated that Mr. Newton would receive the Powell
River Property, as Mr. Brewer took the position that since it provided housing for the
ABG employees it was a company asset.
[218] Mr. Hubley said that after this meeting he prepared a two-page review of Mr.
Brewer’s offer and the remaining issues, and met with the plaintiff on June 25, 2001
to discuss these. Mr. Hubley said that he went through his notes with the plaintiff,
and explained that Mr. Brewer had moved significantly in accepting Mr. Harder’s
going concern value of $1.3 million. He explained the tax concession of $220,000
that Mr. Newton wanted. He told her that he thought that the ABG would pay
$55,000 toward her professional and legal fees. He set out their real property which
they proposed would be split equally. He showed her that all of this produced a total
of just over $1.8 million, which meant that they were getting close to the number she
wanted. He said that the plaintiff was happy about this.
[219] Mr. Hubley said they also discussed issues that still required resolution.
These included security, the value of the Midland Walwyn Shares, repayment of her
shareholder draws which were at $62,700, and a possible discount in the settlement
amount if Mr. Newton paid the plaintiff early.
2008 BCSC 328 (CanLII)
new home, or the start-up loan. It did include $30,000 for the Midland Walwyn
Newton v. Marzban
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[220] At the bottom of Mr. Hubley’s handwritten review prepared for this meeting is
Dinyar: claim for alimony on management contract with WW? Can I reserve
my rights to alimony if I put a claim for alimony? He may say F- it? So I can
reserve for a later date.
[221] Mr. Hubley thought that the writing looked like the plaintiff’s, although he
could not be sure. He said that around that time she was thinking of whether she
would get spousal support. She told him at some point that she was not worried
about that as she could always go back and get support later, so he need not look
into it. Mr. Hubley said he would not have looked into it if she had asked him to, as
he had no idea how to deal with that issue. He told her to speak to Mr. Marzban
about support and she said that she would. Mr. Hubley said that he had only
discussed support with the plaintiff in a general way. She had asked him if he had
ever seen a settlement with no support paid, and he told her that one of his partners
had had a divorce settlement that did not include support.
[222] The plaintiff was shown Mr. Hubley’s notes from this meeting. She said that
she could not recall discussing many of the things they set out. She testified that it
was possible that Mr. Hubley sometimes discussed numbers and concepts that she
did not understand and therefore could not recall. She said that she often did not
even get the gist of what he was saying and that at one point she asked him a
question, and he became a little bit agitated because she did not understand.
[223] The plaintiff denied that Mr. Hubley explained to her that that the value for her
shares in the ABG was $1.3 million, and said that she did not know that until much
2008 BCSC 328 (CanLII)
a note written in different handwriting that reads:
Newton v. Marzban
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later. She said that she did not recall discussing the tax issues with Mr. Hubley.
She said that she recalled something about Mr. Newton requiring concessions
achieve a deal, or that there was any tax concession in the ultimate settlement. Nor
did she recall discussing an issue with respect to the value of the Midland Walwyn
Shares. She denied that she wrote the note about alimony at the bottom of Mr.
Hubley’s notes. She had no explanation for that note, but was insistent that she
never discussed alimony with Mr. Marzban.
[224] Mr. Hubley and Mr. Brewer exchanged memoranda on June 25 and 26, 2001
that summarized the status of the negotiations. At this stage, they had agreed to the
share value and tax concessions, and to a number of elements in the payment plan.
Most of the issues related to personal property had been settled on the basis that
these assets, or the proceeds from their sale, would be split equally. Outstanding
issues included treatment of shareholder draws by both parties, payment of
professional fees, the Powell River Property, use of the plaintiff’s capital gains
exemption, security, interest, the role of Westwood, and the Midland Walwyn
Shares.
[225] Mr. Hubley met with the plaintiff on June 28, 2001 to discuss the status of the
negotiations. He said that at the conclusion of the meeting she instructed him to
continue to try and negotiate the numbers they were looking for.
[226] Mr. Hubley testified that the issue with the Midland Walwyn Shares was
ultimately resolved by a trade-off with the Powell River Property which they agreed
2008 BCSC 328 (CanLII)
around June 2001, but she did not remember agreeing to deduct $220,000 for tax to
Newton v. Marzban
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had equity of $40,000. When Mr. Brewer pressed for further information about the
value of the Midland Walwyn Shares, Mr. Hubley said that the plaintiff instructed him
for half of the proceeds from the sale of the shares.
[227] The plaintiff testified that she did not recall making any kind of deal to fix the
problem created by her unilateral sale of the Midland Walwyn Shares.
[228] Mr. Hubley testified that in early July the plaintiff told him that Mr. Newton had
said that it looked like things were going to settle and she was going to get $1.75
million. When Mr. Hubley mentioned this to Mr. Brewer, however, his response was
“not in your lifetime”. Later, Mr. Brewer called Mr. Hubley and told him that the
process was not working, that Mr. Newton could not afford to pay the plaintiff that
much money, and that Mr. Newton was “going logging”.
[229] The plaintiff recalled being told something to this effect by Mr. Hubley.
[230] Around this time, Mr. Hubley conceived the idea of a retiring allowance of
$145,000 as a possible means of avoiding Mr. Brewer’s demand that the plaintiff
repay her draws from the ABG, which by now were about $72,500. The retiring
allowance would let the plaintiff keep the draws, and allow the ABG a tax deduction
to the point that the company would be cash flow neutral. Mr. Hubley knew she did
not want to attract tax on any part of her settlement, and so he discussed the
concept with the plaintiff on the phone before proposing it to Mr. Brewer. He
explained to her that she could mitigate the tax consequences of the retiring
2008 BCSC 328 (CanLII)
to drop her demand for the Powell River Property if Mr. Newton dropped his demand
Newton v. Marzban
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allowance through the available room in her RRSP contributions, which was around
[231] The plaintiff agreed at trial that she knew that her shareholder draws had to
be addressed in reaching a settlement, and that she understood that Mr. Hubley
negotiated a retirement allowance so that she did not have to pay them back.
[232] On July 12, 2001, Mr. Marzban sent Mr. Hubley copies of the documents that
the plaintiff had attached to her affidavit in April to enable Mr. Hubley to discuss Mr.
Newton’s personal draws from the ABG with Mr. Brewer.
[233] Mr. Hubley testified that he met with the plaintiff on July 13, 2001 to discuss
the status of the negotiations and the outstanding issues in light of the objectives
they had set in early May, and to obtain her instructions as to how she wanted to
proceed. He said that he prepared three pages of notes which he reviewed with her
at this meeting, and they covered the following:
a) The share value being discussed at that point was $1.3 million.
The plaintiff had $420,000 available to her in capital gains exemptions,
and after the tax concession of $220,000 to Mr. Newton she would net
$1.08 million for her shares. When her shareholder’s loan and bonus
were added, the total for her share of the ABG would be $1.672 million.
b) The plaintiff’s eligible RRSP room of $92,500 could be used to
reduce the tax on the retiring allowance received from the ABG.
c) The total cash that the plaintiff could anticipate at the end of the deal
would be $1,758,500, comprised of the settlement amount, the
retirement allowance, and her share of the personal assets, less her
draws and her share of professional fees.
d) The plaintiff had close to 94% of what they had thought they could
get, but security remained a significant issue to be raised in further
negotiations with Mr. Brewer.
2008 BCSC 328 (CanLII)
$100,000. He then sent Mr. Brewer a memo with this proposal on July 9, 2001.
Newton v. Marzban
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[234] With respect to the Start-up Loan, Mr. Hubley testified that Mr. Newton’s
position remained that it was a family asset. The plaintiff told him to negotiate as
independent claim for this.
[235] Mr. Hubley said that at the end of the meeting, the plaintiff instructed him to
continue to negotiate and to try to improve on any of the items that he could. Mr.
Hubley also testified that during July, when he discussed the numbers with the
plaintiff, he always let her know that if she did not like where they were at, there was
the option of going to court to improve on the amount, and he directed her to talk to
Mr. Marzban if she wanted to do that.
[236] The plaintiff testified that she had no recollection of this meeting. When she
was shown Mr. Hubley’s notes, she denied that he presented them to her, or took
her through the numbers in them that represented the offer at that time. She
reiterated that it was possible that Mr. Hubley discussed a lot of numbers and
concepts with her during this time frame that she did not understand and therefore
does not recall.
[237] On July 13, 2001, Mr. Hubley telephoned Mr. Marzban to discuss the
difficulties he was having in getting security for the plaintiff, and to get some
guidance about what they might do to protect her if Mr. Newton decided to walk
away from the ABG and she could not be paid out. He said that Mr. Marzban
confirmed the importance of obtaining security.
2008 BCSC 328 (CanLII)
best he could around the numbers they had, but ultimately they abandoned an
Newton v. Marzban
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[238] Mr. Hubley testified that on July 16, 2001 Mr. Brewer told him that the
invoices regarding Mr. Newton’s personal expenses would be charged against his
Mr. Newton was benefiting from the company, but she did not alter her instructions
with respect to continuing the negotiations.
[239] On July 17, 2001, Mr. Hubley wrote a long memo to Mr. Brewer about the
plaintiff’s need for security. He reviewed the course of the negotiations and the
concessions made by the plaintiff to meet Mr. Newton’s needs. He said that now
she needed Mr. Newton to recognize her need for security. Mr. Hubley raised the
fact that despite Mr. Newton’s personal commitment to pay the settlement, current
economic issues in the forest industry could put her at risk. Mr. Hubley testified that
he discussed the issues in this memo with the plaintiff and told her he intended to be
as stubborn as he could on the security issue.
[240] On July 18, 2001, Mr. Brewer advised that security was not an option. He
said that the funds available to the plaintiff immediately under the present offer
placed her in a better position than if the company were liquidated.
[241] Mr. Hubley said that he met with the plaintiff on July 19, 2001. He said that
he explained to her that Mr. Newton was digging in his heels on security and they
needed to find a way around that, or they would not be able to settle.
[242] The plaintiff could not recall this meeting, although she did recall that there
was an impasse over security.
2008 BCSC 328 (CanLII)
shareholder’s loan. Mr. Hubley told the plaintiff, and she was not happy as she felt
Newton v. Marzban
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[243] Mr. Hubley continued to discuss security with Mr. Brewer. However, on July
23, 2001, Mr. Brewer took the position that discussions had broken down. Mr.
discussed security with Mr. Voith, and that he agreed that she should pursue it. Mr.
Hubley told her that the discussions had broken down, but he would come up with a
plan. He said that the plaintiff was disappointed, but understood it was in her best
interest to get security.
[244] The plaintiff testified that she did not recall discussing the matter of security
with Mr. Voith, and she thought that this was unlikely.
[245] Mr. Hubley testified that on July 24, 2001 he met with the plaintiff to discuss
security, as well as advancing the legal proceedings since it appeared they could not
get past the security impasse. He told her to talk to Mr. Marzban about this as he
could not advise her on legal issues.
[246] The plaintiff said she did not recall the option of going to court coming back
into the scenario at that time, or speaking to Mr. Marzban about this. She agreed
that she instructed Mr. Hubley to continue to speak to Mr. Brewer about a way to
solve the security problem.
[247] Mr. Hubley testified that Mr. Brewer called him on July 24, 2001 to discuss
parameters for winding up the ABG. Mr. Hubley said he believed that Mr. Brewer
was just posturing, but he spoke to Mr. Marzban about Mr. Brewer’s call.
2008 BCSC 328 (CanLII)
Hubley said that the same day the plaintiff called and told him that she had
Newton v. Marzban
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[248] Around this time, the plaintiff obtained documents from the ABG’s office that
indicated that Westwood was overdue in paying an invoice of over $486,000 to
J.S. Jones had sent a cheque to Westwood to cover this. The plaintiff claimed that
she did not read these documents beyond noting they had to do with Westwood, but
said that she gave them to Mr. Hubley as she thought they were significant. She
denied that she knew that Mr. Marzban could obtain additional information about
Westwood if she wished, and said she did not ask him about this. She said that no
one gave her advice about these documents.
[249] Mr. Hubley faxed the documents to Mr. Marzban on July 24, 2001. Mr.
Marzban believed that they showed that Mr. Newton was doing a fair bit of work
through Westwood, but they gave no indication of profitability. Mr. Marzban
remained of the view that Mr. Newton was entitled to go off and do his own thing.
His time records show a lengthy telephone call with the plaintiff and Mr. Hubley that
day, and he testified that he believed they discussed the significance of the
documents, but no action was taken.
[250] On July 27, 2001, Mr. Marzban delivered a formal notice of trial to Mr.
Mortimer, confirming the trial date of January 14, 2002 set earlier.
[251] Mr. Hubley said that on July 30, 2001 he met again with the plaintiff to provide
an overview of the financial aspects of the settlement. He gave her a typed analysis
demonstrating the cash flow impact of the various RRSP alternatives she could use
to demonstrate how the settlement was modified by the retiring allowance, and how
2008 BCSC 328 (CanLII)
Hayes Forest Services Limited for heli-logging at Pitt Lake in May and June, and that
Newton v. Marzban
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much money she would receive at the end of the process. He said that they also
discussed the ongoing security issue, and he suggested that she speak directly to
[252] By this point, the plaintiff and Mr. Newton were on good terms, and had even
resumed intimate relations. Mr. Hubley said that the next day the plaintiff told him
that Mr. Newton had agreed to grant security, and Mr. Hubley was to contact Mr.
Brewer to make the arrangements. Mr. Hubley did so. The end result was that Mr.
Newton provided security covering about 81% of the outstanding balance owed to
the plaintiff, primarily from a general security agreement over the ABG assets, and
mortgages on personal property owned by him.
[253] The plaintiff said she could not recall speaking to Mr. Newton in late July
about the issue of security, and denied that she had done so. She testified that the
issue was resolved by Mr. Hubley and Mr. Brewer.
[254] Once the issue of security was resolved, the remaining aspects of the
proposed settlement fell into place. Mr. Hubley testified that on August 14, 2001 he
faxed the plaintiff a three page summary of the proposed settlement, showing how
much she could expect to receive immediately, and the security she would have on
the outstanding balance.
[255] The terms dealing with proposed payments to the plaintiff indicated she would
receive a total of $1,771,000, prior to deductions for a portion of Mr. Harder’s fees,
and the anticipated RRSP contribution to cushion the tax liability related to the
retirement allowance. $1.6 million of that amount represented the purchase price of
2008 BCSC 328 (CanLII)
Mr. Newton about it.
Newton v. Marzban
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her interest in the ABG, comprised of $1.08 million for her shares, and $592,000 for
her shareholder’s loan and 2000 bonus. The balance of the settlement amount was
toward Mr. Harder’s fees. She was to receive $400,000 on signing the agreement.
The balance was payable by monthly instalments of $5,000 plus 75 cents per cubic
metre logged by the ABG, excluding logging done under the Westwood contract with
J.S. Jones. No interest was payable on the outstanding balance for the first two
years. Mr. Newton was to receive the Powell River Property. The proceeds from
the sale of the Matrimonial Home and the Lantzville Property were split equally.
Those amounts were not included in the $1,771,000 received by the plaintiff. The
proposal made no reference to spousal support. The settlement was subject to the
approval of GEC and HSBC pursuant to the ABG’s financing commitments.
[256] Mr. Hubley met with the plaintiff to review these terms. He said that he
explained to her that this was the best he could get for her in the negotiation, and
told her that if she had any issues about agreeing to it to let him know. Otherwise he
would tell Mr. Brewer that they had an agreement.
[257] The plaintiff testified that she recalled a meeting like this, but said that she did
not recall all of the numbers. She agreed that the deal presented to her on August
14, 2001 was consistent with what she had asked Mr. Hubley to negotiate for her.
[258] On August 20, 2001, the plaintiff told Mr. Hubley she would accept the
proposal. Both parties expected that the proposed settlement would be reviewed by
their respective lawyers. Mr. Hubley accordingly reported the settlement to Mr.
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comprised of the retiring allowance of $147,500 and a contribution of $30,000
Newton v. Marzban
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Marzban, who advised him that they should retain a corporate lawyer to draft the
security and settlement documents. Mr. Hubley retained Mr. Thomas English to do
[259] Mr. Hubley wrote to Mr. Brewer on August 23, 2001 confirming the terms of
the settlement.
September to December 2001 – the conclusion of the settlement
[260] Mr. Hubley testified that during September he had some further negotiations
with Mr. Brewer over the plaintiff’s draws, which were now over $80,000. She
remained upset with what she believed to be Mr. Newton’s use of company funds for
his own purposes, when her monthly payments of $5,000 from the ABG were not
sufficient for her living expenses. When Mr. Hubley asked Mr. Brewer about this he
remained firm that she must repay her draws, and reiterated that Mr. Newton’s
expenses were being charged back against his shareholder’s loan.
[261] On September 28, 2001, Mr. English provided a draft separation agreement
to Mr. Marzban, Mr. Hubley, and Mr. Moore, the ABG’s corporate counsel. This
included a release of spousal support by both parties, a term not included in the
settlement reached by Mr. Hubley and Mr. Brewer.
[262] On October 2, 2001, Mr. Marzban met with the plaintiff, her sister, and Mr.
Hubley in Nanaimo to review and discuss the draft agreement. The details of this
discussion are reviewed later in these Reasons. By way of summary, Mr. Marzban
said he went through the agreement clause by clause to ensure that the plaintiff
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that.
Newton v. Marzban
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understood the terms. He discussed the valuation, and questioned the exclusion of
spousal support and Westwood from the agreement. He said he did not make a
settlement, but advised her that he felt that the terms were within the range of likely
outcomes. In essence, he told her that she could do better or she could do worse if
the matter proceeded to trial. Mr. Marzban said that at the end of the meeting the
plaintiff indicated that she was going to go with the settlement.
[263] The plaintiff testified that it was quite a long meeting, and she recalled
reviewing the agreement with Mr. Marzban clause by clause, but she could not recall
what he or Mr. Hubley said. She said that she thought that Mr. Marzban had drafted
the agreement and she understood that he was happy with it. He did not raise any
concerns about it and neither did she, although she agreed that she had the
opportunity to do so. She said that quite often she did not understand some of the
legal wording, but she did not question it. She said that she settled on these terms
as her advisors told her they were good. She said she was prepared to release her
claim to spousal support under the agreement as she understood that she was not
entitled to it, based on the advice she said she had received from Mr. Hubley.
[264] After the meeting Mr. Hubley and Mr. Marzban gave Mr. English comments
on the agreement that Mr. English incorporated into a new draft.
[265] On October 9 and 10, 2001, Mr. Brewer and Mr. Hubley had further
discussions about the plaintiff’s draws, as she had taken a further $8,000 from the
ABG. Mr. Hubley relayed Mr. Brewer’s concern to the plaintiff.
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recommendation to the plaintiff with respect to whether she should accept the
Newton v. Marzban
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[266] On Mr. Newton’s side, Mr. Mortimer testified that he discussed the final
settlement with Mr. Newton through Mr. Brewer and thought it was a good
have obtained this kind of structured settlement through the courts had the matter
been litigated and, as he understood it, there was not enough cash available in the
ABG for Mr. Newton to pay out the settlement as a lump sum.
[267] In the course of concluding the settlement, Mr. Mortimer requested that a
consent order be done incorporating the terms of the agreement and Mr. Marzban
agreed. The order was entered on January 10, 2002.
[268] On November 2, 2001, Mr. English met with Mr. Hubley and the plaintiff in
Nanaimo to review and execute the security and settlement agreements. He said he
went through the settlement agreement clause by clause with the plaintiff to ensure
that she understood its terms, and she executed it.
[269] The plaintiff said that she understood the basics of the agreement, but not the
legal wording. She said that she did not tell Mr. English or Mr. Hubley that, or ask
questions, since Mr. Marzban had already approved it, and she assumed her
advisors were working in her best interests.
[270] Mr. Newton obtained the approval of the GEC and HSBC to pay the down
payment of $400,000 to the plaintiff from his shareholder’s loan account in the ABG.
The plaintiff came to Mr. Hubley’s office to pick up that payment shortly after she
signed the documents. Mr. Hubley said that she was happy the ordeal had come to
an end, and she told him that she was happy with the settlement. He suggested to
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settlement from the point of view of both parties. He did not believe that they could
Newton v. Marzban
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her that she had a decent amount of money, and that if she invested it properly and
took on employment, she could look after herself quite well in the future. He said
money.”
[271] The plaintiff recalled meeting with Mr. Hubley at his office to receive her
cheque but denied the exchange related by Mr. Hubley.
After 2001
[272] Mr. Hubley remained involved in overseeing the payments under the
settlement until the fall of 2003, when Mr. Brewer advised that Mr. Newton wanted to
pay out the plaintiff. She accordingly received the full payment of the settlement by
the end of October 2003.
[273] In mid-2002, the plaintiff consulted a lawyer with respect to commencing an
action against Mr. Newton to re-examine the settlement agreement or revisit the
issue of spousal support. That lawyer expressed concern about the merits of such
an application as the settlement had been merged into a court order.
[274] The plaintiff consulted a second lawyer who commenced a Supreme Court
action against Mr. Newton in October 2003 seeking to set aside or vary the consent
order and the settlement agreement. The statement of claim in that action includes
this statement:
The Defendant threatened and pressured the Plaintiff into signing the
agreement and consent order prior to disclosing all of the relevant
information and material facts regarding the Defendants assets. The
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that the plaintiff replied, “You’re not my father, don’t tell me how to spend my
Newton v. Marzban
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[275] There is no evidence that the defendants were aware of threats or pressure
from Mr. Newton during the negotiations conducted by Mr. Hubley, or when the
settlement was concluded. At the time of this trial, the plaintiff had not proceeded
with that action.
OBSERVATIONS ON WITNESSES – THE CREDIBILITY OF THE PARTIES, THE
ABSENCE OF MR. NEWTON AND MR. BREWER
[276] Credibility is a significant issue in this case. Many of the plaintiff’s allegations
focus on advice and instructions given or not given, and her testimony about her
communications with the defendants diverged significantly from theirs. My views on
credibility play a significant role in my findings of fact.
[277] The plaintiff’s recollection of her dealings with the defendants was
significantly limited and often inconsistent. While some lapse of memory is
understandable when testifying about events that occurred six years ago, her
evidence in chief was remarkable for its gaps. For example, her account of events
jumped from the affidavit prepared in April to the final settlement in October with
almost no mention of the extended negotiations that took place in that time frame.
While cross-examination produced a somewhat fuller account of events, it also
revealed internal inconsistencies in her testimony.
[278] The plaintiff attempted to explain her lack of recollection by saying that she
was unable to understand many of the complex matters the defendants, and
2008 BCSC 328 (CanLII)
Plaintiff relied on the Defendants representations as to the nature of
the value of the Defendants assets and financial position. At the
relevant times, the Plaintiff and Defendant had a special relationship
such that the Defendant influenced or controlled the Plaintiff to his
advantage.
Newton v. Marzban
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particularly Mr. Hubley, discussed with her and so cannot recall them. While that
might apply in some instances, it fails to explain her inability to remember the details
impression that either she was so focussed on her “bottom line” throughout the
negotiations that she was not interested in nor attentive to the advice she received,
or that her lack of recollection is deliberate.
[279] The plaintiff’s limited memory of her communications with the defendants did
not prevent her from testifying with certainty as to advice the defendants failed to
give her. For example, she agreed that she could not recall what was discussed
during a lengthy meeting with Mr. Hubley on March 1, 2001. Yet, when it was
suggested that they talked about Mr. Harder’s role and the fact that she could
always pursue her claim through court, she adamantly denied this. Such evidence
appears selective and self-serving, and is difficult to accept.
[280] At times her evidence was demonstrably false. For example, she said that
she was the person who wrote “Dinyar” on notes Mr. Hubley made when speaking to
her on April 2, 2001. It is difficult to understand how that could be, as they were
talking on the phone. She also denied that she wrote a note about “Dinyar” and
“alimony” on Mr. Hubley’s notes of their June 25, 2001 meeting although that note,
written as it is in the first person, could only have been made by the plaintiff.
[281] At times, the plaintiff tried to avoid damaging admissions or explain
inconsistencies by quibbling over the use of particular words. For example, she
denied that she gave her advisors “permission” to do things on her behalf. When
2008 BCSC 328 (CanLII)
of almost every encounter she had with the defendants. Instead, I had the
Newton v. Marzban
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pressed, she acknowledged that she did give them instructions but said she did not
use the word “permission” in doing so. When challenged on her statement that she
“negotiate”, but agreed that she asked some of her advisors to do things for her in
the context of the negotiations. She testified that she did not understand that she
could go to court as she did not know what the word “litigate” meant. I find that
statement incredible in the context of her extended matrimonial dispute.
[282] I am left with serious reservations as to the reliability and credibility of the
plaintiff’s evidence.
[283] By contrast, I found Mr. Hubley a credible, careful and straightforward
witness. He presented as a practical and conscientious advisor, with an organized
and detailed approach to both the events that transpired and his testimony about
them. He was quietly certain in his description of his dealings with the plaintiff, and
his evidence had no suggestion of embellishment. His memory was assisted and
supported by his comprehensive notes, time records, and the handwritten
presentations he had prepared specifically for his discussions with the plaintiff.
[284] I find that Mr. Hubley provided by far the most complete and accurate account
of the events. Where the plaintiff or the other defendants have given uncorroborated
evidence that is at odds with Mr. Hubley’s testimony, I prefer the evidence of Mr.
Hubley.
[285] Mr. Harder was methodical and clear in describing the steps he took to value
the ABG, and his dealings with Mr. Brewer and Mr. Newton. He was less clear in his
2008 BCSC 328 (CanLII)
never instructed anyone to negotiate for her, she said that she did not use the word
Newton v. Marzban
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account of his dealings with the plaintiff. He had a limited recollection of their
discussions, which was not greatly assisted by his abbreviated notes of those
instructions during the conference call on April 2, 2001, he had no recollection of
what was discussed during the call. I nevertheless found him credible as to the
events he recalled. There were no significant internal inconsistencies in his
evidence, and I did not discern any attempt by him to reconstruct events in a manner
that assisted his defence.
[286] Mr. Marzban was also a credible witness, but his evidence was significantly
limited by his inability to recall many of his communications with the plaintiff and the
other defendants. He had virtually no written record of his instructions or the advice
he provided after his initial meeting with the plaintiff on October 25, 2000. Although
he was able to provide a detailed account of his own analysis of the legal issues that
arose during his retainer, it was difficult to discern how much of this he imparted to
the plaintiff. He was, however, straightforward in conceding these difficulties and
made no attempt to fill in the gaps in a self-serving manner.
[287] Mr. Newton and Mr. Brewer did not give evidence. Statements reportedly
made by them to others were admitted by agreement of counsel, on the
understanding that they are relevant to the state of mind of other witnesses, but not
admissible for their truth. No adverse inference can be drawn from their absence
since they were adverse in interest to all of the parties to this action during the
matrimonial dispute. Nevertheless, their absence creates a difficulty in reaching
reliable conclusions on some of the issues before me.
2008 BCSC 328 (CanLII)
encounters. For example, although he said he was concerned about confirming his
Newton v. Marzban
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THE NATURE OF THE PLAINTIFF’S MATRIMONIAL CLAIM
claim against Mr. Newton, which provided the context for the defendants’ actions,
and for my analysis.
[289] The plaintiff advanced a claim for division of family assets under Part 5 of the
F.R.A. and for spousal support under s. 15.2 of the Divorce Act.
[290] There were two main issues with respect to the assets. The first was the
value of the ABG. It was the Newtons’ major asset, and its valuation was the most
significant and contentious issue between them. The second was whether
Westwood, Mr. Newton’s new corporate endeavour, had a role to play in the
plaintiff’s claims.
[291] The rest of the family assets were comparatively minor, and it was evident
early in the dispute that the parties agreed on their values and that they would be
divided equally. The only exception was the allocation of the Powell River Property
to Mr. Newton, and the Midland Walwyn shares to the plaintiff, an exchange that
operated to her benefit in terms of their respective values. Given the limited and
uncontroversial role that these assets had, I have not considered them in my
analysis.
[292] The plaintiff also advanced a claim for spousal support. All of the lawyers
who testified at this trial held the view that at the time of the plaintiff’s matrimonial
dispute, the law was clear that her entitlement to support could only be determined
2008 BCSC 328 (CanLII)
[288] I find it useful to define at the outset the elements of the plaintiff’s matrimonial
Newton v. Marzban
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after the result of the division of assets was known. The decision in Newson v.
Newson (1993), 78 B.C.L.R. (2d) 35 (C.A.) had established a strong line of authority
precluded an award for spousal support, particularly where there were no
considerations of ill health, no children, and the spouse was able to work.
THE ALLEGATIONS AGAINST THE DEFENDANTS
[293] The parties agree that there can be concurrent liability in contract and tort for
professional negligence: Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147 at paras.
49-53.
[294] They are also in substantial agreement as to the elements that must be
established to succeed in an action for professional negligence. John A. Campion &
Diana W. Dimmer, Professional Liability in Canada, looseleaf (Toronto: Carswell,
2007) at 3-18 [Campion & Dimmer] summarize these as follows:
1.
A duty of care exists between the defendant and the plaintiff;
2.
There has been a breach of that duty in that the defendant’s
conduct is negligent or in breach of the standard of care
required of him;
3.
Damages have been suffered by the plaintiff which have been caused
by the conduct of the defendant; and
4.
That damage is reasonably foreseeable as arising from the
defendant’s conduct or in other words the damages are not too remote
a result of the defendant’s conduct.
[295] Each defendant has appropriately conceded that he owed a duty of care to
the plaintiff. My analysis therefore begins with an examination of the standard of
2008 BCSC 328 (CanLII)
to the effect that, if a spouse received assets of substantial value, this often
Newton v. Marzban
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care, and whether any of the defendants breached the standard applicable to him in
General legal principles with respect to the standard of care for all
professionals
[296] The standard of care defines the degree or content of the duty of care: Ryan
v. Victoria (City), [1999] 1 S.C.R. 201 at para. 25. It guides the court in determining
whether a defendant’s particular act or omission breached that duty.
[297] The standard of care imposed on all professionals shares a common core,
described in Campion & Dimmer at 3-26:
A professional is required to exercise reasonable care, skill and
knowledge in the performance of the professional service which has
been undertaken. Thus, the professional will be judged by what is
reasonable and appropriate to expect of a professional in the same
calling exercising reasonable care and skill in similar circumstances.
The standard of care is an objective one and it will not be sufficient to
disprove negligence if the professional simply proves that he did the
best that he was able to based on his skill and knowledge in the
circumstances.
[footnotes omitted]
[298] While that standard is refined by the characteristics and responsibilities
associated with the defendant’s particular profession, key common principles
nevertheless emerge from the authorities.
[299]
First, the terms of the professional’s engagement inherently inform the
applicable standard of care and what is expected from that professional: Nussbaum
v. Rajesky (1988), 3 R.P.R. (2d) 108 at paras. 12-17 (Ont. H.C.), aff’d (1991), 16
R.P.R. (2d) 78 (Ont. C.A.); Fasken, Campbell, Godfrey v. Seven-Up Canada Inc.
2008 BCSC 328 (CanLII)
his dealings with the plaintiff.
Newton v. Marzban
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(1997), 142 D.L.R. (4th) 456 at para. 59 (Ont. Gen. Div.), aff’d (2000) 182 D.L.R.
(4th) 315 (Ont. C.A.); and Krabbendam v. Brito (November 10, 1998), Vancouver
[300] Second, a professional will not be found liable for an error in judgment unless
that error was one that an ordinarily competent professional in the same field would
not have made: Nichols v. Warner, 2007 BCSC 1383 at para. 106 [Nichols].
[301] Third, institutional professional standards or customs provide some evidence
of the standard of care, but are not conclusive: Kripps v. Touche Ross & Co.
(1997), 33 B.C.L.R. (3d) 254 at para. 73 (C.A.).
[302] Fourth, the standard of care will be judged on the standards in place at the
time of the relevant events, and not with the benefit of hindsight: ter Neuzen v.
Korn, [1995] 3 S.C.R. 674 at para. 47.
[303] Elements of the standard of care applicable to the different professions of
each of the defendants will be discussed later in these Reasons.
Defining the Allegations against the Defendants
[304] Defining the precise allegations against the defendants, particularly Mr.
Harder and Mr. Hubley, has been difficult for three reasons.
[305] First, during the trial the plaintiff pursued a number of allegations in addition to
those set out in the Statement of Claim. Some of these were put forward by Mr.
Barbour, the plaintiff’s expert, who testified to the standard of care of a chartered
2008 BCSC 328 (CanLII)
C961170, at para. 9.
Newton v. Marzban
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accountant and chartered business valuator. Others arose for the first time during
[306] The law is clear that the pleadings must define the issues between the
parties, so that they may know the case to be met, and the court may know the
matters to be determined: Brook v. Wheaton Pacific Pontiac Buick GMC Ltd.,
2000 BCCA 332 at paras. 22-24; Homalco Indian Band v. British Columbia
(1998), 25 C.P.C. (4th) 107 at paras. 5-6 (B.C.S.C.). I have accordingly limited my
analysis to those allegations set out in the Statement of Claim.
[307] Second, paragraphs 26, 28(a), 32, and 36 of the Statement of Claim state
that damages may be measured in two ways: first, the difference between the
settlement that the plaintiff obtained and a more advantageous settlement; and
second, the difference between the settlement obtained and the judgment that the
plaintiff could have obtained and executed upon after a trial.
[308] During her closing argument, however, the plaintiff effectively conceded that
she could not establish that a better settlement was available, given the
intransigence of Mr. Newton and Mr. Brewer, and the multitude of factors at play in
the negotiations. I find that the evidence clearly supports that view. There was
nothing to indicate that some act by any of the defendants would have achieved a
more advantageous settlement. The multiplicity of variables, and the absence of
testimony from Mr. Newton or Mr. Brewer as to their side of the negotiations, make it
impossible to determine what other outcome might have been available through the
negotiations.
2008 BCSC 328 (CanLII)
the cross-examination of the defendants.
Newton v. Marzban
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[309] This means that the plaintiff’s claim is based on her decision to settle rather
than go to trial. Only those allegations that are related to that decision and to her
categories: allegations that the defendants omitted key steps in investigating her
claim and so were not in a position to fully inform her; and allegations that they gave
her erroneous or inadequate warnings and advice that led her to choose settlement
instead of trial. My analysis deals only with the allegations that fall into one of those
categories.
[310] Third, the pleadings with respect to Mr. Harder and Mr. Hubley, set out at
paragraphs 34-38 of the Statement of Claim, include uncommonly broad allegations.
Paragraphs 34 to 36 set out the general allegation that Mr. Hubley breached the
standard of care of a chartered accountant in his advice to and representation of the
plaintiff. Paragraph 37 states that the particulars of his breaches are the same as
those alleged against Mr. Harder in paragraph 30 and Mr. Marzban in paragraph 27.
Further complexity arises from paragraph 38 which reads:
In the premises, as Mr. Harder and Mr. Hubley undertook and
did advise and represent Ms. Newton in relation to her ongoing
matrimonial dispute and the Settlement, Mr. Harder and Mr. Hubley
were subject to and owed Ms. Newton the same contractual duties and
duty of care measured to the standards of a reasonably competent
solicitor as alleged herein against Mr. Marzban, and further, breached
such standards of care in the same manner as alleged against Mr.
Marzban, thereby causing Ms. Newton damage, loss and expense.
[311] In effect, the plaintiff says that in acting as her advisors and representatives
during her matrimonial dispute, Mr. Hubley and Mr. Harder assumed a role properly
2008 BCSC 328 (CanLII)
state of mind when she made it are relevant. In my view, these fall into two main
Newton v. Marzban
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performed by a lawyer, and should accordingly be judged against the standard of
care of a reasonably competent solicitor. In support of this position, the plaintiff
strike an earlier version of similar pleadings: Newton v. Newton, 2005 BCSC 1880.
Mr. Justice Cohen dismissed the motion, relying on the decisions in Drabinsky v.
KPMG (1998), 41 O.R. (3d) 565 (S.C.J.), and Bolkah v. KPMG, [1998] E.W.J. No.
2937 (C.A.) Those cases dealt with the standard of care applicable when an
accounting firm accepted an engagement to conduct a forensic investigation
involving a former client. Mr. Justice Cohen stated at para. 16:
What I take from these authorities is the general principle that if
a chartered accountant holds himself out as possessing special skill
and knowledge to provide forensic accounting services then he
undertakes to use care, knowledge and skill in providing those
services. That is his clear professional duty to the client. However, in
certain circumstances, the fair and reasonable standard of care and
competence to be applied to determine whether the chartered
accountant's duty has been met may be that of a solicitor.
[312] I do not agree that this statement serves to import the particulars of breaches
alleged against Mr. Marzban to Mr. Hubley and Mr. Harder, or the particulars alleged
against Mr. Harder to Mr. Hubley. The cases relied on by Mr. Justice Cohen dealt
with issues of confidentiality and breach of fiduciary duty that are common to both
the legal and accounting professions. Particulars of professional negligence, on the
other hand, typically introduce standards related to the diverse training and
experience of each of these professions.
