Court of Appeal

NOVA SCOTIA COURT OF APPEAL

Citation:  Sable Mary Seismic Inc.  v. Geophysical Services Inc.,

2012 NSCA 33

 

Date:  20120329

Docket:  CA 325703

Registry: Halifax

 

Between:

 

Sable Mary Seismic Incorporated and

Matthew Kimball

Appellants

 

v.

 

 

Geophysical Services Incorporated

Respondent

 

 

 

Judges:                 MacDonald, C.J.N.S., Fichaud and Beveridge, JJ.A.

 

Appeal Heard:      October 3, 2011, in Halifax, Nova Scotia

 

Held:           Appeal dismissed with costs payable by the appellants to the respondent in the amount of $32,500, inclusive of disbursements, per reasons for judgment of Beveridge, J.A.; MacDonald, C.J.N.S. and Fichaud, J.A. concurring

 

Counsel:               Derrick J. Kimball and Sharon Cochrane, for the appellant Sable Mary Seismic Incorporated

Nash T. Brogan, for the appellant Matthew Kimball

Colin D. Piercey and Karen N. Bennett-Clayton, for the respondent

 

Reasons for judgment:

 

INTRODUCTION

 

[1]              The appellants are Matthew Kimball and Sable Mary Seismic Incorporated (SMS).  Mr. Kimball is the President and sole shareholder of SMS.  They were sued by Geophysical Services Incorporated (GSI) for breach of contract and fraud.  Both claims were based on allegations that invoices routinely submitted by SMS to GSI were inflated beyond the contractual terms. 

 

[2]              The trial judge was faced with volumes of documents from both parties, and days of contradictory evidence.  He was required to weigh the evidence, make findings of credibility, consider the competing probabilities and inferences available, and arrive at an objective interpretation of the contractual arrangements between the parties.  The trial judge was also required to address the issue of fraud.  To do so, he needed to move away from the objective to the subjective.  What did Matthew Kimball and GSI know and believe, and when? 

 

[3]              The trial judge found that the invoices in question were not in accord with the terms of the contract and awarded damages against SMS of $1,764,251.70.  The judge also found that Matthew Kimball knew that some of the amounts claimed in the invoices were not in accord with the contract, and that GSI relied on the representations made in the invoices.  The judge calculated the damages for fraud of $451,885.41.

 

[4]              The appellants articulate 23 grounds of appeal.  In essence, they claim the trial judge was biased, mischaracterized or misapprehended the evidence and made findings of fact or mixed law and fact tainted by palpable and overriding error.  Although some of the findings made and the language used by the trial judge are open to question, I am far from convinced that the essential findings made by the trial judge can or should be overturned.  For the reasons that follow, I would dismiss the appeal.

 

FACTUAL BACKGROUND

 

[5]              To understand the issues that faced the trial judge and the appellant’s complaints, a somewhat lengthy foray into the facts is necessary.  Matthew Kimball worked for what the parties referred to as the ‘old’ GSI (Geophysical Services Incorporated) from 1972 to when he was laid off in 1992.  At that time he was the Marine Supervisor for all of Canada, overseeing the operation of marine seismic surveys in the Arctic, the West and East coasts.  Seismic surveying involves mapping the subsurface structures on land or at sea for rock formations that may contain hydrocarbon deposits.  There may be other useful roles for seismic surveying, but this is the one at the heart of this litigation. 

 

[6]              The data generated by the survey may be generated at the request of a particular client or group, or simply done on the hope or expectation that the data generated will be purchased by interested parties.  The difference is aptly described by the trial judge as follows:

 

[27]      Proprietary data is produced by seismic activity carried out for a client at the client’s expense and direction. The data is owned solely by the client. GSI acts as an independent contractor and is paid by the client regardless of the usefulness of the data.

 

[28]      Speculative data results from seismic activity carried out by GSI without a firm client. GSI defines the areas of interest and explores, maps, records, and sometimes interprets the data, on its own nickel. GSI owns the data, which it markets to purchasers. GSI retains the rights to and ownership of the data; a purchaser simply acquires a nonexclusive license to use it.

 

[7]              Davey Einarsson was in charge of ‘old’ GSI’s Canadian operations.  He also was laid off in 1992.  After consulting for some period of time, Mr. Einarsson put together a consortium of buyers to acquire the speculative seismic database of ‘old’ GSI then owned by Haliburton Inc.  Einarsson incorporated a ‘new’ GSI (Geophysical Services Incorporated) in 1992 as a Canadian company with its head office in Calgary. The evidence at trial was that there was also a corporation in Houston, usually referred to as the ‘Houston’ GSI. 

 

[8]              After leaving ‘old’ GSI in 1992, Matthew Kimball did construction and contracting in Nova Scotia through a corporate vehicle, Abbott Contracting Ltd.  Kimball was enticed back into the marine seismic world in 1996.  His experience convinced him of the viability of an East Coast marine seismic venture.  He incorporated Sable Mary Seismic Incorporated in 1997 and wrote various letters about his concept.  One of those letters was to GSI in Calgary.  Mr. Kimball developed a business plan to buy a suitable vessel and operate it to carry out seismic surveying on the East Coast.  The business plan was revisited by Kimball from time to time, but never came to life due to his inability to secure the necessary capital.  

 

[9]              In the meantime, Davey Einarsson through GSI Calgary carried out a fully- funded seismic survey on the East coast in the summer of 1997.  Encouraged by the interest shown by the consortium of companies funding that survey, he approached Rieber Shipping about using one of their vessels.  After several conversations, Rieber’s Sven Rong agreed to meet Einarsson in the fall of 1997 at a convention in Dallas.  This resulted in a proposed joint venture.  Rieber would supply a suitable vessel, crew and heavy equipment.  GSI Calgary would supply the seismic gear and technical equipment, operations personnel, then process and market the data.  Matthew Kimball was already identified as a person Einarsson would be meeting with to discuss regulations and operations on the East coast. 

 

[10]         An ‘old’ GSI alumni, Gary Bartlett had already written to Matthew Kimball on September 5, 1997 disclosing GSI’s tentative plans to do seismic survey work on the east coast in the 1998 season.  An offer was made to assist SMS by marketing any data it acquired or by other arrangements. 