2008 BCSC 328 (CanLII)
relies on the decision of Cohen J. on a pre-trial motion brought by Mr. Hubley to
Newton v. Marzban
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[313] I accept that there are areas in which the duties of these professionals may
overlap. For example, the rules of the Institute of Chartered Accountants of British
213.2 permit accountants to serve as advocates for clients, but prohibit advocacy
that constitutes the practice of law. Thus, if Mr. Hubley and Mr. Harder, as chartered
accountants, act as a client’s advocate in negotiating a commercial settlement, their
role may mirror that of a solicitor. I do not agree, however, that their actions will
therefore be judged by the standard of a solicitor. As long as their activities remain
within the realm of accounting expertise, they will be judged against the standard of
their own profession, which is informed by the training and expertise of that calling.
[314] Should they venture beyond their expertise and purport to provide legal
advice in the course of commercial negotiations, I do not interpret Mr. Justice
Cohen’s decision as importing a solicitor’s standard of care to measure that advice.
Such an interpretation would make little sense. For example, many of the particulars
of negligence related to Mr. Marzban are allegations related to actions that only a
lawyer can perform, such as a failure to conduct an examination for discovery, or
prepare for trial. Mr. Harder and Mr. Hubley are clearly not qualified to perform such
services. If they undertook them, there would be no reasonable expectation that
they would do so to the standard of a reasonable solicitor. Instead, they would be in
breach of the standard of care of their own profession for venturing beyond their
expertise. The breach would lie in doing such work at all.
[315] Finally, many of the allegations against Mr. Marzban in paragraph 30 deal
with his failure to take action as a solicitor. It is nonsensical to allege that Mr. Harder
2008 BCSC 328 (CanLII)
Columbia (the “ICABC”) govern both Mr. Harder and Mr. Hubley. Rules 201.5 and
Newton v. Marzban
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or Mr. Hubley was negligent in failing to act as a solicitor when they were not
[316] I conclude that the plaintiff’s attempt to impose the entirety of the solicitor’s
particulars in paragraph 27 on Mr. Hubley and Mr. Harder, and the chartered
business valuator’s particulars in paragraph 33 on Mr. Hubley, is ill-conceived.
Having said that, I acknowledge that where some of those particulars cover areas of
common expertise, they should be dealt with.
[317] The three issues I have outlined in this section guide my selection of the
allegations that must be addressed with respect to each defendant later in these
Reasons.
THE ALLEGATIONS AGAINST MR. HARDER
[318] The plaintiff’s allegations against Mr. Harder centre on the thesis that no
reasonable chartered business valuator would have valued the shares of the ABG at
his figure of $2,635,000. She argues that this valuation significantly underestimated
the value of the shares, resulting in a settlement that Mr. Newton was prepared to
accept. She says that if Mr. Harder had performed his valuation to the standard
expected of a reasonably competent business valuator, he would have produced a
higher value, rendering settlement unlikely. She would have then proceeded to trial
with that valuation and obtained a judgment well in excess of the settlement amount.
[319] Paragraph 33 of the Statement of Claim sets out the particulars of negligence
alleged against Mr. Harder. There is some overlap in these. As discussed above,
there is also the question of whether some of the particulars alleged against Mr.
2008 BCSC 328 (CanLII)
qualified to do so.
Newton v. Marzban
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Marzban in paragraph 27 should be imported to Mr. Harder by virtue of paragraph
38. Having considered these matters, I am satisfied that the following list, cross-
the allegations against Mr. Harder and the manner in which the case against him
was presented and defended at trial:
1.
Failing to give appropriate advice about and selecting an
inappropriate valuation date of October 30, 2000 [para. 27(l)];
2.
Relying on advice and information about the ABG from Mr.
Brewer without question, and failing to obtain all necessary
information for his valuation [paras. 33(g) and (i)];
3.
Failing to consistently endorse the valuation of the ABG as a
going concern, rather than on a liquidation basis, in particular,
failing to use an appropriate equipment appraisal consistent with
a going concern premise, and failing to advise the plaintiff of the
implication of these matters [paras. 33(d) and (h)]. In particular:
(a)
rejecting the AA Appraisal without a proper investigation
[para. 33(b)];
(b)
failing to obtain an appraisal based on the premise of fair
market value in continuing use [para. 33(h)];
(c)
relying on the Ritchie Bros. Appraisal which used an
auction premise inconsistent with valuation as a going
concern [paras. 33(b), (d) and (j)];
(d)
failing to properly reconcile the differences in the asset
list provided by Mr. Newton and Mr. Brewer, the AA
Appraisal, and the Ritchie Bros. Appraisal [para. 33(e)];
and
(e)
failing to give appropriate advice to the plaintiff about an
equipment appraisal to be used in his valuation [paras.
33(c) and (h)];
4.
Failing to take into account the equity held by the ABG in leased
equipment [para. 33(f)];
5.
Failing to discount the tax shield foregone [para. 33(a)];
2008 BCSC 328 (CanLII)
referenced to the relevant paragraphs in the Statement of Claim, fairly summarizes
6.
Page 95
Inappropriately taking on the role of an advocate in relation to
the plaintiff’s matrimonial dispute and settlement [para. 38].
The law with respect to the standard of care of a chartered business valuator
[320] Decisions dealing with the standard of care applicable to valuators and
appraisers acknowledge that these professions deal with matters of art rather than
science, and that variations in their conclusions are therefore common.
Nevertheless, their judgements must be exercised within acceptable standards of
skill and expertise, and be based on rational assumptions: Phelan v. Realty World
Realty Ltd. (1994), 38 R.P.R. (2d) 128 at para. 57 (B.C.S.C.); Kokanee Mortgage
MIC Ltd. v. Concorde Appraisals Ltd., 2000 BCSC 1197 at paras. 51-55.
[321] This view was expressed in a context somewhat similar to this case in
Debora v. Debora (2006), 83 O.R. (3d) 81 (C.A.). At para. 51, Weiler J.A. made
this observation about a valuator engaged in calculating the value of shares held as
family assets:
In both corporate law and family law, where the goal is to determine
the fair market value of the business, perfect accuracy is impossible.
As Viscount Simon wrote in Gold Coast Selection Trust Ltd. v.
Humphrey (Inspector of Taxes), [1948] A.C. 459 [1948] 2 All E.R. 379
(H.L.) at p. 473 H.C., "Valuation is an art, not an exact science.
Mathematical certainty is not demanded, nor indeed is it possible." The
valuator must make assumptions as to how a prospective purchaser
would have evaluated the business based on the purchaser's
knowledge at the time in question and the amount of risk the purchaser
would likely have been willing to assume concerning a lawsuit.
Hindsight information is not admissible on the question of whether that
assumption was correct but, as indicated in Ford, supra, it can be used
to test whether that assumption was reasonable.
[emphasis in original]
2008 BCSC 328 (CanLII)
Newton v. Marzban
Newton v. Marzban
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Expert evidence with respect to the standard of care
business valuator with extensive forensic background, prepared four reports and
testified as an expert witness on behalf of the plaintiff. His Report #1 dealt with the
standard of care of a chartered business valuator. His Report #2 was critical of Mr.
Harder’s valuation, and sets out an alternative valuation of the ABG in the amount of
$7,586,972 as of October 30, 2000, based on an appraisal prepared by Springer
Appraisal and Consulting LLC (the “Springer Appraisal”). His Report #3 dealt with
the standard of care of a chartered accountant. His Report #4 calculated the
potential increase in value of the ABG as at October 31, 2001, and the financial
impact of Westwood on the earnings of the ABG.
[323] The defendants challenged the admissibility of these reports and mounted a
full scale attack on Mr. Barbour’s credibility. Following a voir dire, I ruled some parts
of Report #1 and Report #3 inadmissible as they did not set out the assumptions on
which his opinions were based, as required by Rule 40A of the Rules of Court. The
balance of Mr. Barbour’s evidence was then accepted as evidence on the trial by
consent.
[324] I will not recount the details of the challenges made to Mr. Barbour’s
credibility by the defendants. I do not accept the validity of all of them. Some,
however, lead me to approach his evidence with caution.
[325] Mr. Barbour was retained in December 2003, at an early stage of the
plaintiff’s investigation of the defendants. It became clear during his evidence that
2008 BCSC 328 (CanLII)
[322] Mr. Daniel Barbour, an experienced chartered accountant and chartered
Newton v. Marzban
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over the course of time, in preparing for this litigation, he relinquished the limited role
of an independent expert and entered the realm of advocacy, providing strategic
His demeanour during cross-examination enforced this impression. He was at times
evasive and argumentative, conduct that is not expected of an impartial expert. I
weigh his evidence against that of the defendants’ experts with this in mind.
[326] As well, despite his familiarity with the court process, Mr. Barbour’s Reports
#1 and #3, dealing with the standard of care, contained virtually no statement of
assumed facts. He rejected a statement of facts provided to him by the plaintiff’s
counsel, and instead, on his own initiative, prepared generic reports based on a
hypothetical chartered business valuator and chartered accountant, practising in
essentially a factual vacuum. The reason for his reticence was unclear, particularly
when it was apparent during cross-examination that Mr. Barbour was extremely
familiar with the factual background to the plaintiff’s claims. Mr. Barbour testified
that he did not like to see Mr. Harder’s name in a critical context, and so wrote in
general terms. That explanation is difficult to understand, and leaves one to wonder
why Mr. Barbour would choose to undertake this case if he did not wish to be critical
of Mr. Harder. The defendants argued that this tactic was a deliberate attempt by
Mr. Barbour to shield his opinions from cross-examination. While I am not prepared
to make that finding, I do conclude that his superficial approach to the facts was
inappropriate and unhelpful, and significantly limits the weight to be placed on his
opinions. I will return to Mr. Barbour’s credibility on specific issues later in these
Reasons.
2008 BCSC 328 (CanLII)
advice to the plaintiff and her counsel, and adjusting his opinion for tactical reasons.
Newton v. Marzban
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[327] The defendants called three chartered business valuators as expert
witnesses, who each reached his opinion independently of the others. Mr. Michael
valuations in both logging and matrimonial contexts. His opinion was based on a
lengthy statement of assumed facts, and I found his evidence thoughtful and
credible. Mr. Bowie admitted that he knows Mr. Harder quite well, as a “friend in a
professional context”, but nevertheless testified that he believed he could be
objective in his evidence. I have scrutinized his evidence with some care, due to
that relationship.
[328] Mr. Clayton Schultz, who has been a chartered accountant since 1971, and a
chartered business valuator since 1980, gave evidence for the defence with respect
to both Mr. Harder’s valuation and the standard of care of a chartered accountant,
based on an extensive statement of assumed facts. Mr. Schultz has had
considerable experience with the coastal logging industry, and in providing
accounting and valuation services in the context of matrimonial disputes. He did not
know Mr. Harder as well as Mr. Bowie did. I found his valuation evidence credible
and helpful.
[329] The third valuation expert called by the defendants was Mr. Michael
Cheevers. He has been a chartered business valuator since 1995, although more
than half of his work is in the insolvency field. Mr. Cheevers had not testified as an
expert before, but his evidence was straightforward, and I have no reason to doubt
his credibility. Any limitations in his opinion arise from the fact that its factual basis
was limited to the ABG financial statements.
2008 BCSC 328 (CanLII)
Bowie has practised in this field for over 25 years, and has had experience with
Newton v. Marzban
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Introduction to Mr. Harder’s Valuation
concurrence of the plaintiff and her advisors. All agreed that a valuation of the ABG
was integral to the resolution of her matrimonial dispute. I find that he was retained
as an independent expert to provide an objective valuation of the ABG shares, not
as an advocate for the plaintiff to obtain the highest share value possible.
[331] I am satisfied that the plaintiff retained Mr. Harder directly by signing his
engagement letter on January 26, 2001, and that she understood its terms after
reviewing them with Mr. Hubley. I am also satisfied that, for reasons of convenience
and with her consent, Mr. Hubley generally acted as the plaintiff’s agent in her
dealings with Mr. Harder
[332] Mr. Harder was engaged to provide an estimate as to the “en bloc fair market
value” of the shareholder interests in the ABG. Mr. Barbour and Mr. Harder agreed
that this was the appropriate method to use in valuing the business for matrimonial
purposes, and concurred that Mr. Harder’s engagement letter set out the approved
definition of “fair market value” used by the CICBV:
The highest price, expressed in terms of cash equivalents, at which
property would change hands between a hypothetical willing and able
buyer and a hypothetical willing and able seller, acting at arm’s length
in an open and unrestricted market, when neither is under compulsion
to buy or sell and when both have reasonable knowledge of the
relevant facts.
[333] It was common ground that there are two valuation approaches to
ascertaining fair market value: liquidation value and going concern value. The
2008 BCSC 328 (CanLII)
[330] I find that Mr. Harder was engaged on December 21, 2000 with the
Newton v. Marzban
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former is used when the highest value will be obtained by winding up the business
and selling its assets. Mr. Harder and Mr. Barbour agreed that the CICBV approves
The net amount that would be realized if the business is terminated
and the assets are sold piecemeal. Liquidation can either be orderly or
forced.
[334] A going concern premise is used to value a viable business that will continue
operations. The CICBV defines going concern value as:
The value of a business enterprise that is expected to continue to
operate into the future. The tangible elements of going concern value
result from factors such as having a trained work force, an operational
plan, and the necessary licences, systems and procedures in place.
[335] Mr. Harder and all of the expert valuators who testified agreed that it was
appropriate to value the ABG on a going concern basis as that was likely to produce
the higher value.
[336] As well, all agreed that Mr. Harder correctly used a tangible asset backing
methodology in valuing the ABG. An income-based approach was not appropriate
because the cyclical nature of the logging industry and the impossibility of predicting
future income from logging contracts made it difficult to detect any discernible trend
to the ABG’s future earnings. A tangible asset backing approach requires
determination of the net value of the tangible and identifiable intangible assets of the
business, representing the fair market value of those assets less associated
liabilities. It also requires an allowance for loss of the tax shield resulting from the
assumed purchase of shares rather than assets.
2008 BCSC 328 (CanLII)
this definition of liquidation value:
Newton v. Marzban
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[337] Mr. Harder gave extensive evidence about how he proceeded with his
valuation. The primary assets to be valued were logging equipment, land and
equipment. Mr. Harder relied on the Ritchie Bros. Appraisal for the equipment value
of the pieces it covered. For those items not included in that appraisal, he assigned
values based primarily on net book value. The resulting value for the ABG
equipment in his valuation was $4,889,800. The appraisal of the real estate was
straightforward. Where information was available, he used an EBITDA (earnings
before interest, taxes, depreciation and amortization) analysis to value the logging
and road-building contracts and to assess the earning power of each of the ABG
companies. Mr. Harder calculated a deduction of $724,900 for the tax shield
foregone. He concluded that the shares of the ABG had a fair market value of
$2,635,400.
[338] Mr. Barbour took issue with only two aspects of Mr. Harder’s valuation, but his
criticisms, if accepted, would increase the value of the ABG shares by almost $5
million. First, he attacked Mr. Harder’s reliance on the Ritchie Bros. Appraisal in
assigning a value of $4,889,800 to the equipment in his valuation. He said that Mr.
Harder instead should have relied on an equipment appraisal based on the higher
value premise of fair market value in continued use, such as the Springer Appraisal,
which valued the equipment at $10,790,000. Second, it was his view that the tax
shield foregone, which represented a deduction of $724,900 from the share value in
Mr. Harder’s tangible asset backing calculation, should have been discounted by
50%. In his Report #2, Mr. Barbour concluded that correcting these two errors in the
2008 BCSC 328 (CanLII)
buildings, and road building and logging contracts. By far the most valuable was the
Newton v. Marzban
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tangible asset backing calculation would place the fair market value of the ABG
[339] I turn to consider each of the allegations raised against Mr. Harder.
Inappropriate selection of October 31, 2000 as the valuation date
[340] It was common ground that selection of the valuation date can be strategic.
The plaintiff was critical of Mr. Harder for unilaterally choosing October 31, 2000
without consultation with Mr. Marzban, and for failing to obtain updated financial
information as the negotiations proceeded.
[341] I find no support for this allegation. All of the expert valuators, including Mr.
Barbour, supported the choice of October 31, 2000 as the last fiscal year end of the
ABG. Mr. Marzban knew that Mr. Harder had chosen this date when he received a
copy of his engagement letter, and testified that this was the reasonable choice.
The ABG financial statements for 2000 had just become available in mid-January as
Mr. Harder commenced his work.
[342] With respect to obtaining updated financial information before the settlement,
Mr. Harder’s engagement effectively ended when he delivered his memorandum of
April 20, 2001. He had no involvement in the ensuing negotiations, and received no
further instructions. He cannot be held responsible for a failure to update the
valuation in these circumstances, and I find that he did not breach the standard of
care in this respect.
2008 BCSC 328 (CanLII)
shares at $7,586,972.
Newton v. Marzban
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Reliance on Mr. Brewer for financial disclosure with respect to the ABG, and
failure to obtain all necessary disclosure
necessary to complete his valuation directly from Mr. Brewer. The consensus of the
legal and valuation experts was that it is a common and useful practice to have a
valuator deal directly with the company’s financial officer to obtain such information.
If the valuator encounters difficulties, he or she typically reports these to counsel
who decides if steps should be taken within the legal process to obtain sufficient
disclosure.
[344] This practice is reflected in the standards of the CICBV in place in 2000 and
2001. General Standard No. 120 III and V stated that a valuator must obtain
sufficient evidence to ensure that the valuation report and conclusion are properly
supported. Determining the extent of evidence necessary is described as a matter
of professional judgment. If access to essential information is denied or unavailable,
the valuator must clearly indicate any related qualification or limitation in the
valuation report.
[345] The plaintiff argues that Mr. Harder failed to obtain and review all documents
necessary for his valuation. Instead, he simply accepted information from Mr.
Brewer at face value, and did not treat it with the scepticism appropriate to material
obtained from an advocate for Mr. Newton. Nor did he follow up on outstanding
requests for information with Mr. Brewer, tell Mr. Marzban about these, or mention
them as a limitation in his memorandum of April 20, 2001. The plaintiff alleges that
2008 BCSC 328 (CanLII)
[343] Mr. Marzban instructed Mr. Harder to obtain the financial disclosure
Newton v. Marzban
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Mr. Harder’s timidity arose in part from his fear of Mr. Newton’s association with the
[346] The plaintiff provided a long list of documents that she says Mr. Harder
should have obtained from Mr. Brewer or third parties. These include records of the
ABG’s transport business, the shake and shingle business and chipper plant; scaling
records; the Duke Point lease; additional information on market logging; documents
related to the ABG’s attempt to sell its Sewell road-building contract for $250,000 in
August 2000; equipment leases and purchase agreements; and records of financial
institutions related to the ABG refinancing in 2000.
[347] I deal with the documents related to equipment leases later in these Reasons.
With respect to the balance of the plaintiff’s complaints, I am satisfied that the
question of obtaining adequate financial disclosure for a valuation is a judgment call,
left to the discretion of the valuator by his professional body. Mr. Harder agreed that
it can be difficult to obtain information when dealing with the person who controls the
business, as he has all the cards in his hands. He also conceded that Mr. Newton’s
reported association with the Hells Angels was a concern, and he may not have
pushed as hard in the fact-gathering process as a result. Nevertheless, it is
apparent that he obtained hundreds of pages of material from Mr. Brewer, and that
he had sufficient information to permit him to prepare his valuation estimate without
any stated limitations related to missing material. As well, Mr. Newton reported to
the plaintiff and Mr. Hubley that Mr. Harder was overly confrontational in his dealings
with Mr. Brewer. This suggests that any caution on Mr. Harder’s part was not
apparent to the opposing side.
2008 BCSC 328 (CanLII)
Hells Angels.
Newton v. Marzban
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[348] It is an easy thing for the plaintiff to list other documents that could have been
obtained but, in my view, unless she can demonstrate that information material to
Mr. Harder’s professional judgment as to the sufficiency of financial disclosure meets
the standard of care.
[349] I find no evidence to support a finding that Mr. Harder had any reason to
suspect that Mr. Brewer deliberately misrepresented or withheld information that was
material to the valuation. The requests to him that were outstanding at the time Mr.
Harder prepared his estimate related to historical market logging data, an analysis of
which equipment was necessary to perform each Bill 13 contract, and a business
plan for financing. Mr. Harder testified that Mr. Brewer told him the first two did not
exist.
[350] At trial, the plaintiff produced only a few of the documents from the list that
she says Mr. Harder should have obtained. She did not produce the business plan
for financing requested from Mr. Brewer. Thus there is no evidence that it contained
information that would have had a bearing on the valuation.
[351] Exhibit 26 is a binder of HSBC documents related to the ABG’s refinancing
applications in 2000. The plaintiff argues that these demonstrate that HSBC
accepted the validity of the AA Appraisal in offering to provide financing of up to $4.7
million to the ABG, and suggest that Mr. Harder should have done so as well. I deal
at length with Mr. Harder’s rejection of the AA Appraisal later in these Reasons. For
2008 BCSC 328 (CanLII)
Mr. Harder’s valuation was overlooked, or deliberately withheld to his knowledge,
Newton v. Marzban
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the reasons set out there, I am unable to find HSBC’s acceptance of the AA
[352] The plaintiff also argues that the HSBC documents contain positive
representations as to the ABG value put forward by Mr. Brewer in his efforts to
obtain financing. These were not put to Mr. Harder during his cross-examination,
and I find it difficult to understand what use he could have made of them in the
context of his valuation. Had he raised them with Mr. Brewer, it is reasonable to
infer that Mr. Brewer’s response would have been similar to his view of the AA
Appraisal: they were made for the purpose of financing, and had no relevance to the
resolution of Mr. Newton’s matrimonial dispute. While they might have been useful
to cross-examine Mr. Newton or Mr. Brewer at a trial, it was not Mr. Harder’ role to
amass documents for that purpose.
[353] The plaintiff produced a document indicating that the ABG attempted to sell
its Sewell road-building contract for $250,000 in August 2000. Mr. Harder valued
that contract at $120,000. He agreed that he was unaware of the proposed sale
price, and said that had he known about it, he would have wanted to consider it. the
plaintiff argues that this demonstrates that his value for that contract was
inappropriately low. I am unable to draw that conclusion. Mr. Barbour accepted Mr.
Harder’s valuation of this and every other logging and road-building contract. As
well, Mr. Harder obtained corroboration as to the historical and future value of each
contract from the majors with whom the ABG held these contracts. Finally, the
Sewell contract did not sell at that price, which leaves it open to infer that it was
over-valued at $250,000.
2008 BCSC 328 (CanLII)
Appraisal would have affected his judgment on that issue.
Newton v. Marzban
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[354] The plaintiff produced the Duke Point lease but this provided nothing to
demonstrate that Mr. Harder’s valuation would have been different had he obtained
[355] I conclude that Mr. Harder did not breach the standard of care in the manner
in which he obtained financial disclosure for his valuation.
Failing to use an appropriate equipment appraisal in the valuation, and failing
to provide appropriate advice to the plaintiff with respect to appraisals
[356] The ABG’s equipment was its most significant asset, and the value of its
shares was closely related to the value assigned to that equipment. The equipment
fell into two main categories: over 200 pieces of heavy equipment of significant
value, and around 250 pieces of smaller and less valuable miscellaneous
equipment, such as office and shop equipment and radios.
[357] To complete his valuation, Mr. Harder required a reliable appraisal of this
equipment. The plaintiff argues that he breached the standard of care in rejecting
the AA Appraisal and using instead the lower Ritchie Bros. Appraisal in his valuation.
She says that the Ritchie Bros. Appraisal valued the equipment on a forced
liquidation basis, which was inconsistent with a going concern valuation of the ABG.
She argues that Mr. Harder should have commissioned an appraisal based on the
premise of fair market value in continued use, also known as “value-in-use”.
[358] To properly consider these issues, it is necessary to provide some
introduction to the methodology that underlies equipment appraisals, and to the four
equipment appraisals that were placed in evidence at this trial.
2008 BCSC 328 (CanLII)
it.
Newton v. Marzban
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[359] In assessing the fair market value of equipment, an appraiser has a choice of
several underlying methodologies. For introductory purposes, I adopt the definitions
of the American Society of Appraisers, Valuing Machinery and Equipment: The
Fundamentals of Appraising Machinery and Technical Assets (Washington, D.C.:
American Society of Appraisers, 2000) at 3-4 (the “ASA Text”):
Fair market value is the estimated amount, expressed in
terms of money, that may be reasonably expected for a property in
an exchange between a willing buyer and a willing seller, with equity
to both, neither under any compulsion to buy or sell, and both fully
aware of all relevant facts, as of a specific date.
…
Fair market value in continued use is the estimated amount,
expressed in terms of money, that may reasonably be expected for a
property in an exchange between a willing buyer and a willing seller,
with equity to both, neither under any compulsion to buy or sell, and
both fully aware of all relevant facts, including installation, as of a
specific date, and assuming that the business earnings support the
value reported. This amount includes all normal direct and indirect
costs, such as installation and other assemblage costs to make the
property fully operational.
…
Orderly liquidation value is the estimated gross amount,
expressed in terms of money, that could be typically realized from a
liquidation sale, given a reasonable period of time to find a purchaser
(or purchasers), with the seller being compelled to sell on an as-is,
where-is basis, as of a specific date.
Forced liquidation value is the estimated gross amount,
expressed in terms of money, that could typically be realized from a
properly advertised and conducted public auction, with the seller being
compelled to sell with a sense of immediacy on an as-is, where-is
basis, as of a specific date.
[footnotes omitted]
2008 BCSC 328 (CanLII)
of these from the textbook by the Machinery and Technical Specialities Committee
Newton v. Marzban
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[360] Unfortunately, these terms were not used consistently by the witnesses who
testified in this area. I therefore find it useful to set out an admittedly simplistic
this gradient of theoretical equipment appraisal premises, based on the evidence at
trial. First, they can be divided into two main categories: value-in-use and value-inexchange. The former presupposes that the assets will be sold as part of an
ongoing, operating enterprise. It generally, but not always, produces a higher value.
The latter assumes that the business will be sold and its assets liquidated on a
piecemeal basis. Second, there is a hierarchy of value-in-exchange premises.
Those expected to produce higher values assume the sale of assets will take place
in conditions of longer market exposure and minimal compulsion on the seller.
However, it appears that there is at least a degree of compulsion in any value-inexchange premise, insofar as the concept assumes the asset will be sold, rather
than retained.
[361] At the trial, evidence was led about four appraisals of the ABG equipment: the
AA Appraisal, the Ritchie Bros. Appraisal, the GEC Appraisal and the Springer
Appraisal. All used a sales comparison approach. However, it is difficult to make
direct comparisons among them for a number of reasons. They used different
methodological premises and did not define these consistently. They obtained their
comparables from different data banks. They were done on different dates, and did
not cover exactly the same equipment. Some of the appraisers viewed the
equipment, while others did “desk-top” appraisals. I will briefly describe each.
[362] The AA Appraisal was commissioned by the ABG during its refinancing
2008 BCSC 328 (CanLII)
summary of my own understanding of the two main principles that appear to underlie
Newton v. Marzban
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process in mid-2000. It was the most recent of a series of bi-annual appraisals
which had been done by American Appraisal Canada, Inc. for the ABG for financing
accredited by the American Society of Appraisers (the “ASA”), who had 20 years
experience. Mr. Martins was not, however, presented as an expert to give opinion
evidence at the trial. Instead, he simply testified to what he did.
[363] He said that he appraised 214 pieces of the ABG’s large equipment, viewing
86 of these, as well as the miscellaneous equipment. His appraisal stated that the
equipment was “observed and reported to be in good to very good condition overall”.
He concluded that as of June 2, 2000 it had an orderly liquidation value of
$13,680,000, of which $569,000 was the miscellaneous equipment, and an auction
value of $10,580,000, of which $400,000 was the miscellaneous equipment. The AA
Appraisal, however, defines those terms differently from the ASA Text. Mr. Martins’
definition of “orderly liquidation” is something of a hybrid between the definition of
fair market value and orderly liquidation, and anticipates a sale within 180 days of
market exposure and orderly disposition.
[364] Mr. Martins testified that he equated auction value with forced liquidation. His
report gives this definition and stipulates a 90-day period for disposal under this
premise:
Auction Value which is defined as the estimated gross amount an
asset or group of assets should realize if sold piecemeal at a properly
advertised and conducted auction sale. The assets would be offered
for sale in an “as-is, where-is” condition and location with the buyer
assuming any cost to dismantle and remove.
2008 BCSC 328 (CanLII)
purposes since 1992. It was prepared by Mr. Joseph Martins, an appraiser
Newton v. Marzban
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[365] Mr. Martins said that he relied on comparables based on historical data from
earlier American Appraisals of the same equipment, and adjusted these down for
publications listing new equipment. He said that he also relied on information and
records from Mr. Newton.
[366] The GEC Appraisal was commissioned in October 2000 in the process of
GEC’s consideration of the ABG’s application for financing, because GEC was
sceptical of the values in the AA Appraisal. It was carried out by Mr. Guy Gauthier,
an equipment appraiser with over 40 years experience. Although Mr. Gauthier was
not an ASA certified appraiser, he was qualified as an expert on the appraisal of
heavy equipment at the trial.
[367] Mr. Gauthier testified that he used an orderly liquidation premise to do a
desktop appraisal of 214 pieces of heavy equipment that mirrored as closely as
possible those pieces that had been appraised in the AA Appraisal. He valued the
miscellaneous equipment at $100,000 as a block. He said that he assumed that the
equipment was in good condition. He concluded that the ABG equipment was worth
$5,492,000. Mr. Gauthier said that he relied on comparables from Ritchie Bros., his
own experience, and the “black book” for trucks.
[368] The Ritchie Bros. Appraisal was commissioned by the ABG in early 2001 to
provide an appraisal for use in Mr. Harder’s valuation. It covered 166 pieces of large
equipment, 143 of which were viewed and reported to be in variable condition. It did
not include the miscellaneous equipment. It concluded that this equipment had a
2008 BCSC 328 (CanLII)
depreciation. He then checked that value against information from auction sales and
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value of $4,673,200 as at February 7, 2001. The appraisal does not set out a formal
methodological premise, but indicates that the value is based on what would be
equipment was in good running order and refurbished to Ritchie Bros. sale
standards.
[369] The appraisal was done by Ritchie Bros. staff, using the Ritchie Bros.
Appraisal template. None of the staff involved with the appraisal gave evidence at
the trial. Instead, Mr. Gary Caufield, manager of special projects for Ritchie Bros.,
described the process. The territory manager for Ritchie Bros. inspects the
equipment, photographs it, and makes detailed notes about its condition. This data
is put into the Ritchie Bros. computer base which records prices for similar
equipment sold recently at their auctions. Five employees in the appraisal
department then appraise the equipment independently, using that database. They
are not ASA certified, but have been trained by Ritchie Bros. The resulting five
prices for each piece of equipment are averaged to obtain a final value. Two
managers review these, and adjust the result if there are any major discrepancies.
[370] The Springer Appraisal was commissioned by the plaintiff for this lawsuit. It
was a desk-top appraisal of most of the large equipment covered by the AA
Appraisal, using a premise of fair market value in continued use. Its final value for
the ABG equipment was $10,790,000 as of October 31, 2000. It did not include the
miscellaneous equipment.
[371] Mr. Greg Thornton and Mr. Raymond Springer, both ASA certified appraisers
2008 BCSC 328 (CanLII)
achieved at a public auction conducted within 45 days of February 7, 2001, if all
Newton v. Marzban
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practising in the United States, prepared the Springer Appraisal. Both were qualified
as experts at the trial. Mr. Thornton appraised the ABG equipment at
who seemed to treat that concept as an independent premise in the hierarchy of
appraisal premises. Other appraisers and valuators appeared to use “fair market
value” as a general term referable to the final value reached under other
methodological premises. Mr. Thornton described his fair market value concept as a
higher level of trade in the retail market place, with no time limit and no compulsion
to sell. He used comparables from direct sales where they were available, and
otherwise used adjusted auction prices. He assumed that the equipment was in
good to very good condition, based on the AA Appraisal.
[372] Mr. Springer converted Mr. Thornton’s fair market value to fair market value in
continued use, by adding the costs associated with placing the assets in operation.
These included converting Mr. Thornton’s value to Canadian dollars, and adding
$1,000 per unit for transportation costs, 5% for assemblage costs, 5% for
contingencies, and 7% sales tax. The resulting total was $10,790,000.
[373] There are five allegations against Mr. Harder that deal with the equipment
appraisals.
1)
Rejecting the American Appraisal without proper investigation
[374] Mr. Harder was not an equipment appraiser, and so had to rely on the opinion
of a specialist in that field for the value to be placed on the equipment in his
valuation. The standards of the CICBV in force in 2001 provided guidance to
2008 BCSC 328 (CanLII)
$6,036,300(USD) using a “fair market value” premise. He was the only appraiser
Newton v. Marzban
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valuators with respect to relying on other specialists in Specific Valuation Standard
The valuator must consider the necessity of relying upon the
work of a specialist (e.g. real estate appraiser, engineer, etc.).
Recommendation: If it is deemed appropriate to request the
assistance of a specialist, the valuator should obtain reasonable
assurance concerning the specialist’s reputation for competence and
degree of independence. Explanatory comment only: The
appropriateness and reasonableness of the assumptions and methods
used by the specialist are the responsibility of the specialist.
Ordinarily, the valuator may accept the specialist’s judgement and
work in this regard unless the report of the specialist, the valuator’s
communication with the specialist or the valuator’s knowledge of the
business being valued lead the valuator to believe that the specialist’s
assumptions or methods are unreasonable in the circumstances.
[emphasis in original]
[375] Mr. Harder reviewed the AA Appraisal and rejected it as unreliable early in his
valuation. He testified to a number of reasons for this. The capital equipment list
and the 1999 financial statement of the ABG showed that, before depreciation, the
ABG had paid a little more than $12 million for the equipment that the AA Appraisal
valued at $10,580,000 and $13,680,000. In his experience, logging equipment
suffered economic and functional obsolescence, and it did not make sense that the
original equipment cost would be so close to the appraised cost. He also reviewed
the values for the equipment with which he was familiar, and found some of these
surprisingly high. As well, Mr. Brewer told him that the AA Appraisal values were
very high and had been obtained for financing purposes, and that the GEC Appraisal
was around $5.3 million. Mr. Brewer also told him that Mr. Newton would not accept
the AA Appraisal values. Mr. Harder said that while it did not matter to him whether
Mr. Newton accepted them, since the plaintiff wanted to try to negotiate a settlement
2008 BCSC 328 (CanLII)
120 VI, which reads:
Newton v. Marzban
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using the AA Appraisal would not meet his client’s objective from a practical point of
view. He felt there were also a number of practical hurdles to using the AA
considering the effect of the 2000 logging season on its condition.
[376] The plaintiff argues that Mr. Harder reached that decision too quickly. She
says that he should have investigated the AA Appraisal more thoroughly before
rejecting it as unreliable. In particular, he should have called Mr. Martins and HSBC,
which relied on the AA Appraisal in offering financing of $4.7 million to the ABG in
August, 2000.
[377] I find that there is no basis for this allegation against Mr. Harder.
[378] First, I find the plaintiff’s position on this point significantly diminished by her
decision to rely on the Springer Appraisal instead of the AA Appraisal in presenting
her case at this trial. Even Mr. Barbour expressed doubts about the reliability of the
AA Appraisal.
[379] Second, the Ritchie Bros. Appraisal, the GEC Appraisal, and the Springer
Appraisal all shed doubt on the validity of the AA Appraisal. The first two, which
were both available to Mr. Harder at the time, placed the value of the ABG
equipment at less than half that of the AA Appraisal, although they were done on the
same premises of orderly liquidation value and auction value. Mr. Gauthier, who
undertook his appraisal because GEC had serious doubts about the AA Appraisal,
observed in an e-mail to GEC about the AA Appraisal at that time:
2008 BCSC 328 (CanLII)
Appraisal, such as having to reconcile the equipment to mid-January, and
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[380] During his testimony, Mr. Thornton was referred to a number of AA Appraisal
values that were as much as two to five times higher than his appraised values of
the same equipment. He said that he had not seen comparables that would justify
such values, and that he would be curious to see where Mr. Martins obtained such
comparables.
[381] Mr. Pearson, the appraiser from whom Mr. Harder sought an informal opinion
at the time, testified that after reviewing part of the AA Appraisal he told Mr. Harder
that it was too high, that the economy in the forestry industry was down, and the AA
Appraisal values could not be achieved in the market.
[382] Mr. De Clark confirmed that the capitalized cost of the ABG equipment
recorded as of October 31, 1999 was $12,881,207, and that some of the equipment
had been on the books for some time. He agreed that it would be unusual if
equipment that was a few years old had a market value close to its recorded
capitalized value. He testified that while he did not review the AA Appraisal in depth,
it was his impression that the appraisal was high on a few pieces.
[383] While the plaintiff maintains that HSBC accepted the validity of the AA
Appraisal, a close examination of their financing documents shows that the loan
officer did not rely on the appraisal itself, but required a transmittal letter from
American Appraisal as a condition precedent for the loan. This permitted HSBC to
2008 BCSC 328 (CanLII)
I can’t believe these guys would give an opinion with such high
numbers when everybody knows how weak is the actual market in
Western Canada.
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look directly to the appraisal company if a difficulty arose with the ABG. In view of
this, I am unable to find that communicating with HSBC would have altered Mr.
[384] Mr. Martins’ own testimony suggested that Mr. Harder had been correct to
view the AA Appraisal with scepticism. Mr. Martins conceded that his report
erroneously implied that he had inspected all of the equipment and that it was well
maintained and in good to very good condition, whereas he had inspected only
about 40% of it. He could not explain why he made these misrepresentations, and
agreed that they were not in keeping with his professional standards.