 

[11]         Mr. Kimball took on a two-month consulting project in China at $15,000 per month.  On his return he flew to Calgary to meet with Davey Einarsson.  Kimball wanted a three-way partnership with Rieber, GSI and SMS.  Einarsson wanted to hire Kimball to run the operational side of the joint venture with Rieber.  Their discussions resulted in a written agreement, commonly referred to as the “Letter Agreement” of December 5, 1997 (although apparently signed by both parties on December 4, 1997).  It was drafted by Mr. Einarsson. 

 

[12]         In essence, GSI agreed to pay SMS a monthly fee of $6,000 US for the services of Matthew Kimball, to mobilize and acquire a seismic crew to conduct surveys in Atlantic Canada commencing May/June 1998.  SMS would be responsible to acquire all permits and registrations, and set up an office.  As SMS needed to add more personnel, the fee would change with notification and approval from GSI.  Kimball was named as the Vice President - Marine Division of GSI, and therefore eligible to participate in the company’s incentive stock plan.  GSI agreed to provide at a later date a success sharing plan for SMS based on profits generated.  The agreement would be from January 1, 1998 to October 31, 1998, and then continue month-to-month until either party gave notice to the other.

 

[13]         Matthew Kimball joined GSI staff and Mr. Einarsson in January 1998 to work on negotiations with Rieber for the terms of the contemplated joint venture.  Because of the stress laid by the appellants at trial and on appeal as to what happened during these negotiations, it is necessary to include details of those meetings.               

 

[14]         Spreadsheets were prepared that set out estimated expenses to be incurred by both Rieber and GSI in the conduct of the joint venture.  The evidence was that Gary Bartlett and Matthew Kimball worked on these spreadsheets.  Some expenses would be shared by Rieber and GSI before splitting the anticipated revenue from the venture.  Other expenses would be the sole responsibility of Rieber or GSI.  One such category of expenses was the cost to run the operation.  This category of expenses would be paid directly by GSI.  It was known that GSI would be using SMS to hire the seismic crew and run the operation.

 

[15]         From the appellants point of view, a key issue was the number crunching exercise carried out with respect to the cost to run the operation.  This included the costs for the seismic crew that SMS would be hiring.  To arrive at the estimated cost, Kimball foresaw having eight “keepers” or “key” people and 16 “others” plus office.  Salaries were estimated plus the cost of benefits.  This latter cost was arrived at by adding 30% to salary.  There was little disagreement that this method of estimating the cost of benefits was used in the ‘old’ GSI.  When fully operational for the months of June to November, the cost was estimated to be $143,900 (US) per month.

 

[16]         Rieber proposed a revenue split with GSI of 54-46.  Davey Einarsson challenged the basis of Rieber’s request, suggesting Rieber’s suggested expense burden was inflated by using too high a figure for depreciation of its vessel.  In the course of reviewing the expense figures, Einarsson also thought the figure of $143,900 (US) per month was too high and reduced it by 5% to $136,700 (US).

 

[17]         Whatever motivated the negotiators, it is known that Rieber and GSI agreed to a joint venture agreement with a 50-50 share of revenue after payment of certain shared expenses.  Mr. Einarsson testified that one of the clauses he suggested to Mr. Srong of Rieber was a proposal for Rieber and GSI to compare operation costs they actually experienced in November 1998, and if experience varied from the “general assumptions” set out in the Appendix B to the Rieber/GSI joint venture agreement, then the revenue split could be renegotiated.  Apparently, Appendix B showed “People and office” to be $136,700 (US) per month.

 

[18]         Matthew Kimball also proposed supplying the necessary navigation equipment and specialized personnel to GSI, through his company Abbott Contracting Ltd.  GSI agreed to pay Abbott $70,000 per month for one senior and one junior navigator plus specified navigation equipment.  This contract was reduced to writing on March 18, 1998.

 

[19]         The joint venture went ahead as scheduled in June 1998 and ran until August 1999.  No one disputes that Matthew Kimball, through SMS, ran the operation side of the joint venture for GSI efficiently and without a hitch.  It is the amount that he billed GSI for the cost of the seismic crew that became an issue.   That issue did not surface until March 2002 when GSI took over the hiring and payment of the crew used to man its vessels.  Before discussing what caused the issue to surface, I return to the events of 1998.

 

[20]         Davey Einarsson and Matthew Kimball agreed verbally that GSI would pay to SMS $500 a month to assist with the expense of setting up and running an office in Windsor, Nova Scotia.  GSI would also pay SMS $1,080 a month to cover the leasing costs for a vehicle for Mr. Kimball.  The monthly fee for Kimball’s services remained at $6,000 (US) per month.  Expenses incurred by Mr. Kimball or SMS were paid and then reimbursed by GSI.

 

[21]         As will be detailed later, Matthew Kimball’s evidence varied on the key issue of what SMS was entitled to bill, with respect to crew invoices.  Matthew Kimball testified that SMS was entitled to bill GSI a fixed monthly fee of $136,700 (US) per month to cover the total payroll cost of the seismic crew.  SMS never billed that amount.  Kimball said that, in his view, SMS was a subcontractor to GSI.  It had agreed to provide the crew at a total cost of $143,900 (US) per month, but that Davey Einarsson had reduced this amount by 5%. 

 

[22]         Mr. Kimball further asserted that in June 1998, when Davey Einarsson visited his office in his home in Windsor, Einarsson told Kimball that he had cash flow problems and could not afford to pay SMS $136,700 per month.  Kimball said that instead, Einarsson proposed that SMS simply bill GSI the amount SMS was paying in salaries and add 30% plus 5%.  Kimball said he agreed to this proposal but pointed out to Mr. Einarsson that he had been able to avoid hiring experienced crew and had saved substantial money by hiring recent graduates from radio college. Kimball says it was agreed to change the formula to salary plus 30% plus 6% plus 5%.  This is what Matthew Kimball said was invoiced to GSI throughout the joint ventures between GSI and Rieber Shipping.

 

[23]         Matthew Kimball acknowledged that included in the listed payroll was his salary, and that of his spouse, and the navigators.  Davey Einarsson said there was no such agreement to pay a flat fee at any time.  It was strictly on the actual cost of providing the crew plus 5%.  He never suggested nor agreed to cost plus 30% plus 6% plus 5%.  He was also emphatic that he was not aware that he was being billed for Mr. Kimball’s services twice, or those of his spouse or the navigators, for whom he was already being billed $70,000 per month through Abbott Contracting.

 

[24]         The operation of the first joint venture between Rieber Shipping and GSI ran from June 1998 to August 1999.  Leaving aside invoices and payments for office, car, Matthew Kimball’s monthly fee, the navigation invoices from Abbott Contracting, SMS billed and was paid the following:

 

[25]         The contractual arrangements between GSI, Matthew Kimball and SMS were documented in a second “Letter Agreement” dated October 16, 1998.  The complete text of the letter can be found reproduced in the trial judge’s decision (para. 54).  The essential terms of it were that SMS had the responsibility for all people, related benefits and insurance and GSI would pay the monthly fee.  SMS would continue to supply Matt Kimball to manage the operation of the vessel and the office, with SMS agreeing to hire additional personnel to run the operation in an “efficient and cost efficient manner”. 

 

[26]         GSI would also continue to pay two things: a monthly fee of $6,000 US for the services of Matt Kimball, and “for the personnel supplied by SMS at cost plus 5%”.  In addition GSI would continue to supplement the cost of the office at $500 and a vehicle at $1,080 per month.  GSI confirmed its intent to provide a success-sharing plan for SMS.  The duration of the agreement was somewhat unclear.  It said it would continue until October 16, 1999, but their “intent is to run continuously for the next 24 months.”  They also said they agreed to continue with the agreement until three month’s notice is given one to the other.

 

[27]         GSI and Rieber decided to end the joint venture in August 1999.  Matthew Kimball testified that because he had not billed his agreed upon ‘cost’ of providing the seismic crew of $136,700 or $143,900, SMS was owed over a million dollars.  Nonetheless, Kimball said he agreed to waive the three-month notice period to cancel the October 16, 1998 Letter Agreement.  No invoice or claim was ever advanced by SMS for any such claimed liability. 

 

[28]         A second similar joint venture was launched by Rieber Shipping and GSI in 2000.  It ran from May 2000 to December 2000.  A “Novation Agreement” between Rieber and GSI adopted the terms of their previous agreement with some significant changes.  The revenue split after shared expenses was changed to 60-40 in favour of GSI.  There would be no right to examine each parties’ expenditures with a view to any renegotiation of the revenue split, but Rieber acquired the right to audit the accounts of GSI and documentation related to the data library, sales and expenses.  In the meantime, GSI continued to pay SMS $6,000 US per month for the consulting fee for Matthew Kimball.

 

[29]         It was the evidence of Matthew Kimball that during the 2000 joint venture the invoices from SMS to GSI for the crew were the same; the gross amount of payroll plus 30% plus 6% plus 5%.  Throughout 2000, Mr. Kimball said he was looking for a suitable vessel for SMS to buy, in partnership with GSI and others, to operate as a seismic survey ship.  A ship was eventually found, but it was purchased by GSI alone in 2001for $6.6 million.  It became the GSI Admiral. 

 

[30]         Before turning to the events in 2001, Messrs. Kimball and Einarsson re-executed the October 16, 1998 Letter Agreement on October 12, 2000 with the following handwritten endorsement:  “GSI wishes to renew this agreement with SMS for six months commencing May15th 2000.  After six months this agreement will be automatically renewed month to month until notice is given one to another with one month notice to cancel this agreement.”

 

[31]         Starting in January 2001 draft agreements were exchanged between Matthew Kimball and GSI.  A draft ‘Letter Agreement’ of January 26, 2001 followed a similar format as the two previous letter agreements, with similar language.  GSI would still pay for personnel supplied by SMS at cost plus 5%.  There were some key differences.  It was anticipated that GSI would be using more than one vessel to carry out seismic surveys; the monthly fee for Matt Kimball would be $12,000 US but there would no longer be any payment to supplement the cost of running an office or leasing a vehicle. 

 

[32]         A much more formal set of agreements dated April 5, 2001 were prepared by a solicitor on the instructions of Paul Einarsson, Davey Einarsson’s son.  There is no need to refer to the detailed compensation and other provisions set out in these documents, except to note the proposed agreement for GSI to reimburse SMS for all direct personnel cost plus 5% for all personnel costs reasonably incurred.  Why this is in any way significant is to contrast it with the response by Matthew Kimball on April 26, 2001. 

 

[33]         Mr. Kimball proposed more generous compensation provisions.  The key provision was about crew invoices.  Again, GSI was to reimburse SMS for all direct personnel costs plus 5% but direct personnel costs were defined to be payroll, payroll costs and benefits, billed as gross salary plus 30%.

 

[34]         No new agreement was reached.  Matthew Kimball testified that he was paid a consulting fee, through SMS, of $12,000 US per month, and SMS crew invoices were billed at salary plus 30% plus 5%.  The records and other evidence confirms the payment to SMS of the $12,000 US per month for Kimball.  The crew invoices continued as before, without detail beyond a one-page invoice, identifying names of personnel, the period of time and the amount. 

 

[35]         By the fall of 2001, GSI was experiencing a significant cash flow problem. Wayne Lam, Financial Manager for GSI prepared a report on the problem.  Significant capital expenditures such as the purchase of the GSI Admiral had put a significant strain on the company.  The GSI Admiral had been idled to save money.  Davey Einarsson testified that GSI wanted to take over the management of the crew to better control costs.  This led to an exchange of proposals between Einarsson and Kimball in January and February 2002. 

 

[36]         Mr. Kimball wrote to Mr. Einarsson on January 25, 2002 setting out his plan for the future.  He wrote about what the existing arrangement was in plain type, and in bold was his plan for the future.  Kimball described the existing arrangement as:  SMS and Matt Kimball are separate deals; SMS is a crewing company providing GSI’s people at cost plus 5%; the people are paid by SMS on invoicing GSI twice a month; they are GSI employees and GSI is at risk for their actions; Kimball is a consultant and operations’ person with the title of V.P., at a fee of $12,000 US a month. 

 

[37]         For the future, Mr. Kimball proposed that GSI would handle all payrolls, and SMS’s role as a crewing company would disappear, but would still invoice GSI a monthly fee of $15,000 US a month for a year, in lieu of the 5% of salaries it had been receiving.  Kimball would go on salary with GSI at $6,000 US a month.  Davey Einarsson had Mr. Lam calculate how the total compensation would look for Matthew Kimball in comparison to what SMS and Kimball had received in previous years.  Lam did so, using 5% on payroll from previous years.  The 2002 proposal would see a significant increase in compensation for Mr. Kimball from previous years.