[385] Mr. Martins had not kept a record of the specific comparables he employed.
He said he gave more weight to higher end comparables. When he was shown
contemporaneous comparables for some pieces of equipment that were significantly
lower than his values, he agreed that if he had had those at the time he would have
had to reconsider his appraised values of those pieces. He also conceded that he
did not know an auction company that could have obtained his auction values for the
ABG equipment.
[386] It appeared that Mr. Martins had relied heavily on his company’s past
appraisals of the ABG. He said that he generally started with the 1998 appraisal
values, and depreciated them by about 10%. He also relied on information from Mr.
Newton as to the purchase prices and condition of the equipment, particularly with
respect to the equipment he did not see. It appeared that he may have depended
too heavily on such information, provided by a person who was motivated to obtain
2008 BCSC 328 (CanLII)
Harder’s view of the reliability of the AA Appraisal.
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the highest appraisal possible for financing purposes. For example, he said Mr.
Newton told him that the chipper at Duke Point was worth $350,000. Mr. Martens
appraisers valued it in the range of $75,000 to $125,000.
[387] I am unable to find that information from Mr. Martins would have allayed Mr.
Harder’s concerns about the AA Appraisal.
[388] I conclude that Mr. Harder’s decision to reject the AA Appraisal was
reasonable based on the information available to him, and in the context of his
professional guidelines. As an independent valuator retained to provide an objective
opinion on the value of the ABG shares, it was essential for him to have an
appraised value for the equipment that he viewed as reliable. I find that his decision
to look beyond the AA Appraisal was strongly supported by the evidence at trial.
2)
Failing to use an appraisal based on fair market value in continued use
[389] The plaintiff, supported by Mr. Barbour, argues that, having rejected the AA
Appraisal, Mr. Harder should have commissioned an independent equipment
appraisal based on a premise of fair market value in continued use, or value-in-use,
for his valuation, as that is the appraisal methodology consistent with an operating
business valued as a going concern. Had he done so, the appraisal would in all
likelihood have produced a much higher equipment value, in the range of the
Springer Appraisal, and a significantly higher value for the plaintiff’s shares. She
points to Mr. Barbour’s valuation in his Report #2, which relied on the Springer
Appraisal in calculating a share value of $7,586,972.
2008 BCSC 328 (CanLII)
valued it at $300,000 on an orderly liquidation value basis. The other three
Newton v. Marzban
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[390] I set out the ASA Text definition of fair market value in continued use at
paragraph [359] of these Reasons. Two features distinguish that premise from other
incurred in making the equipment operational, such as installation, assemblage, and
transportation. Second, it assumes that the appraised asset value is supported by
the business earnings from those assets. I will refer to this as the “earnings
assumption”.
[391] Mr. Harder argues that his failure to use an appraisal based on fair market
value in continued use was not a breach of the standard of care because the ABG
equipment did not accommodate either of those features. First, its nature did not
justify the additional expenses imposed by a fair market value in continued use
premise. Second, when the earnings assumption was properly tested, the business
earnings of the ABG equipment could not support a value-in-use approach.
[392] With respect to the nature of the equipment, Mr. Harder testified that he did
consider fair market value in continued use as a possible premise for valuing the
equipment, but had difficulty justifying the additional expenses relating to it. First, it
was not clear that all of the ABG’s equipment was consistently in continued use in
the business’ operations. It appeared that the ABG had surplus equipment due to
the cyclical nature of the logging industry and the resulting variation in logging
volumes and marketing contracts. Moreover, he could not see logging equipment
attracting assemblage or installation costs similar to those incurred by a
manufacturing plant or sawmill. Nor was there economic value to assembling the
equipment in one location. The ABG’s logging activities required that various
2008 BCSC 328 (CanLII)
appraisal premises. First, it includes not just equipment costs but also the expenses
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combinations of its equipment be moved from job to job. While some transportation
costs might be incurred, a lot of the ABG equipment, such as trucks and boats, was
Harder questioned whether it was appropriate to add provincial sales tax to the fair
market value of the equipment, as the Springer Appraisal had done, since that is a
matter between the vendor and the government, not the vendor and the purchaser.
[393] Mr. Bowie expressed similar views with respect to the appropriateness of
adding assembly and installation costs. He acknowledged that some consideration
might be given to sales tax and the cost of moving equipment to a logging site, but
said he had not seen such adjustments made to appraised values in a going
concern tangible asset backing valuation in his experience of valuing logging
contractors.
[394] There was no evidence as to likely contingencies that would justify the 5%
increase in the equipment value put forward by the Springer Appraisal.
[395] I am satisfied that the nature of the ABG equipment and the logging industry
made it unlikely that the substantial additional costs imposed by a fair market value
in continued use premise could be justified. Some amount might be added for
transportation costs, but it is difficult to estimate what those would be on the
evidence available. I find Mr. Springer’s approach of simply assessing $1,000 for
each piece of equipment to be too arbitrary. I have no information against which to
apply his alternative estimate of a dollar a mile.
2008 BCSC 328 (CanLII)
mobile. Larger pieces were easily transported by a truck or barge. As well, Mr.
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[396] The second argument raised by Mr. Harder as to the suitability of a value-inuse premise is more complex. This involves an analysis of whether the business
value in continued use such as the Springer Appraisal.
[397] It was common ground that any purchaser of the ABG would want a
reasonable return on the investment, commensurate with the associated risk. Mr.
Bowie, for example, testified that it is basic in any business transaction to relate the
proposed purchase price to the earnings that the business will generate in the future.
This analysis is an essential factor in assessing fair market value on a going concern
basis. He said that there must be a rational reconciliation between the going
concern value and the expected cash flow to the investor. If they cannot be
reconciled, it is necessary to re-examine the approach to the valuation, or the values
attributed to the assets.
[398] The earnings assumption is typically tested by an analysis of the business’
historical financial performance. This is generally done by normalizing corporate
earnings through removal or adjustment of business expenses such as tax, interest,
capital expenditures, and management income, which may vary due to management
decisions or other reasons unique to the company. The result is what Mr. Shultz
referred to as a “purification of the operating cash flow” that permits comparisons
between companies, and an objective assessment of the cash flow available from
business operations independent of management decisions. Various approaches
may be used, including calculation of the discretionary cash flow or normalized
income before taxes, or an EBITDA analysis.
2008 BCSC 328 (CanLII)
earnings from the ABG’s equipment could support an appraisal based on fair market
Newton v. Marzban
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[399] The Springer Appraisal clearly assumed that business earnings would
support its equipment value of $10,790,000. Mr. Springer testified that this is a
business, and so he chose fair market value in continued use as the appropriate
premise for his appraisal. He did no investigation into earnings, however, and
assumed that the valuator, in this case Mr. Barbour, would test his appraised value
against the business earnings of the ABG to ensure that he had not overvalued the
equipment. He agreed that he advised the plaintiff’s counsel that if his equipment
value was not supported by the business valuator, he would likely have to change
his conclusion to a supportable level. Mr. Springer testified that he has a
professional obligation to do so, and said that generally in such cases the appraiser
works with the valuator to revise the equipment value downwards to the point that it
is reconciled to an appropriate return. This may be done by an adjustment for
external obsolescence, or the valuator may conclude that the business is not a going
concern as originally assumed, and ask for an appraisal on a lower premise of value.
[400] Mr. Springer said that in this case, he heard nothing about Mr. Barbour’s
analysis or conclusions with respect to the earnings assumption.
[401] Mr. Barbour’s valuation is set out in his Report #2, dated August 24, 2006. It
clearly relies on the Springer Appraisal for the equipment value. It does not,
however, address the question of whether that value can be supported by the
business earnings of the ABG. When Mr. Bowie and Mr. Shultz filed reports in
response that pointed this out, Mr. Barbour did not file a report in reply undertaking
2008 BCSC 328 (CanLII)
fundamental assumption. He said that he was told that the ABG was an operating
Newton v. Marzban
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such an analysis. Instead, his views on this issue emerged for the first time during
[402] Mr. Barbour agreed that a purchaser of the ABG would want a reasonable
rate of return commensurate with the risk of the investment, that the premise of fair
market value in continued use reflects this in the earnings assumption, and that he
knew that Mr. Springer had made no investigation of the ABG’s earnings. He also
agreed that he did not address the earnings premise directly in his report.
[403] When asked about this omission, Mr. Barbour said that he thought it was selfevident that the earnings premise was satisfied by the ABG’s earnings in 2000. It
was his view that the ABG had been in a growth position for several years, as
evidenced by its large capital acquisitions in 1998 and 1999, related to the
establishment of the Duke Point Custom Log Sort Ltd., Duke Point Shake & Shingle
Ltd., Alliford Bay Transport Ltd., and the acquisition of the new J.S. Jones Bill 13
contract. As well, it had a significant increase in revenue from $11 million in 1998 to
$29 million in 2000. Mr. Barbour said that, as a result, he did not view the ABG’s
historical earnings as necessarily representative of the return that could be
generated. Instead, he concluded that 2000 was likely its most representative year.
He acknowledged that 2000 also happened to be the ABG’s best year.
[404] Mr. Barbour conceded that two-thirds of the ABG’s total revenue in 2000
came from its Bill 13 and market logging contracts, and that the prediction of future
income from those sources is difficult. He nevertheless maintained that it was not
imprudent to use 2000 alone as the year most representative of the rate of return
2008 BCSC 328 (CanLII)
his cross-examination.
Newton v. Marzban
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that the ABG could generate, and said that this rate more than satisfied the earnings
assumption inherent in the Springer Appraisal, as well as his tangible asset backing
[405] Asked about the appropriate rate of return, Mr. Barbour said that selection of
that rate is subjective, and unique to each business. He emphasized that the rate of
return must reflect the fact that the ABG valuation has been done on a tangible asset
backing basis, which involves a lower level of risk than an income-based valuation.
He estimated a reasonable rate of return to be in the range of 10 to 12%. During reexamination, he testified that he calculated the ABG’s after-tax cash flow for 2000 to
be $1.4 million, and dividing that by his share value of $7,800,000 would provide a
reasonable rate of return. By my calculation, that rate is in the range of 17.9%.
[406] Mr. Barbour’s evidence as to whether and when he actually performed any
analysis of the ABG’s historical cash flow to test the earnings assumption was
contradictory and difficult to follow.
[407] He initially testified that he had done an analysis of the ABG’s historical
earnings, but agreed that the only part of Report #2 that related to this analysis was
a calculation of pre-tax cash flow at Tab 9. While this table sets out data for 1998 to
2001, the pre-tax cash flow is only calculated for 2000 and 2001. Mr. Barbour
testified that, although he had the 1998 and 1999 financial statements when he
prepared this, he was missing information on net current capital expenditures for
those years and so could not calculate a pre-tax cash flow for them. He agreed that,
as a result, he could not calculate the historical sustaining capital expenditures or
2008 BCSC 328 (CanLII)
valuation based on that appraisal.
Newton v. Marzban
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the discretionary cash flow for any year except 2000 before he delivered his report in
[408] On November 10, 2006, after the defendants had delivered their experts’
reports, Mr. Barbour delivered a revised Tab 9. This version corrected an unrelated
error dealing with a deduction for amortization, and also expanded his calculations of
pre-tax cash flow to include 1996 to 1999.
[409] Later in his evidence, however, Mr. Barbour said that this new Tab 9 was not
intended to analyze the historical cash flow of the ABG for the purpose of
capitalizing it. Instead, the calculation was “just information”. He said that, had he
intended to test the earnings assumption, he would have calculated the discretionary
cash flow. In doing so, he would have deducted the sustaining capital expenditures
only, and not the net current capital expenditures as done in his revised Tab 9
calculations.
[410] Challenged as to exactly what analysis he had done to test the earnings
assumption before he wrote his August report, Mr. Barbour gave this somewhat
confusing evidence as to whether he actually did a discretionary cash flow analysis:
A
Q
A
Q
A
I used [the Springer Appraisal] numbers, yes, I did.
Right. And you did not look at any historical discretionary cash
flows to determine whether or not that fair market value and [sic]
continued use was supportable?
That’s not true. I looked at them and concluded that trying to
calculate a discretionary cash flow on the historical information
was not a suitable methodology to use.
My question is you didn’t do it, did you?
I did do it. I came to the conclusion that it -- that it wasn’t
worthwhile to do.
2008 BCSC 328 (CanLII)
August, 2006.
Q
A
Q
A
Q
A
Page 126
Haven’t we established that with Exhibit 30 [his original tab 9]
you didn’t do it?
I’m sorry, but -You couldn’t have done it because you didn’t -You couldn’t even figure out the cash flows for 1999 and 1998,
you didn’t have the necessary information?
But I did -- I did it with the revised tab 9.
So you did it after?
No, I -- I did the calculation as to what the income was. I came
to the conclusion that the revenue and the cap -- the revenue
was increasing, the capital expenditures were very large and I
quite frankly came to the conclusion that you couldn’t do a
discretion cash flow or shouldn’t do a discretionary cash flow on
the historical information because it was meaningless.
[411] As his testimony progressed, Mr. Barbour expressed regret that he had not
included something in his report that addressed the earnings assumption.
Ultimately, he conceded that his failure to address that issue was a significant
omission, and a breach of s. 9.2E of Standard No. 310 of the CICBV currently in
force, which requires an expert report by a valuator to include “assumptions used
and the procedures followed to determine the reasonableness and appropriateness
of key assumptions”.
[412] On re-examination, counsel invited Mr. Barbour to set out the analysis he
wished he had included in his report with respect to his investigation of the earnings
premise. In response, Mr. Barbour referred to the calculations in his revised Tab 9.
Following objections from the defendants, he was limited to describing the analysis
he did prior to the delivery of his report in August 2006, since the critical issue was
whether he had tested the earnings assumption on which the Springer Appraisal
relied before he based his valuation in Report #2 on that appraisal. Mr. Barbour
then testified that he had analyzed the historical capital expenditures prior to writing
2008 BCSC 328 (CanLII)
Newton v. Marzban
Newton v. Marzban
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his report, but this evidence still referred to the calculations in his revised Tab 9 that
were prepared after delivery of that report. The suggestion he had done an earlier
the delivery of his report, he had been unable to calculate pre-tax cash flow, capital
expenditures, and discretionary cash flow for the years prior to 2000.
[413] I find that Mr. Barbour did not undertake any analysis of the ABG’s historical
cash flow to test the earnings assumption underlying the Springer Appraisal before
he delivered Report #2. Instead, he chose to use 2000, the ABG’s best year, as
most representative of the rate of return, based on his observations of capital
expenditures in 1998 and 1999, and the increased revenue in 2000. I find this
approach cannot be supported on an analysis of the ABG’s operations.
[414] First, it fails to give sufficient weight to the cyclical nature of the logging
industry. The capital expenditures on which Mr. Barbour relied were all related to
that industry. The evidence is clear that variability in the industry and its markets
make future revenue unpredictable. This suggests that any approach that relies on
high revenue in one year as indicative of a continuing rate of return in loggingrelated operations must be tenuous.
[415] Next, in reaching his conclusions, Mr. Barbour did no analysis to determine
whether the ABG companies that benefited from the increased capital expenditures
were the source of the increased revenue in 2000 as he theorized.
[416] Mr. Harder, on the other hand, conducted a detailed analysis of the
profitability of both the ABG as a whole, and its component companies. He
2008 BCSC 328 (CanLII)
historical analysis was clearly inconsistent with his previous testimony that, prior to
Newton v. Marzban
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acknowledged the shift in the ABG’s operations in the late 1990s, but concluded that
while the overall combination of businesses drove its profitability, its revenue was
came from market logging and Bill 13 contracts.
[417] Moreover, Mr. Harder’s analysis and investigation indicated that while some
of those contracts had been profitable, future revenue from them was not assured
due to declining logging volume, uncertainty about future AAC and the availability of
future market logging contracts, and increased overhead related to environmental
issues. For example, while the Bill 13 contract with J.S. Jones that the ABG had
purchased for $500,000 in 1998 was the most significant source of the ABG’s
revenue in 2000, Mr. Harder’s investigation showed this was anomalous as the ABG
had been permitted to take significant extra volume that year. Future profit expected
from that source was significantly lower. Moreover, that contract terminated at the
end of 2001. Nor did Mr. Harder’s analysis show a significant increase in
sustainable profit from the operations that received the benefit of the other capital
expenditures in 1998 and 1999 such as Alliford Bay Transport Ltd. or the Duke Point
operations.
[418] Mr. Harder’s analysis was confirmed to a degree by Mr. De Clark, who agreed
that prevailing economic and environmental concerns in the industry contributed to
the ABG’s decreased profit margin and cash flow. He described the cash flow as
tight in 1999 to 2001, and said that it did not improve for the most part. He also
testified that the volume of timber cut varied annually, and there was no guaranteed
income at any particular level from the ABG’s Bill 13 contracts. Mr. De Clark
2008 BCSC 328 (CanLII)
essentially based in the volume of timber logged. In 2000, two-thirds of its revenue
Newton v. Marzban
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provided rough estimates of the productivity of the various ABG companies. He said
that the chipper was among the most profitable operations although it had high costs
Transport Ltd. produced about 5%. Road building contracts produced about 10%,
and logging contracts 40 to 60%. He believed that Duke Point Custom Log Sort Ltd.
provided 15 to 20% of the revenue.
[419] This evidence satisfies me that any reasonable purchaser would be unlikely
to accept Mr. Barbour’s view that the increased capital expenditures in 1998 and
1999, together with the increased revenue in 2000, were indicative of an acceptable
and sustainable rate of return.
[420] Nor does Mr. Barbour’s approach withstand scrutiny in light of the evidence of
the defendants’ expert valuators, Mr. Bowie, Mr. Schultz, and Mr. Cheevers. Using
different approaches, each undertook an analysis of whether the ABG’s cash flow
provided a sufficient return to justify the Springer Appraisal value. Each concluded it
did not.
[421] Mr. Bowie measured the rate of return related to different equipment values
by calculating the historical discretionary cash flow of the ABG from 1995 to 2000.
He concluded that its historical performance indicated that future annual
maintainable cash flow before income tax and capital expenditures would be in the
range of $1.7 million if averaged over all years. If the ABG’s two worst years of 1995
and 1998 were omitted to provide a more optimistic view, the figure became $2.2
million. Since capital expenditures had been variable, he averaged the net outlay on
2008 BCSC 328 (CanLII)
as well. He estimated that it provided 5 to 10% of the revenue. Alliford Bay
Newton v. Marzban
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capital assets over those six years, taking into account the tax relief associated with
the purchases. This provided a figure of $1.4 million as the deduction for capital
cash flow in the range of $60,000 to $355,000 annually. The discretionary cash flow
in 2000, the ABG’s best year, was $570,000.
[422] A rate of return is calculated by dividing the discretionary cash flow by the
proposed share value. Thus, if $570,000 is divided by Mr. Barbour’s share value of
approximately $7,587,000, it produces a rate of return of approximately 7.5%. If it is
divided by Mr. Harder’s share value of $2,635,400, it produces a rate of return of
approximately 21%.
[423] Mr. Bowie testified that the rate of return obtained on Mr. Barbour’s share
value would be totally unacceptable to a prospective purchaser. He also pointed out
that anyone purchasing the ABG would have to incur the additional expense of
paying out the shareholders’ loans and outstanding bonus, which would lower the
rate of return further. Mr. Bowie concluded that no prudent investor would purchase
the ABG’s shares for the value put forward by Mr. Barbour.
[424] In cross-examination, the plaintiff’s counsel suggested to Mr. Bowie that he
underestimated the discretionary cash flow by deducting 100% of capital
expenditures. He suggested that only those capital expenditures required to sustain
the level of revenue should be deducted, and it was inappropriate to deduct nonrecurring capital expenses as well.
2008 BCSC 328 (CanLII)
expenditures. He then deducted corporate income taxes to obtain a discretionary
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[425] Mr. Bowie disagreed. While he acknowledged that the calculation of
discretionary cash flow is very sensitive to the analysis of what is a non-recurring
expenditures in 1998 and 1999, to which Mr. Barbour refers, were not non-recurring
capital expenditures as the plaintiff alleges. They were things such as equipment
and yard preparation that will have to be replaced in the future to maintain the same
stream of income. Those future costs must be built into estimates of future cash
flow by a deduction of sustaining capital expenditure.
[426] The plaintiff’s counsel also suggested to Mr. Bowie that he had
underestimated the discretionary cash flow by about $208,000 by failing to recognize
an income tax write-off available to the purchaser in 2000 for depreciation.
[427] Mr. Bowie responded that his calculation did not ignore that write-off. He said
that he dealt with it instead through tax shield calculations as the write-off for
depreciation is variable, and it is simply a matter of timing. If the purchaser took a
more rapid write-off now as suggested by the plaintiff, he or she would have less to
write off in the future. In his view, a purchaser would be more likely to want an
indication of ongoing discretionary cash flow, not a one-year snapshot with a writeoff for depreciation that is larger than usual.
[428] The plaintiff’s counsel further suggested to Mr. Bowie that, since Mr. Newton
owned 50% of the ABG, and the ABG owns the assets, he was effectively looking at
the transaction from both sides, as a buyer and a seller. The plaintiff’s counsel
pointed out as well that Mr. Newton is very well-informed about the ABG, and
2008 BCSC 328 (CanLII)
capital expense and what is a sustaining capital expense, he said that the capital
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suggested that these factors indicate that he would not face the same degree of risk
[429] Mr. Bowie disagreed. He said that a valuator deals with fair market value
assumptions based on a hypothetical purchaser and seller, not on the characteristics
of a particular purchaser. He also observed that, even if the husband might be
satisfied with a lower rate of return, it is doubtful that he would be prepared to pay a
higher share value associated with that.
[430] Mr. Cheevers tested the reasonableness of Mr. Barbour’s share value by
calculating the cumulative normalized income of the ABG before taxes from 1994 to
2000. He concluded that the historical earnings of $1,174,478 did not justify Mr.
Barbour’s share value. Over the entire seven-year period, his calculations produced
a rate of return of 2.2%. Over the last three years, they produced a return of 4.5%.
Mr. Cheevers testified that these rates could not compete with the earnings available
through other investments that did not carry the same risk as the forest industry.
[431] On cross-examination, Mr. Cheevers agreed that his analysis was limited to
information in the ABG’s financial statements. He knew nothing of the ABG’s
operations, and assumed the business had not changed to any significant extent
since 1994. He agreed that it was not appropriate to compare year to year results if
there have been significant changes in the assets or type of business carried out by
a company.
[432] Mr. Shultz undertook an examination of what the ABG’s business earnings
would have to be to support the Springer Appraisal equipment value based on an
2008 BCSC 328 (CanLII)
in purchasing the plaintiff’s shares, and would thus accept a lower rate of return.
Newton v. Marzban
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EBITDA analysis. He testified that around October 2000, medium-sized privately
held companies such as the ABG changed hands at multiples of four to six times
average EBITDA of $1,125,000 through a series of averaging approaches. He then
applied multiples of four, five and six, representing rates of return of 25%, 20% and
17% respectively, to that average, to estimate the enterprise value of the ABG under
each multiple. He subtracted the non-capital deliverables from each of the three
totals, and concluded that the remaining balance, which ranged from $382,000 to
$2,632,000, represented the ABG’s deemed equipment value. Those balances
were well below the Springer Appraisal equipment value of $10,790,000, and Mr.
Shultz concluded that values derived from commonly used multiples in similar
transactions could not support that value.
[433] Next, Mr. Shultz used the same EBITDA calculation to determine what the fair
market value of the ABG would have to be to support the equipment values in the
AA Appraisal, the Springer Appraisal, and the Ritchie Bros. Appraisal, as well as the
related EBITDA multiple and rate of return.
[434] He concluded that to support the AA Appraisal value of $12,760,000, the ABG
would have to be valued at $16,879,000, and would have an EBITDA multiple of 15
with a corresponding rate of return of 7%. The value required to support the
Springer Appraisal would be $14,628,000 with an EBITDA multiple of 13 and a rate
of return of 8%. The Ritchie Bros. Appraisal would require an enterprise value of
$9,002,000 and a multiple of 8 associated with a rate of return of 12.5%.
2008 BCSC 328 (CanLII)
EBITDA. He calculated the ABG’s EBITDA from 1996 to 2000, and reached an
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[435] Mr. Shultz said that, by way of comparison, publicly traded companies in the
forest industry have an average multiple of 5, with a corresponding average return of
similar transactions does not provide a rational result. Instead, it produces
equipment values for the ABG that are lower than those that could be achieved by
simply selling the equipment.
[436] He also found that the equipment values in each of the three appraisals were
too high to provide an acceptable rate of return when tested against the ABG’s
average EBITDA. Mr. Shultz accordingly concluded that common sense, as well as
valuation principles, dictated that it was appropriate to abandon fair market value in
continued use as the proper premise, and instead value the equipment on a valuein-exchange basis, which he viewed as the same as fair market value or auction
value. In essence, Mr. Schultz testified that if the owner is able to sell the ABG
equipment at a Ritchie Bros. auction for $4,500,000, it would be inappropriate to
value it in the lower range of $382,000 to $2,632,000 that would result from his
EBITDA-based value-in-use analysis.
[437] On cross-examination, the plaintiff’s counsel again raised the failure to
differentiate between sustaining and growth capital expenditures in the deduction for
the net capital expenditures in Mr. Shultz’s analysis. Mr. Shultz, like Mr. Bowie, said
that he does not differentiate between these because he assumes that businesses
will always spend money on capital acquisitions to enhance their future profitability,
and it is characteristic to average those expenses over time. Here, the expenditures
were intended to further the ABG’s activities in the logging business and it would not
2008 BCSC 328 (CanLII)
20%. He concluded that the range of EBITDA multiples commonly used to value
Newton v. Marzban
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be appropriate to take those capital expenditures out of the analysis. They expire
[438] On cross-examination, Mr. Shultz agreed that an EBITDA comparison would
not be appropriate for dissimilar businesses, and that there are differences between
publicly traded forest companies and the ABG. As a result, he conceded that his
comparison with rates of return from those public companies may be imprecise, but
said that they provide the best EBITDA comparison available as they are in the
same industry, and subject to the economic influences in the same marketplace.
[439] Mr. Shultz agreed that his analysis was based on an assumption that all of
the ABG revenue arose from applying its equipment in various activities related to
the logging industry. He agreed that if that assumption was wrong and the ABG
carried on operations unrelated to logging, then the revenue related to logging
equipment would be correspondingly reduced.
[440] The plaintiff’s counsel suggested to Mr. Shultz that if the ABG had an obvious
trend of increasing profit, it was wrong to use a historical average of EBITDA which
went beyond that period. Mr. Shultz replied that if there was such a trend it would be
appropriate to average the last three years. He said, however, that it was not
appropriate to simply take the best year as indicative of future profit. A valuator
should always average back somewhat for the risk that some future years will not be
as good. In analyzing earnings for any practical purpose in a valuation, it is always
necessary to look at them over a reasonable period and then apply judgment as to
whether that history is a reasonable predictor of the future. In the case of the ABG,
2008 BCSC 328 (CanLII)
over time and so must be averaged over a period of years.
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he did not accept that new operations made it inappropriate to look at historical
earnings. It was not as if an old business had stopped and a new one had started.
[441] The plaintiff’s counsel attacked all three defence experts for normalizing the
ABG management income at $200,000 in their calculations, when it had varied
between $78,000 to $922,000 between 1995 and 2000. The witnesses agreed that
the figure chosen as normalized management income affects the calculation of
discretionary cash flow and EBITDA. They pointed out, however, that they adopted
the $200,000 figure as Mr. Barbour had used it in his calculation of pre-tax cash
flow, and they agreed that it was a reasonable theoretical estimate of management
compensation in a company like the ABG.
[442] I conclude that the earnings assumption is a fundamental element of the
premise of fair market value in continued use, and that the accepted means of
testing that assumption is ascertaining the expected rate of return through an
analysis of the normalized historical cash flow of the business.
[443] Mr. Bowie pointed out that Mr. Barbour’s Report #2 was a comprehensive
valuation report under Standard 110 of the CICBV, and as such is expected to
contain the highest level of assurance as to the accuracy of its conclusion. As well,
section 3.1D of Standard 120 of the CICBV operative in 2006 requires a valuation
report to include sufficient evidence to ensure that its conclusions are properly
supported. Mr. Bowie testified that one would expect such a report to include
disclosure of the earnings assumption, and a comprehensive analysis addressing it.
2008 BCSC 328 (CanLII)
He pointed out that 1996 was also a very good year.
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[444] I find that Mr. Barbour did not do such an analysis. Instead, he relied on
increased capital expenditures in 1998 and 1999, and high revenue in 2000, to
rate of return, and that this rate was adequate to support the Springer Appraisal
value. I find that this analysis was a superficial and inadequate test of the earnings
assumption.
[445] The analyses of the three defence experts, each working independently and
each using a different approach, satisfy me that the ABG’s earnings could not
support an equipment value based on a premise of fair market value in continued
use. While the plaintiff demonstrated that any calculation of normalized cash flow is
sensitive to the interpretation and adjustment of a number of variables, that does not
alter my conclusion. It was clear that any adjustments to these experts’ calculations
would have to be significant to bring the ABG’s normalized cash flow to a level that
would justify a value such as that in the Springer Appraisal, based on a value-in-use
premise. Nothing in the evidence about the ABG’s financial performance, including
Mr. Barbour’s testimony, convinces me that such adjustments are possible or
practical.
[446] I conclude that Mr. Harder did not did not breach the standard of care of a
reasonably competent chartered business valuator by failing to obtain an appraisal
based on fair market value in continued use as a basis for his valuation.
2008 BCSC 328 (CanLII)
conclude that the ABG’s performance in 2000 was representative of the expected
Newton v. Marzban
3)
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Was it reasonable for Mr. Harder to rely on the Ritchie Bros. Appraisal?
value-in-use, or fair market value in continued use, must be abandoned as the basis
for appraising the ABG equipment, and replaced by an appraisal based on a valuein-exchange premise. The question therefore arises as to whether it was reasonable
for Mr. Harder to accept the Ritchie Bros. Appraisal as an appropriate value-inexchange appraisal for his valuation.
[448] The plaintiff says that it was unreasonable for Mr. Harder to rely on the
Ritchie Bros. Appraisal as it was premised on a forced liquidation scenario
inconsistent with a going concern valuation. It assumed that the equipment would
be auctioned within 45 days by a seller under compulsion, as once he or she
commits to sell at a Ritchie Bros. auction there is no reserve and the seller cannot
bid. As well, the plaintiff says that many characteristics of the auction process, such
as the weather, the date of the auction, and low attendance, have a potentially
negative impact on auction values.
[449]
She argues that even if a value-in-use premise cannot be sustained, the
ABG remained a going concern. It was not under any compulsion to sell its
equipment precipitously, and Mr. Harder should have obtained another appraisal
based on a premise appropriate to those circumstances. Since the plaintiff’s
argument focused on the use of a value-in-use appraisal, she did not expressly
address what value-in-exchange premise would be appropriate. I infer that it would
2008 BCSC 328 (CanLII)
[447] The analysis in the last section leads to the conclusion that the premise of
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be an orderly liquidation value, using comparables from dealers rather than auction
[450] The plaintiff also took issue with the methodology used by Ritchie Bros. She
argues that the appraisal was not conducted by certified appraisers, and their
comparables were restricted to their own auction sales, which reveal a wide range of
values, demonstrating the volatility of auction prices. As well, she suggests that a
previous relationship between Mr. Newton and David Carswell, one of the Ritchie
Bros. appraisers, raises the question of whether Ritchie Bros. was biased in favour
of Mr. Newton. Finally, she complains that the Ritchie Bros. appraisers were not
called as witnesses.
[451] At the outset, I observe that the inconsistent use of appraisal terminology in
the evidence makes it somewhat difficult to analyze this issue with precision. For
example, Mr. Shultz broadly interpreted value-in-exchange to be the same as fair
market value or auction value. The Springer Appraisal uses fair market value as a
separate premise, while the AA Appraisal equates it with orderly liquidation value,
and others view it as a generic term that covers different appraisal premises. The
Springer Appraisal definition of orderly liquidation value approximates the AA
Appraisal definition of auction value. Both the AA Appraisal and the Ritchie Bros.
Appraisal are said to be based on an auction value premise, but they are millions of
dollars apart. Witnesses active in the marketplace, such as Mr. Caufield and Mr. de
Sousa, eschew such methodological terms in their definitions of fair market value.
2008 BCSC 328 (CanLII)
prices, and permitting longer exposure to the market.
Newton v. Marzban
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[452] I reject the plaintiff’s suggestion that a past relationship between Mr. Newton
and a representative of Ritchie Bros. led to bias in the Ritchie Bros. Appraisal.
part.
[453] I agree that, from a theoretical perspective, the assumptions underlying the
Ritchie Bros. Appraisal conform to a methodological premise of forced liquidation.
The equipment receives 45 days of market exposure. There is an element of
compulsion since once a seller signs a contract with Ritchie Bros., he or she loses
the opportunity to negotiate or control the purchase price. I also accept that, in the
theoretical framework, the ABG remained a going concern and was not in a situation
of forced liquidation.
[454] It is apparent that Mr. Harder took a practical, rather than theoretical,
approach in relying on the Ritchie Bros. Appraisal. He testified that he was aware of
the assumptions on which the Ritchie Bros. Appraisal was based. He believed it
was appropriate to use it, however, because in his valuation experience with
equipment appraisals and vendors, Ritchie Bros. routinely sold the kind of used
logging equipment owned by the ABG, and their prices represented market value for
such equipment. He said that he used the Ritchie Bros. equipment value in both his
going concern and liquidation calculations because be believed that the ABG
equipment value would not change in those scenarios, as long as there was proper
exposure to the market and a logical and reasonable approach to the sale, both of
which he anticipated a Ritchie Bros. auction would provide.
2008 BCSC 328 (CanLII)
There is no evidence to support such an allegation other than speculation on her
Newton v. Marzban
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[455] Mr. Harder said that although he was not familiar with the database or the
comparables used by Ritchie Bros., he knew the firm to be deep in their experience
aware that they would actually inspect the ABG equipment. Mr. Harder knew that
the Ritchie Bros. appraisers were not accredited, but said he was not concerned
about this as he believed they did credible work based on their experience in the
industry and the market.
[456] In essence, Mr. Harder looked to the marketplace instead of the theoretical
appraisal premises in choosing to use the Ritchie Bros. Appraisal. He argues that
this was justified because of the unique place Ritchie Bros. occupies in the market
for used logging equipment in British Columbia, and says that their appraisal
provided acceptable information as to the market value of equipment like that owned
by the ABG.
[457] To determine whether that approach met the standard of care, it is necessary
to examine exactly what Ritchie Bros. is and does. That information was provided
primarily by Mr. Caufield, the manager of special projects for Ritchie Bros., and by
Mr. de Sousa, an expert witness who works for Finning Canada. Mr. Bowie, Mr.
Schultz, and Mr. Gauthier also provided evidence about Ritchie Bros.
[458] Mr. Caufield testified that Ritchie Bros. originated as an auction firm in
Kelowna 50 years ago, and is now a public company and the largest auction house
and largest seller of used industrial equipment in the world. Its 25 closest
competitors do less than one quarter of Ritchie Bros.’ sales volume, which was over
2008 BCSC 328 (CanLII)
and in the volume of sales they did for this kind of equipment. As well, he was
Newton v. Marzban
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$2.7 billion in 2006. Ritchie Bros. carries out 160 industrial auctions a year at 29
auction sites. Two of those sites are in British Columbia, in Surrey and Prince
reserve prices. Its business model, which Mr. Caufield described in detail, is based
on aggressive marketing to the widest possible customer base. Mr. Caufield said
that Ritchie Bros. uses a relatively short market exposure to place as much
equipment as possible in its advertising, and to retain customer attention.
[459] He said that Ritchie Bros. sells used equipment on an as is/where is basis.
The only modifications they make are cosmetic, to maximize the return. Ritchie
Bros. provides no representations, guarantees, or warranties. Nor does it provide
lease-to-buy arrangements.
[460] Mr. Caufield said that typically between 900 and 1,500 people attend its
auctions, and purchasers can also bid by telephone in advance. Eighty-five percent
of the sellers are operating businesses, and only 15% tend to be financial
institutions. Eighty percent of the purchasers are end-users, the rest are dealers.
He said that Ritchie Bros. takes care to provide comfortable and convenient facilities
for its customers, and denied that attendance, and therefore price, can be affected
by such factors as weather, location, or date of the auction.
[461] It was Mr. Caufield’s view that, although Ritchie Bros. sells equipment by
auction on a no-reserve basis, its prices represent retail value, or fair market value
for used equipment sold “as is”. He resisted the term “liquidation” in the context of
Ritchie Bros.’ operations, as he said that connotes receivership or a poorly
2008 BCSC 328 (CanLII)
George. Each conducts four auctions per year. Ritchie Bros. auctions have no
Newton v. Marzban
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advertised distress sale, which is not what Ritchie Bros. does. He maintained that
its advertising, preparation, and presentation distinguishes it from a liquidation
[462] Mr. Caufield agreed that Ritchie Bros.’ appraisal department does not use a
gradient of theoretical premises. Instead, they rely on comparables derived from
prices obtained at their auctions. Although they sometimes look to other sources, he
said they do not use dealer comparables as those represent asking prices, rather
than sales prices, and so are not relevant. Mr. Caufield testified that Ritchie Bros.
uses the same database if they are asked to value equipment to sell.