 

[38]         Einarsson sent the comparison to Mr. Kimball on February 11, 2002.  Kimball said this led to a heated indignant exchange that day.  Nonetheless, Kimball then sent a further proposal to Mr. Einarsson on February 12, 2002 that had the identical language to his first proposal, but reducing the fee to SMS to $12,500 US a month and to $5,000 US a month for his salary.  This was not accepted.  Kimball then wrote on February 14, 2002 “terminating their agreement.”

 

[39]         SMS sent the payroll information to GSI.  Wayne Lam noticed almost immediately that crew costs were lower than just the 5% that they thought had been charged by SMS.  He looked at a number of possible explanations.  He could not account for the difference.  He said he needed to get information from SMS.  Einarsson told him to contact Matthew Kimball. 

 

[40]         In late September 2002, Lam said he called Matthew Kimball and asked him to take a look at his records to see if he can come up with why there were differences.  Lam testified that Kimball told him he would locate the information and get back to him.  A week went by.  Lam said he called again on a Friday.  He left messages for Kimball, requesting the information.  On Monday, September 30, 2002, Lam got an email from Kimball.  It said this:

 

Wayne, after our conversation, I had a quick look at my notes and find that all worksheets for people invoices are gone.  Worksheets were precisely that, derived for the period, and adjustment done as to prior billings.  GSI from the beginning did not require anything other than names and the amount.  So... there is nothing remaining other than the invoices.

 

SMS was a crewing company.  It was not part of GSI in any way, shape or form.  Individual salaries were not GSI’s business.  In fact, GSI would never know in the first person if anyone during that period had Workers Comp coverages or life insurances, or benefits or anything.  They did, of course, but SMS was never required to prove any of this to GSI.  Today, I am not prepared to dig into this stuff, and try to reproduce any of the past, for any invoices.

 

What does Davey say about this?

 

Matt

 

[41]         Lam then submitted his report on October 1, 2002.  Davey Einarsson said he was on his way to Halifax and would meet with Matthew Kimball.  I pause to observe that despite the communications in February 2002 about termination of their agreement, it is apparent that Matthew Kimball continued as a consultant with GSI until the end of October 2002.  How that termination happened, and its aftermath, assumed some significance in some of the things the trial judge found, and was not prepared to find.

 

[42]         Mr. Einarsson flew to Halifax on October 7, 2002.  Mr. Kimball picked him up at the airport and drove to the Prince George Hotel.  They socialized, and agreed to meet the next morning to get ready for planned events.  Kimball went to Einarsson’s room.  The accounts of that meeting differ somewhat. 

 

[43]         It is common ground that Wayne Lam’s Report of October 1, 2002 was shown to Kimball.  Kimball reacted violently.  He blamed Einarsson, and complained that Lam did not take into account SMS had paid for safety boots, taxis, schools, and motels.  Kimball did not utter one word that the difference in crew costs was accounted for by the fact that GSI had agreed to pay SMS an amount consisting of salary plus 30% plus 5% or any variation thereof.  In fairness, Kimball testified that he initially said he was sure he mentioned the 30%, but when confronted by earlier sworn testimony about that meeting where he had said there had been no need to refer to such markup, he then acknowledged he “may not” have referred to the markups. 

 

[44]         Kimball wrote a letter of resignation that day and delivered it to Einarsson’s hotel room.  In a subsequent email, Kimball asked Einarsson if he had relayed to Wayne Lam the items missing in his analysis.  Einarsson assured Kimball he had done so.  Lam testified at trial that the list of items relayed to him were all matters that were expenses that SMS typically had claimed reimbursement from GSI separately, and in any event, could not make up the difference in the amount of the crewing invoices.  He was unchallenged at trial on this assertion. 

 

[45]         GSI launched an action against SMS and Matthew Kimball on November 27, 2002 and sought an Anton Piller Order to gain access to premises owned or controlled by the appellants.  The order was granted on an ex parte application, but subsequently set aside (2003 NSSC 73).  Some of the evidence adduced at that hearing became the subject of cross-examination at trial.

 

[46]         Another factual issue that should be mentioned is in relation to the pre-trial application brought by the respondent to strike the appellant’s jury notice.  The application was heard by Justice Warner on January 3, 2008.  The respondent argued before Warner J. that the factual complexity of the issues and volumes of detailed evidence would overwhelm a jury and the significant trial issues involved questions of law, equitable claims, and questions of mixed law and fact, all of which were not appropriate for resolution by a jury.  Justice Warner acknowledged that a number of the key factual issues that would have to be decided at a trial could well be decided by a jury, but that the main issues involved equitable remedies and complex issues of fact and law.  The application was granted (2008 NSSC 79).  Justice Warner’s decision was upheld on appeal (2008 NSCA 83).

 

[47]         The trial was held over the course of thirteen days in March 2009.  By all appearances, procedurally it was a fairly routine civil proceeding.  Pre-trial briefs were filed,  expert reports were filed, lists of witnesses exchanged.  The respondent called four witnesses, Davey Einarsson, Paul Einarsson, Merle Carr, and Wayne Lam.  Forensic Accountant Mary Jane Andrews was scheduled to testify for the respondent, but the appellants consented to the admission of her expert report without the necessity of attendance for examination.

 

[48]         The appellants also called four witnesses, Matthew Kimball, SMS Accountant Gary MacKenzie, Paul Wilson, and Accountant, Karen Klusak.  Following three days of oral submissions concluding on March 19, 2009, Justice Warner reserved his decision. 

 

[49]         Reasons for judgment are dated December 31, 2009 (2009 NSSC 404).  Justice Warner set out the issues.  He summarized the oral and documentary evidence.  In his analysis he set out the relevant principles for interpretation of contracts.  For a variety of reasons, parol evidence was permitted to be adduced by both parties during the direct and cross-examination of Mr. Einarsson and Mr. Kimball.  As will be examined later, the subjective intent or interpretation of Messrs. Einarsson and Kimball played no role in the interpretation exercise, but was relevant to the claim of fraud.  In any event, no complaint is advanced by either party about the trial judge’s rulings and use of parol evidence.

 

[50]         Because of the chronology of the contractual arrangements, and the fact that the arrangements were at times oral, resolution of the credibility contest, mainly between Davey Einarsson and Matthew Kimball, was a key issue for the trial judge to resolve.  Both parties spent considerable effort trying to call into question the credibility and reliability of these two key witnesses.  On all of the key differences between the evidence of Einarsson and Kimball, the trial judge believed the former and not the latter.

 

[51]         The trial judge did not accept the analysis prepared by Gary MacKenzie, an accountant that had worked for SMS for 27 years.  The analysis was tendered to support the argument that the interpretation of the contractual arrangements between SMS and GSI could not reasonably have been just actual cost plus 5% since it would be clearly contrary to the commercial interests of the parties. 

 

[52]         The trial judge concluded that the only reasonable interpretation of the contracts was that GSI was obliged to pay for personnel supplied by SMS in an amount equal to the actual cost to SMS of supplying those personnel plus 5%.  He accepted the expert evidence tendered by the respondent demonstrating that, based on documents and records obtained from the appellants, SMS over-billed, and GSI overpaid, at least $1,764,251.70. 

 

[53]         The trial judge mused that the most difficult issue to analyse and determine was the claim of fraud.  He plainly put the onus on the respondent to establish that SMS, and Matthew Kimball, knew that the crewing invoices were not in accord with the contract and knowingly misrepresented the truth to GSI.  He articulated the issue as follows:

 

[145]    Resolution of this issue depends on: (1) whether the representation made by SMS in the invoices to GSI were false in fact, that is, not in accordance with the agreement, and (2) that SMS, when it made the representation, knew that it was false, or made it recklessly without knowing whether it was true or false, and (3) that GSI was thereby induced to unwittingly pay the invoices.

 

[54]         For reasons that will be examined later, the trial judge made two key findings.  First, he found that cost plus 30% plus 5% was what Mr. Kimball understood the crewing contract was between SMS and GSI.  Second, he found that at some point during the currency of the arrangement between SMS and GSI, Davey Einarsson (and hence, GSI) knew that the invoices from SMS were being done on the basis of the cost of the crew listed on the invoices plus 30%.  This meant to the trial judge that GSI did not rely on the representations by SMS in the invoices to the extent the invoices claimed cost plus 30%.  The trial judge found that, out of the total over billing of $1,764,251.70, $451,885.41 was attributable to undisclosed amounts for relatives, navigation crew and the additional markup. 

 

[55]         The appellants counterclaimed alleging breach of contract by the respondent in not providing any share of the profits.  The trial judge dismissed the counterclaim (for $1.39 million) on two bases.  First, the words in the letter agreements about success or profit sharing were simply words of general intention, and were not intended to be a legally enforceable agreement.  Secondly, he was not convinced that GSI was actually in a profit position at the time that SMS terminated its agreement with GSI.

 

[56]         With this background, it is time to set out the grounds of appeal advanced by the appellants. 

 

ISSUES

 

[57]         The appellant advanced 23 grounds of appeal.  They are:

 

(1)        The decision of the trial judge was unreasonable, perverse, exorbitant, and not in keeping with the jurisprudence, and not a finding that could be made upon consideration of the evidence adduced at trial;

 

(2)        The trial judge made a fundamental error in rendering a decision after an inordinate and inexcusable delay as a result of which he was unable to accurately recall relevant evidence presented at trial;

 

(3)        The trial judge erred in failing to recuse himself as the trial judge on the basis of bias or perceived bias after assuring the Appellants that he was not scheduled to be the trial judge;

 

(4)        The trial judge erred in law by rejecting the expert report and evidence of Gary MacKenzie;

 

(5)        The trial judge failed to understand the expert evidence of Gary MacKenzie;

 

(6)        The trial judge erred in law by failing to give the evidence of Merle Carr proper weight after acknowledging and accepting her evidence which contradicted the evidence of T. David Einarrson and undermined the theory of the Respondent’s case;

 

(7)        The trial judge misapprehended the law regarding the duty of a trial judge in assessing credibility and giving reasons therefore;

 

(8)        The trial judge erred in law by failing to adequately address his reasons for accepting the evidence of T. David Einarrson;

 

(9)        The trial judge either ignored, misapplied, misapprehended or forgot credible evidence that challenged the credibility of T. David Einarrson and seriously undermined the theory of the Respondent’s case;

 

(10)      The trial judge erred in law by rejecting the evidence of Matthew Kimball by ignoring, misapplying, misapprehending or forgetting critical evidence that supported the theory of the Appellants’ case and challenged the evidence and the credibility of T. David Einarrson;

 

(11)      The trial judge misapprehended the law in relation to “cost plus contracts” and misapplied the law in relation to the findings of fact made in the case;

 

(12)      The trial judge misapprehended the law in relation to fraud;

 

(13)      The trial judge erred in finding that the elements of fraud had been established by the evidence adduced at trial;

 

(14)      The trial judge erred in finding fraud on the same evidence that was heard in the Anton Piller application where fraud was not established;

 

(15)      The trial judge erred in dismissing the Appellants’ counterclaim for profit sharing by ignoring, misapplying, misapprehending or forgetting the contents of the expert report of Karen Kluska;

 

(16)      The trial judge erred in reserving his decision more than nine months from the day of reserving judgment in contravention of the s. 34(d) of the Judicature Act;

 

(17)      Due to the passage of time the trial judge forgot or misunderstood key evidence going to the assessment of the evidence;

 

(18)      The trial judge made findings of fact that were not consistent with the evidence adduced at trial and patently wrong;

 

(19)      The trial judge made contradictory findings of fact several of which are fatal to the conclusions reached in the decision;

 

(20)      The trial judge gave undue weight to certain evidence and little or no weight to other evidence;

 

(21)      The trial judge ignored, misapplied, misapprehended or forgot critical evidence and came to patently wrong conclusions, including mathematically wrong conclusions;

 

(22)      The trial judge miscalculated the damages based on the uncontroverted evidence and the factual findings he made;

 

(23)      The trial judge erred in failing to allow the evidence of the Appellants respecting industry standard.