[463] I acknowledge that Mr. Harder did not call any of the Ritchie Bros. employees
who actually did the Ritchie Bros. appraisal. However, I draw no adverse inference
from that, as the appraisal is an exhibit and the process is largely an averaging
analysis of the Ritchie Bros. data bank, which leaves little scope for personal
judgment.
[464] Mr. Caufield was an admitted advocate for Ritchie Bros., and I would be
reluctant to base my findings with respect to the validity of Mr. Harder’s approach on
his evidence alone. However, his account of Ritchie Bros.’ position in the used
equipment market was corroborated by the evidence of Mr. Tony de Sousa.
[465] Mr. de Sousa testified as an expert in market conditions for used logging and
road-building equipment in British Columbia. He has spent 30 years with Finning
Canada, a large international company that sells and services new and used
equipment, predominantly the Caterpillar brand. Mr. de Sousa has worked in
2008 BCSC 328 (CanLII)
context.
Newton v. Marzban
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logging equipment sales in British Columbia for a number of years, and is presently
Finning’s general manager of equipment services, including all used equipment for
[466] Mr. de Sousa was retained as an expert in an unusual manner. His expertise
came to light through a casual conversation with a friend who was an articled
student in the law firm of Mr. Harder’s counsel. He had not testified as an expert
witness before. He nevertheless impressed me as an objective witness with
considerable practical knowledge of the used equipment market in western Canada.
[467] Mr. de Sousa described Ritchie Bros. as a “huge, huge” competitor of Finning
Canada in used equipment sold on an as is/where is basis, and said that its revenue
in that field far exceeds Finning’s. He testified that Ritchie Bros. plays such a large
part in the used equipment market in western Canada that its auctions are a very
reliable resource as to trends and prices in that market. Finning encourages its staff
to attend Ritchie Bros. auctions to pick up market trends and intelligence about the
competition. He said that in many cases a Ritchie Bros. auction sale is the market at
that point in time. He views both Ritchie Bros. and Finning as retailers selling to
end-users, and says that Ritchie Bros.’ auction prices are very close to Finning’s
prices for equipment sold on an as is basis.
[468] Mr. de Sousa did not deal with equipment values in terms of appraisal
premises. In his view, fair market value is the price at which a seller will sell and a
buyer will buy. He did not view auction sales as equivalent to forced liquidation,
saying that the term liquidation applies only when there are no options. He said that
2008 BCSC 328 (CanLII)
western Canada.
Newton v. Marzban
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Finning’s exposure for equipment is typically three months, after which they either
[469] Mr. de Sousa described significant differences in used equipment
comparables drawn from dealers, compared to those from auction sales. He said
that these preclude reliably matching and comparing dealer and auction prices.
Dealers’ prices are generally higher because they sell used equipment with valueadded options such as reconditioning, extras, financing, warranties, or contracts for
repair and maintenance, all of which are not typically available through auctions. As
well, an auction price is a done deal, whereas a dealer price is often a wishful list
price, and says nothing about the final purchase price.
[470] Mr. de Sousa agreed that there is no innate compulsion when shopping at a
dealership, and a dealer’s setting can be more convenient than an auction. As well,
he acknowledged that auction results can be volatile, and are influenced by the
number of bidders. He disagreed, however, that that volatility necessarily means
that auction prices are not competitive with dealer prices, because both work under
the same market forces, and because dealer prices will have some value-added
component.
[471] Mr. de Sousa testified that Finning does not buy equipment at Ritchie Bros.
auctions to “flip it” for a higher price, since Ritchie Bros.’ prices are generally market
value. Finning only buys used equipment at Ritchie Bros. when they can sell it for
more by adding value to it. Finning occasionally sells through Ritchie Bros. where it
2008 BCSC 328 (CanLII)
adjust the price, or take the piece to an auction.
Newton v. Marzban
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has made a mistake in the market, and cannot make a profit by adding value to the
[472] Mr. Harder’s reliance on Ritchie Bros. was supported by Mr. Bowie. He
testified that, as a valuator, he would be very comfortable relying on a Ritchie Bros.’
Appraisal for the ABG equipment, as the type of equipment owned by the ABG is
commonly bought and sold at Ritchie Bros, and the firm has a good feel for prices in
that field. He said that while they use an auction format, Ritchie Bros.’ sales are not
a forced liquidation. Their auctions are known as a forum where sales take place
without duress. Mr. Bowie testified that Ritchie Bros.’ auction values could
reasonably be expected to reflect market value or orderly liquidation value for such
equipment.
[473] Mr. Bowie said that he would find a Ritchie Bros. Appraisal of the ABG
equipment met the requirements of Specific Valuation Standard 120 VI of the CICBV
set out at paragraph [374] of these reasons, which sets the standard by which a
valuator assesses the adequacy of a report from a specialist on which he relies.
[474] Mr. Bowie did not view using the Ritchie Bros. Appraisal as inconsistent with
a going concern valuation as, in his view, it represented market value, which is what
the equipment would sell for absent a distress situation. For the same reason, Mr.
Bowie did not have difficulty with Mr. Harder’s decision to use the Ritchie Bros.
Appraisal in both a liquidation valuation and a going concern valuation.
[475] Mr. Shultz had limited personal experience with Ritchie Bros. However, he
offered the view that by virtue of its sales volume, Ritchie Bros. is the closest thing to
2008 BCSC 328 (CanLII)
used equipment.
Newton v. Marzban
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a stock market for used equipment, and satisfies the definition of fair market value.
[476] Although language difficulties sometimes interfered with the clarity of his
evidence, Mr. Gauthier testified that a Ritchie Bros. auction with merchandise
exposed to the market for 45 days is not a forced liquidation. He said there are
three markets for used equipment based on quality, standards, and guarantees
under which the equipment is sold. The first is dealers in new equipment who offer
used equipment certified to manufacturers’ specifications. The second is used
equipment sales offering equipment with added value. The third is an auction where
repairs are done for appearance only, and the equipment is sold on an as is basis
with no guarantee. Prices generally follow that scale, but Mr. Gauthier said that in
western Canada the auction market is very strong. Mr. Gauthier testified that he
relied heavily on Ritchie Bros.’ comparables in doing the GEC appraisal on an
orderly liquidation value premise.
[477] Mr. Harder points to footnote 8 in Chapter 1 of the 2000 Edition of the ASA
Text at 19 as support for the view that auction prices may represent orderly
liquidation value in some circumstances:
The term auction usually refers to forced liquidation value, but there
are exceptions to this general rule; for example, in certain industries,
an auction is the standard industry method for disposing of assets, in
which case it may be equal to orderly liquidation value, assuming a
normal exposure time (and may be equal to fair market value under
certain conditions). The essential difference between orderly
liquidation value and forced liquidation value is one of exposure time.
[emphasis in original]
2008 BCSC 328 (CanLII)
He disagreed that a sale at a Ritchie Bros. auction represents forced liquidation.
Newton v. Marzban
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This view is repeated at page 7 of the AA Appraisal. Mr. Martins acknowledged that
orderly liquidation value can be achieved at a properly advertised and conducted
[478] I conclude that the plaintiff has failed to establish that Mr. Harder’s use of the
Ritchie Bros. Appraisal as representative of the fair market value of the ABG
equipment was unreasonable. I find that Ritchie Bros. auctions do not fit easily into
the theoretical auction or forced liquidation appraisal premises. While aspects of its
auctions are consistent with those premises, I am satisfied that its sales volume,
clientele, and marketing process give it a unique place in the market for used logging
equipment sold on an as is basis in British Columbia, and support the view that its
auction prices can reasonably be taken to be representative of fair market value for
such equipment. There is nothing to suggest that the ABG equipment would be sold
with value-added features, or as anything other than used equipment available on an
as is basis.
[479] The selection of a suitable equipment appraisal by a valuator is essentially a
question of professional judgment. I am not convinced that it was unreasonable for
Mr. Harder to adopt a practical, as opposed to theoretical, approach in deciding that
the Ritchie Bros. Appraisal represented fair market value. In reaching that
conclusion I place considerable weight on Mr. Bowie’s view that the use of a Ritchie
Bros. appraisal for the ABG equipment would satisfy the professional standards of
the CICBV. As well, the multiple interpretations and results of the theoretical
appraisal premises in the appraisal evidence led at this trial suggests that the
2008 BCSC 328 (CanLII)
auction sale.
Newton v. Marzban
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theoretical approach can produce inconsistent and widespread results, and does not
[480] I find that Mr. Harder’s reliance on the Ritchie Bros. Appraisal was not a
breach of the standard of care of a reasonably competent valuator.
4)
Failing to properly reconcile differences in equipment values
[481] The plaintiff argues that Mr. Harder neglected to adequately reconcile the
differences in the capital asset list of the ABG compared with the asset list in the AA
Appraisal and the Ritchie Bros. Appraisal.
[482] I have found that it was appropriate for Mr. Harder to reject the AA Appraisal.
There is accordingly no basis for finding him at fault for not performing a
reconciliation related to that appraisal.
[483] Mr. Harder did reconcile the ABG capital asset list of October 31, 2000 with
the Ritchie Bros. Appraisal in reaching a final value for the equipment as of October
31, 2000. First, he deducted any equipment covered by the Ritchie Bros. Appraisal
that had been purchased since that date. His reconciliation of the remaining
equipment with the ABG asset list revealed about 253 pieces that had not been
appraised by Ritchie Bros. The vast majority of these were the miscellaneous
equipment, although there were some larger pieces as well.
[484] Mr. Harder reviewed each of these assets with Mr. Brewer and Mr. Newton at
their meeting on February 9, 2001, and they reached “agreed upon values” for most.
In many cases, these were the net book value. For others, Mr. Harder reached his
2008 BCSC 328 (CanLII)
preclude a practical approach that is based on a local market.
Newton v. Marzban
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own adjusted value based on the information they provided. This exercise produced
[485] Mr. Harder testified that he did not find it necessary to adjust his final
equipment value upward to recognize depreciation between October 30, 2000 and
February 1, 2001 as logging stopped over the winter and the equipment had had
little use during those months.
[486] These adjustments produced Mr. Harder’s final equipment value of
$4,889,800 in his valuation.
[487] I can find no basis on which to criticize this process. Mr. Bowie confirmed
that it is common to accept either net book value or some other estimate of value in
such cases. Significantly, Mr. Barbour adopted Mr. Harder’s values for the
miscellaneous equipment in calculating his final equipment value for his valuation. I
note that the miscellaneous equipment was not valued at all by the Springer
Appraisal, and was valued at considerably less than Mr. Harder’s value by the GEC
Appraisal.
[488] The plaintiff complains that Mr. Harder did not discuss these adjustments with
her and she did not authorize them. In my view, these adjustments fell within the
realm of Mr. Harder’s professional judgment and expertise, and were not a matter on
which he had to seek instructions.
2008 BCSC 328 (CanLII)
a final value of $435,595 for the 253 items.
Newton v. Marzban
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[489] I can find no basis for concluding that Mr. Harder breached the standard of
care of a reasonably competent chartered business valuator in the manner in which
5)
Failing to provide appropriate advice to the plaintiff about a third
equipment appraisal
[490] The plaintiff says that, given the discrepancy between the AA Appraisal and
the Ritchie Bros. Appraisal, she did not receive adequate advice from Mr. Harder
about the purpose and importance of a third appraisal based on a higher
methodological premise than that used by Ritchie Bros., so that she could assess
her possible range of outcomes. She says that, had she received such advice, she
would have obtained a third appraisal which would undoubtedly have been higher
than the Ritchie Bros. Appraisal, and would have significantly increased the value of
her shares. She acknowledges that Mr. Newton would likely have refused to settle
based on that higher value, and she would therefore have proceeded to trial with the
higher valuation.
[491] The plaintiff’s position is based on Mr. Barbour’s view, expressed in Report
#2, that the standard of practice required a valuator faced with divergent appraisals
to advise the client and her counsel that a third party equipment appraisal based on
value-in-use methodology was “required and essential”. Mr. Barbour’s opinion has
been rendered obsolete to some extent by my findings that a value-in-use
methodology could not be supported by the ABG’s earnings, and that Mr. Harder
was entitled to rely on the Ritchie Bros. Appraisal. It nevertheless does raise the
issue of Mr. Harder’s role in consideration of a third appraisal.
2008 BCSC 328 (CanLII)
he reconciled the equipment list to provide a final value.
Newton v. Marzban
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[492] Mr. Bowie agreed with Mr. Barbour to a limited extent. He concurred that a
valuator should raise an independent appraisal as an option with a client who is
independent information on which to rely. He did not agree that it was essential to
recommend a value-in-use methodology for any new appraisal.
[493] Mr. Shultz testified that a valuator may or may not discuss another appraisal
and its likely result with the client and her counsel in these circumstances. It was his
view that the valuator’s mandate is not to strain for a high value, but to give a value
that he can support and with which he is comfortable.
[494] As an independent expert retained to provide an objective valuation, I find
that Mr. Harder was not subject to a broad duty to fully advise and inform the plaintiff
with respect to strategic decisions to advance her best options in her matrimonial
dispute. I therefore do not accept that he was obliged to advocate a third appraisal,
or advise her that it was “required and essential”, when he was satisfied with the
Ritchie Bros. Appraisal. I find that the standard of care required that he simply raise
the option of another appraisal with the plaintiff, if she was unhappy with the Ritchie
Bros. equipment value, and leave it to her to decide whether she wished to pursue it.
[495] I am satisfied that Mr. Harder did so at the meeting with the plaintiff and Mr.
Hubley on March 15, 2001. I accept Mr. Hubley’s recollection of that meeting, which
confirms that Mr. Harder raised an alternative appraisal and its likely price with the
plaintiff. While Mr. Harder has little recollection of the meeting, I accept his evidence
2008 BCSC 328 (CanLII)
unhappy with an existing appraisal, if the valuator has no other credible and
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that his note of “$12,000 to $15,000 plus disbursements” on that day refers to the
[496] The plaintiff says that Mr. Harder knew that GEC had appraised the ABG
equipment for $5.3 million, and that Mr. Pearson had advised him that, if he did an
appraisal, his value would be somewhere between the AA Appraisal and the Ritchie
Bros. but closer to Ritchie Bros. She says that Mr. Harder should have shared this
information with her in discussing a third appraisal.
[497] I accept that Mr. Harder did not give the plaintiff that information. However, I
am not convinced that this represented a breach of the standard of care, given my
finding as to the narrow ambit of his obligation. For the reasons set out later in this
judgment, I find the responsibility to fully inform and advise the plaintiff about another
appraisal lay with Mr. Marzban as her advocate. In my view, it was sufficient for Mr.
Harder to alert the plaintiff to the possibility of a third appraisal and await some
indication from her that she wished to pursue this course.
[498] The plaintiff gave no such indication. I am satisfied that she knew that a
higher equipment value would increase the value of her shares, and that Mr. Hubley
had told her that she could challenge Mr. Harder if she was unhappy with his
approach. I find that she discussed the option of a third appraisal at some length
later with Mr. Hubley. However, she did not evince any interest in pursuing this, or
even raise the obvious query with him or Mr. Harder as to what the likely result of
another appraisal would be.
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estimated cost of a third appraisal obtained from Mr. Pearson.
Newton v. Marzban
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[499] Mr. Harder testified that when he wrote his memorandum of April 20, 2001 he
was still uncertain as to whether the issue of getting another appraisal had been
based on the Ritchie Bros. equipment value. I find that the plaintiff proceeded to
negotiate the settlement knowing that it was based on the Ritchie Bros. Appraisal,
and aware that she could have obtained a third appraisal had she wished to do so.
[500] Finally, I am not satisfied in any event that Mr. Harder knew that Mr.
Pearson’s view was that his appraisal would be somewhere between the AA
Appraisal and the Ritchie Bros. Appraisal but closer to Ritchie Bros. Neither he nor
Mr. Harder had a complete recollection of their dealings. Both agreed that Mr.
Harder had only sent Mr. Pearson a part of the AA Appraisal, and none of the
Ritchie Bros. Appraisal.
[501] Mr. Harder said Mr. Pearson told him that the AA Appraisal was high. He did
not recall him saying anything about the Ritchie Bros. Appraisal.
[502] Mr. Pearson testified that he told Mr. Harder that the AA Appraisal was too
high, and his value would be closer to Ritchie Bros. It is not clear to me how he
could have made that statement, however, when he had not seen the Ritchie Bros.
Appraisal. Moreover, by coincidence, Mr. Barbour consulted Mr. Pearson in 2004
for an opinion on this case. He sent Mr. Pearson complete copies of both
appraisals, and asked for a “gut feeling” report on why two auction values would be
so different. Mr. Pearson, having forgotten his earlier dealings with Mr. Harder,
2008 BCSC 328 (CanLII)
resolved. He accordingly made it clear in that memorandum that his valuation was
Newton v. Marzban
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wrote back to Mr. Barbour advising that the Ritchie Bros. Appraisal was “nearer the
[503] Given the fact that Mr. Harder did not send Mr. Pearson the Ritchie Bros.
Appraisal, the divergent evidence of Mr. Harder and Mr. Pearson as to whether
Ritchie Bros. was mentioned in their conversation, and the similarity of Mr.
Pearson’s account of his opinion to Mr. Barbour, I believe that Mr. Pearson may be
mistaken in believing that he gave his opinion on the two appraisals to Mr. Harder,
and in fact gave it to Mr. Barbour instead.
[504] I find that Mr. Harder met the standard of care of a reasonably competent
business valuator in raising the option of a third appraisal with the plaintiff and
awaiting her instructions as to whether she wished to explore this.
Failing to take into account equity held by the ABG in leased equipment
[505] The plaintiff argues that Mr. Harder breached the standard of care by failing to
obtain and review the ABG equipment leases and purchase agreements to evaluate
the equity it had in leased assets. As a result, he undervalued the equipment.
[506] The evidence indicated that logging companies commonly buy equipment by
arranging leases with a purchase option. There are two types of leases. Capital
leases are similar to a financing arrangement, and provide a right to apply payments
to the purchase price if the lessee decides to buy the equipment. Thus, equity
accumulates, and the ultimate buy-out value is less than the market value.
Operating leases are straight rental agreements. No equity accumulates, and at the
2008 BCSC 328 (CanLII)
mark”.
Newton v. Marzban
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end of the term the lessee may return the equipment or negotiate a buy-out. The
[507] It is common ground that the ABG was leasing some equipment during 2000
and 2001.
[508] Mr. Barbour testified that Mr. Harder should have been cognizant of the
potential equity in that equipment, and should have reviewed the leases to
determine if such equity existed. If so, that should have been included in the
equipment value. He says that Mr. Harder’s failure to do this led him to
underestimate that value.
[509] Mr. Harder testified that he was aware of the potential equity in leased assets
and asked Mr. Brewer about this. Mr. Brewer told him that the AA Appraisal did
include leased equipment, but it was there by mistake as the ABG had no ownership
interest in that equipment. Mr. Harder said that he then checked this information by
reviewing the ABG financial statements, since the generally accepted accounting
principles (“GAAP”) require disclosure of capital leases that give economic
ownership to the lessee in the financial statements. He found that no leases were
disclosed, and so concluded that any leases were operating leases and did not need
to be included in the equipment value. He did not investigate further by asking Mr.
Brewer to produce the leases.
[510] Mr. Hubley confirmed that, from a tax perspective, it is beneficial for a
company to record its capital leases in its financial statements. He said he would
2008 BCSC 328 (CanLII)
buy-out price is typically set at estimated market value as of the buy-out date.
Newton v. Marzban
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have expected the ABG to record them since they were trying to raise capital during
[511] Mr. Bowie agreed that GAAP require that capital leases be reflected in
financial statements. He said that if they are not, it is reasonable for a valuator to
conclude that the company has no capital leases. While it may have operating
leases, he would not expect significant equity in those. He said that he would not be
surprised if a valuator preparing a report at the level of an estimate did not do any
further investigation into this.
[512] Mr. Shultz agreed with Mr. Barbour that it is reasonable for a valuator to
review equipment leases to ascertain off-balance sheet equity, and said that he
would ordinarily do this. Nevertheless, he said that in this case the fact the financial
statements were prepared in accordance with GAAP by a professional accountant
permitted Mr. Harder to accept Mr. Brewer’s advice that they were operating leases,
particularly in the context of a review engagement. Mr. Shultz conceded, however,
that this view was informed to a degree by the fact that he did not know whether the
amount involved was significant.
[513] Mr. Cheevers said that when valuing a company, he looks to see how the
company records its lease payments in its financial statements since there may be
equity built into them. He said that if capital lease payments are recorded as an
operating expense, this has a tendency to understate income and make it necessary
to examine what is recorded as the cost of capital assets. He agreed that at a
minimum he would look at the lease contracts to understand the terms.
2008 BCSC 328 (CanLII)
this time, and inclusion of the leases would enhance their reported assets.
Newton v. Marzban
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[514] As mentioned earlier in these reasons, General Standard III of Standard 120
of the CICBV states that determining the evidence necessary to support a valuation
valuation and the use to which the report will be put. Mr. Harder was to provide an
estimate, which represents a middle level of assurance. The expert evidence
discloses two acceptable approaches to exploring the issue of equity in leased
equipment when the valuator has access to financial statements prepared in
accordance with GAAP. Mr. Harder did not ignore the possibility of equity in leased
equipment. He chose one of those approaches. In my view, that was a reasonable
exercise of his judgment, and cannot be said to fall below the acceptable standard.
Failure to discount the tax shield foregone
[515] It was common ground that the calculation of the tax shield foregone is a
necessary step in a tangible asset backing calculation. The tax shield foregone is an
artificial calculation that represents the difference in tax implications attendant on the
purchase of a company’s assets as opposed to the purchase of its shares. When
assets are purchased, the recorded cost of the assets in the transaction is their fair
market value. When shares are purchased, the recorded cost of the assets is their
depreciated value. Thus, a purchaser of assets has a better tax position as he or
she will be able to depreciate the assets on a higher cost base. As a result, a
purchaser of shares is entitled to a reduction in their value to compensate for their
less favourable tax position. The tax shield foregone is the present value calculation
of the tax saving that would be obtained by a purchaser of assets, and is deducted
2008 BCSC 328 (CanLII)
is a matter of professional judgment, to be exercised in light of the nature of the
Newton v. Marzban
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from the tangible asset value to place the purchaser of shares in the same position
[516] Mr. Harder calculated the tax shield foregone at $724,900, and entered that
as a deduction in his tangible asset backing calculation.
[517] It was Mr. Barbour’s opinion that Mr. Harder should have discounted that
deduction by 50%, as there was no indication that Mr. Newton was contemplating an
imminent sale of the ABG shares to a third party. Mr. Barbour conceded that he was
not aware of any authority for this proposition in either the valuation or legal field.
Nevertheless, he said it was maintainable because the courts in matrimonial
disputes commonly discount latent income taxes by up to 50% where the disposition
of an asset is not imminent. Since the tax shield foregone is based on a proposition
that there will be a future sale, the timing of which is uncertain, he says that a similar
discount should apply by analogy.
[518] Plaintiff’s counsel also argued that Mr. Harder failed to consider the fact that
Mr. Newton was both the buyer of the plaintiff’s shares, and also an owner as a 50%
shareholder in the ABG. He would never have bought the assets of the ABG due to
the tax consequences, and so did not have the leverage of an ordinary buyer to
choose between buying assets or shares. He says it was therefore inappropriate to
deduct the tax shield foregone.
[519] I do not accept these arguments. The weight of the expert evidence clearly
indicates that the deduction of the tax shield foregone in its entirety is an inherent
step in the tangible asset backing calculation of the fair market value of corporate
2008 BCSC 328 (CanLII)
as a purchaser of assets.
Newton v. Marzban
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shares. The concept makes no assumption as to a future disposition. It is based on
a compensatory notion related to the manner in which the present sale is taking
value by definition deals with a hypothetical arms length transaction.
[520] In Tearle v. Tearle (January 24, 1985), Vancouver 5936/D140458 at 20 - 21,
[1985] B.C.W.L.D. 666 (P.C.) (S.C.) [Tearle], Rowles L.J.S.C., as she then was,
provided the following summary of tax liabilities in the division of matrimonial assets:
In respect to Mr. Maxwell's argument, I question whether it is
possible to set forth any absolute rule as to what tax liabilities should or
should not be taken into account by the Court when determining a
division of assets between spouses, because the circumstances of
each particular case must surely be considered. Generally, however, it
appears to me that:
(a) those taxes which are taken into account by valuators in
arriving at a fair market value of an asset are an integral
consideration in ascribing a value to an asset, and on that basis
would be allowed by the Court;
(b) Tax liabilities which are likely to arise as an immediate
consequence of a division of assets made under the Family
Relations Act may be taken into account by a Court in adjusting
the division of assets between spouses, assuming that those
taxes do not overlap with those considered in arriving at the fair
market value;
(c) There is no obligation on the Court to take hypothetical or
speculative future tax liabilities into account in either arriving at
a value to be ascribed to an asset, or in adjusting a division of
assets between spouses.
In my view, the tax shield foregone clearly fits into paragraph (a) of that analysis.
2008 BCSC 328 (CanLII)
place. Nor does it make any assumption as to who the purchaser is. Fair market
Newton v. Marzban
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[521] I reject Mr. Barbour’s view that Mr. Harder breached the standard of care of a
reasonably competent chartered business valuator in deducting the entire tax shield
Inappropriately acting as an advocate in the plaintiff’s matrimonial dispute
[522] This allegation arises from paragraph 38 of the Statement of Claim. The
plaintiff argues that Mr. Harder became inappropriately involved in negotiating her
matrimonial dispute with Mr. Brewer, a role that was properly Mr. Marzban’s. She
points to Mr. Harder’s notes of late March and April 2001, which include references
to offers and advice on negotiations.
[523] It is difficult to understand how this allegation could be related to any specific
outcome that would influence the plaintiff’s decision to settle rather than go to trial. I
nevertheless make the following observations and findings.
[524] While it appears that the plaintiff and Mr. Newton believed that Mr. Brewer
and Mr. Harder were negotiating throughout their discussions, I am not satisfied that
this was the case. Up to the end of March 2001, there is little to suggest that their
discussions dealt with anything more than fact-finding and exchanging the
information necessary for Mr. Harder’s valuation. On March 30, Mr. Harder did
convey an offer from Mr. Brewer to the plaintiff with some comments. There are also
documents in which Mr. Harder records dealing with “offers” thereafter. However, in
mid-April he declined Mr. Hubley’s request to become involved in the negotiations.
His memorandum of April 20, 2001 was clearly designed to assist the plaintiff in
2008 BCSC 328 (CanLII)
foregone in the course of his tangible asset backing valuation.
Newton v. Marzban
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settlement negotiations, but Mr. Harder’s duties ended at that point. He had no
[525] I am not convinced that Mr. Harder was directly involved in settlement
negotiations. He did testify that, having provided advice on the negotiations, he
might have had to consider at a later date whether he could continue to act as an
independent expert if the matter proceeded to trial. I do not see that admission
leading to liability in this action. I find Mr. Harder was not in breach of the standard
of care with respect to this allegation.
Conclusion with respect to Mr. Harder and BDO Dunwoody LLP
[526] I conclude that Mr. Harder and BDO Dunwoody LLP did not breach the
standard of care of a reasonably competent chartered business valuator and
partnership in providing advice and services to the plaintiff. The action against them
is dismissed.
THE ALLEGATIONS AGAINST MR. HUBLEY
[527] The plaintiff argues that Mr. Hubley breached the standard of care of a
reasonably competent chartered accountant by providing erroneous advice as to the
value of her shares in the ABG. She says that he also failed to advise her properly
with respect to the importance of investigating the large discrepancy between the AA
Appraisal and the Ritchie Bros. Appraisal, and the implications of using the Ritchie
Bros. Appraisal in the valuation. As well, she says that he breached the standard of
care when he agreed to negotiate the settlement of her matrimonial dispute. She
2008 BCSC 328 (CanLII)
involvement in the subsequent negotiations that led to the settlement.
Newton v. Marzban
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alleges that he was not qualified to undertake such a negotiation and, as a result,
gave her erroneous and inadequate advice, and made concessions that were
[528] At paragraphs [310] to [316] of these reasons, I described the difficulties in
identifying the precise allegations against Mr. Harder and Mr. Hubley in the
pleadings. Those problems have been particularly acute in the case of Mr. Hubley,
as the Statement of Claim contains no particulars pertaining to him alone. As well, I
have found that the plaintiff could not have obtained a better settlement. She is
accordingly limited to the allegations that Mr. Hubley’s actions or inaction led her to
accept the settlement instead of proceeding to trial.
[529] Taking a generous view of the Statement of Claim and the manner in which
the case against Mr. Hubley was presented and defended, I have concluded that the
following list, cross-referenced to the paragraph numbers in the Statement of Claim,
fairly represents the allegations against him:
1.
2.
Allegations arising before Mr. Hubley undertook the negotiations:
a)
providing negligent advice with respect to the range of values of
the plaintiff’s interest in the ABG [para. 33(a)];
b)
failing to advise the plaintiff appropriately with respect to the
discrepancies in the Ritchie Bros. and AA Appraisals, and the
implications of using the Ritchie Bros. Appraisal in the valuation
[paras. 27(h), 33(d)]; and
c)
providing erroneous advice with respect to spousal support
[para. 27(a)].
Negligent advice and representation in the negotiations [para. 36]:
2008 BCSC 328 (CanLII)
inconsistent with what a court would have done had the matter proceeded to trial.
Page 164
a)
undertaking the negotiation when he was not qualified to do so
[para. 38];
b)
providing erroneous advice with respect to tax issues during the
negotiations [para. 33(a)];
c)
failing to make adequate inquiry and investigation regarding
Westwood [paras. 27(i) and (j)];
d)
failing to advise the plaintiff with respect to the benefits of
obtaining documents from third parties [27(e)];
e)
failing to advise the plaintiff as to the appropriate valuation date,
and failure to obtain updated financial information [para. 27(l)];
and
f)
providing advice that led the plaintiff to settle her matrimonial claim
instead of proceeding to trial [para. 36].
The evidence with respect to the standard of care
[530] While there are a number of decisions dealing with the standard of care of
chartered accountants, most involve accountants in the role of auditors. I find that
these are not apposite to Mr. Hubley’s role here as advisor and negotiator. I
accordingly rely on the evidence of Mr. Barbour and Mr. Schultz, as well as the
standards of the ICABC where appropriate, to establish the standard of care that
governs Mr. Hubley.
[531] Mr. Barbour’s Report #3 deals with the standard of practice of a chartered
accountant. I have stated some of my concerns about that report and Mr. Barbour’s
evidence at paragraphs [322] to [326] of these Reasons, and will not repeat them
here. I add the following observations that are relevant to his evidence concerning
Mr. Hubley.
2008 BCSC 328 (CanLII)
Newton v. Marzban
Newton v. Marzban
Page 165
[532] Although Mr. Barbour has been a chartered accountant and member of the
ICABC for over 30 years, he has practised as a chartered business valuator since
he has had little recent experience working purely as a chartered accountant.
[533] Report #3 is largely devoid of a factual basis, and deals with a hypothetical
generic chartered accountant engaged to assist a party in a matrimonial dispute. It
nevertheless embarks on a selective critique of the conduct of that generic
accountant that is clearly based on a fuller but unexpressed view of the facts related
to this case. It is difficult to understand why Mr. Barbour was unwilling to include
those assumed facts in his report, as required by the Rules of Court.
[534] During Mr. Barbour’s testimony, it became apparent that a number of his
unexpressed factual assumptions were not representative of what actually occurred
in this case. For example, Mr. Barbour testified that he believed Mr. Hubley used
Mr. Harder’s liquidation value in negotiating the settlement, instead of his going
concern valuation. When cross-examined on the basis for that belief, it was clear
that this was mere surmise on his part. Mr. Barbour ultimately conceded that he did
not know exactly what Mr. Hubley was retained to do, what instructions he received
from the plaintiff, or what he actually did do. As a result, much of Report #3 is
unrelated to the pleadings or the facts, and his views are of limited assistance to the
plaintiff in her claim against Mr. Hubley.
[535] Mr. Schultz was called by Mr. Hubley to give expert evidence as to the
standards and practices of a chartered accountant. While he is both a chartered
2008 BCSC 328 (CanLII)
1988, and as a specialist in investigative and forensic accounting since 2000. Thus,
Newton v. Marzban
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accountant and chartered business valuator, he brings considerable expertise to his
commentary on the duties of chartered accountants, as he has held a number of
organization in 1988-89. He remains a member of its Standards Appeal Board. Mr.
Shultz’s report is based on a lengthy statement of assumed facts, most of which
have been established in the evidence at the trial.
[536] These observations lead me to place more weight on the evidence of Mr.
Schultz where the opinions of the experts diverge.
Allegations arising before the negotiations
[537] Before dealing with the allegations in this section, I make the following
findings with respect to the context in which they occurred.
[538] I find that from the outset of his dealings with the plaintiff, Mr. Hubley made it
clear to her that he had no experience in matrimonial matters, and that he was not a
lawyer or a valuator. I find that the plaintiff understood that.
[539] I find that from May 2000 to the end of April 2001, Mr. Hubley’s role was
essentially limited to providing support to the plaintiff, and seeing her into the hands
of appropriate legal and valuation professionals. Once Mr. Harder and Mr. Marzban
were retained, I find Mr. Hubley became what Mr. Marzban referred to as the
“communication hub” between them and the plaintiff, and they often dealt with her
through Mr. Hubley. I find that this pattern developed with the plaintiff’s knowledge
and consent, for reasons of convenience since she and Mr. Hubley were both in
Nanaimo, and because she was comfortable with Mr. Hubley. I find, however, that
2008 BCSC 328 (CanLII)
positions with the ICABC during his career, including serving as the President of that
Newton v. Marzban
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Mr. Hubley continually reinforced and explained to the plaintiff the distinction
1)
Providing negligent advice with respect to the value of the plaintiff’s
shares
[540] The plaintiff, supported by Mr. Barbour, says that Mr. Hubley breached the
standard of care in preparing the spreadsheet of share values to show her in May
2000. Mr. Barbour says that Mr. Hubley’s calculations were neither a liquidation
approach nor a going concerning calculation, and he erred in deducting full latent
income taxes in his calculations, making his range of $900,000 to $2 million for the
ABG shares too conservative. The plaintiff argues that this erroneous calculation
gave her a misleading and lasting impression as to the likely value of her shares,
and contributed to her decision to settle her claim unwisely in that range in October
2001.
[541] The evidence does not support this allegation. Mr. Barbour’s opinion shows
no understanding of the limited purpose for which the spreadsheet was prepared, or
the context in which Mr. Hubley explained it to the plaintiff. In Mr. Hubley’s words, it
was a “quick and dirty” conservative estimate based on hypothetical numbers that he
prepared for the limited purpose of demonstrating to the plaintiff that the ABG
equipment value was directly related to the value of her interest in the company.
[542] The plaintiff testified that she knew that these values were hypothetical, and
that she grasped their limited purpose. In the ensuing months, Mr. Hubley
consistently advised her that there was insufficient financial information to reliably
2008 BCSC 328 (CanLII)
between his limited role, and those of Mr. Harder and Mr. Marzban.
Newton v. Marzban
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assess the value of the ABG until Mr. Harder finished his valuation. The plaintiff
testified that she chose her target number for the negotiations based on the
[543] I conclude that there is no basis for a finding of liability arising from Mr.
Hubley’s preparation of this document.
2)
Failure to advise appropriately with respect to the equipment appraisals
[544] The plaintiff alleges that Mr. Hubley failed to properly advise her about the
importance of obtaining a third appraisal. She argues that instead of accepting the
Ritchie Bros. Appraisal and Mr. Harder’s valuation based on it, Mr. Hubley should
have ensured that she obtained an independent appraisal to develop her best
position before deciding what to do in the negotiations.
[545] At the time the issue of the third appraisal arose, Mr. Hubley was in a
supportive role. He believed that Ritchie Bros. was a reputable firm, and he knew
that Mr. Harder found their appraisal acceptable. He was not a valuator, and had no
reason to doubt Mr. Harder’s view, apart from the fact that the plaintiff was unhappy
with the Ritchie Bros. Appraisal equipment value.
[546] I have earlier found that Mr. Hubley and the plaintiff discussed the option and
cost of a third appraisal with Mr. Harder at a meeting on March 15, 2001. I find that
on March 26, 2001, Mr. Hubley and the plaintiff had a more extensive discussion
about a third appraisal. I am satisfied that at this meeting they discussed the fact
that Mr. Newton and Mr. Brewer were unhappy with Mr. Harder’s numbers based on
2008 BCSC 328 (CanLII)
information from Mr. Harder.
Newton v. Marzban
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the Ritchie Bros. Appraisal, and whether another appraisal would advance the
negotiations. I accept that Mr. Hubley told the plaintiff that if she felt she was not
discussed with the plaintiff Mr. Harder’s memorandum of March 30, 2001, in which
he confirmed that Mr. Newton and Mr. Brewer were not keen on having a third
appraisal.
[547] Neither Mr. Barbour nor Mr. Schultz provided opinion evidence on the
standard of practice expected of a chartered accountant in these circumstances.