 

[58]         In my view, these can best be organized and dealt with under the following general categories:

 

Bias/Reasonable apprehension of bias

 

Delay

 

Error in his findings of credibility

 

Inadequate Reasons

 

Palpably Wrong Findings of Fact

 

Legal Errors

 

Other Errors

 

[59]         Before beginning an examination of the appellants’ complaints, it is useful to keep in mind some general and well settled constraints on appellate review.  The appellants and respondent rely on different authorities, but they all stand for the identical general propositions.  On questions of law, the trial judge must be correct; on questions of fact or mixed law and fact, an appeal court can only intervene if convinced the trial judge has committed a palpable and overriding error.  Saunders J.A. in McPhee v. Gwynne-Timothy, 2005 NSCA 80, for the Court, wrote:

 

[31]      A trial judge’s findings of fact are not to be disturbed unless it can be shown that they are the result of some palpable and overriding error. The standard of review applicable to inferences drawn from fact is no less and no different than the standard applied to the trial judge’s findings of fact. Again, such inferences are immutable unless shown to be the result of palpable and overriding error. If there is no such error in establishing the facts upon which the trial judge relies in drawing the inference, then it is only when palpable and overriding error can be shown in the inference drawing process itself that an appellate court is entitled to intervene. Thus, we are to apply the same standard of review in assessing Justice Richard’s findings of fact, and the inferences he drew from those facts. H.L. v. Canada (Attorney General) [2005] S.C.J. No. 24; Housen v. Nikolaisen, [2002] 2 S.C.R. 235; Campbell MacIsaac v. Deveaux & Lombard, 2004 NSCA 87.

 

[32]      An error is said to be palpable if it is clear or obvious. An error is overriding if, in the context of the whole case, it is so serious as to be determinative when assessing the balance of probabilities with respect to that particular factual issue. Thus, invoking the “palpable and overriding error” standard recognizes that a high degree of deference is paid on appeal to findings of fact at trial. See, for example, Housen, supra, at ¶ 1‑5 and Delgamuukw v. British Columbia, [1997] 3 S.C.R. 1010 at ¶ 78 and 80. Not every misapprehension of the evidence or every error of fact by the trial judge will justify appellate intervention. The error must not only be plainly seen, but “overriding and determinative.”

 

[33]      On questions of law the trial judge must be right. The standard of review is one of correctness. There may be questions of mixed fact and law. Matters of mixed fact and law are said to fall along a “spectrum of particularity.” Such matters typically involve applying a legal standard to a set of facts. Mixed questions of fact and law should be reviewed according to the palpable and overriding error standard unless the alleged error can be traced to an error of law which may be isolated from the mixed question of law and fact. Where that result obtains, the extricated legal principle will attract a correctness standard. Where, on the other hand, the legal principle in issue is not readily extricable, then the issue of mixed law and fact is reviewable on the standard of palpable and overriding error. See Housen, supra, generally at ¶ 19‑28; Campbell MacIsaac, supra, at ¶ 40; Davison v. Nova Scotia Government Employees Union, 2005 NSCA 51.

 

[60]         Cromwell J.A. (as he then was) earlier expressed the same general approach in MacNeil v. Chisholm, 2000 NSCA 31:

 

[8]        Finding facts and drawing evidentiary conclusions from them are roles of the trial judge, not the Court of Appeal: see Toneguzzo‑Norvell v. Burnaby Hospital, [1994] 1 S.C.R. 114 at 121. An appellant cannot challenge a trial judge's findings of fact simply because the appellant does not agree with them: Delgamuukw v. British Columbia, [1997] 3 S.C.R. 1010 at paragraphs 88 and 90. Findings of credibility are “... eminently a matter for the trier of fact.”: see A.W. Mewett, Witnesses (1991) at page 11 ‑ 3.

 

[9]        The judge, as the trier of fact, must sort through the whole of the evidence and decide which to accept and which to reject so as to piece together the more plausible view of the facts. Many considerations properly influence this decision, including the nature of any unreliability found in a witness’s testimony, its relationship to the significant parts of the evidence, the likely explanation for the apparent unreliability and so forth. The trial judge may find that some apparent errors of a witness have little or no adverse impact on that witness’s credibility. Equally, the judge may conclude that other apparent errors so completely erode the judge’s confidence in the witness’s evidence that it is given no weight.

 

[10]      Making these judgments is the job of the trial judge and the Court of Appeal generally should not substitute its own judgment on these matters. An appellant alleging an error of fact must show that the trial judge’s finding is clearly wrong. Not every error in findings of fact permits appellate intervention. As Lamer, C.J.C. said in Delgamuukw, supra at para 88:

 

...it is important to understand that even when a trial judge has erred in making a finding of fact, appellate intervention does not proceed automatically. The error must be sufficiently serious that it was ‘overriding and determinative in the assessment of the balance of probabilities with respect to that factual issue’. (emphasis added)

 

Where credibility is in issue, only errors that fundamentally shake the appeal court’s confidence in the trial judge’s findings of fact justify appellate intervention.

 

BIAS/REASONABLE APPREHENSION OF BIAS

 

[61]         Actual bias and reasonable apprehension of bias are related, but distinct concepts.  Both seek to ensure for the parties, and for society, that judges conducting trials or other proceedings do so impartially and fairly; and also have every appearance of having done so.  If a judge acts with bias against one party it is fatal to the validity of the outcome.  If a judge says or acts in a manner that to an informed and reasonable observer demonstrates he or she is not impartial, there is an apprehension of bias; the outcome is also vitiated.

 

[62]         Detailed submissions were not made by the parties on what standard of review should be applied, if any, to these issues.  The appellants assert that Justice Warner pre-judged certain aspects of the issues that would have to be determined at trial when he gave reasons allowing the application to strike the notice of trial by jury.  Justice Warner’s reasons are reported:  2008 NSSC 79, affirmed 2008 NSCA 83.  The appellants contend that when Justice Warner gave his reasons he provided an assurance to them he was not going to be the trial judge. 

 

[63]         The respondent has two answers.  The first is that the appellants should not be allowed to complain in light of the procedural history concerning Justice Warner becoming the trial judge.  Justice Warner gave his decision striking the jury notice on March 19, 2008.  The trial was then scheduled for November 2008 in Kentville.  The Honourable Justice Arthur LeBlanc was to sit in Kentville that month.  Scheduling difficulties lead to Justice Warner replacing Justice LeBlanc on the rota for November 2008.  The appellants brought a motion requesting Justice Warner to recuse himself.  Warner J. heard the motion on September 3, 2008.  The motion was dismissed.  An order confirming the dismissal was taken out on September 29, 2008 and the trial was adjourned by consent to March 2, 2009. 