[548] In my view, Mr. Hubley had no obligation in his supportive role to do more
than raise the option of another appraisal with the plaintiff, and let her decide
whether she wanted to pursue it. The plaintiff knew that a higher appraisal would
increase her share value, and that Mr. Harder had obtained a quote on the likely
cost from another appraiser. It was left open for her to ask Mr. Hubley to make
further inquiries if she wished to pursue this.
[549] An examination of the entirety of the plaintiff’s conversations with her advisors
about a third appraisal satisfies me that she decided against that course because
Mr. Newton was opposed to it, and she did not want to upset him, or delay or derail
the prospect of a settlement by putting forward a new and higher value for her
shares. In my view, that finding is supported by the fact that in April the plaintiff
complained to Mr. Hubley that Mr. Harder’s valuation was too high and that she was
concerned that she would not be able to settle with Mr. Newton because of that.
2008 BCSC 328 (CanLII)
being treated fairly, she could take the matter to court. I find that Mr. Hubley later
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[550] I conclude there is no basis for a finding of liability against Mr. Hubley on this
3)
Providing erroneous advice about spousal support
[551] The plaintiff says that she did not pursue a claim for spousal support, or
discuss it with Mr. Marzban, because Mr. Hubley told her that she was not entitled to
it due to her age. She also alleges that during the negotiations Mr. Hubley conceded
her claim for spousal support in order to reach a settlement. I choose to deal with
both issues in the present context for reasons of convenience.
[552] If Mr. Hubley gave the plaintiff advice about support, he would clearly be in
breach of the standard of care of a reasonable accountant. Advice with respect to
spousal support lies within the province of the legal advisor.
[553] Mr. Hubley denied that the conversation alleged by the plaintiff took place.
He said that he did not give her any advice on spousal support, and told her to deal
with her lawyers on this issue. He acknowledged that at one point he did have a
general conversation about support with her, and mentioned that one of his partners
had been through a divorce and did not pay spousal support. He then directed her
to deal with her lawyer on the issue of support.
[554] The plaintiff denied that conversation took place.
[555] Contrary to the plaintiff’s evidence, I find it clear that spousal support
remained a live issue, properly in the hands of her legal advisors, throughout her
matrimonial dispute, and that she knew this to be so. From the outset, Mr. Newton
2008 BCSC 328 (CanLII)
ground.
Newton v. Marzban
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was firm that he would not pay support. I find that Mr. Lobay advised the plaintiff of
her entitlement to spousal support, particularly at the time she signed the
right to support could only be determined once the division of assets was known.
The issue of support was therefore put to one side until the assets had been dealt
with. Mr. Marzban included a claim for support in the plaintiff’s counterclaim.
[556] I find that on April 20, 2001 the plaintiff made a note recording a query about
alimony directed to Mr. Marzban, and on June 25, 2001 she made a note at a
meeting with Mr. Hubley indicating her intention to contact Mr. Marzban about
support. I am satisfied that these notes clearly show that she was aware that her
claim for spousal support remained outstanding.
[557] There is nothing in Mr. Hubley’s evidence or his extensive record of the
settlement negotiations to suggest that he and Mr. Brewer dealt with spousal support
during their negotiations. The agreement they reached in August 2001 contained no
provision with respect to support. The mutual release of spousal support appeared
later, in the draft agreement prepared by Mr. English, and Mr. Marzban raised it with
the plaintiff at their meeting on October 2, 2001.
[558] I conclude that the plaintiff has failed to establish that Mr. Hubley took any
action that limited her entitlement to spousal support or affected her decision not to
pursue it.
2008 BCSC 328 (CanLII)
postponement of support. I find that both he and Mr. Marzban advised her that her
Newton v. Marzban
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Negligent advice and representation during the negotiation of the settlement
Undertaking the negotiation without proper qualifications
[559] I accept Mr. Hubley’s evidence that on April 23, 2001 the plaintiff instructed
him to undertake the negotiation of her interest in the ABG because she was
concerned that Mr. Harder and Mr. Brewer were too confrontational, and because
she felt that Mr. Hubley understood the logging industry and was thus in a better
position than Mr. Marzban to counter the issues being put forward by Mr. Brewer. I
find that Mr. Hubley agreed to her request on the condition that it be restricted to a
commercial negotiation. I accept his evidence that he told the plaintiff that he could
not deal with her entitlement to personal assets or other legal issues that might arise
in the negotiations, and that she must look to Mr. Marzban for advice on those
matters.
[560] I find that, as an accountant, Mr. Hubley was qualified to undertake a
commercial negotiation of the value of corporate shares. As mentioned previously,
the rules of the ICABC permit accountants to act as advocates, as long as they do
not practise law. Mr. Hubley had the appropriate background and experience, and
was to conduct negotiations with Mr. Brewer, who was also an accountant. He was
familiar with the parties and the history of their dispute, and had their trust.
[561] The plaintiff argues, however, that Mr. Hubley should not have undertaken
this negotiation as the matrimonial setting introduced issues beyond his commercial
expertise that he was not qualified to assess, and on which he could not provide
proper advice. She says that his inadequate and erroneous advice during the
2008 BCSC 328 (CanLII)
1)
Newton v. Marzban
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negotiations led her to accept the settlement instead of proceeding to trial, where
[562] Mr. Barbour and Mr. Schultz agreed that accountants may negotiate
commercial matters, but both warned that in such situations the distinction between
legal and financial advice is not always clear. There is inevitable overlap.
[563] Mr. Barbour accordingly offered the opinion that a chartered accountant
should not conduct a negotiation in a matrimonial context due to the risk that lack of
familiarity with matrimonial law will lead him or her to misjudge the issues, and
provide erroneous advice.
[564] Mr. Shultz, on the other hand, said that an accountant in these circumstances
may offer valuable assistance to counsel, but to meet the standard of practice and
avoid the acknowledged risk described by Mr. Barbour, the accountant should
ensure that the client has engaged a lawyer from the outset. He of she should also
make it clear to the client, ideally in writing, that the final advice on all matters
respecting her rights, obligations, and potential trial outcomes must come from that
legal advisor.
[565] I give Mr. Shultz’s evidence greater weight for the reasons discussed earlier,
and accept his view of the standard of practice. Did Mr. Hubley meet that standard?
[566] I find that throughout his dealings with the plaintiff, Mr. Hubley ensured that
she had legal representation and advice. She was initially represented by Mr.
Lobay. When she wished to change counsel, Mr. Hubley helped her find and retain
2008 BCSC 328 (CanLII)
she would have obtained a better result.
Newton v. Marzban
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Mr. Marzban, an expert in the field of matrimonial law. He also consulted
periodically with Mr. Voith on the plaintiff’s instructions. In deciding whether to
English, who had also been retained by Mr. Hubley.
[567] I find that Mr. Marzban knew that the plaintiff had instructed Mr. Hubley to
negotiate on her behalf, and that he condoned this. I am satisfied, however, that Mr.
Marzban did not relinquish his role as the plaintiff’s legal advisor during the
negotiations, a finding that I discuss in more detail later in these Reasons. I am
satisfied that the plaintiff understood the distinctive roles of her advisors, and that
she knew that she must deal with Mr. Marzban on legal issues. I accept that Mr.
Hubley reinforced that during the negotiations, advising her to consult with Mr.
Marzban on legal matters that arose, and that he believed that she was doing so. I
find that Mr. Hubley also remained in contact with Mr. Marzban periodically during
the negotiations to report on their status and obtain his advice.
[568] Finally, it is clear that all parties understood that any settlement reached
through the efforts of Mr. Hubley and Mr. Brewer would be the subject of review and
advice from Mr. Marzban and Mr. Mortimer before it was finalized. While Mr. Hubley
did not put this in writing as suggested by Mr. Schultz, I view that as a matter of
prudence for his own protection, rather than a breach of the standard of care.
[569] I accordingly conclude that Mr. Hubley met the standard of care of a
reasonable accountant by ensuring that the plaintiff had appropriate legal
representation when he undertook the negotiation of her interest in the ABG. In
2008 BCSC 328 (CanLII)
accept the settlement, the plaintiff received advice from both Mr. Marzban and Mr.
Newton v. Marzban
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making that finding, I appreciate that the negotiation later expanded to include the
parties’ personal assets at the request of Mr. Brewer, and that these lay outside the
Reasons, the disposition of these assets was never controversial nor detrimental to
the plaintiff. As well, Mr. Hubley advised her that she must seek advice from Mr.
Marzban on those issues, and understood the plaintiff was doing so. The plaintiff
agreed that Mr. Hubley did not give her any advice about them. I accordingly find
that the expansion of the negotiations to include those personal assets did not
constitute a breach of the standard of care.
[570] The plaintiff’s remaining allegations with respect to the negotiations suggest
that, although Mr. Hubley and the plaintiff had appropriate legal assistance available,
Mr. Hubley nevertheless strayed into giving advice, or taking positions, inconsistent
with matrimonial law during the negotiations. The plaintiff says that, had she been
properly advised on these matters, she would not have settled but would have
proceeded to trial.
[571] Before I turn to those allegations, I make the following findings with respect to
the negotiations to provide a context for my consideration of them.
[572] It is common ground that the plaintiff chose her initial goal of $1.75 million for
the negotiation, including her shareholder’s loan and bonus, without consulting Mr.
Hubley. While I found her testimony about Mr. Harder’s memorandum of April 20,
2001 inconsistent and confused, I am satisfied that the valuation set out in that
2008 BCSC 328 (CanLII)
ambit of a commercial negotiation. However, as set out at paragraph [291] of these
Newton v. Marzban
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memorandum, and her earlier discussions with Mr. Hubley about it, were the basis
[573] I find that although Mr. Hubley gave the plaintiff no advice on that choice, he
viewed it as an appropriate goal. He had no reason to doubt the validity of Mr.
Harder’s valuation. The sum of $1.75 million incorporated a share value toward the
top end of Mr. Harder’s going concern calculation, which was the target that Mr.
Hubley told the plaintiff he would like to get. I find that, from Mr. Hubley’s
perspective, that figure represented the value of the ABG as a going concern. There
is no foundation for the plaintiff’s view that Mr. Hubley relied on a liquidation value
for the ABG in negotiating the settlement.
[574] I am satisfied that when Mr. Brewer took the position that personal assets
must be a part of the negotiation as well, the plaintiff revised her goal to $2 million on
her own initiative, and instructed Mr. Hubley to try to obtain that number. He gave
her no advice on the reasonableness of that figure, and assumed she was receiving
advice from Mr. Marzban on her entitlement to those assets.
[575] I find that Mr. Hubley approached the negotiations from the perspective of
achieving the plaintiff’s global target, rather than using an item by item approach. I
am satisfied that he negotiated in a principled and methodical manner. I accept that
the negotiations were difficult, and at times appeared destined for failure. While I
have not heard Mr. Newton’s or Mr. Brewer’s account of the negotiations, on the
available evidence I am satisfied that Mr. Hubley was firm and creative in his
dealings with them. I reject the plaintiff’s suggestion that Mr. Hubley was intimidated
2008 BCSC 328 (CanLII)
for her choice of that figure.
Newton v. Marzban
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by Mr. Newton. While Mr. Harder testified about a comment Mr. Hubley made to this
effect, I found Mr. Hubley credible in denying that. Moreover, his tenacity during the
[576] I find that Mr. Hubley had lengthy and detailed discussions with the plaintiff
throughout the negotiations, and kept her fully advised of developments. I am
satisfied that any concessions he made on her behalf were made with her
knowledge and consent in an attempt to achieve her goal. It is difficult to understand
the plaintiff’s inability to recall these extensive discussions.
[577] Mr. Hubley’s negotiation resulted in a settlement that valued the plaintiff’s
interest in the ABG at $1.6 million, $150,000 less than her target, and $400,000
more than Mr. Newton’s last offer made at the end of March 2001. The global
settlement amount was $1,771,000. Approximately 80% of the unpaid balance was
secured.
[578] I turn to the remaining allegations concerning the negotiations.
2)
Erroneous advice with respect to tax issues during the negotiations
[579] The plaintiff alleges that Mr. Hubley’s ignorance of matrimonial law led him to
make two significant and unwarranted concessions during the negotiations to
accommodate Mr. Newton’s wish to minimize his future tax liabilities in the event he
sold the ABG. The first was an agreement that the plaintiff would apply her capital
gains exemption entitlement of $420,000 to the share transfer price to increase Mr.
Newton’s adjusted cost base of the ABG shares. The second was a deduction of
2008 BCSC 328 (CanLII)
negotiations does not support such a conclusion.
Newton v. Marzban
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$220,000 from the share price, representing 25% of the potential future capital gain
of $880,000 remaining after the taxable transfer of $420,000. This was intended to
$880,000 in the future.
[580] The plaintiff says that this was contrary to the treatment of tax issues in
matrimonial law, and represented a loss of $320,000 to her. She argues that
decisions such as Tearle, set out at paragraph [520] of these Reasons, make it clear
that a court dealing with the division of assets in a matrimonial matter will only order
a full deduction of tax liabilities arising from the future sale of an asset if the sale is
imminent and foreseeable. She says that Mr. Newton had no imminent plan to sell
the shares, and a court would not have ordered a deduction of $220,000 from the
purchase price. Nor would it have required her to give up her capital gains
exemption. Had she known this, she would have rejected the settlement and
proceeded to trial.
[581] Mr. Barbour and Mr. Shultz agreed that an accountant giving advice in a
matrimonial dispute should tell the client that there should be no deduction of latent
personal income taxes that reflect an uncertain future transaction in determining the
value of shares as a family asset.
[582] However, I find this allegation misconceives the context in which these tax
concessions took place. Mr. Hubley was conducting a commercial negotiation,
aimed at obtaining a global amount. Mr. Brewer made it clear from the outset that
taxes were a significant issue for Mr. Newton, as he felt he was picking up all of the
2008 BCSC 328 (CanLII)
compensate Mr. Newton for his potential tax burden if he sold the shares for
Newton v. Marzban
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tax liability on the transaction, and fairness required some concession. I am
satisfied that this position appeared entrenched, and that Mr. Hubley had a
achieved.
[583] While unfamiliar with latent income tax considerations in matrimonial law, Mr.
Hubley knew that the plaintiff was not obliged to make these concessions in a
commercial context. As an accountant, he was aware that under s. 73 of the
Income Tax Act the plaintiff could transfer her shares on a tax-deferred basis at
original cost, and did not have to give up her capital gains exemption. It was also
clear that she did not have to agree to a deduction of $220,000 from the share price.
She could hold firm on these points but, if she did, it appeared unlikely that Mr.
Newton would agree to a settlement.
[584] I am satisfied that Mr. Hubley fully discussed these matters with the plaintiff,
and that she agreed to make the tax concessions in order to achieve a settlement.
The substance of their meetings about these concessions is set out in Mr. Hubley’s
notes.
[585] The tax concessions thus became one of many things adjusted in the course
of the negotiations in an attempt to achieve an ultimate resolution as close as
possible to the plaintiff’s goal. In these circumstances, it is difficult to understand
what role there was for advice on how the courts would treat tax issues in the
division of family assets. The plaintiff is correct that the concessions were not
2008 BCSC 328 (CanLII)
reasonable belief that a concession on taxes was essential if a settlement was to be
Newton v. Marzban
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necessary, but I find that she knew this, and chose to make them anyway in order to
[586] I find that there is no basis for a finding of liability against Mr. Hubley on this
ground. It was ultimately for Mr. Marzban, as the plaintiff’s legal advisor, to address
these tax concessions in the matrimonial context when he provided advice with
respect to the final settlement.
3)
Failure to investigate Westwood
[587] The plaintiff says that Mr. Hubley failed to adequately investigate Westwood
prior to the settlement. She says that had he done so, they would have discovered
that Mr. Newton was earning significant amounts through Westwood by
misappropriating corporate opportunities from the ABG, and she would not have
agreed to a settlement excluding Westwood. Instead, she would have proceeded to
trial, taking the position that Westwood was a family asset.
[588] Both Mr. Barbour and Mr. Shultz agreed that the determination of what is a
family asset, and related advice, are matters for legal counsel in a matrimonial
dispute. However, Mr. Barbour takes the view that an accountant engaged to assist
in a family matter should have sufficient investigative and forensic accounting
experience to be aware of the possibility that a spouse may not disclose all assets,
and that Westwood might be a family asset. He says that such an accountant could
also provide assistance to counsel in examining the business of Westwood and its
relationship to the ABG, and in suggesting financial information that should be
obtained to investigate the nature and income of Westwood.
2008 BCSC 328 (CanLII)
reach a settlement.
Newton v. Marzban
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[589] I find that there was a clear and appropriate division of roles between Mr.
Hubley and Mr. Marzban with respect to Westwood, in that Mr. Hubley sought advice
but left it to Mr. Marzban, as legal counsel, to decide what investigative steps should
be taken.
[590] I accept Mr. Hubley’s evidence that when he became aware of Westwood, he
spoke to Mr. Marzban, who told him that following a particular date after separation,
the parties were on their own to do their own thing. In the context of the
negotiations, Mr. Brewer was adamant that Mr. Newton would not accept a
settlement that included Westwood. I find that Mr. Hubley accepted this and advised
the plaintiff accordingly, based on the information that Mr. Marzban had given him.
Mr. Hubley remained concerned that Westwood might reduce the ABG’s financial
strength, and thus endanger the security of future payments to the plaintiff under a
settlement in order to speed payment. He therefore attempted to negotiate the
inclusion of Westwood’s cash flow in that part of the plaintiff’s monthly payments
related to cubic meters logged. However, he was unsuccessful in this.
[591] When the plaintiff clandestinely obtained documents from the ABG offices
about Westwood in April and July, 2001, Mr. Hubley reviewed them and passed
them on to Mr. Marzban. Mr. Shultz’s opinion was clear that informational
requirements lie entirely in the hands of the lawyer, who has the legal skills to
identify the importance of such documents, and the procedural means of demanding
and obtaining them. I find that Mr. Hubley properly concluded that the plaintiff was
working with Mr. Marzban with respect to obtaining information about Westwood.
2008 BCSC 328 (CanLII)
from and provided information to Mr. Marzban when Westwood became a concern,
Newton v. Marzban
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[592] I find no breach of the standard of care by Mr. Hubley with respect to
Westwood. He was aware of the potential that Westwood could subvert the
and sought his advice about it. The fact that Westwood was excluded from the
settlement negotiated by Mr. Hubley remained an issue for the plaintiff to discuss
with Mr. Marzban prior to the finalization of that settlement.
4)
Failure to advise the plaintiff to obtain documents from third parties
[593] The plaintiff alleges that Mr. Hubley failed to advise her of the benefits of
obtaining documents from third parties such as HSBC, GEC, American Appraisal,
Ritchie Bros., J.S. Jones, Westwood and the RBC for the purpose of assessing the
value of the capital assets of the ABG, and her interest in Westwood.
[594] Mr. Shultz’s opinion, set out in the last section, applies here as well.
Informational requirements are the province of the lawyer. In my view, Mr. Hubley’s
only obligation with respect to obtaining documents was to report to Mr. Marzban if
he became aware that relevant documents existed in the hands of a third party, or
were being withheld by Mr. Newton or Mr. Brewer. I find that he did so in the case of
Westwood and that no other circumstances arose during the negotiations that
demanded action by him.
[595] I find no breach of the standard of care by Mr. Hubley with respect to this
allegation.
2008 BCSC 328 (CanLII)
plaintiff’s interests. He passed on all information about Westwood to Mr. Marzban,
Newton v. Marzban
5)
Page 183
Failure to advise the plaintiff as to the appropriate valuation date and
update financial information
financial and appraisal information as the negotiations stretched to almost a year
from the valuation date of October 31, 2000. In particular, she argues that she lost
the opportunity to claim 50% of the 2001 bonus declared by the ABG, noted to be
$947,500 in the financial statements of October 31, 2001.
[597] In my view, this is not a reasonable criticism. The weight of the expert
evidence indicates that the choice of the valuation date is for counsel. Mr. Hubley’s
instructions were to negotiate a settlement based on Mr. Harder’s valuation. It was a
difficult negotiation, but he achieved consistent progress toward the plaintiff’s stated
goal. I am satisfied that moving the goalposts by advising the plaintiff to seek
updated financial information was not reasonable from his perspective. Moreover, I
find that the plaintiff was sufficiently familiar with the ABG and its practice of
declaring annual bonuses to raise this matter herself had she wished to do so.
[598] I find no breach of the standard of care by Mr. Hubley with respect to this
allegation.
6)
Providing advice that led the plaintiff to settle her matrimonial claim
instead of proceeding to trial
[599] I find that this allegation again misconceives Mr. Hubley’s role. He was
negotiating a commercial matter with a specific goal chosen by the plaintiff. He
freely conceded that he had no knowledge of what claims the plaintiff had under
matrimonial law, how a court would assess them, and how her potential outcomes at
2008 BCSC 328 (CanLII)
[596] The plaintiff is critical of Mr. Hubley for failing to advise her to obtain updated
Newton v. Marzban
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trial would compare with the settlement he had negotiated on her behalf. He agreed
that one should know what things are worth before one gives them up, and that one
settlement. He correctly believed, however, that Mr. Marzban would be the person
who would advise the plaintiff on such matters.
[600] There is no evidence that Mr. Hubley gave the plaintiff advice as to whether
she should accept the settlement or proceed to trial, or advice that could have
reasonably affected that decision. I find that he told her repeatedly during the
negotiations that she could go to trial if she was not happy with the way things were
proceeding, and that she must speak to Mr. Marzban about that option. I am also
satisfied that, at the conclusion of the negotiations, Mr. Hubley simply told the
plaintiff that the result was the best he could obtain for her in the negotiations, and
asked her to let him know if she agreed to it.
[601] I conclude that there is no basis for a finding of liability on this ground.
Conclusion
[602] I conclude that Mr. Hubley, Bestwick & Partners, and Gord Hubley Ltd. did not
breach the standard of care that governed their professional services to the plaintiff.
Accordingly, the action against them is dismissed.
THE ALLEGATIONS AGAINST MR. MARZBAN
[603] The allegations against Mr. Marzban are set out in paragraphs 22 through 27
of the Statement of Claim. Particulars of the alleged breaches are set out in
2008 BCSC 328 (CanLII)
would need to know the potential outcome at trial to judge the merit of the
Newton v. Marzban
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paragraph 27. There is some internal overlap among these allegations. I find it
appropriate to deal with them under the following headings, which are cross-
1)
Failing to provide advice with respect to Mr. Newton’s breach of
fiduciary obligations in relation to Westwood [para. 27(i)];
2)
Allegations regarding steps taken and advice given related to
financial disclosure from Mr. Newton and the ABG, including:
3)
(a)
failing to obtain a Form 89 Financial Statement from Mr.
Newton [paras. 27(b) and (j)];
(b)
failing to obtain a satisfactory List of Documents from Mr.
Newton [para. 27(d)];
(c)
failing to conduct an examination for discovery of Mr.
Newton [para. 27(f)]; and
(d)
failing to obtain documents from third parties, in
particular, appraisers, financial institutions, and
Westwood [paras. 27(e) and (j)];
Failing to conduct adequate inquiry and provide appropriate
advice as to the basis for the valuation of the ABG including:
(a)
failing to advise or investigate with respect to the large
discrepancies in the appraisals of the assets of the ABG
[para. 27 (Mr. Newton)]; and
(b)
failing to advise and investigate as to whether the ABG
was viable as a going concern [para. 27(j)];
4)
Wrongly delegating his role as counsel in the settlement
negotiations to Mr. Harder and Mr. Hubley [para. 27(g)];
5)
Failing to advise the plaintiff of the risks of settling without taking
the steps outlined above and failing to advise her on the
fairness of the terms of the settlement [paras. 27(m) and (n)]
including:
(a)
failing to fully advise the plaintiff of her rights and
obligations under matrimonial law, including spousal
support and the scheme for division of family assets
under the FRA [para. 27(a)]; and
2008 BCSC 328 (CanLII)
referenced to the appropriate paragraph in the Statement of Claim:
Newton v. Marzban
(b)
failing to provide appropriate advice as to valuation
dates, and failing to obtain updated financial and
appraisal information before settling [para. 27(l)]
Failing to prepare for trial [para. 27(p)].
[604] That list omits three allegations. Paragraph 27(c) alleges that Mr. Marzban
was negligent in obtaining a second s. 57 declaration. This was an oversight of no
consequence and was not seriously pursued by the plaintiff at trial. Paragraph 27(k)
alleges that Mr. Marzban failed to take steps to remove Mr. Brewer as Mr. Newton’s
agent and advisor. The plaintiff conceded that she could not quantify the impact of
Mr. Brewer’s presence on the events leading to her decision to settle. I accordingly
conclude that there is no basis on which liability could attach to Mr. Marzban and I
decline to consider this allegation further. Paragraph 27(o), which alleges that Mr.
Marzban failed to advise the plaintiff about the implications of the consent order
entered to conclude her action, is only relevant to mitigation, an issue I have not
found it necessary to address.
The Law with respect to the standard of care
[605] In Millican v. Tiffin Holdings Ltd. (1964), 49 D.L.R. (2d) 216 at 219 (Alta.
T.D.) [Millican], aff’d [1967] S.C.R. 183, Riley J. provided this often-cited list of a
lawyer’s obligations:
(1) To be skilful and careful.
(2) To advise his client on all matters relevant to his retainer, so far as
may be reasonably necessary.
(3) To protect the interests of his client.
(4) To carry out his instructions by all proper means.
(5) To consult with his client on all questions of doubt which do not fall
within the express or implied discretion left to him.
2008 BCSC 328 (CanLII)
(6)
Page 186
Newton v. Marzban
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(6) To keep his client informed to such an extent as may be reasonably
necessary, according to the same criteria.
example Zink v. Adrian, 2005 BCCA 93; Chaster v. LeBlanc, 2007 BCSC 1250;
and Nichols, supra.
[606] Halfyard J. in Van Duzen v. Lecovin, 2004 BCSC 1333 at para. 36 set out
the standard of care applicable to a reasonably competent family law practitioner:
Would a lawyer who possessed reasonable knowledge of family law,
and who had reasonable ability to use that knowledge in the practice of
family law litigation, have done what the defendant omitted to do, or
have avoided doing what the defendant did do?
[607] Particularly relevant to this case are a lawyer’s duty to inform a client on all
relevant matters, and to warn of risks that accompany a proposed course of action.
The former was described by Southin J., as she then was, in Giradet v. Crease &
Co. (1987), 11 B.C.L.R. (2d) 361 at 370 (S.C.):
In my view, it is part of the duty of a solicitor not only to give good
advice but also to make his reasons clear to the client. That does not
mean writing the client page after page of legal jargon which, to most
clients, is unintelligible. But a client has a right to know why. How else
can she make an informed judgment on the matter at hand?
[608] The duty to warn was discussed by Thackray J., as he then was, in Graybriar
Investments Ltd. v. Davis & Co. (1990), 46 B.C.L.R. (2d) 164 at 179-180 (S.C.).
He adopted this statement of the duty to warn from Major v. Buchanan (1975), 9
O.R. (2d) 491, 61 D.L.R. (3d) 46 at 69 (S.C.):
2008 BCSC 328 (CanLII)
This passage has frequently been cited with approval in this province, see for
Page 188
… a solicitor has the duty of warning a client of the risk involved in a
course of action, contemplated by the client or by his solicitor on his
behalf, and of exercising reasonable care and skill in advising him. If
he fails to warn the client of the risk involved in the course of action
and it appears probable that the client would not have taken the risk if
he had been so warned, the solicitor will be liable.
[609] The extent of these duties varies with the sophistication of the client:
Ormindale Holdings Ltd. v. Ray, Wolfe, Connell, Lightbody & Reynolds (1982),
36 B.C.L.R. 378 at 389 (C.A.).
The expert evidence with respect to the standard of care
[610] The parties led evidence from two experts in matrimonial law, David W.
Buchanan, Q.C., and F. Ean Maxwell, Q.C. Both are senior practitioners with over
35 years at the bar, and have extensive experience in family law. Both provided
credible and helpful evidence as to the standard of practice of matrimonial lawyers.
Both knew Mr. Marzban, but I found nothing in their testimony to suggest that this
affected their objectivity.
[611] Mr. Buchanan’s evidence was tempered somewhat by the fact that since the
early 1990s he has expanded his practice beyond family law, and it now occupies
only 25 to 30% of his time. Mr. Maxwell, by comparison, remains fully engaged in
the family law field.
[612] The usefulness of Mr. Maxwell’s evidence was limited somewhat by the fact
that some of the assumed facts on which he relied do not accord with my findings of
fact. He assumed that Mr. Hubley gave the plaintiff legal advice with respect to both
2008 BCSC 328 (CanLII)
Newton v. Marzban
Newton v. Marzban
Page 189
Westwood and spousal support. He viewed Mr. Hubley, and perhaps Mr. Harder, as
usurping Mr. Marzban’s role. He assumed that, because Mr. Marzban was not
that was close to simply giving independent legal advice on the settlement. My
findings of fact are at variance with each of these assumptions.
[613] Despite those observations, the testimony of both experts as to the practice of
a reasonable family lawyer was consistent in many respects. My findings as to the
standard of care applicable to Mr. Marzban in the balance of this section are based
primarily on their evidence.
Mr. Marzban’s Role
[614] To provide context for my analysis of the allegations against Mr. Marzban, I
make the following findings of fact with respect to his role in this matter.
[615] Mr. Marzban is an acknowledged expert in family law. He conceded during
argument that, as a result, a higher standard of care attaches to his actions:
Ristimaki v. Cooper, [2006] O.J. No. 1559 at para. 59(b) (C.A.); Bockhold v.
Lawson Lundell Lawson & McIntosh (1999), 10 C.B.R. (4th) 90 at para. 58
(B.C.S.C.).
[616] I find that at his first meeting with the plaintiff on October 25, 2000, Mr.
Marzban verbally entered into a general retainer to resolve her matrimonial dispute.
I am satisfied that this meeting was devoted primarily to gathering information about
the parties and their dispute. As well, Mr. Marzban, the plaintiff, and Mr. Hubley
2008 BCSC 328 (CanLII)
directly involved in the settlement negotiations, his retainer became limited to a role
Newton v. Marzban
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agreed that Mr. Marzban could communicate with the plaintiff through Mr. Hubley for
reasons of convenience. The plaintiff gave Mr. Marzban instructions to obtain a
disclosure. I find that the history of the dispute and the plaintiff’s instructions to Mr.
Marzban gave him a reasonable basis on which to infer that she preferred to attempt
to settle her claim rather than proceed to trial.
[617] I find that by the end of the meeting Mr. Marzban had made the following
assessment of the matter. He felt that the case was relatively simple. It involved
routine matrimonial issues that he had dealt with many times. Equal division of the
family assets was likely. The ABG was the linchpin and valuing it was key to any
resolution. The value of the rest of the family assets was relatively small.
Entitlement to spousal support could not be determined until the outcome of the
division of family assets was known, and the factors in s. 15.2 of the Divorce Act
could be examined in that context. From the plaintiff’s perspective, the only outcome
that made sense was to be bought out of the ABG by Mr. Newton.
[618] I find that to have been a reasonable characterization of the plaintiff’s claim as
it presented itself in October 2000.
[619] Mr. Marzban took preliminary steps to advance the plaintiff’s claim by filing
pleadings and sending demands to Mr. Mortimer for a Form 89 Financial Statement
and a List of Documents from Mr. Newton. Thereafter, however, he did not follow
what he referred to as a “litigation model” as he believed that the plaintiff preferred to
pursue a settlement at that stage. Instead, he chose to retain Mr. Harder to value
2008 BCSC 328 (CanLII)
better offer from Mr. Newton, and if none was forthcoming to proceed with financial
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the ABG and delegated the responsibility for financial disclosure for the purpose of
[620] Little could be done by the plaintiff or her advisors to move her claim forward
before Mr. Harder completed his valuation, and Mr. Marzban had limited dealings
with her from December 2000 until April 2001. He planned to chart a course of
future action with the plaintiff once the valuation was received, and anticipated
obtaining her instructions to try to negotiate a settlement and, if no agreement could
be reached, to take the matter to trial.
[621] Within days of receiving Mr. Harder’s memorandum of April 20, 2001,
however, the plaintiff instructed Mr. Hubley to attempt to negotiate a settlement of
her interest in the ABG. Mr. Marzban did not meet with the plaintiff to discuss Mr.
Harder’s valuation, or her choice of Mr. Hubley as her negotiator, before the
negotiations commenced.
[622] While the plaintiff’s instructions to Mr. Hubley required Mr. Marzban to step
back from the negotiations, I find that they did not limit the other aspects of his
retainer as her legal counsel, charged with seeing her matrimonial dispute through to
its final resolution. I did not understand Mr. Marzban to be seriously arguing against
that view. In any event, the law is clear that the onus rests with the lawyer to
establish any limit on his retainer, and any ambiguity will be construed in favour of
the client: ABN Amro Bank v. Gowling, Strathy and Henderson (1994), O.R. (3d)
779 at para. 18 (Gen. Div.).
2008 BCSC 328 (CanLII)
the valuation to Mr. Harder.
Newton v. Marzban
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[623] I find that Mr. Marzban has not established that his retainer was limited in any
way except that he did not directly conduct the settlement negotiations. He
requested, and took steps in the legal proceeding as the plaintiff instructed.
Moreover, it was clearly understood that any agreement negotiated by Mr. Hubley
would be subject to Mr. Marzban’s review and advice before it was finalized.
[624] When Mr. Hubley and Mr. Brewer reached an agreement in August 2001, Mr.
English, with Mr. Marzban’s concurrence, drafted the settlement agreement and the
related security documents. Mr. Marzban reviewed these and met with the plaintiff
and Mr. Hubley on October 2, 2001 to discuss them. He did not have extensive
communications with the plaintiff after their first meeting, and so most of his advice
to her was given at this final meeting. It therefore provides the focus for many of her
allegations. At the end of that meeting, the plaintiff indicated that she would accept
the settlement rather than proceed to trial.
[625]
As a general observation, it has been difficult to make reliable findings about
the communications between Mr. Marzban and the plaintiff, due in part to the
unreliability of the plaintiff’s evidence, but also because Mr. Marzban has little
recollection of them, and failed to document the advice he provided. He has no
written record of the legal advice he provided during his retainer other than a letter
setting out the advice required by s. 9 of the Divorce Act.
[626] I am aware that there is authority that, where there is a conflict between the
versions of events given by the client and the lawyer, all other things being equal,
2008 BCSC 328 (CanLII)
remained the plaintiff’s legal advisor throughout the negotiations, provided advice as
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the client’s version is to be preferred. However, in this case all other things are not
equal as I have made adverse findings with respect to the plaintiff’s credibility. That
B.C.L.R. (3d) 53 at paras. 34-35 (S.C.). I therefore approach the task of determining
what transpired between the plaintiff and Mr. Marzban on the traditional basis that
the onus rests with the plaintiff to establish on a balance of probabilities that Mr.
Marzban failed to provide advice and services that met the standard of care of a
reasonably competent family lawyer.
[627] I turn to the individual allegations against Mr. Marzban.
Failing to provide advice with respect to Mr. Newton’s fiduciary obligations to
the ABG arising from his activities with Westwood
[628] Westwood was the only controversial item in the identification and valuation
of Mr. Newton’s personal assets. It emerged in April 2001, when the plaintiff and her
advisors became aware that Mr. Newton had incorporated a new company, which
ultimately became Westwood, to use as a vehicle to do what he described as a
“management contract” for J.S. Jones, a logging company with which the ABG
already had a Bill 13 contract.
[629] The plaintiff argues that the presence of Westwood raised three questions
that required investigation. First, had Mr. Newton breached his fiduciary duty to the
ABG by diverting opportunities to Westwood because of the matrimonial dispute
and, if so, was it open to the plaintiff to consider oppression remedies or derivative
proceedings on behalf of the ABG under ss. 270 and 271 of the Company Act,
R.S.B.C. 1996, c. 62? Second, given the similarity in the nature of the businesses,
2008 BCSC 328 (CanLII)
proposition accordingly does not apply: Morton v. Harper Grey Easton (1995), 8
Newton v. Marzban
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was it likely that Westwood was improperly using assets of the ABG, and could
therefore be characterized as a family asset in which the plaintiff had an interest?
been considered in assessing the plaintiff’s right to spousal support?
[630] The second and third questions raise issues of disclosure and are dealt with
in the next section of these Reasons. With respect to the first question, the plaintiff
says that Mr. Marzban breached the standard of care by failing to advise her that,
since Mr. Newton was a director of the ABG, his activities with Westwood may be in
breach of his fiduciary duty to the ABG, and corporate remedies could be pursued by
her as a director and/or shareholder of the ABG or on behalf of the ABG.
The standard of care
[631] Mr. Maxwell testified that a prudent solicitor would advise a client on “issues
of fiduciary duty” in these circumstances, but it was his view that the plaintiff would
not get leave to commence a derivative action. Any action would have to be brought
by the ABG. He also offered the view, however, that he knew of no law that
someone in Mr. Newton’s situation had to offer a personal service through a specific
corporation. Unless he was bound by some agreement to work solely for the ABG,
Mr. Maxwell said that Mr. Newton was free to log where he wished.
[632] Mr. Buchanan set the standard somewhat lower. It was his view that
matrimonial lawyers may not be fully familiar with the law on fiduciary duties of
officers and directors of a company. He said that if circumstances demonstrated
that the new company was using employees and assets of the old, however, that he
2008 BCSC 328 (CanLII)
Third, was Mr. Newton earning an income stream from Westwood that should have
Newton v. Marzban
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would expect a family lawyer to know enough to advise the client about a “breach of
[633] Neither expert provided details as to what advice would be given by a
reasonable family lawyer with respect to the perceived breach and what would be a
proper course of action. Both agreed, however, that circumstances such as those
presented by Westwood should produce a high degree of suspicion, and a
reasonably competent family lawyer would recognize the need to investigate the
potential depletion of the ABG by Westwood.
[634] Given the divergent and somewhat limited opinions of Mr. Buchanan and Mr.
Maxwell with respect to the standard of practice and advice expected of a family
lawyer regarding fiduciary duties and corporate remedies, I conclude that the
primary requirement at an early stage of suspicion is to recognize the importance of
investigation. If this reveals facts that may support a breach of fiduciary duty, further
advice may be given by the family lawyer, or assistance may be sought from a
lawyer expert more familiar with corporate law.
Did Mr. Marzban breach the standard of care?
[635] Mr. Marzban conceded that he did not give the plaintiff advice about Mr.
Newton’s fiduciary obligations. He did, however, recognize the importance of
investigating Westwood. He said that he approached that investigation from the
perspective of whether it was a family asset, and whether it produced income that
would be relevant to the plaintiff’s claim for support. It was his view that s. 65 of the
F.R.A. gives the courts sufficient discretion to provide a remedy to the plaintiff by
2008 BCSC 328 (CanLII)
fiduciary duty”.
Newton v. Marzban
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way of reapportionment of family assets if Mr. Newton was using Westwood to
[636] I find that this satisfied the standard of care when Westwood emerged as a
concern. In my view, it was reasonable at this stage for Mr. Marzban, as a family
lawyer, to approach the issue from the perspective of s. 65 of the F.R.A., and to
undertake an investigation of Westwood. His steps in that regard are described in
the next section.
Issues related to financial disclosure and the discovery process
[637] The plaintiff argues that Mr. Marzban failed to provide appropriate advice with
respect to her rights to financial disclosure and discovery, and failed to obtain full
financial disclosure with respect to the ABG and Mr. Newton, in particular, his
interest in Westwood. First, with respect to the ABG, she complains that Mr.
Marzban delegated the responsibility for obtaining financial disclosure to Mr. Harder
without her knowledge or instructions. Second, with respect to Mr. Newton and
Westwood, she says that Mr. Marzban should have obtained a Form 89 Financial
Statement and a List of Documents, and conducted an examination for discovery of
Mr. Newton. Third, she says that Mr. Marzban failed to obtain third party documents
that would have shed more light on the financial picture of the ABG and Westwood.
2008 BCSC 328 (CanLII)
devalue the ABG.
Newton v. Marzban
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The standard of care
and Mr. Buchanan, represent the standard of care of a reasonable family lawyer with
respect to obtaining financial disclosure.
[639] The lawyer will understand that obtaining financial disclosure is an essential
step in providing proper advice in a matrimonial dispute; that it is his or her obligation
to ensure that disclosure is obtained to a satisfactory level; and that there are a
variety of tools to achieve disclosure. It is standard practice to issue demands for a
Form 89 Financial Statement and for a List of Documents in matrimonial litigation.
However, it is generally recognized that these do not guarantee full disclosure, and
may be unreliable for a variety of reasons.
[640] Despite those general principles, the extent to which disclosure is obtained is
variable. Which tools are selected will depend on the circumstances of the case.
Some cases settle without full disclosure. The question of how far to pursue the
discovery process of a litigation model is influenced by considerations such as cost,
timing, and whether that model may jeopardize settlement efforts.
[641] A reasonably competent lawyer will ensure that a client is aware of his of her
right to financial disclosure, and should consult with the client as to the general
approach to be taken, insofar as the choice has repercussions for expenses or
settlement negotiations. Beyond that, Mr. Maxwell and Mr. Buchanan did not say
whether instructions are required for each step in the discovery process. In my view,
2008 BCSC 328 (CanLII)
[638] I find that the following principles, established by the evidence of Mr. Maxwell
Newton v. Marzban
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they are not. The selection of the most appropriate discovery tool in a given case is
[642] Before concluding a settlement, however, a reasonably competent lawyer
must assess the extent of disclosure obtained, and discuss with the client whether it
is necessary to proceed further with the discovery process before settling. Should
the client give instructions to settle without satisfactory disclosure, the lawyer must
warn the client of the risks of such a course of action. If the client insists on settling,
prudence suggests a letter from the lawyer confirming the instructions to settle in the
face of that warning would be wise.
[643] It is reasonable for a lawyer to retain a valuator to assist with financial
disclosure regarding corporate assets, and to have that person obtain information
directly from the company’s accountant. If the valuator has sufficient information to
provide a valuation estimate, it is reasonable for the lawyer to infer that the valuator
is satisfied that he has received sufficient financial disclosure for the valuation.
However, that may not be the same as adequate financial disclosure for legal
purposes. Thus, a lawyer cannot delegate disclosure to the valuator completely. He
or she retains an overriding obligation to ensure that disclosure is adequate from a
legal perspective before any settlement is reached, and to reintroduce legal tools if it
is not.
Was Mr. Marzban in breach of the standard of care?
[644] I find that as of October 25, 2000 the plaintiff was aware of her right to
financial disclosure based on her earlier dealings with Mr. Lobay. The key issue was
2008 BCSC 328 (CanLII)
a matter for the lawyer’s professional judgment.
Newton v. Marzban
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the value of the ABG. The identity and value of the parties’ other assets were not
controversial. It was clear that the plaintiff was hoping to settle her claim. I find that
with financial disclosure if no reasonable offer was forthcoming from Mr. Newton.
[645] Mr. Marzban testified that he took the discovery process one step at a time,
and kept his options open. He did not believe that a litigation model was the best
way to go, given that the plaintiff wished to try to negotiate a settlement. As a result,
he did not pursue the demands for a Form 89 Financial Statement or a List of
Documents. Instead, he decided that the most efficient and effective means of
obtaining financial information about the ABG was through Mr. Harder. Mr. Harder
was a qualified valuator in whom Mr. Marzban had confidence. He knew from their
earlier dealings that Mr. Harder would advise him if he encountered difficulty with
disclosure, and Mr. Marzban could then take what legal steps were necessary.
[646] I find that Mr. Marzban’s delegation of financial disclosure regarding the ABG
to Mr. Harder was a matter of professional judgment and a reasonable step that met
the standard of care. While the plaintiff complains this was done without her
knowledge and instructions, her affidavit sworn April 27, 2001 makes it clear that she
was aware of what she describes as the “extensive disclosure” obtained by Mr.
Harder.
[647] Mr. Marzban received no indication from Mr. Harder of any problems with
financial disclosure. I accept that he was entitled to assume that financial disclosure
2008 BCSC 328 (CanLII)
it was in this context that the plaintiff gave instructions to Mr. Marzban to proceed
Newton v. Marzban
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of the ABG had been satisfactory from Mr. Harder’s perspective when he received
[648] I find, however, that before the plaintiff settled her claim, the standard of care
required Mr. Marzban to ensure that Mr. Harder had obtained a sufficient level of
financial disclosure with respect to the ABG from a legal perspective, or to warn the
plaintiff that disclosure had been limited to Mr. Harder’s inquiries, and that legal
avenues of discovery had not been pursued with respect to the ABG.
[649] Turning to the sufficiency of disclosure from Mr. Newton, as stated earlier, the
only controversial item was Westwood, and whether it was a family asset, or
provided an income stream for Mr. Newton that would strengthen the plaintiff’s claim
for spousal support. The plaintiff says that Mr. Marzban should have taken steps to
answer those questions by pursuing a Form 89 Financial Statement and a List of
Documents, and by conducting an examination for discovery of Mr. Newton.
[650] I am satisfied that Mr. Marzban recognized the potential significance of
Westwood to the plaintiff’s claim in April 2001 when he advised her to bring an
application for documents related to it and another company incorporated by Mr.
Newton. I find that this was a reasonable investigative step, as it approached
Westwood directly, rather than through Mr. Newton, and it could be conveniently
combined with another application the plaintiff wished to bring to obtain joint signing
authority on the ABG cheques.
[651] Mr. Marzban prepared an affidavit for the plaintiff accordingly, but testified
that he received instructions not to proceed with the application as settlement
2008 BCSC 328 (CanLII)
the valuation estimate in Mr. Harder’s memo of April 20, 2001,
Newton v. Marzban
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negotiations had resumed. He could not recall who had given him those
[652] The plaintiff denied providing those instructions. I do not find her denial
credible. Her evidence on this point was internally inconsistent. The timing of these
instructions coincided with the commencement of Mr. Hubley’s negotiations. It was
the plaintiff, not Mr. Hubley, who dealt with Mr. Marzban with respect to the
application. I accept Mr. Hubley’s evidence that, although he reviewed the affidavit
with the plaintiff, he did not know what was done with it. I infer that the plaintiff gave
Mr. Marzban these instructions because she had achieved her goal of using the
legal process to get Mr. Newton back to the table, as described in Mr. Hubley’s email to Mr. Harder of April 14, 2001, and she did not want to upset the prospect of a
settlement by proceeding with the application.
[653] Mr. Maxwell testified that he assumed that a client who instructed a lawyer
not to proceed with a motion in these circumstances would have been fully advised
by the lawyer as to the options, issues, applicable law, and what might be obtained
through the application.
[654] Neither Mr. Marzban nor the plaintiff testified to the advice he gave her in the
course of preparing this motion, or in accepting her instructions not to proceed with
it. Nor does Mr. Marzban have any notes of such advice. His thought process about
the application is set out at paragraph [184] of these Reasons. However, there is no
evidence that he shared those views with the plaintiff. I accept Mr. Marzban’s
evidence that he told the plaintiff that they did not know what Mr. Newton was doing
2008 BCSC 328 (CanLII)
instructions.
Newton v. Marzban
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in terms of his income, and that this would be a factor if she proceeded. I also
accept Mr. Hubley’s evidence that Mr. Marzban advised him that following a
Hubley told the plaintiff this. The timing of these discussions is unclear.
[655] In July, the plaintiff obtained further documents with respect to Westwood.
These indicated that Westwood was in substantial arrears to a subcontractor doing
heli-logging for it at Pitt Lake under its arrangement with J.S. Jones, and that J.S.
Jones was providing funds to cover the outstanding account. The plaintiff brought
these documents to Mr. Hubley, who sent them on to Mr. Marzban. Mr. Hubley’s
and Mr. Marzban’s time records show a lengthy telephone call between them and
the plaintiff that day. There is no evidence as to what was discussed during that call,
or whether any advice or instructions were given.
[656] To summarize, I find that Westwood had potential significance to both the
plaintiff’s claim for spousal support and to the division of family assets. I am
satisfied that Mr. Marzban was aware of this, and that he attempted to bring an
application to obtain documents with respect to Westwood, but was instructed not to
proceed with this by the plaintiff because negotiations had commenced. I find that in
the face of those instructions, Mr. Marzban was reasonably entitled to assume that
the plaintiff did not wish to follow a litigation model, and that further steps to achieve
financial disclosure could be held in abeyance until the outcome of the negotiations
was known. Nevertheless, despite the plaintiff’s apparent ambivalence toward
investigating Westwood, I am satisfied that the standard of care clearly required Mr.
2008 BCSC 328 (CanLII)
particular date after the separation, the parties could do their own thing, and that Mr.
Newton v. Marzban
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Marzban to warn her before a settlement was concluded of the risk of settling
[657] The plaintiff complains that Mr. Marzban also breached the standard of care
with respect to financial disclosure by failing to obtain documents from third parties
such as American Appraisal Canada, Inc., Ritchie Bros., the financial institutions that
dealt with the ABG refinancing in 2000, and J.S. Jones. She says that these would
have shed more light on the financial circumstances of the ABG and Westwood.
[658] Mr. Buchanan testified to the potential value of obtaining financing
applications from financial institutions, as they may contain comments enhancing the
value of the ABG which could serve to counter attempts by Mr. Newton or Mr.
Brewer to minimize its value.
[659] Mr. Marzban testified that he was aware of the recent refinancing, and he
anticipated that the related documents would contain positive statements made by
Mr. Newton in that process. It was his view, however, that such documents would
be of little assistance in convincing the opposing party of the company’s value during
the settlement negotiations.
[660] I agree. While these statements might have possible value in crossexamination if the matter proceeded to trial, it would have been premature and costly
to seek them while exploring settlement. I find it reasonable that a family lawyer
would not embark on applications to obtain documents from third parties while
serious settlement negotiations are proceeding. The decision not to do so, however,
2008 BCSC 328 (CanLII)
without knowing more about it.
Newton v. Marzban
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would again attract the duty to fully advise and warn the client before she settles her
[661] In summary, I have found that Mr. Marzban did not breach the standard of
care by failing to pursue avenues of financial disclosure in a context where serious
settlement negotiations were proceeding. However, his decision not to do so clearly
imposed on him a duty to advise the plaintiff before she settled that he had not
obtained full financial disclosure in accordance with her instructions, and to warn her
of the risks of settling without it. I defer my consideration of whether that duty was
discharged by Mr. Marzban to my discussion of the advice he provided at the
meeting of October 2, 2001 later in these Reasons.
Failing to conduct adequate inquiry and provide appropriate advice as to the
basis for the valuation of the ABG
[662] The plaintiff argues that once Mr. Harder delivered his valuation estimate on
April 20, 2001, Mr. Marzban should have met with him to review it. In particular, he
should have explored with Mr. Harder the large discrepancy between the AA
Appraisal and the Ritchie Bros. Appraisal, and ensured that the ABG was valued as
a going concern. She says that Mr. Marzban should then have met with her to fully
inform her of her options with respect to a third appraisal before the negotiations
commenced.
[663] These allegations raise the difficult issue of the extent to which a lawyer may
rely on the expertise of a specialist engaged to assist him or her. On the one hand,
the very reason for retaining such experts is the lawyer’s limited knowledge in the
2008 BCSC 328 (CanLII)
claim that there may be useful information that has not been obtained.
Newton v. Marzban
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expert’s field. On the other hand, the lawyer remains the expert who tests the
specialist’s opinion and assesses its usefulness in the legal context of the client’s
The Standard of Care
[664] The evidence of Mr. Maxwell and Mr. Buchanan satisfies me that the
standard of care permits a matrimonial lawyer to rely heavily on the expertise of a
valuator in assessing the value of corporate assets. The lawyer, however, retains a
duty to supervise the valuator, and to understand and test the valuation. This should
include ensuring that the factual assumptions and the valuation premises on which it
is based accurately reflect the actual circumstances of the case. As set out in the
last section, the lawyer also has a duty to ensure that the financial disclosure
obtained by the valuator is sufficient from a legal perspective. Such knowledge is
essential to judging the extent to which the valuation advances the client’s claim,
and whether further steps are required. It is also necessary to permit the lawyer to
provide proper advice to the client.
[665] That general standard of care becomes better defined on the facts of each
case. Based on the evidence of Mr. Buchanan and Mr. Maxwell, I am satisfied that
communicating with the valuator takes on an enhanced significance where the
lawyer knows that there is a significant discrepancy between appraisals of a
significant asset; that the valuator has chosen to rely on the lower value but has also
raised the option of another appraisal; and that the opposing party is resistant to
another appraisal. A reasonably competent family lawyer presented with this
2008 BCSC 328 (CanLII)
claim.
Newton v. Marzban
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situation will discuss these circumstances with the valuator in order to properly
advise the client of the options, particularly in the context of putting forward the best
valuator should reasonably cover the reasons for the reliance on the lower appraisal,
information pertaining to a third appraisal, and details of the position of the opposing
party.
[666] I find that the decision of whether to obtain another appraisal ultimately rests
with the client. A reasonably competent lawyer will therefore meet with the client to
discuss the valuator’s views, and advise of the options. If the lawyer is aware that
the opposing party will not welcome another appraisal, the discussions will include
an assessment of the risk that such a step may disrupt settlement negotiations and
push the matter to litigation.
Did Mr. Marzban breach the standard of care?
[667] Mr. Marzban testified that he was in touch with Mr. Harder and Mr. Hubley
periodically during the valuation, and he was aware that the ABG equipment value
was central to the value of the ABG. He also knew that Mr. Newton had rejected an
earlier financing appraisal as the basis for the valuation, and that Mr. Harder and Mr.
Brewer had agreed to get an independent appraisal from Ritchie Bros. He was
aware that there was a substantial difference of millions of dollars between the two
appraisals, and that Mr. Harder had told the plaintiff that if she was not satisfied with
the Ritchie Bros. equipment value, she could get another appraisal. He understood
that Mr. Newton and Mr. Brewer were not interested in that prospect.
2008 BCSC 328 (CanLII)
position in negotiations or at trial. I am satisfied that such discussions with the
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[668] Mr. Marzban testified that he believed that he discussed Mr. Harder’s
valuation with Mr. Hubley. However, he could not recall the details of those
discuss the valuation before the settlement negotiations commenced. Nor did he
undertake any inquiry into the disparate appraisal values, or the possibility of
obtaining a third appraisal. Mr. Marzban said that he did not take these steps
because he saw the equipment value as a valuation issue, and he relied on Mr.
Harder’s expertise in basing the valuation on the Ritchie Bros. Appraisal. He was
concerned that if he suggested another appraiser, this would be seen as interfering
with the independence of Mr. Harder’s valuation.
[669] Mr. Marzban also testified, however, that he knew that the die was not cast
with the Ritchie Bros. Appraisal. He said that if the matter did not settle and they
went to court, there would be plenty of time to obtain another appraisal if Mr. Harder
believed that this was warranted, or get another valuation altogether. Mr. Marzban
indicated that he might then obtain copies of the appraisals himself and review them.
I find it difficult to understand the wisdom of postponing these steps when the
equipment value was as important to the plaintiff’s position in the settlement
negotiations as it would be at a trial.
[670] It was common ground that the valuation of the ABG was the most significant
aspect of the plaintiff’s claim. Moving forward in her matrimonial dispute had been
held in abeyance until Mr. Harder’s valuation was received. I find that Mr. Marzban
was in breach of the standard of care in failing to meet with Mr. Harder to discuss his
valuation, the facts and premises on which it was based, the discrepancy between
2008 BCSC 328 (CanLII)
discussions. He agreed that he did not meet with Mr. Harder or with the plaintiff to
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the appraisals, the reasons for relying on the Ritchie Bros. Appraisal, and the option
of obtaining another appraisal. As well, I find that his failure to meet with the plaintiff
discuss the valuation, its implications for the negotiations and the likely outcomes at
a trial, and the option of another appraisal, was a further breach of the standard of
care.
Wrongly delegating his role as counsel in the settlement negotiations to
Mr. Harder and Mr. Hubley
[671] The plaintiff claims that Mr. Marzban breached the standard of care by
delegating his role as matrimonial counsel to advise on and directly handle
settlement negotiations to Mr. Harder and Mr. Hubley.
[672] There is no basis for this allegation insofar as it concerns Mr. Harder. There
is no evidence Mr. Marzban delegated any part of the negotiations to Mr. Harder,
and I have earlier found that Mr. Harder did not negotiate on behalf of the plaintiff.
[673] With respect to Mr. Hubley, the plaintiff argues that Mr. Marzban should have
conducted settlement negotiations himself, and instead wrongly delegated this
activity to Mr. Hubley, without discussing the risks and repercussions of this course
of action with her.
The standard of care
[674] Based on the evidence of Mr. Buchanan and Mr. Maxwell, I find that the
negotiation of a matrimonial settlement is generally the province of the family lawyer.
2008 BCSC 328 (CanLII)
after the valuation and before the commencement of the settlement negotiations to
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However, a client may choose to instruct another person, including an accountant, to
negotiate on his or her behalf. If the client takes that course, a reasonably
him or her of the potential risks of a non-lawyer undertaking negotiations, as well as
what other options are available. As well, the lawyer should ensure that a client who
pursues negotiations with a non-lawyer has an understanding of his or her statutory
entitlements under matrimonial law, the option of litigation, and the significance of a
decision to settle.
[675] Where a client instructs a non-lawyer to negotiate a settlement, the lawyer’s
retainer is implicitly limited by those instructions. A prudent lawyer should confirm
this in writing.
[676] Where a family lawyer does not conduct negotiations, but retains a role in
which he or she is to advise the client as to the reasonableness of any settlement
reached, the lawyer must remain sufficiently involved in the negotiation process to
provide appropriate advice at its conclusion.
Was Mr. Marzban in breach of the standard of care?
[677] I am satisfied that Mr. Marzban did not delegate the settlement negotiations to
Mr. Hubley. Mr. Hubley undertook them because the plaintiff instructed him to. As a
result, Mr. Marzban’s retainer was implicitly limited to the extent that he did not
directly negotiate the settlement. While he did not confirm this limitation to his
retainer in writing, I find that to be a matter of prudence rather than a breach of the
standard of care, particularly since it arose from the plaintiff’s own instructions.
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competent family lawyer has a duty to discuss that choice with the client, and advise
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[678] I find that Mr. Hubley’s assumption of the role of the negotiator did not amount
to a delegation to him of Mr. Marzban’s role as the plaintiff’s counsel. I have earlier
the negotiations. He was available to perform legal services and provide legal
advice to her and Mr. Hubley during the negotiations and, most importantly, with
respect to any settlement reached. I find that the plaintiff understood this. She
testified that she knew that she could consult Mr. Marzban about legal matters, and
she provided him with instructions with respect to steps to be taken in the action.
His continuing role as her legal advisor was reinforced by Mr. Hubley, who advised
her to contact Mr. Marzban when legal issues arose, and who kept Mr. Marzban
apprised of the status of the negotiations.
[679] There is no evidence that Mr. Marzban met with the plaintiff to discuss her
choice of Mr. Hubley as the negotiator and its ramifications. It is clear that there was
some communication between Mr. Marzban, Mr. Hubley and the plaintiff about this,
however, as Mr. Marzban knew Mr. Hubley had undertaken the negotiations, and all
were aware that any settlement reached would be subject to his review and advice.
It is also evident that Mr. Marzban did consider whether Mr. Hubley’s role in the
negotiations was to the plaintiff’s benefit. He was aware that the negotiation at the
outset was limited to the commercial issue of the value of her interest in the ABG,
and said that he saw Mr. Hubley’s involvement as a positive development, due to his
accounting and tax knowledge. He also believed that negotiations between the
accountants would be less positional than between the lawyers. Mr. Marzban said
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found that Mr. Marzban remained engaged as the plaintiff’s legal advisor throughout
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that the addition of the parties’ personal assets to the negotiation at a later stage did
[680] I agree that late April 2001 would have been an opportune time for Mr.
Marzban to meet with the plaintiff. The concurrence of the delivery of Mr. Harder’s
valuation and her decision to have Mr. Hubley negotiate on her behalf made this a
useful point at which to discuss not only these developments, but the parameters of
her claim generally and the future course she wished to take. Nevertheless, I am
not convinced that the fact that Mr. Marzban did not meet with her to discuss Mr.
Hubley’s role in the negotiations was a breach of the standard of care, as I am
satisfied that, in the circumstances I have described, the plaintiff faced little risk in
having Mr. Hubley undertake the negotiations. Mr. Marzban’s continuing role as her
counsel indicated that she would receive advice on her statutory entitlements, the
option of litigation, and the significance of the decision to settle when he met to
discuss any settlement with her. Moreover, the plaintiff was not bound to accept any
settlement negotiated by Mr. Hubley.
Failure to fully advise and warn the plaintiff at the meeting on October 2, 2001
[681] On October 2, 2001, Mr. Marzban met with the plaintiff and Mr. Hubley in
Nanaimo for almost two hours to discuss the settlement agreement that Mr. Hubley
had negotiated and Mr. English had prepared. As noted above, this final meeting
provided the main opportunity for him to advise the plaintiff with respect to her claim,
the settlement, and her options.
2008 BCSC 328 (CanLII)
not concern him as entitlement to these was not controversial.
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[682] The plaintiff argues that Mr. Marzban’s advice was incomplete and did not
meet the standard of care of a reasonably competent matrimonial lawyer. She
she could do better or could do worse than the negotiated settlement if she went to
court. He did not give her information as to the range of possible outcomes at trial in
monetary terms, or discuss the costs of a trial. Nor did he explain the scheme of or
her entitlements under the F.R.A. and the Divorce Act.
[683] She argues that he did not advise her that, if the case proceeded to trial, the
court would not be committed to accepting Mr. Harder’s fair market value for the
ABG, but could value the company on the basis of “fair value”, which might be
higher. Nor did he suggest that the ABG’s financial information should be updated
before settling, or raise whether she could claim an interest in the ABG’s 2001
profits, given that Mr. Harder’s valuation was based on financial information that was
almost a year old.
[684] She also says that Mr. Marzban did not have sufficient information to advise
her properly about spousal support, or whether Westwood was a family asset, or
about its potential role in a claim for reapportionment or spousal support. Yet he
failed to tell her that she could proceed with discovery on those issues, or warn her
about the risks of settling her claim without doing so.
[685] Finally, she says that while Mr. Marzban reviewed the settlement terms with
her, he did not discuss the concessions made by Mr. Hubley during the negotiations
2008 BCSC 328 (CanLII)
provides a long list of inadequacies. She says that Mr. Marzban simply told her that
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with respect to taxes, interest, the Start-up Loan, or Mr. Newton’s draws, in the
The standard of care
[686] In assessing the adequacy of the advice given by Mr. Marzban at the October
2 meeting, I am guided by the law described earlier in these Reasons with respect to
the clear duty of a lawyer to inform the client on all relevant matters, and to warn of
the risks that may accompany a proposed course of action. The extent of these
duties varies with the sophistication of the client.
[687] I make the following observations of the plaintiff in that regard. I find that
although she was not a sophisticated businesswoman, she was familiar with the
operations of the ABG and the logging industry due to her involvement in both since
1987. I am satisfied that, based on her earlier dealings with Mr. Lobay, she knew
from an early stage of her matrimonial dispute what the parties’ assets were, that
she was entitled to a half interest in them, and that she had a potential claim for
spousal support. I find that the list she prepared for her first meeting with Mr. Lobay
showed that she was also alive to more subtle issues, such as security and interest
on the outstanding balance of any settlement reached. I find the plaintiff was not
naïve about Mr. Newton’s wish to settle for as little as possible. I am satisfied that
she was fully advised of the details of the concessions made on her behalf during
the negotiations by Mr. Hubley. I also find that the plaintiff knew that if she found the
settlement unacceptable, she could reject it and proceed to trial.
2008 BCSC 328 (CanLII)
context of what the likely outcome at trial might be on those issues.
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[688] The extent of the duties to fully inform and warn was reinforced and
developed in the context of this case by Mr. Buchanan and Mr. Maxwell. Based on
client on a settlement in the circumstances faced by Mr. Marzban on October 2,
2001 to be as follows.
[689] Family law practitioners acknowledge that the results of a trial in a
matrimonial case are difficult to predict. Nevertheless, settlement of a claim is a
significant decision for a client, and before the decision to settle is made, a
reasonably competent lawyer should ensure that the client is as fully informed as
possible about his or her entitlement under the F.R.A regarding assets, and under
the Divorce Act regarding support, on the facts known at the time.
[690] The starting point for advice on the reasonableness of a settlement is a
prediction, to the extent possible, of what might reasonably be the monetary value of
the possible outcomes at trial, based on the law, the assets and their value, and the
position of the other party. The lawyer’s advice should include an assessment of the
risks and financial and personal costs of going to trial; assessment of the strengths
and weaknesses of the case; the likelihood of an equal or unequal division of family
assets and the many variables that contribute to such a result; and the suggestion
that it is often better to settle for a little less than risk an uncertain result at trial.
[691] If the lawyer’s knowledge of the facts underlying the claim is incomplete, or if
there are other sources of uncertainty that preclude detailed advice as to probable
outcomes, the client should be advised of this. He or she should also be told if there
2008 BCSC 328 (CanLII)
their evidence and the authorities, I find the applicable standard of care in advising a
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are steps that could be taken to rectify those deficiencies, and warned of the risks of
settling without taking those steps. As well, the costs of further discovery and its
[692] When dealing with a closely held family company, a reasonably competent
family lawyer should advise the client that there is a risk that the outcome may be
something other than a compensation order directing one party to buy the other’s
interest in the company at fair market value under ss. 65 and 66 of the F.R.A. The
client should be advised that a judge may order that the parties each continue to
hold their shares in the company, thus remaining in business together, although the
courts are reluctant to do this. The client should also be aware that if one spouse
buys the other’s interest, the court may direct a significant discount of the value of
the seller’s interest, representing the advantage of cash in hand. As well, the client
should be warned that there may be a delay in realization of the payment of any
judgment.
[693] With respect to spousal support, providing appropriate advice on the likely
amount and duration of support requires knowledge of the parties’ incomes and
expenses, as well as the facts relevant to an analysis of the factors set out in ss.
15.2(4) and (6) of the Divorce Act. Where there are significant assets, a reasonably
competent family lawyer will find it difficult to advise on the outcome of a claim for
support until there has been a reasonably final determination of the division of
assets. As the law stood in 2001, if the client was likely to receive assets of
sufficient value to make her self-sufficient and to diminish the concern that she had
experienced economic hardship from the breakdown of the marriage, she would be
2008 BCSC 328 (CanLII)
likely impact on the proposed settlement should be discussed.
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properly advised that her claim for support may be tenuous at best, or not
[694] A reasonably competent family lawyer should recognize that income tax
repercussions are typically a significant issue in the negotiation of a settlement. He
or she must be satisfied that they have been properly addressed and discussed with
the client before concluding a settlement, and obtain expert advice on these issues if
necessary. The lawyer should also advise the client that the courts have some
discretion with respect to the treatment of tax issues and thus the result may be
difficult to predict. The lawyer should be aware that the tax treatment of a family
asset by the court may vary, depending on whether it is to be imminently sold or
retained, and should investigate the likelihood of an imminent sale before advising
on the reasonableness of a settlement that includes a tax concession based on a
prospective sale.
[695] With respect to valuation dates and recommending updated financial
information, the choice of the valuation date is a strategic decision for the lawyer to
make in consultation with the valuator and the client. It is common practice to use
the last year-end of a business. However, if the resolution of a claim is delayed for a
long period, and there is no agreement as to the valuation date, the lawyer may
consider obtaining updated financial information. This should be discussed with the
client and weighed against the possible impact on the proposed settlement, as well
as considerations of expense, delay, and the reliability of interim financial
statements.
2008 BCSC 328 (CanLII)
maintainable at all.
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[696] Ultimately, it is for the client to decide whether to settle or not, having been
Did Mr. Marzban breach the standard of care?
[697] I begin with two general observations about the significance of the meeting on
October 2, 2001.
[698] First, Mr. Marzban had limited communication with the plaintiff during the
course of his retainer after their first meeting on October 25, 2000. In part, this was
due to the manner in which events unfolded. Initially, he was waiting until the
valuation was completed. Then, he decided to await the completion of the
negotiations before advising her on her claim and its likely outcomes. As well, it was
Mr. Marzban’s view that he had a wide discretion to conduct the plaintiff’s case as he
saw fit, and seek her instructions only on major decisions. At his examination for
discovery, when he was asked about the lawyer’s duty to carry out instructions as
expressed in Millican, he replied in part:
But basically I think you need instructions to pursue litigation, you need
instructions to settle the case. But in between those two there are all kinds of
things that we don’t need instructions on and don’t think necessarily, I don’t
think necessarily have to follow clients’ instructions on how we do a certain
thing.
[699] While there are a number of matters left to a lawyer’s professional judgment
in the course of representing a client in a matrimonial matter, in my view the
standard of care espoused by the authorities and by Mr. Buchanan and Mr. Maxwell
at this trial does not reflect so broad an area of discretion. In any event, these
matters led to a situation in which this final meeting provided the first opportunity for
2008 BCSC 328 (CanLII)
fully advised of the options and risks.
Newton v. Marzban
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the plaintiff to receive advice from Mr. Marzban, not just about the settlement, but
about her claim and her potential outcomes in general. I accordingly find that Mr.
these matters, and to ensure that the plaintiff was fully informed as to her options.
[700] Second, the plaintiff had given Mr. Marzban instructions to obtain financial
disclosure at their first meeting in October 2000. Mr. Marzban later elected to forego
financial disclosure, however, as it was his view that the plaintiff’s interest in
settlement obviated the need to pursue a traditional litigation model. That view was
reinforced by the plaintiff when she instructed him not to proceed with the application
concerning Westwood in April 2001. While this approach may have been justified, I
find that the standard of care clearly required Mr. Marzban to tell the plaintiff at the
October 2, 2001 meeting that, contrary to her earlier instructions, financial disclosure
had been limited to the information obtained by Mr. Harder in the course of his
valuation. Mr. Marzban was also obliged to warn her that he had insufficient
information to advise her fully about her claim. As well, he was required to advise
her of the steps that could be taken to obtain more information, and to warn her of
the risks to settling without doing so.
[701] I have found it difficult to determine the extent of the advice Mr. Marzban
provided at this meeting due to the paucity of detailed evidence from the
participants.
[702] The plaintiff’s account of the meeting was limited. She recalled reviewing the
settlement agreement with Mr. Marzban clause by clause, but said that she could
2008 BCSC 328 (CanLII)
Marzban had a clear obligation at this meeting to provide comprehensive advice on
Newton v. Marzban
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not recall what he or Mr. Hubley said, although she did recall a comment that she
could do better or could do worse. She agreed that she did not raise any concerns
told her they were good. She acknowledged that she released her claim to spousal
support, and said that this was because she understood that she was not entitled to
it. As set out at the beginning of this section, she says that a number of things were
not covered by Mr. Marzban at this meeting.
[703] Mr. Hubley testified that he did not pay close attention during the meeting as it
was focused on legal issues, and he did not think he could lend anything to the
discussion. He did recall that Mr. Marzban raised the question of spousal support
with the plaintiff, and that she was happy with the agreement at the end of the
meeting.
[704] Mr. Marzban testified that he did most of the talking during the meeting. He
said that he had reviewed the agreement the day before, and developed an analysis
of the merits of the settlement. However, he had a limited recollection as to how
much of that analysis he shared with the plaintiff during the meeting. He said that he
probably did not express a lot of the “legal type of things”, but did not define what he
meant by that. He had no notes of the advice he gave her. Nor did he confirm his
advice in writing following the meeting. He did, however, recall some parts of their
discussion.
2008 BCSC 328 (CanLII)
about the agreement, and said that she settled on those terms because her advisors
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[705] I will first set out Mr. Marzban’s testimony as to his analysis of the plaintiff’s
claim. I will then describe what he recalls about the advice he actually gave to the
[706] Mr. Marzban’s analysis of the plaintiff’s claim as of October 2, 2001 was as
follows. The valuation of the ABG was central to the value of her claim. If she went
to trial, he believed that the best case scenario would be the acceptance by the court
of Mr. Harder’s value for her shares, and Mr. Newton simply writing a cheque to her
for that amount. However, he had a number of concerns that the result would be
less positive. First, he was aware that valuations do not provide one right answer
but instead leave the court with a range of possibilities. Second, he had a serious
concern that there would be some discount of the plaintiff’s 50% interest in the ABG
to acknowledge the benefit of cash in hand, on the authority of Blackett v. Blackett
(1989), 40 B.C.L.R. (2d) 99 (C.A.). Alternatively, the court could order that the
company be sold. The worst case scenario would be an order that the plaintiff and
Mr. Newton both keep their shares in the ABG. She would then be left with no cash,
and still be in business with him. As a result of these concerns, Mr. Marzban said he
could not advise the plaintiff that if she went to court she would receive Mr. Harder’s
value for her shares.
[707] Moreover, Mr. Marzban viewed Mr. Newton as “holding all the cards”, as he
was the only one able to keep operating the company. He believed that the
plaintiff’s only options were to see the company liquidated, with attendant costs
diminishing its value, or have Mr. Newton finance a buy-out from her, knowing that
he wanted to pay her as little as possible.
2008 BCSC 328 (CanLII)
plaintiff at the meeting.
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[708] Mr. Marzban said that these factors led him to believe that the only advice he
could give the plaintiff with respect to the settlement was that she could do better or
any documentary evidence, done an examination for discovery of Mr. Newton, or
interviewed other witnesses, but said none of that would change the fundamental
uncertainty with respect to what might happen with the ABG at trial, or change his
opinion that the plaintiff could do better or worse.
[709] Mr. Marzban was also concerned that proceeding to litigation would cause
delay. He expected that the trial would be hard fought, and that the January 2002
trial date would be postponed if the plaintiff did not accept the settlement. If the trial
turned into “world war three” with extensive expert evidence, he estimated it might
cost between $100,000 and $300,000, and there would be ongoing stress, and
possibly additional delays in obtaining payment for any judgment if the plaintiff had
to take execution proceedings.
[710] With respect to spousal support, Mr. Marzban believed that it was very
difficult to predict the outcome at a trial due to a variety of factors. The amount of
cash the plaintiff might receive from the division of assets would have a major impact
on her right to support. If she received a large enough sum to reduce her need and
to allow her to become self-sufficient, and if Mr. Newton had to borrow money to pay
a judgment, an award of support was less likely. On the other hand, if Mr. Newton
was receiving significant income from Westwood, this could strengthen her claim for
support. The plaintiff’s personal characteristics, including her age, work history,
2008 BCSC 328 (CanLII)
she could do worse if she went to trial. He acknowledged that he had not reviewed
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opportunities, and the fact she had no children, all indicated to him that if she
[711] Mr. Marzban testified that it is not his practice to make a recommendation to a
client about a settlement. Instead, he gives a range, and advises whether the offer
is within that range. He leaves the decision to the client.