 

[64]         This leads the respondent to say that the appellants having failed to appeal the decision of Justice Warner of September 3, 2008, they cannot do so now.  There is much force to the position of the respondent.  The decision by Justice Warner declining to recuse himself was an interlocutory decision, and could have been appealed.  It was not.  No reason has been offered by the appellants for not having done so.  The availability of that remedy could hardly have escaped their attention, since one of the authorities relied upon by the appellants before Warner J. in September 2008 in support of its recusal motion, was Mitsui & Co. (Point Aconi) Ltd. v. Jones Power Co., 2001 NSCA 112.  In Jones, the appellant by way of an interlocutory appeal, was successful in overturning the decision by a trial judge who refused to recuse himself on the basis of reasonable apprehension of bias (see also Mary and David Goodine Dairy Farm v. New Brunswick (Milk Marketing Board), 2002 NBCA 38). 

 

[65]         In any event, I need not decide the issue on this basis, since I am far from convinced that the appellants have demonstrated a reasonable apprehension of bias or bias.  The main thrust of the appellant’s submission was that they were not able to obtain a fair hearing as a result of the decision by the trial judge to strike the jury notice.  One of the leading cases in Canada on the issue of bias is R. v. S.(R.D.), [1997] 3 S.C.R. 484.  In that case, Cory J. explored a number of key concepts about impartiality, bias and reasonable apprehension of bias.  With respect to the polar opposites of impartiality and bias, he noted the authorities that establish that the word impartial connotes absence of bias, actual or perceived; and that impartiality is a state of mind in which the adjudicator is disinterested in the outcome, and is open to persuasion by the evidence and submissions (para. 104).  Bias is a state of mind that is in some way predisposed to a particular result or that is closed with regard to particular issues (para. 105).

 

[66]         In setting out what the test is for finding reasonable apprehension of bias, and how to apply it, Justice Cory wrote:

 

109      When it is alleged that a decision‑maker is not impartial, the test that must be applied is whether the particular conduct gives rise to a reasonable apprehension of bias. Idziak, supra, at p. 660. It has long been held that actual bias need not be established. This is so because it is usually impossible to determine whether the decision‑maker approached the matter with a truly biased state of mind. See Newfoundland Telephone, supra, at p. 636.

 

110      It was in this context that Lord Hewart C.J. articulated the famous maxim: “[it] is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done”: The King v. Sussex Justices, Ex parte McCarthy, [1924] 1 K.B. 256, at p. 259. The Crown suggested that this maxim provided a separate ground for review of Judge Sparks’ decision, and implied that the threshold for appellate intervention is lower when reviewing a decision for “appearance of justice” than for “appearance of bias”. This submission cannot be sustained. The Sussex Justices case involved an allegation of bias. The requirement that justice should be seen to be done simply means that the person alleging bias does not have to prove actual bias. The Crown can only succeed if Judge Sparks’ reasons give rise to a reasonable apprehension of bias.

 

111      The manner in which the test for bias should be applied was set out with great clarity by de Grandpré J. in his dissenting reasons in Committee for Justice and Liberty v. National Energy Board, [1978] 1 S.C.R. 369, at p. 394:

 

[T]he apprehension of bias must be a reasonable one, held by reasonable and right‑minded persons, applying themselves to the question and obtaining thereon the required information. . . . [The] test is “what would an informed person, viewing the matter realistically and practically ‑‑ and having thought the matter through ‑‑ conclude. . . .”

 

This test has been adopted and applied for the past two decades. It contains a two‑fold objective element: the person considering the alleged bias must be reasonable, and the apprehension of bias itself must also be reasonable in the circumstances of the case. See Bertram, supra, at pp. 54‑55; Gushman, supra, at para. 31. Further the reasonable person must be an informed person, with knowledge of all the relevant circumstances, including “the traditions of integrity and impartiality that form a part of the background and apprised also of the fact that impartiality is one of the duties the judges swear to uphold”: R. v. Elrick, [1983] O.J. No. 515 (H.C.), at para. 14. See also Stark, supra, at para. 74; R. v. Lin, [1995] B.C.J. No. 982 (S.C.), at para. 34. To that I would add that the reasonable person should also be taken to be aware of the social reality that forms the background to a particular case, such as societal awareness and acknowledgement of the prevalence of racism or gender bias in a particular community.

 

[67]         What then was it that Justice Warner said or decided that the appellants claim deprived them of a fair hearing?  The appellants say that Justice Warner engaged in a partial review of the evidence and drew conclusions from that review.  They say his comments show a predetermination of issues to be decided at trial.  The sole focus of their complaint is reproduced in their factum as follows:

 

Whether these conversations, taken together with the “letter agreements”, constitute a legal agreement (B.2), in the absence of any agreement as to the terms for profit sharing, is primarily an issue at law, or at best, a complex issue of mixed law and fact.  It is difficult to project any role for a jury in respect of this issue.  I do not see how or what questions could properly be put to the jury that would not also involve the assessment of the law. [para. 110]

 

¼Based on the affidavits before the Court, assuming an legal agreement to share profits was reached, there is no evidence upon which a judge or jury could determine that a consensus was reached as to the terms of such profit sharing, such as when and on what basis profit sharing would occur¼ [para. 113]

 

¼the only basis, on the uncontradicted facts in the affidavits, upon which a Court could grant a remedy to the defendants is on the equitable principle most commonly identified as unjust enrichment¼ [para. 113]

 

[68]         I fail to see anything the learned judge said in para. 110 that in any way indicates a prejudgement of any issue yet to be determined at trial.  The complained of comments in para. 113 must be put in context.  What the trial judge actually said was (2008 NSSC 79):

 

[113]    With respect to B.3, the defendants say that, in the absence of any agreement as to the terms for profit sharing, the Court may award damages based on quantum meruit and not on any equitable principles. Based on the affidavits before the Court, assuming an legal agreement to share profits was reached, there is no evidence upon which a judge or jury could determine that a consensus was reached as to the terms of such profit sharing, such as when and on what basis profit sharing would occur. Whatever the wording in Paragraph 13(f) of the Amended Defence and Counterclaim, the only basis, on the uncontradicted facts in the affidavits, upon which a Court could grant a remedy to the defendants is on the equitable principle most commonly identified as unjust enrichment. By whatever description, in the absence of an agreement on the terms of any profit sharing, the relief is a discretionary or equitable remedy obtained under what Justice Gonthier, and other text writers call, the "third logic of private law".