[712] I turn to Mr. Marzban’s account of what he actually recalled telling the plaintiff
at the meeting.
[713] Mr. Marzban testified that at the outset Mr. Hubley went through the terms
that had been negotiated. He also mentioned four “grinders”: interest, paying back
draws, a Westwood management fee, and legal and expert fees. Mr. Marzban
understood that Mr. Hubley was still working on these as negotiation points.
[714] I find that Mr. Marzban is mistaken in that recollection. I accept Mr. Hubley’s
evidence, as well as the documentary evidence describing the negotiations and the
agreement reached on August 23, that the only issue still outstanding between Mr.
Hubley and Mr. Brewer as of October 2, 2001 was the plaintiff’s continuing practice
of taking draws from the ABG. It appears that Mr. Hubley must have been
recounting these items as “grinders” during the negotiations, and Mr. Marzban did
not understand that the information was historical, rather than current.
[715] I accept that Mr. Marzban reviewed the settlement agreement with the
plaintiff. He testified that he spoke to her about “the property terms”. He told her
that at the end of the day all he could say was that the settlement was in the range,
2008 BCSC 328 (CanLII)
received an award for support it would not be of long duration.
Newton v. Marzban
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and if she chose to litigate she might do better or might do worse. He said that he
dealt with the range globally, and did not discuss individual items. Nor did he
recommend the settlement to the plaintiff, leaving it for her to decide whether to
accept it.
[716] After refreshing his memory by reviewing the settlement agreement, Mr.
Marzban added that he also recalled discussing interest, security, Westwood and
support.
[717] He said that they discussed support and the fact that it was not included in
the settlement. The plaintiff indicated that she knew it to be a non-issue from Mr.
Newton’s perspective. He recalled telling her that depending on the outcome on the
asset side, she may or may not get support if she went to trial. He said that he did
not discuss the likely amounts or duration of support with her. Nor did he discuss
the parties’ circumstances in the context of the factors in ss. 15.2(4) and (6) of the
Divorce Act.
[718] With respect to Westwood, he said that he asked the plaintiff why it was
excluded from the settlement, and pointed out that they really did not know anything
about it. He suggested that if it was excluded it must mean that Mr. Newton was
doing some logging through it. Mr. Marzban said that the plaintiff responded that
Westwood was a non-starter with Mr. Newton. He would not move on it and she
accepted that. The subject was dropped.
2008 BCSC 328 (CanLII)
discuss his opinion in monetary terms with the plaintiff. I accept that he did not
Newton v. Marzban
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[719] Mr. Marzban testified that he raised the fact that there was no interest
payable under the agreement for two years, and Mr. Hubley told him this was a
view, but I accept that he did point out to the plaintiff the exclusion of interest from
the settlement.
[720] With respect to income tax issues, Mr. Marzban said that he knew that the
plaintiff was to receive $1.6 million for her interest in the ABG, and that the
settlement included an allowance for tax to Mr. Newton that was more favourable
than he would receive in a commercial deal, but said that he did not know the details
of this or discuss it with the plaintiff. Nor did he discuss with her how the courts deal
with taxes in matrimonial disputes.
[721] With respect to draws from the ABG, Mr. Marzban said that he knew that
these had been an issue throughout. Both the plaintiff and Mr. Newton had
withdrawn money from the ABG and she did not want to pay it back unless Mr.
Newton did too. Mr. Marzban provided no details of a discussion about this at the
meeting, other than to say he believed it remained a negotiating point or “grinder”.
[722] Finally, Mr. Marzban said that he did not raise the possibility of updating the
financial information of the ABG, or whether the plaintiff had a claim to a share of the
ABG profits in 2001 at the fiscal year-end of October 31, 2001.
[723] I accept the veracity of Mr. Marzban’s limited recollection of his discussion
with the plaintiff. I found him credible and straightforward in giving his account of the
meeting, and in acknowledging the limits of his recollection. I accept that the
2008 BCSC 328 (CanLII)
“grinder” that he was still working on. I earlier found Mr. Marzban mistaken in that
Newton v. Marzban
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meeting lasted two hours and he did most of the talking. I infer that he clearly told
the plaintiff more than he can recall. Since Mr. Marzban viewed the ABG as the
dealt with his concerns as to the uncertainty surrounding how a court might dispose
of the ABG at a trial. Mr. Marzban said, however, that he probably did not talk to the
plaintiff about “the legal type of things”. I am unable to interpret that comment in a
way that permits me to make a reliable finding as to exactly what he told the plaintiff
about the ABG, or other issues, beyond that which he recalls.
[724] Having accepted Mr. Marzban’s evidence about the advice he gave to the
plaintiff on October 2, 2001, I am left to measure that against the standard of care
set out earlier in this section. I find that the plaintiff has established that this advice
did not meet that standard.
[725] The plaintiff’s claim focused on three main issues: the value of the ABG, the
role of Westwood, and her entitlement to spousal support. I find that the standard of
care clearly required Mr. Marzban at some point during his retainer to advise her
about those claims in the context of the statutory scheme that governed them, being
Part 5 of the F.R.A. dealing with division of family assets, and s. 15.2 of the Divorce
Act dealing with support. Such advice was essential to provide the plaintiff with a
reference point by which to judge the settlement and her potential outcomes at a
trial.
[726] There is no evidence that Mr. Marzban provided such advice. He agreed that
he did not have such a discussion with the plaintiff at their first meeting. He said that
2008 BCSC 328 (CanLII)
linchpin of the plaintiff’s claim, I am satisfied that some part of his advice must have
Newton v. Marzban
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at that point he assumed that the statutory framework had been discussed during
Mr. Lobay’s retainer, and her claim appeared straightforward. It was understood that
the outcome of that division was known. He said that he therefore decided it was
sensible and cost-effective to leave the discussion of the statutory context until they
had a value for the ABG, and knew if it led to a negotiated settlement or litigation.
[727] There is nothing in the evidence about the meeting on October 2, 2001 to
support a finding that this anticipated discussion took place at that time. While I
appreciate that the plaintiff may have received earlier advice from Mr. Lobay, I do
not accept that this removed Mr. Marzban’s obligation to ensure that she understood
the legal framework within which she should consider the settlement and her
options. Any advice from Mr. Lobay had been given over a year before, and the
situation had evolved. In particular, Westwood had emerged as a concern since Mr.
Lobay’s retainer.
[728] I find that Mr. Marzban breached the standard of care in failing to advise the
plaintiff about the statutory framework underlying her matrimonial claim.
[729] Turning to the advice given with respect to Westwood, I have found that it
raised potential issues as to whether it was a family asset, whether Mr. Newton was
earning sufficient income from it to have an impact on the plaintiff’s claim for spousal
support, and whether his activities with Westwood were devaluing the ABG, thereby
creating a potential claim for reapportionment under s. 65 of the F.R.A.
2008 BCSC 328 (CanLII)
there would be an equal division of assets. Support could not be determined until
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[730] Mr. Marzban agreed that he did not talk to the plaintiff about Westwood as a
potential family asset in the context of the F.R.A. Nor did he discuss its relevance to
Marzban agreed that as of October 2, 2001 he did not know enough about
Westwood to fully advise the plaintiff about these matters. However, he did not tell
the plaintiff this, or give her advice as to how more information about Westwood
could be obtained through the discovery process. Nor did he give her a specific
warning as to the risk of settling her claim without a further investigation of
Westwood. I acknowledge that he did raise with the plaintiff the fact that they had
limited information about Westwood, and that there might be something there. As
well, I am satisfied that the plaintiff knew that Mr. Marzban could obtain more
information about Westwood if she wished, due to the earlier application he had
prepared and the affidavit she swore. I accept that she was dismissive of his query,
however, and indicated that she accepted Mr. Newton’s position that it would not be
part of the deal.
[731] While I appreciate that the plaintiff’s apparent lack of interest suggested that
further advice was not welcome or necessary, I find that the standard of care
nevertheless required Mr. Marzban to ensure that, before she acquiesced to Mr.
Newton’s position, she was fully advised of Westwood’s potential importance to her
claims; to warn her that he did not have enough information to advise her properly
about it; to advise her of the steps he could take to obtain further information; and to
warn her of the risk of settling without taking those steps. There is no evidence that
2008 BCSC 328 (CanLII)
a possible claim for reapportionment, or to her claim for spousal support. Mr.
Newton v. Marzban
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Mr. Marzban provided such advice or warning. I find that his failure to do so was a
[732]
Turning to the advice given with respect to the ABG, I reject the plaintiff’s
view that the standard of care required Mr. Marzban to advise her about the
distinction between fair market value and “fair value”. The plaintiff cited Sartori v.
Sartori (1993), 13 O.R. (3d) 710 (Gen. Div.); Safarik v. Ocean Fisheries Ltd. No. 1
(1993), 12 B.C.L.R. (3d) 342 (C.A.); and Fletcher v. Fletcher, 2003 BCSC 1498 in
support of this argument. In my view, those cases do not suggest that “fair value” as
used in Sartori is a term of art in matrimonial law. It is simply a descriptive phrase
that covers the general discretion of the court to deal with unfairness, for example
under s. 65 of the F.R.A., and the court’s powers to weigh and reject evidence in
general, including valuation evidence. The other two cases add nothing more.
Moreover, neither Mr. Buchanan nor Mr. Maxwell provided evidence that supported
a view that the concept of “fair value” is a term routinely used in the matrimonial law
of British Columbia, or that the standard of care requires a family lawyer to advise a
client about the distinction between that concept and fair market value.
[733] The essence of Mr. Marzban’s advice to the plaintiff about the ABG was that
she could do better or could do worse, and that the settlement fell within the possible
range of outcomes. While that may have been a realistic “bottom line” in the
circumstances of this case, I find that, standing alone, it does not meet the standard
of care that requires the lawyer to fully inform a client about options and risks. Such
global advice provided no reference points to permit the plaintiff to assess her
options and risks in her particular circumstances. It failed to address the question
2008 BCSC 328 (CanLII)
breach of the standard of care.
Newton v. Marzban
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central to her decision whether to go to trial or settle – how much better or worse?
The standard of care requires, to the extent possible, reference to outcomes in
[734] I appreciate that Mr. Marzban did tell the plaintiff more than this general
statement but, for the reasons described earlier, I am unable to determine how much
more. I appreciate that the onus of proof rests with the plaintiff, but even on his own
account, Mr. Marzban did not discuss with her a number of matters that had a
potential impact on the value of the ABG if she went to trial.
[735] He did not discuss potential outcomes in monetary terms, although Mr.
Harder’s going concern and liquidation values provided reference points by which to
assess the value given to the ABG in the settlement, and the possible outcomes at
trial. As well, I find that the standard of care required Mr. Marzban to raise with the
plaintiff the tax concessions made to Mr. Newton in the settlement, and the way in
which a court would be likely to treat these in the matrimonial context, in relation to
the value of her interest in the ABG.
[736] The discussion of the lower end of the range for the ABG would undoubtedly
include the risks and uncertainties of what a court might do with the ABG, described
by Mr. Marzban in his evidence about his analysis of the plaintiff’s claim. Given that
this was his main concern on October 2, 2001, I infer that he must have discussed
as least some of these with the plaintiff, but I am unable to determine exactly what
advice he provided. The risks of an order that both parties stay in business together,
or of a discount from the plaintiff’s interest for the benefit of cash in accord with the
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monetary terms or in reference to other likely factual findings at trial.
Newton v. Marzban
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principles in Blackett, were not easily quantified. I find that the standard of care
required Mr. Marzban to discuss these matters with the plaintiff sufficiently to enable
trial instead of accepting the settlement.
[737] As well, since this was the first time that Mr. Marzban had spoken to the
plaintiff about the valuation, I find that the standard of care required him to advise
her that he had accepted Mr. Harder’s financial disclosure and his valuation without
question or independent inquiry, and that if she felt his value was too low, she did
not have to accept his valuation or the Ritchie Bros. Appraisal as the basis for the
settlement. It remained open for her to reject the settlement and have another
appraisal and valuation done that might produce a higher number. I find that no
advice of this nature was given.
[738] The plaintiff also complains that Mr. Marzban did not review with her the
concessions made during the negotiations with respect to the draws, the start-up
loan, and interest, and advise her how those matters might have been treated at a
trial. I agree that a reasonable family lawyer should undertake such a discussion
when reviewing a proposed settlement with a client. Here, Mr. Marzban did raise the
absence of interest for the first two years of the agreement, but there is no evidence
that he advised the plaintiff that she would receive interest on a judgment following a
trial. I find that Mr. Marzban did not discuss the draws with her, although he knew
this had been an issue throughout the dispute. Nor did he discuss the Start-up
Loan.
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her to understand the reasons for the uncertainties, and the risks of proceeding to
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[739] Turning to the issue of spousal support, I find that Mr. Marzban properly
raised the concern that the settlement did not include it, and advised the plaintiff that
happened with the assets. Despite that uncertainty, I find the standard of care
required him to discuss with her the statutory scheme underlying her entitlement to
support, particularly ss. 15.2(4) and (6) of the Divorce Act, how her right to support
and the division of assets were inter-related, and the factors that might have some
bearing on the amount and duration of an award for support if she were to receive it.
Mr. Marzban conceded that no such discussion took place.
[740] Finally, I find that the standard of care required Mr. Marzban to discuss with
the plaintiff the pros and cons of going to trial as opposed to settling. On the
negative side, this discussion should have included the potential costs, stresses, and
delays presented by a trial, the uncertainty of the result, and the question of whether
execution proceedings would be required to enforce a judgment against Mr. Newton,
resulting in further costs and delay. On the positive side, Mr. Marzban would be
expected to advise the plaintiff that, if the settlement was rejected, the January trial
date would likely be adjourned, presenting the prospect of enhancing her claim by
updating financial information of the ABG after its pending fiscal year-end on
October 31, 2001, possibly obtaining another valuation and equipment appraisal,
and conducting discovery of Mr. Newton. While some of these points formed part of
Mr. Marzban’s own analysis, on the evidence available, I am unable to find that the
plaintiff was fully informed about these matters on October 2, 2001.
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she may or may not get support if she proceeded to trial, as it would depend on what
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[741] I conclude that Mr. Marzban breached the standard of care in failing to fully
advise and inform the plaintiff with respect to the fairness of the settlement, and to
Failing to prepare for trial
[742] The plaintiff argues that Mr. Marzban was negligent in failing to prepare for
the January 2002 trial date. She says that, had she rejected the settlement, the trial
would have had to be adjourned as he was not ready. She had been clear that she
did not want further delay, and says he failed to meet the standard of care in
preparing for trial while the settlement negotiations were ongoing.
[743] Both Mr. Buchanan and Mr. Maxwell agreed that a reasonable family lawyer
begins by doing whatever possible to resolve a claim by settlement. Mr. Buchanan
offered the view that “a bad settlement is better than a good lawsuit”. Mr. Maxwell
testified that, as long as the parties seek resolution through negotiations, trial
preparation is superfluous and results in unnecessary costs. It is a fine balance to
judge the benefit of spending money on trial preparation and the probability of
settlement. Ultimately, it depends on the client’s instructions.
[744] Mr. Marzban testified that while he could have done more to prepare for trial,
it made no sense in the context of negotiations. He agreed that if the plaintiff had
rejected the settlement on October 2, 2001, it was unlikely that the matter could
have proceeded to trial as scheduled in January 2002. In all probability, the trial
would have been adjourned for up to a year.
2008 BCSC 328 (CanLII)
warn her of the risks of settling her claim without obtaining financial disclosure.
Newton v. Marzban
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[745] I find that, in the circumstances, it was not unreasonable to postpone trial
preparation until the outcome of the settlement negotiations was known. I
negotiations were matters that should have been discussed with the plaintiff and left
to her choice, and there is no evidence that Mr. Marzban discussed these with her.
However, the alleged breach is a failure to prepare for trial, not a failure to consult or
advise her with respect to this. Moreover, there is no evidence that Mr. Marzban’s
lack of trial preparation and its effect on the January 2002 trial date was discussed at
the meeting of October 2, 2001, or influenced the plaintiff’s decision to accept the
settlement.
[746] I accordingly find no breach of the standard of care with respect to this
allegation.
Conclusion with respect to allegations of breach of the standard of care
[747] I conclude that Mr. Marzban was in breach of the standard of care of a
reasonably competent matrimonial lawyer in the following respects:
a) he failed to meet with Mr. Harder and the plaintiff after the valuation was
complete and before the negotiations commenced to discuss the valuation,
the existing appraisals, and the option of a third appraisal;
b) he failed to advise the plaintiff of her rights under the statutory scheme of
the F.R.A. and Divorce Act; and
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appreciate that the degree of trial preparation, its costs, and its impact on the
Newton v. Marzban
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c) he failed to fully advise and inform the plaintiff with respect to the fairness
of the settlement, and to warn her of the risks of settling her claim without
CAUSATION
[748] In order to succeed in her action for negligence, the plaintiff must establish
that Mr. Marzban’s breaches of the standard of care caused her to suffer damages.
The Law
[749] The traditional test for determining causation in negligence cases is the “but
for” test, which requires the plaintiff to prove on a balance of probabilities that his or
her loss would not have occurred but for the negligence of the defendant: Athey v.
Leonati, [1996] 3 S.C.R. 458 at para. 14; Resurfice Corp. v. Hanke, [2007] 1
S.C.R. 333 at paras. 21-22.
[750] At the end of her evidence in chief, the plaintiff testified that there were many
things that she did not understand when she settled her claim because of the
inadequate representation and advice she received from the defendants. These
included the distinction a court would draw between fair value and fair market value;
the fact that because the ABG was a going concern it should not have been valued
on a liquidation basis; the significance of obtaining a third appraisal; the treatment of
tax considerations in a matrimonial context; and her ability to claim spousal support.
She said that had she been advised of her rights with respect to these matters, she
2008 BCSC 328 (CanLII)
taking further steps to obtain financial disclosure.
Newton v. Marzban
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would not have settled her claim, and instead would have proceeded to trial and
[751] In short, it was clearly the plaintiff’s view that, but for the inadequate advice of
Mr. Marzban, she would not have settled her claim. Because she did settle, she
believes that she lost the opportunity to obtain a judgment at trial that would be
materially better than the settlement.
[752] This approach is also reflected in her pleadings with respect to causation and
damages at paragraphs 25 and 26 of the Statement of Claim:
28.
Ms. Newton says that the services and advice provided or
omitted to be provided by Mr. Marzban which resulted in her decision
and instructions to settle her matrimonial proceedings on the terms and
conditions aforesaid were in breach of the JML Retainer and duty of
care owed to Ms. Newton, and in the circumstances, Ms. Newton has
suffered loss and damage.
29.
Had Ms. Newton been properly represented and advised by Mr.
Marzban, Ms. Newton would not have settled the matrimonial
proceedings on the terms and conditions aforesaid and Ms. Newton
would have received the benefit of materially more favourable
settlement terms or a materially more favourable outcome after a trial
of the matrimonial proceedings and execution on the judgment.
[753] Paragraph 28(a) then sets out the particulars of her damages:
(a)
the difference between the value of the terms and conditions
Ms. Newton accepted in settlement of her claims in the
matrimonial proceedings with Mr. Newton set out in the
Settlement and the value Ms. Newton would have received had
further settlement negotiations ensued based on proper advice
and services by Mr. Marzban or judgment having been obtained
and executed upon after a trial of the matrimonial proceedings.
2008 BCSC 328 (CanLII)
obtained a materially better result.
Newton v. Marzban
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[754] Despite this apparent endorsement of the traditional test for causation in her
evidence and pleadings, the plaintiff took the position in her argument that the
an analysis that introduced statistical probability as a basis for causation. She
maintained that if she could show that Mr. Marzban’s negligence caused the loss of
a real and substantial opportunity to achieve a better result at trial, causation was
established and the evaluation of that chance became part of the assessment of
damages.
[755] In support of that argument, the plaintiff relied on Hagblom v. Henderson,
2003 SKCA 40. In that case, the appellant, who had been a client of the respondent
lawyer, argued that the lawyer’s negligence in failing to call an expert witness on his
behalf at a trial caused him to lose the case. Jackson J.A., on behalf of the Court,
agreed that the lawyer was negligent and found that, had the expert been called, the
client would have had a 75% chance of raising a successful defence. She thus
awarded 75% of the damages sought.
[756] At paras. 121-132 of the judgment, Jackson J.A. discussed the lack of clarity
in tort law as to whether loss of chance is considered at the stage of causation, or in
the assessment of damages. Her review of the authorities revealed that some
decisions dealing with legal malpractice have recognized that a plaintiff/client may
succeed in an action where, through the lawyer’s negligence, the client had lost a
case that there had been some chance of winning. She stated her conclusions at
paras. 131 and 132:
2008 BCSC 328 (CanLII)
circumstances of this case justify a departure from that approach. She put forward
Page 237
[131] As I have fixed Mr. Hagblom's loss at 75%, it is more probable than not
that Mr. Hagblom would have succeeded. Thus, we do not need to decide the
issue as to whether loss of a chance enters the analysis at the causation
stage because the traditional test, as stated by the second trial judge, applies.
The issue is whether, on a balance of probabilities, but for the negligence of
Mr. Henderson, Mr. Hagblom lost something of value greater than a 50%
chance of success. It is not, however, necessary to say, as the second trial
judge said, that the fault must have caused the loss of the trial.
[132] If it were necessary to determine the appropriate causative test,
I note that the Court in Allied Maples Group Ltd. v. Simmons &
Simmons [See Note 142 below] held that once the plaintiff proves as a
matter of causation that he or she had a real or substantial chance, as
opposed to a speculative one, causation is proven and the evaluation
of the chance becomes part of the assessment of the quantum of
damage. [See Note 143 below] It should be evident by this that the
issue which is left for another day is whether a court may assess
damages even though the percentage of the loss is 50% or less.
[757] I am unable to accept the plaintiff’s argument that a similar loss of chance
analysis applies to the issue of causation in this case. There is a fundamental
difference between the circumstances before me and those in Hagblom. In
Hagblom, the court found a direct causal link between the lost chance to win the
case and the lawyer’s negligence. The lawyer had breached the standard of care by
failing to call a critical witness who would have significantly improved the strength of
the client’s case, and his chance of winning at trial. In such a case, the probability of
success is an inherent part of the causation analysis, because to prove that the
defendant lawyer has caused a loss, the plaintiff/client must prove that, but for the
lawyer’s negligence, he or she had a chance to realize a benefit from an opportunity.
The probability of success is both an essential part of the causation analysis and an
aspect of the quantification of damages. Both issues require an assessment of the
strength of the plaintiff’s claim at a “trial within a trial”. The probability of a
2008 BCSC 328 (CanLII)
Newton v. Marzban
Newton v. Marzban
Page 238
successful outcome, and thus the value of the opportunity, must be assessed before
[758] That is not the situation here. Unlike Hagblom, the plaintiff does not plead
that there was a direct link between Mr. Marzban’s negligent advice and loss of a
chance to get a better result at trial. She does not plead that his advice had any
impact on the outcome of a future trial. Instead, she says that his negligence
caused her to settle her claim, and her loss is the opportunity to proceed to trial at
all.
[759] The plaintiff pleads the “materially better outcome at trial” as the measure of
damages, not as an issue of causation. The probability attached to the lost chance
of that better outcome is an inherent part of the quantification of damages, which will
be assessed in a “trial within a trial” if causation is found. That exercise will seek to
determine what the likely outcome of her matrimonial trial would have been. As Mr.
Marzban is not alleged to have taken any actions that reduced her opportunity to
obtain a better result at a trial, the plaintiff is entitled to put forward the best case she
could at the hypothetical trial, within the constraints of the evidence before me and
the findings I have made to that point at this trial.
[760] I conclude that, with respect to causation, the plaintiff must prove on a
balance of probabilities that if Mr. Marzban had provided advice that met the
standard of care, she would not have accepted the settlement.
[761] In considering that issue, I am mindful that I must resist the tendency to view
the plaintiff’s decision to settle with “the acuity of vision given by hindsight”:
2008 BCSC 328 (CanLII)
the question of causation is answered.
Newton v. Marzban
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Karpenko v. Paroian, Courey, Cohen & Houston (1980), 117 D.L.R. (3d) 383 at
398 (Ont. H.C.J.). I adopt the view of Groberman J. in Sports Pool Distributors
negligence a bare assertion that a client would have behaved differently if he or she
had received proper advice should be viewed with some scepticism. Like Mr.
Justice Groberman, I endorse this observation of Southin J.A. in Hong Kong Bank
of Canada v. Touche Ross & Co. (1989), 36 B.C.L.R. (2d) 381 at 392 (C.A.):
It is always easy for a witness to say what he would have done and for
a judge to say he accepts that assertion. But such evidence is, in
truth, not evidence of a fact but evidence of opinion. It should be
tested in the crucible of reason.
Introduction
[762] In putting forward her position on causation, the plaintiff tended to rely on the
information that she says she would have obtained had she received appropriate
advice from Mr. Marzban. There are two inter-related problems with that approach.
First, it is not the result of a potential future investigation, but the plaintiff’s state of
mind at the time the advice was given or not given, that is the governing factor in
determining the effect of Mr. Marzban’s acts on her decision to settle. Second, it
necessarily leads to speculation about the actions and state of mind of third parties.
For example, the plaintiff says she would not have settled if she had been told by Mr.
Marzban that further information could be obtained about Westwood through
discovery procedures. However, predicting what information would have been
revealed raises questions as to what advice Mr. Mortimer would have given to Mr.
2008 BCSC 328 (CanLII)
Inc. v. Dangerfield, 2008 BCSC 9 at para. 97, that in cases of professional
Newton v. Marzban
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Newton, what answers Mr. Newton would have provided, and what further
investigation might have ensued. There is little to suggest that the plaintiff knew the
The context for the plaintiff’s decision to settle
[763] The plaintiff’s decision to settle did not take place in a vacuum. Multiple and
inter-related factors formed the backdrop to her matrimonial dispute and her
dealings with the defendants, Mr. Newton, and Mr. Brewer. These included the
economics of the logging industry, the financial circumstances of the ABG, Mr.
Newton’s circumstances, the plaintiff’s relationship with him, and a number of
personal considerations and characteristics.
[764] Near the beginning of these Reasons, I described the cyclical state of the
logging industry, and the environmental, regulatory, and economic factors that
created challenges and uncertainty with respect to future productivity and profitability
in that industry in 2000 – 2001. Given the plaintiff’s long-standing connection with
logging and the ABG, I am unable to accept her evidence that she was unaware of
such concerns. I find that on July 17, 2001, Mr. Hubley expressly discussed them
with her in the course of reviewing his memorandum to Mr. Brewer, which dealt with
the importance of security for the plaintiff under the proposed settlement and
included this statement:
The economics of the forestry industry
We are both very aware of the state of affairs within the logging
industry. The threats from the US on our exports as well as
environmental, European and Asian market problems have all lead to
2008 BCSC 328 (CanLII)
answers to such questions at the time she decided to settle.
Newton v. Marzban
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I appreciate Lyle [sic] single mindedness and commitment to have
Christine paid. I do not believe that we have questioned his integrity in
paying the debt. I think that the major reason for asking for the
security of the company is to reduce the risk from those events that
take place outside of Lyle’s control.
[765] I accept Mr. De Clark’s evidence that the ABG’s performance was affected by
these forces, and that its cash flow was tight from 1999 to 2001. I find that the
plaintiff was aware of this. Mr. De Clark testified that she and Mr. Newton typically
paid any annual bonus they received back into the ABG to assist with the cash flow.
The plaintiff clearly had significant concerns about the viability of the ABG in the
months immediately after the separation when the company’s financing was
precarious. The terms of the new financing obtained from GEC for $4 million in
October 2000 committed the ABG to bringing its debt load down substantially,
reducing its cash flow. While I appreciate that the plaintiff may not have been aware
of the details of this commitment, Mr. Brewer raised the tenuous financial state of the
ABG as a continuous theme during the negotiations.
[766] Moving to the role of Mr. Newton, since he did not testify I must ascertain the
part he played in the plaintiff’s decision-making process from statements that he and
his agent, Mr. Brewer, made to other witnesses. As noted previously, I do not rely
on those statements for their truth, but for the state of mind they created in the
plaintiff and her advisors.
2008 BCSC 328 (CanLII)
the increased risk in this business. These along with the fact that we
have too much productive capacity within the logging industry for the
wood available leads me to conclude that the risk is significant with
respect to the economic environment, without considering the actual
financial position of the companies.
Newton v. Marzban
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[767] Mr. Newton presents as something of an enigma. He was clearly a capable
logger and the operational force behind the ABG. I am satisfied that his abilities and
made this clear to the plaintiff, describing the ABG as “a pig in a poke” that
depended heavily on his abilities. I accept that without Mr. Newton’s efforts the ABG
was unlikely to continue its operations.
[768] In the absence of direct evidence, I am not prepared to make a definitive
finding as to Mr. Newton’s association with the Hells Angels. However, it is clear
that the plaintiff and the defendants believed that he had joined that organization. I
am satisfied that the plaintiff was concerned that this association would jeopardize
the ABG, and put her interest in the company at risk. She swore to this in the
affidavit prepared by Mr. Marzban in April 2001. She testified at this trial that she
was aware that the organization could be a front for criminal activity, and that several
members of the Hells Angels were working at the ABG. Her concerns were
heightened when Mr. Hubley told her that Mr. Newton’s association with the Hells
Angels was one of the reasons why the RBC had pulled its financing. Mr. Marcelo
Bohm, a Vice-President of GEC, testified that at the time GEC provided financing to
the ABG in October 2000, he was not aware that Mr. Newton was associated with
the Hells Angels. He said that if he known this, GEC would not have done business
with the company. While this was not known to the plaintiff at the time, I find his
statement reinforces the legitimacy of her concern that Mr. Newton’s association
with the Hells Angels could have serious negative consequences for the ABG.
2008 BCSC 328 (CanLII)
experience were the primary reason for its success. Early in the negotiations, he
Newton v. Marzban
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[769] Mr. Newton’s inability to pay a substantial settlement or judgment was a
constant theme throughout the negotiations. The plaintiff knew that he had limited
HSBC placed significant limitations on both of them as to what they could do with the
income and the assets of the company. The plaintiff had been a signatory to
documents related to the financing, and these made it clear that both she and Mr.
Newton had been required to provide assignments and postponements of their
shareholder’s loans as security, as well as unlimited personal guarantees. Further,
HSBC stipulated that they could not remove more than $200,000 annually in
remuneration from the ABG, including salaries and bonuses.
[770] Mr. Brewer and Mr. Newton repeatedly referred to the these constraints
during the negotiations, and took the position that the settlement must be on a
liquidation basis because Mr. Newton could not afford to pay Mr. Harder’s value and
continue to operate the ABG. He periodically raised the threat of liquidating the ABG
if a settlement satisfactory to Mr. Newton could not be reached. The evidence was
somewhat unclear as to how this threat was intended or interpreted. At times, it
appears to have raised a scenario in which Mr. Newton simply walked away from the
ABG. At other times, it was raised in the context of a formal application to wind up
the company. I accept that during the negotiations the plaintiff and Mr. Hubley did
not treat liquidation as a serious threat. I find, however, that it would have become a
concern if negotiations failed. The plaintiff and Mr. Newton were clearly not able to
operate the ABG together. She could not operate the company and did not want to
buy it from him. He did not want to continue working for her benefit. While it was
2008 BCSC 328 (CanLII)
assets beyond the ABG. The company’s financing arrangements with GEC and
Newton v. Marzban
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not financially beneficial to either of them to wind up the company, I am satisfied that
this was a realistic possibility if Mr. Newton decided that the plaintiff’s demands for
[771] The dynamics of the personal relationship between the plaintiff and Mr.
Newton after separation were complex, and fluctuated from overt hostility on the part
of Mr. Newton to renewed intimacy. The plaintiff testified that she was still in love
with him, and left him only because of his decision to join the Hells Angels. I accept
that, during the early months of the separation, Mr. Newton exerted considerable
pressure on her to settle through hostility and threats. I find that he became less
aggressive as time passed, however, and by mid-2001 he and the plaintiff were on
amicable terms again to the point of having resumed intimate relations.
[772] The plaintiff testified that she remained fearful of Mr. Newton to a degree
throughout. Yet she was able to successfully negotiate some significant issues,
such as security, directly with him. Her evidence as to whether her ongoing fear of
him influenced her decision to settle was contradictory. She told Mr. Hubley that she
wanted a settlement in part because she wanted to stay on good terms with Mr.
Newton and not upset him. Given the mercurial nature of their relationship, I find it
difficult to say whether this was due to fear or fondness. Two years after the
settlement, the plaintiff filed an action against Mr. Newton alleging that he had
misrepresented his assets and financial position to her, and had influenced her or
controlled her to his advantage at the time of the settlement. She also claimed that
she had settled because of threats and pressure from him. That action had not
proceeded at the time of this trial.
2008 BCSC 328 (CanLII)
the value of her shares were beyond his means.
Newton v. Marzban
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[773] Turning to the plaintiff’s personal characteristics and considerations, I find
that, from the outset, she had a strong preference to resolve her matrimonial dispute
by Mr. Newton’s hostility. I also accept Mr. Hubley’s evidence that when the hostility
moderated in 2001, the plaintiff’s attitude toward settlement fluctuated at times, but
her most consistent theme remained that she wanted to settle as long as it was fair,
because she wanted to stay on good terms with Mr. Newton, and to receive
compensation sooner rather than later.
[774] I find that during the negotiations, instead of forcefully pursuing her goal of $2
million, the plaintiff was prepared to make a number of concessions in order to reach
a settlement of $1.771 million. I am satisfied that Mr. Hubley periodically reminded
her during that process that if she was unhappy with the way the negotiations were
going, she could always go to court, and that she should speak to Mr. Marzban
about this. However, the record indicates that the plaintiff showed little interest in
pursuing litigation as long as Mr. Newton was prepared to negotiate. Her
instructions to Mr. Marzban to proceed with the application in April, to set a trial date
at the end of May, and to deliver a notice of trial in July, were all given at times when
the negotiations appeared to be faltering. When they resumed, she had no further
communications with Mr. Marzban about these or other measures to advance the
litigation.
[775] I find that during her matrimonial dispute the plaintiff was prone to acting
independently and impulsively in making significant decisions, without seeking or
following advice from the defendants or other advisors such as Mr. Lobay. Contrary
2008 BCSC 328 (CanLII)
though settlement. I accept that initially this may have been driven, at least in part,
Newton v. Marzban
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to strong and repeated advice from Mr. Lobay, she signed a postponement of
spousal support. She also instructed him to prepare a settlement in June 2000 that
advice from him and Mr. Hubley that the value of her interest in the ABG may be
considerably higher than that and she should first obtain financial disclosure. After
she had signed that agreement, she unexpectedly changed her mind and decided
not to go ahead with it. Later, in October 2000, she refused to follow Mr. Marzban’s
advice that she should not solicit a further offer from Mr. Newton without financial
disclosure. In December 2000, when she received an offer in response of
approximately $909,000 over 50 months for her interest in the ABG, she rejected
this without seeking advice from Mr. Marzban or Mr. Hubley.
[776] While I appreciate that during 2000 she may have been somewhat influenced
by pressure from Mr. Newton, I find similar impulsive conduct demonstrated in April
2001. At that time, she immediately instructed Mr. Hubley to commence
negotiations upon receiving Mr. Harder’s valuation. She instructed Mr. Marzban not
to proceed with the application with respect to Westwood. She chose her financial
goal in the negotiations without advice from any of the defendants.
[777] I find that this behaviour strongly suggests that the plaintiff had her own
agenda, which over-rode the advice she received from the defendants. Her limited
recollection of their advice reinforces that view, and leaves it open to infer that their
input had little impact on her chosen course of action.
2008 BCSC 328 (CanLII)
would have given her $650,000 over 10 years for her interest in the ABG, despite
Newton v. Marzban
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[778] I accept Mr. Hubley’s evidence that by April 2001 the plaintiff was frustrated,
nervous, and concerned with the uncertainty and delay in resolving her dispute, and
testimony that she advised him then that Mr. Newton had told her he and Mr. Brewer
were upset with Mr. Harder’s numbers, and that she was worried that Mr. Harder’s
valuation was too high, and she would not get a good settlement if they had to sell
the company because Mr. Newton had no incentive to carry it on.
[779] Finally, while the plaintiff equivocated about this, I find that her frustration and
eagerness for an early settlement were motivated in part by financial constraints.
She and Mr. Newton had enjoyed a high standard of living during the marriage, and
she no longer had unlimited access to funds from the ABG to support this. She did
not seek employment after the separation, but continued to receive a monthly draw
of $5,000 from the ABG. However, she acknowledged that during the summer of
2001 she was spending several thousand dollars a month on items such as spas,
travel, and fitness. In the 18 months between the separation and the settlement, in
addition to those monthly draws, she had withdrawn about $88,000 from the ABG,
cashed in the Midland Walwyn Shares worth $65,000, and borrowed $30,000 from
her sister. As well, her mother had paid Mr. Marzban’s retainer because the plaintiff
did not have the funds to do so.
[780] In summary, I accept that the plaintiff’s objectives were to obtain an early and
fair settlement of her claim that did not upset Mr. Newton. In attempting to achieve
that, however, I find that she was faced with a number of uncertainties that were
beyond her control and that could operate to her disadvantage, particularly if the
2008 BCSC 328 (CanLII)
had a strong wish to bring the matter to an end. I find that exemplified in his
Newton v. Marzban
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resolution of her matrimonial dispute was delayed. These included economic
concerns and threats to the ongoing viability of the ABG, not just in financial terms,
had an ongoing commitment to the ABG. There was also the question of whether
Mr. Newton would or could pay any substantial settlement or judgement.
[781] I find that it was clear to her that these uncertainties limited her options in
reaching a satisfactory resolution with respect to her interest in the ABG. She did
not want to remain in business with Mr. Newton. She could not buy and operate the
business herself. Its ongoing profitability depended largely on his efforts. If she put
forward a position that was unreasonable from his point of view, she might force him
to take steps to wind up the company. In the words of both Mr. Harder and Mr.
Marzban, Mr. Newton “had all the cards in his hands”.
[782] I am satisfied that, while the plaintiff wanted a fair settlement, these
considerations made it clear to her that negotiating an arrangement whereby she
was bought out of the ABG by Mr. Newton, on terms that permitted payment over
time with security on any outstanding balance, would be the most pragmatic
outcome for her, even if the settlement amount was something less than fair market
value. I find that she was aware that a trial might lead to a higher award, but that
option was unattractive to her due to the additional delays, costs, and uncertainty
that it represented.
[783] I find that the plaintiff’s relationship with Mr. Newton also influenced her
approach to resolving their matrimonial dispute. I am satisfied that her wish to
2008 BCSC 328 (CanLII)
but also related to Mr. Newton’s association with the Hells Angels and whether he
Newton v. Marzban
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remain on good terms with him played a role in her acceptance of his position on
several significant issues without inquiry or advice from the defendants. She knew it
Newton was not keen on it. When Mr. Marzban raised the exclusion of spousal
support and Westwood from the settlement as potential issues at their final meeting,
the plaintiff was dismissive of his concerns, indicating that Mr. Newton said these
were off the table and she was content with that. While I appreciate that the plaintiff
says that she conceded these matters because of inadequate advice from Mr.
Marzban, I find that this does not explain her willingness to so readily accept Mr.
Newton’s position without soliciting advice on the wisdom of such a course. I am
satisfied that, while the plaintiff wished to obtain as high a settlement as possible,
she knew where Mr. Newton had drawn the line on such issues, and she made a
deliberate decision not to step over that line and risk losing the settlement and his
good will.
[784] I conclude that these contextual factors played a significant role in the
plaintiff’s decision to settle her claim, regardless of any advice given or not given by
Mr. Marzban.
Mr. Marzban’s failure to meet with Mr. Harder and the plaintiff about the
valuation and appraisals
[785] This is effectively the issue of a third appraisal. The plaintiff says that had Mr.
Marzban fully explored this option with Mr. Harder, and then advised her properly of
the purpose, importance and need for a third appraisal, she would have elected to
postpone the negotiations to obtain a more favourable equipment appraisal based
2008 BCSC 328 (CanLII)
was open for her to pursue a third appraisal, but she declined to do so because Mr.
Newton v. Marzban
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on a higher methodological premise, like the Springer Appraisal. She hypothesizes
that since Mr. Newton made it clear that he would only negotiate on the Ritchie Bros.
to trial with a significantly higher valuation, and obtained a materially better result at
trial than the settlement of $1.771 million.
[786] I have found that Mr. Marzban breached the standard of care in failing to
meet with Mr. Harder and the plaintiff to discuss the valuation before negotiations
commenced. With Mr. Harder, he should have discussed the factual assumptions
and premises on which the valuation was based, and explored the reasons for the
discrepancy between the AA Appraisal and the Ritchie Bros. Appraisal, the reasons
for Mr. Harder’s reliance on the latter, and the option of obtaining another appraisal.
The standard of care also required that he discuss the information he obtained from
Mr. Harder with the plaintiff, and advise her about the impact of the valuation on her
likely outcomes, and the option and implications of commissioning a third appraisal,
including its costs and likely impact on the pending negotiations.
[787] Determining exactly what information would have passed between Mr.
Marzban and Mr. Harder at such a meeting is necessarily speculative to a degree.
Based on the evidence and my previous findings, I conclude it would reasonably
have included the following.
[788] Mr. Harder would have confirmed his view that he had valued the ABG as a
going concern. He would have explained why he rejected the AA Appraisal as
unreliable, and why he accepted the Ritchie Bros. Appraisal as the fair market value
2008 BCSC 328 (CanLII)
values, there would have been no settlement. Instead, she would have proceeded
Newton v. Marzban
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of the ABG equipment for the purpose of his valuation, in the same manner as his
[789] I find it unlikely that Mr. Marzban would have challenged Mr. Harder’s opinion
on those matters, but I accept that he would have canvassed with him the option of a
third appraisal as a means of improving the plaintiff’s position. This would have
revealed that a third appraisal could be obtained from Universal Appraisal, Mr.
Pearson’s firm, for $12,000 to $15,000 plus disbursements. Based on my earlier
findings, Mr. Harder would not have provided information about the likely result of a
Universal Appraisal appraisal. However, Mr. Brewer had told Mr. Harder that GEC
had appraised the ABG equipment for $5.3 million (the reason for that figure instead
of the actual appraisal amount of $5.5 million is unclear), and I find it likely that Mr.
Harder would have told Mr. Marzban this. I anticipate that their discussion would
also have covered Mr. Harder’s ongoing role and the fact that, as an independent
expert, he would have to be satisfied with any third appraisal. There would also be
an inquiry as to what additional fees he would charge if he was required to redo his
valuation on the basis of a new appraisal. I find that Mr. Harder would also have
conveyed that while Mr. Newton and Mr. Brewer would not oppose another
appraisal, they viewed it as irrelevant and would only negotiate using the Ritchie
Bros. values.
[790] Further information that might have been provided to Mr. Marzban by Mr.
Harder becomes more speculative. It is difficult to envisage what conversation might
have taken place about methodological premises, given the fact that Mr. Harder
viewed the Ritchie Bros. Appraisal as providing the fair market value of the ABG
2008 BCSC 328 (CanLII)
evidence at this trial.
Newton v. Marzban
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equipment. I find it clear, however, that Mr. Harder would not have recommended
seeking a third appraisal on a premise of fair market value in continued use, given
possible that Mr. Harder and Mr. Marzban may have discussed the impact of using
an equipment appraisal in the range of $5.3 million on Mr. Harder’s valuation. On
my admittedly rough and inexpert calculation it appears that an appraisal in that
amount would add $410,000 to the capital asset value used by Mr. Harder in his
tangible asset backing calculation. That would then have to be adjusted downward
by the deduction of the tax shield foregone. The plaintiff’s half interest in the ABG
would accordingly increase by something less than $205,000 on these figures.
[791] While more remote, it is possible that Mr. Marzban may have had a
preliminary discussion with Mr. Pearson after he spoke to Mr. Harder, and learned
that if Universal Appraisal did an appraisal, it would be based on an orderly
liquidation value premise. While it is conceivable that Mr. Pearson might have
advised that a Universal Appraisal appraisal would likely lie between the AA
Appraisal and the Ritchie Bros. Appraisal, but closer to Ritchie Bros., that is even
more remote, given my earlier findings. I nevertheless conclude that Mr. Marzban
would be aware, as a result of these inquiries, that there was some indication that a
third appraisal would be higher than the Ritchie Bros. Appraisal, although not
significantly so.
[792] I find it unlikely that Mr. Marzban would have embarked on further
investigation into a third appraisal before meeting with the plaintiff to share this
information and obtain her instructions.
2008 BCSC 328 (CanLII)
his view that the nature of the ABG equipment did not justify such an approach. It is
Newton v. Marzban
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[793] I find nothing in the hypothetical information from Mr. Harder that I have set
out that would have led Mr. Marzban to suggest that the plaintiff should seek an
findings on that topic indicate that such an approach would have been misguided,
and ultimately would not have advanced her position. Instead, it appears likely they
would have considered retaining Universal Appraisal do another appraisal. They
would have discussed the likelihood that this appraisal would be higher than the
Ritchie Bros. Appraisal, and the uncertainty as to how much higher. They would
have considered its costs, and the related costs of having Mr. Harder or another
valuator review and approve it, and then provide a new valuation.
[794] I find it likely that they would have discussed the impact of having another
appraisal on the settlement negotiations, and decided that it would clearly delay
them, and in all likelihood bring them to a halt completely, given the apparently
entrenched position of Mr. Newton and Mr. Brewer that they would only negotiate on
the Ritchie Bros. values. I am satisfied that this would have led to a discussion of
whether obtaining a third appraisal of unknown value and going to trial would
advance the plaintiff’s position overall, in the context of the uncertainty of the result
and the attendant delays and costs. A trial date had not yet been scheduled. Mr.
Marzban would have told the plaintiff that a trial might cost between $100,000 and
$300,000 if it was hard-fought and required extensive expert testimony. They would
have discussed the uncertainty of the result when a judge is faced with a range of
valuations, the fact that Mr. Newton would put forward the Ritchie Bros. Appraisal;
2008 BCSC 328 (CanLII)
appraisal done on a premise of fair market value in continued use. My earlier
Newton v. Marzban
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that the AA Appraisal, while high, was likely to be discredited; and that the result of a
[795] Has the plaintiff established on a balance of probabilities that this information
would have led her to reject the prospect of negotiating a settlement based on Mr.
Harder’s valuation, and instead obtain a third appraisal, knowing that the likely
outcome of that course was to proceed to trial? I find that she has not.
[796] I am satisfied that the postulated discussions between Mr. Harder, Mr.
Marzban and the plaintiff contain a limited amount of significant information that was
not already known to the plaintiff. I find that she already knew from her
conversations with Mr. Hubley and Mr. Harder that she had the option of obtaining a
third appraisal, its estimated cost, and that Mr. Newton viewed it as irrelevant and
would only negotiate on the Ritchie Bros. Appraisal values.
[797] The plaintiff claimed that no one ever told her that that Mr. Newton’s
opposition did not preclude her from obtaining a third appraisal and proceeding to
trial with a valuation based on it. She said that while she knew that she could have
another appraisal done, and she knew she could go to trial, she never understood
the relationship between these two steps. She maintained that the defendants
insisted that they would use Ritchie Bros. and she did not pursue a third appraisal
because she thought she did not have a choice.
[798] I am unable to accept that. There is no evidence that any of the defendants
told the plaintiff that she had to use the Ritchie Bros. Appraisal. Mr. Hubley and Mr.
Harder clearly left it open to her to provide instructions to obtain a third appraisal if
2008 BCSC 328 (CanLII)
third appraisal at this point was unknown.
Newton v. Marzban
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she wished. Moreover, the plaintiff knew that a higher appraisal would increase the
value of her shares; this was the only reason to commission another appraisal. She
appraisal. She knew that in that case the only way to resolve her dispute would be
to proceed to trial. I find that, regardless of any inadequacies in the advice offered
by Mr. Marzban, the plaintiff understood that the purpose of obtaining a third
appraisal was to proceed to trial with an enhanced claim.
[799] I accordingly find that the only significant new information that would have
emerged from the postulated discussions between Mr. Marzban, Mr. Harder and the
plaintiff were first, that another appraisal could be done on a theoretical premise of
orderly liquidation value, and second, that the result would likely be higher than the
Ritchie Bros. Appraisal, although perhaps not substantially higher.
[800] I am not convinced that the information about the theoretical appraisal
premise would have resonated with the plaintiff and been a decisive factor in
convincing her that a third appraisal was necessary. The prospect of another
appraisal increasing the value of her claim would be a more meaningful piece of
information, and the significant question is whether she would have decided to
abandon the opportunity to negotiate a settlement in the range of Mr. Harder’s
valuation in order to obtain a third appraisal with a higher but uncertain result, and
proceed to trial, with the attendant delays, costs and uncertainties.
[801] The plaintiff has not convinced me that she would have done so. While a
third appraisal tempted with the prospect of an increased claim, I find that the
2008 BCSC 328 (CanLII)
knew that Mr. Newton would not accept a settlement based on a new and higher
Newton v. Marzban
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plaintiff would have been aware that pursuing that course would likely have
foreclosed any hope of resolution though a settlement. She would also have known
Mr. Newton’s reaction to an increased claim, and the ultimate outcome at trial. I am
not satisfied that, in the context I described in the previous section, this additional
information would have led the plaintiff to abandon the prospect of a settlement in
order to obtain another appraisal and go to trial.
[802] I am satisfied that the plaintiff made a considered decision to negotiate a
settlement instead of exploring a third appraisal after discussing this possibility with
Mr. Hubley and Mr. Harder, primarily because Mr. Newton was opposed to that
course, and she preferred to reach a certain and early settlement with him using the
Ritchie Bros. values.
[803] I conclude that the plaintiff has failed to prove on a balance of probabilities
that Mr. Marzban’s breach of the standard of care in this regard caused her to
pursue settlement instead of proceeding to trial with a case based on a third
appraisal.
Failure to fully and adequately warn and advise the plaintiff on October 2, 2001
[804] I have found that Mr. Marzban breached the standard of care at the October
2001 meeting in failing to advise the plaintiff about her claims involving Westwood,
the ABG and spousal support in the context of the statutory scheme that governed
them. I have also found that while he advised the plaintiff with respect to the
settlement in global and general terms, he failed to fully inform her about her
2008 BCSC 328 (CanLII)
that it introduced additional uncertainties, notably, the result of the appraisal itself,
Newton v. Marzban
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options, risks, and the range of likely outcomes at trial by reference to monetary
amounts and other relevant facts that had a bearing on her claim. Nor did he review
outcomes at trial on those items. Where uncertainties in the law or facts, or limited
financial disclosure, precluded such advice, I have found that he was obliged to
explain this to her, and to inform her about any steps that could be taken to rectify
these limitations. That discussion should have included the costs of taking such
steps and the impact they might have on the potential settlement, as well as the
risks of settling without seeking the missing information. Finally, he should have
discussed with her the risks and benefits of proceeding to trial instead of accepting
the settlement.
[805] I find the following to be a reasonable representation of the advice that the
plaintiff should have received on October 2, 2001.
[806] First, with respect to Westwood, it would have included an explanation of the
effect of ss. 56 through 59 of the F.R.A., to the effect that a s. 57 declaration
operates as a triggering event, giving each party a half-interest in family assets, and
that after such a declaration each party may acquire his or her own assets. These
will not be considered family assets so long as there has been no direct or indirect
contribution to their acquisition by the other spouse or from the family assets. Thus,
if Westwood was using the assets of the ABG, this may support an argument at trial
that Westwood is a family asset and that the plaintiff is entitled to a half-interest in it.
She would not have such a claim, however, if Westwood was paying the ABG fair
market value for any assets it used.
2008 BCSC 328 (CanLII)
the concessions she had made during the negotiations in the context of the likely
Newton v. Marzban
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[807] The advice about Westwood would also have included an explanation of the
import of ss. 65 and 66 of the F.R.A., the factors in s. 65(1), and the fact that the
she was able to establish that Mr. Newton was devaluing the ABG by
misappropriating opportunities from it to Westwood.
[808] She would also have been advised that Westwood might be providing an
income stream for Mr. Newton which could strengthen a claim for spousal support
under the Divorce Act, although any claim for support remained uncertain as it was
dependent on the division of assets.
[809] Finally, the plaintiff would have been told that Mr. Marzban had insufficient
information about Westwood to give reliable advice about these potential claims, and
warned of the risks of settling her claim without exploring Westwood further through
obtaining a List of Documents and a Form 89 Financial Statement, and conducting
an examination for discovery of Mr. Newton. This discussion would have included
the fact that Mr. Newton was clearly opposed to such a course, a description of the
costs and delay attendant on undertaking these steps, speculation on what
information might be obtained, and the likelihood that switching to a litigation model
at this stage would destroy the present settlement opportunity, and perhaps negate
the possibility of any future settlement. This would in turn lead to discussion of the
costs and uncertainties of proceeding to trial.
[810] With respect to the ABG, the discussion would again reference ss. 65 and 66
as the starting point, and the plaintiff’s statutory right to a half interest in the
2008 BCSC 328 (CanLII)
plaintiff could argue for a reapportionment of the value of the ABG in her favour if
Newton v. Marzban
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company. The only information available as to what that represented in monetary
terms was Mr. Harder’s memorandum of April 20, 2001. She would be advised that
related to the ABG and for its value, and that he had not undertaken any
independent inquiry into these matters.
[811] Mr. Marzban would ensure that the plaintiff understood that the settlement
valued her interest in the ABG at $1.6 million, including her shareholder’s loan of
$408,775, and her share of the 2000 bonus which was $182,300. Thus, her shares
alone were valued at just over $1 million. Dealing with the likely range of outcomes
at a trial, she would be told that Mr. Harder’s valuation valued her shares at $1.3
million, and that the top end of the range for her interest in the ABG based on his
numbers was $1.89 million, including her shareholder’s loan and 2000 bonus.
[812] The plaintiff’s concessions with respect to taxes would be raised in the
context of the value of the ABG, and an inquiry made as to whether Mr. Newton
would sell the ABG in the foreseeable future. On the evidence at trial, I find it likely
that the plaintiff would have answered in the negative. She would then have been
advised that if she proceeded to trial and Mr. Newton had no imminent or
foreseeable plan to sell the ABG, the court would be unlikely to order a deduction of
$220,000 from her share of the ABG, although this was a discretionary matter and
that outcome was not certain. She would also be advised that a court would not
order her to give up her capital gains exemption, which had a value of $100,000 to
her.
2008 BCSC 328 (CanLII)
Mr. Marzban was relying entirely on Mr. Harder for both the financial disclosure
Newton v. Marzban
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[813] In that Mr. Marzban had not discussed the valuation with the plaintiff before
this meeting, she would be advised that in assessing both the settlement and her
commission another appraisal and valuation if she was unhappy with his numbers or
the settlement. I find that this discussion would follow the lines set out in the
preceding section of these reasons. This would lead again to a discussion of the
implications of abandoning the settlement and proceeding to trial.
[814] Moving from the high end of her expected outcomes, the plaintiff would be
warned that, despite Mr. Harder’s valuation and her right to a half interest in the
ABG, it could not be said with certainty that a court would order Mr. Newton to buy
her shares at half of Mr. Harder’s value. Valuation is an art rather than a science,
and does not produce a single precise number. As well, the court has considerable
discretion in dealing with the disposition of a family company. Nothing could be
done to reduce these sources of uncertainty in predicting the outcome at a trial.
[815] She would be told that even if Mr. Newton was ordered to purchase her
shares, a court may discount the amount she received to represent the value of cash
in hand under the principles in Blackett. This could occur if Mr. Newton
demonstrated that this outcome placed an unfair burden on him, both in terms of
paying for the shares and in assuming all future uncertainty with respect to the
prospects of the company. The amount of such a discount was discretionary and
difficult to predict.
2008 BCSC 328 (CanLII)
best outcome at trial, she was not bound to rely on Mr. Harder’s valuation, and could
Newton v. Marzban
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[816] There would also be discussion about the risk that Mr. Newton would apply to
wind up the ABG. She would likely be advised that liquidation of a company will only
authorities at that time that are usefully summarized in the later case of Balic v.
Balic, 2006 BCCA 335 at paras. 19-26, leave to appeal ref’d (2007) 366 N.R. 400
(Note). However, she would also be advised that the threat of liquidation remained,
as Mr. Newton could bring an application to wind up the ABG under the Company
Act independently of the matrimonial proceeding. The plaintiff would have been
advised that if he was successful, the liquidation calculations done by Mr. Brewer
and Mr. Harder suggested that her interest in the liquidated value of the ABG would
fall in a range of $450,000 to $730,000.
[817] Finally, the plaintiff would be advised that while the courts are reluctant to
order ex-spouses to keep their shares in a family company and remain in business
together, this possibility had to be acknowledged. Such a result represented the
worst possible outcome, as it would mean that the plaintiff recovered nothing for her
shares, and she would remain in business with Mr. Newton. In all likelihood they
would end up in further litigation, seeking to wind-up the ABG or turning to some
other corporate remedy under the Company Act.
[818] Having discussed the range of possible outcomes in as much detail as the
facts and law permitted, I accept that the plaintiff could be advised that, with respect
to the value of the ABG, she could do better or she could do worse than the
settlement that had been negotiated.
2008 BCSC 328 (CanLII)
be ordered in exceptional circumstances in a matrimonial action, based on the
Newton v. Marzban
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[819] Turning to the claim for spousal support, the plaintiff would have been
advised of the statutory scheme underlying her claim, including the factors set out in
circumstances in the context of those factors. The relationship between the division
of assets and spousal support would have been explained, and she would have
been told that an outcome that gave her substantial assets would likely preclude an
award of spousal support, based on the line of authority emanating from Newsom.
The proposed settlement was in the range that made a claim for support tenuous,
and thus the fact it included a release of her claim for support was not a reason to
reject it. The resulting conclusion would be the same as that given by Mr. Marzban:
the outcome of a claim for spousal support at trial was uncertain, and would depend
on the division of family assets.
[820] With respect to the other concessions made during the negotiations, the
plaintiff would be reminded that the settlement did not provide for interest on the
outstanding balance for two years, and advised that she would receive interest on
any judgment if she proceeded to trial. With respect to draws from the ABG, the
plaintiff would be reminded that the total withdrawn by Mr. Newton was uncertain,
but had been charged against his shareholder’s loan account. The settlement
permitted her to keep her draws of $88,000 by virtue of the retirement allowance,
and receive her full shareholder’s loan as well. If the plaintiff viewed this as unfair,
approval of the settlement would have to be postponed while Mr. Newton’s draws
were investigated further.
2008 BCSC 328 (CanLII)
s. 15.2(4) and (6) of the Divorce Act. There would have been some inquiry into her
Newton v. Marzban
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[821] With respect to the Start-up Loan of $87,500, the plaintiff would have been
advised that there was little likelihood of success in recovering this at trial by way of
ago, and Mr. Newton had done the lion’s share of work in building the ABG, in
accord with the principles set out in Lodge v. Lodge (1993), 79 B.C.L.R. (2d) 360.
[822] Finally, I find that a significant portion of the discussion would have centred
on weighing the pros and cons of proceeding to trial. On the negative side, this
would include discussion of the estimated costs of $100,000 to $300,000, further
delays because the trial date of January 2002 was not sustainable, uncertainty of the
outcome, and the stress and other personal costs attendant on a trial. As well, the
possibility that execution proceedings would be required to enforce any judgment
against Mr. Newton, resulting in further costs and delays, would be contrasted with
the security offered by the settlement.
[823] On the positive side, the plaintiff would be advised that, if she rejected the
settlement, the adjournment of the trial presented the prospect of enhancing her
claim. Discovery procedures would provide further financial disclosure, particularly
with respect to Westwood. If she wished, she could seek another appraisal and
valuation. The valuation could incorporate the results and profit of the ABG’s
pending October 31, 2001 year-end in her claim.
[824] Finally, the plaintiff would be told that it is often better to settle for a little less
than risk an uncertain result at trial.
2008 BCSC 328 (CanLII)
an argument for reapportionment since the loan had been made almost 14 years
Newton v. Marzban
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[825] The plaintiff says that if she had been advised in this manner, she would have
rejected the settlement, instructed Mr. Marzban to undertake financial disclosure and
received under the settlement.
[826] I will deal only briefly with the role played by the advice about spousal
support, and the concessions made during the negotiations other than those dealing
with income tax. I am satisfied that Mr. Marzban’s failure to provide more complete
advice with respect to these matters had no bearing on the plaintiff’s decision to
settle.
[827] While support was not fully discussed, his final advice could be no more than
it was: the claim was uncertain and its strength could not be assessed until the asset
division was known. I find that this was unlikely to dissuade the plaintiff from
accepting a settlement that omitted spousal support. Moreover, the plaintiff knew
that she had a claim to spousal support, yet was prepared to accept Mr. Newton’s
position that he would not pay support. I find it unlikely that fuller advice on the
factors in s. 15.2 would have led to a different result in these circumstances.
[828] Similarly, I find that the failure to fully address the concessions made with
respect to interest, draws, and the Start-up Loan was of no consequence. The last
had no prospect of success. The plaintiff paid little attention to the first, testifying
that she knew that there was no interest under the agreement and that this was
more a concern to Mr. Hubley than to her. She was fully aware of the situation
concerning the parties’ draws from the ABG, willingly accepted the retirement
2008 BCSC 328 (CanLII)
discovery, and ultimately would have recovered substantially more at trial than she
Newton v. Marzban
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allowance to cover her draws, and knew that she could challenge Mr. Newton’s
[829] I am satisfied that the postulated advice raised two main issues that might
reasonably have led the plaintiff to reject the settlement. The first was the
uncertainty surrounding Westwood’s potential effect on her claim and the prospect of
learning more about this through discovery procedures. The second was the
opportunity of obtaining a judgment in excess of $1.6 million for her share in the
ABG if she proceeded to trial. In considering the impact that this advice might have
had on the plaintiff’s decision to settle or go to trial, it is necessary to determine how
much of it was actually new to her.
[830] Dealing first with Westwood, the plaintiff testified that Mr. Newton just told her
that it was a management contract or a labour-only contract. As a result, she was
unconcerned with its effect on the ABG and did not pursue it with the defendants.
[831] I am unable to accept that. In April 2001, the plaintiff obtained documents
that demonstrated that a numbered company of Mr. Newton’s, that soon changed its
name to Westwood, had offered to purchase a Bill 13 contract and logging
equipment from a logging company in Campbell River for $1.227 million at the end
of March 2001. Mr. Hubley’s e-mail to Mr. Harder on April 14, 2001, quoted at
paragraph [165] of these Reasons, described her as “livid” about this. It expressed
her concerns that Mr. Newton was using the ABG assets to secure financing for this
venture, and diverting assets and value away from the ABG, as well as her
conviction that he was using the negotiations only as a front to allow him to do what
2008 BCSC 328 (CanLII)
draws but had decided not to do so.
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he wanted and reduce her value in the ABG. Mr. Harder’s memorandum of April 20,
2001 drew similar concerns about Westwood to her attention. Paragraph 9 of the
It has now come to my attention that the Plaintiff is also taking actions which
will prejudice my position in these proceedings. Specifically, he has
apparently incorporated numbered companies, 607498 B.C. Ltd. (“B.C. Ltd.”)
and 612096 B.C. Ltd. (“B.C. 2 Ltd.”), [Westwood], which he is using to divert
income from the Company, or operate using assets of the Company. Exhibit
“B” is a copy of an invoice from B.C. Ltd. to Duke Point Shake and Shingle
Ltd. relating to rental of a truck
[832] I conclude that from the time she first became aware of Westwood, the
plaintiff knew that it involved more than a management contract and was concerned
that Mr. Newton may be using it to devalue her interest in the ABG.
[833] Further, it is clear that as of April 2001 the plaintiff knew that Mr. Marzban
could and should obtain information about Westwood and its activities in relation to
her claim. He advised her to bring an application to obtain documents related to
Westwood, and she instructed him to do so. I have earlier found that, despite her
concerns about Westwood, she instructed Mr. Marzban not to proceed with this
application as settlement negotiations had resumed.
[834] During the negotiations, Mr. Brewer, on behalf of Mr. Newton, steadfastly
maintained that Westwood would not be included in any settlement. The plaintiff
says Mr. Newton also told her that he had set up Westwood in such a way that she
would not have access to it.
[835] In July 2001, the plaintiff obtained further documents related to Westwood
and its dealings with J.S. Jones. I find her evidence that she did not read these,
2008 BCSC 328 (CanLII)
affidavit she swore on April 27, 2001 stated:
Newton v. Marzban
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other than noting that they concerned Westwood, incredible given her earlier level of
suspicion and the fact that they included two substantial cheques related to
Mr. Marzban, there is no evidence as to what advice or instructions were given or
not given as a result.
[836] Just before concluding the settlement, the plaintiff made some notes in which
she assigned a value of $50,000 to Westwood, and stated that her lawyer could
obtain information about Westwood’s contract with J.S. Jones. While she was
unable to provide any explanation for these notes, I find that they demonstrate an
understanding that Westwood had some significant value, and that Mr. Marzban
could obtain information about it if she wished.
[837] I conclude that as of October 2, 2001, the plaintiff knew that Westwood may
be devaluing her interest in the ABG. She knew that Mr. Newton was resistant to
giving her access to it. She knew that Mr. Marzban could obtain information about it
if she wished. What that information might be was uncertain. As well, I am satisfied
that at the meeting on October 2, 2001 Mr. Marzban raised the exclusion of
Westwood from the settlement as a concern, and indicated that this may mean there
was something to Westwood. I find that the plaintiff responded by dismissing his
concern, saying that she accepted Mr. Newton’s position that it was not part of the
deal.
[838] I conclude that, despite her concern that Westwood was in some way
devaluing her interest in the ABG, at some point the plaintiff decided to accept Mr.
2008 BCSC 328 (CanLII)
Westwood’s operations. While she brought these to the attention of Mr. Hubley and
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Newton’s position that Westwood would not be a part of any settlement. I find that
this decision rested on the contextual considerations I set out earlier, particularly her
settlement rather than go to trial. The plaintiff has failed to convince me that any
deficiencies in Mr. Marzban’s advice about Westwood would have altered that
decision.
[839] I have reached a similar conclusion with respect to the plaintiff’s option of
proceeding to trial and presenting an enhanced claim for her share of the ABG. I
find that at the time she settled her claim, the plaintiff knew that she might obtain
more for her interest in the ABG if she went to trial, but the uncertainties as to
outcome and her personal considerations led her to accept the settlement instead.
[840] Although the plaintiff testified that she did not know that Mr. Harder had
valued her shares at $1.3 million until much later, I am unable to accept that. She
had received a copy of Mr. Harder’s valuation that clearly set this out. She had
discussed his values with Mr. Hubley. She testified that she chose her goal in the
negotiations based on Mr. Harder’s information.
[841] As well, I find that the plaintiff knowingly agreed to a significant deduction of
$220,000 from the value of her shares during the negotiations in order to achieve a
settlement. I am satisfied that she knew that this was not necessary and that she
understood that she could instead stand firm on her target of $2 million and go to
trial if she wished. I have earlier found that Mr. Hubley fully explained her options as
2008 BCSC 328 (CanLII)
wish to remain on good terms with Mr. Newton, and her preference to reach a
Newton v. Marzban
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to this deduction, and reminded her many times that if she did not like the way things
[842] I have also found that the plaintiff knew that a third appraisal could enhance
the value of her claim at a trial, but she decided not to follow that course.
[843] I have found as well that the plaintiff was sufficiently familiar with the ABG that
she knew of its pending year-end and the associated practice of declaring an annual
bonus. However, I am satisfied that the prospect of waiting for those financial
results which, based on the previous year, would have been available in January
2002, and then essentially starting over again in valuing her claim, held little
attraction for the plaintiff. This would have involved redoing the valuation for a trial
date in late 2002, a costly and impractical option, given her goals.
[844] In short, I find that on October 2, 2001 the plaintiff was aware that there were
means of presenting a larger claim for her interest in the ABG at a trial but,
regardless of the advice given or not given by Mr. Marzban, had decided not to
pursue them. Further, the advice required by the standard of care as to the risks
and lower end of the range of outcomes would have made it clear to her that, even if
she presented a higher valuation at trial, the result remained uncertain, as did Mr.
Newton’s ability to pay a judgment.
[845] I find that the plaintiff’s decision to accept the settlement at the meeting on
October 2, 2001 was influenced primarily by the array of personal considerations
and uncertainties that characterized her matrimonial dispute. I am satisfied that in
reaching that decision she had considerably more knowledge about Westwood, the
2008 BCSC 328 (CanLII)
were going, she could go to trial.
Newton v. Marzban
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value of the ABG, and her claim to spousal support than she admitted at this trial. I
find that, while she wanted to attain the best outcome possible, it was clear to her
her interest in the ABG on terms that provided certainty and security. I accept that
the plaintiff was prepared to push Mr. Newton to attain as high a settlement as
possible, but I find that she knew his limits and was not prepared to go beyond them
and force the matter to trial. I am satisfied that her comment to Mr. Hubley in April
that she was concerned that if she sought too high a figure she would not get a
settlement leaves no doubt about this. I am satisfied that she agreed to the
settlement presented on October 2, 2001 because it fulfilled her requirements, and
that any inadequacies in Mr. Marzban’s advice to her about the ABG at that time had
no bearing on that decision.
Conclusion with respect to causation
[846]
I conclude that the plaintiff has failed to establish on a balance of
probabilities that Mr. Marzban’s failure to meet the standard of care caused her to
accept the settlement and forego the option of proceeding to trial. The claim against
Mr. Marzban and Jenkins Marzban Logan in negligence is accordingly dismissed.
As the claim in contract is not dependent on a finding of causation, I find those
defendants liable to the plaintiff for breach of contract.
2008 BCSC 328 (CanLII)
that this would be achieved through a settlement by which Mr. Newton purchased
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DAMAGES
[847] It is well established that a plaintiff who has failed to prove that he or she
suffered any damages from a breach of contract will nevertheless be entitled to an
award for nominal damages. There appear to be three reasons for such an award:
deterrence, closure, and expedience. S.M. Waddams, The Law of Contracts,
looseleaf, 5th ed. (Toronto: Canada Law Book, 2005) at para. 10-10 provides this
rationale for nominal damages:
The judgment has the effect of a declaration of legal rights and may
deter future infringements or may enable the plaintiff to obtain an
injunction to restrain a repetition of the wrong. The obtaining of
nominal damages will also, in many cases, entitle a plaintiff to costs …
[footnotes omitted]
[848] The plaintiff is accordingly entitled to an award for nominal damages.
[849] In considering an appropriate amount, I note that Mr. Justice Hinkson in a
recent decision involving lawyer’s negligence considered the authorities and
concluded that an award of nominal damages in the amount of $1,000 for breach of
contract was justified: Chaster (Guardian ad litem of) v. LeBlanc, 2007 BCSC
1250 at paras. 219-222 [Chaster]. That case had some similarities to this in that it
involved allegations that the lawyer’s conduct led the client to accept to accept an
improvident settlement. I see no reason to differ from the assessment of Hinkson J.
[850] The plaintiff will accordingly recover $1,000 as damages for breach of
contract from the defendants Dinyar Marzban and Jenkins Marzban Logan jointly.
2008 BCSC 328 (CanLII)
Damages for breach of contract
Newton v. Marzban
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Damages for negligence – is a provisional assessment appropriate?
necessary for me to assess damages for negligence. I appreciate that it can
nevertheless be productive in some cases to provide a provisional assessment in
the event that there is an appeal of the trial decision and the findings of fact are
useful in that context.
[852] I have considered whether it is appropriate to embark on such an assessment
in this case and have decided that it is not for the following reasons.
[853] The damages pled are the difference between the settlement amount and the
judgment that the plaintiff would have obtained and executed upon had she
proceeded to trial. The assessment of that difference is made by conducting a “trial
within a trial”, effectively determining the outcome of the plaintiff’s matrimonial trial
on the basis of the evidence led and findings made at this trial.
[854] In some cases of lawyer’s negligence, the record is complete and the process
straightforward. The judge tries the hypothetical action on an unspoken assumption
that the evidence before him or her is the whole of the evidence that would have
been before the judge on a real trial, and assesses damages with some certainty:
Startup v. Blake and MacIsaac & Co., 2001 BCSC 8 at paras. 96-107; Chaster, at
paras. 202-217.
[855] Where the record is incomplete due to the passage of time or other
evidentiary difficulties, the process becomes more difficult. That is the case here.
2008 BCSC 328 (CanLII)
[851] Since I have found that the plaintiff has failed to prove causation, it is not
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Significantly, there is no evidence from Mr. Newton. As the opposing party on the
“trial within a trial”, his position and testimony would be critical to a reliable
few of the documents that the plaintiff says should have been obtained by the
defendants have been produced at this trial, and financial disclosure with respect to
Westwood and aspects of the ABG thus remains incomplete.
[856] The seminal case of Kitchen v. Royal Air Force Association, [1958] 2 All
E.R. 241 at 251-252 (C.A.) makes it clear that such difficulties do not relieve the
court from assessing damages. Nevertheless, I find that there is little to be gained
by embarking on an unnecessary and highly speculative assessment of damages in
this case.
[857] In reaching that conclusion, I am influenced in part by the fact that during this
trial the plaintiff gave indications that she may proceed with an action against Mr.
Newton to enforce the terms of the settlement agreement and her rights under the
Divorce Act. If she does so, it is my view that such issues are most appropriately
determined at a trial in which Mr. Newton has the opportunity to fully participate, and
should not be the subject of a provisional assessment of damages here.
CONCLUSION
[858] The action against the defendants Gordon F. Hubley, Bestwick & Partners,
Gord Hubley Ltd., D. Jeffrey Harder, and BDO Dunwoody LLP is dismissed.
2008 BCSC 328 (CanLII)
determination of the likely outcome of that hypothetical matrimonial trial. As well,
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[859] The plaintiff will recover nominal damages of $1,000 for breach of contract
[860] The parties may schedule a time with the Registry to address costs if
necessary.
“K. Neilson J.”
2008 BCSC 328 (CanLII)
from the defendants Dinyar Marzban and Jenkins Marzban Logan.