 

[69]         “B.3” is a reference to Justice Warner’s labelling of the issues that a jury would be called on to determine at trial.  “B.2” was whether conversations between the parties and documents created a legally binding contract.  B.3 was: “If so, what profit sharing arrangement, as a matter of discretion, should be imposed on the Plaintiff” (para. 103).  The judge was called upon to decide, based on what the parties adduced before him by way of affidavit evidence, if it was appropriate for a jury to decide the issues as defined by the parties by their pleadings and submissions.  He clearly prefaced his remarks as being based on the affidavit evidence before him, and were in response to the position being advanced by the appellants.  In my view, no fully informed person viewing the matter realistically would conclude any lack of impartiality by Justice Warner.

 

[70]         With respect to actual bias, the appellants claim that the trial judge appeared to move the onus from the respondent to the appellants and argued the case from the perspective of the respondent.  I have carefully reviewed the transcript of the trial proceedings and the reasons for judgment rendered by the trial judge.  There is no evidence to support such a claim.  I see absolutely no merit in the appellants’ complaint and I would dismiss this ground of appeal.

 

 

DELAY

 

[71]         The appellants point out that the decision rendered by a trial judge was outside the direction in s. 34(d) of the Judicature Act, which permits a judge to reserve judgment but for no longer than six months.  They complain that the delay resulted in the trial judge forgetting or not accurately recalling or misunderstanding key evidence.  The appellants refer to some of the leading authorities on the issue of s. 34(d), which clearly establish the time limit is not mandatory but strongly directory.  As observed by Roscoe J.A. in Langille v.  Midway Motors Ltd, 2002 NSCA 39:

 

[8]        Dealing with the last issue first, the appellant seeks a declaration that there was a loss of jurisdiction and an order for a new trial. The last day of trial was May 21, 1999. The cover page of the written decision contains two dates: “Decision: November 20, 1999” and “Decision Released: November 22, 1999”. We have no explanation for the different dates. Assuming without deciding that the decision in this case was reserved for longer than the six months permitted by s. 34 of the Judicature Act, we do not agree that there was a loss of jurisdiction in the circumstances. The time limit should not be considered to be mandatory but rather strongly directory. The appropriate remedy for failure to deliver a judgement after trial within six months, should be an order for mandamus, not an order for a new trial. Since the decision has now been delivered, no order is required.

 

See also Toronto Dominion Bank v. Lienaux, 2005 NSCA 97.

 

[72]         The appellants say the delay impacted on the integrity of the fact finding process by the trial judge.  They claim he made 90 factual errors or omissions caused, they say, by forgetting, misunderstanding, misapprehending, mischaracterizing evidence, making findings not based on evidence and otherwise making contradictory findings.  If he made any such errors they are open to review on the appropriate standard of review.  Accordingly, I would dismiss this ground of appeal. 

 

 

 

INADEQUATE REASONS/FINDINGS OF CREDIBILITY

 

[73]         It is convenient to consider these two headings together as encompassing all of the appellants’ complaints about the findings made by the learned trial judge.  The key to the outcome of the trial was a resolution of the credibility of the two very divergent views as to what was or was not orally agreed to between Matthew Kimball and Davey Einarsson.  As already noted, the trial judge resolved most of those issues by accepting Einarsson’s evidence and not that of Kimball.  The appellant says the trial judge had a duty to give reasons as to why he found Einarsson to be credible, and Kimball not.  They cite R. v. Sheppard, 2002 SCC 26 and Laurel Oak Marketing Ltd. v. Royal Canadian Golf Assn., 2010 ONCA 62, in support of their argument.

 

[74]         The landmark decision of the Supreme Court of Canada in R. v. Sheppard recognized a duty to give reasons in order to permit meaningful appellate review.   A failure to do so, is an error of law and may trigger a remedy of an order for a new trial.  These principles were reviewed by this Court in McAleer v. Farnell, 2009 NSCA 14.  MacDonald C.J.N.S. set out the principles established in R. v. Sheppard and it progeny.  He explained:

 

[12]      I begin with the recent decision of the Supreme Court of Canada in R.E.M., 2008 SCC 51. Although decided in a criminal law context, I nonetheless find that it offers good guidance in this appeal. There, the Chief Justice explained how a trial judge's reasons fulfill five basic purposes: 1) to inform the parties why the decision was made; 2) to provide public accountability for the judicial decision; 3) to permit effective appellate review; 4) to help ensure fair and accurate decision making, and 5) to provide guidance to future courts in accordance with the principle of stare decisis.

 

[13]      These basic goals, the Chief Justice explains, are effectively fulfilled if the decision informs the reader as to what was decided and why:

 

¶ 17     These purposes are fulfilled if the reasons, read in context, show why the judge decided as he or she did. The object is not to show how the judge arrived at his or her conclusion, in a "watch me think" fashion. It is rather to show why the judge made that decision. The decision of the Ontario Court of Appeal in Morrissey, predates the decision of this Court establishing a duty to give reasons in Sheppard. But the description in Morrissey of the object of a trial judge's reasons is apt. Doherty J.A. in Morrissey, at p. 525, puts it this way: "In giving reasons for judgment, the trial judge is attempting to tell the parties what he or she has decided and why he or she made that decision" (emphasis added). What is required is a logical connection between the "what" ‑ the verdict ‑ and the "why" ‑ the basis for the verdict. The foundations of the judge's decision must be discernable, when looked at in the context of the evidence, the submissions of counsel and the history of how the trial unfolded.

 

. . .

 

¶ 25     The functional approach advocated in Sheppard suggests that what is required are reasons sufficient to perform the functions reasons serve ‑ to inform the parties of the basis of the verdict, to provide public accountability and to permit meaningful appeal. The functional approach does not require more than will accomplish these objectives. Rather, reasons will be inadequate only where their objectives are not attained; otherwise, an appeal does not lie on the ground of insufficiency of reasons. This principle from Sheppard was reiterated thus in R. v. Braich, [2002] 1 S.C.R. 903, 2002 SCC 27, at para. 31: ... [Emphasis in original.]

 

[14]      Furthermore, the amount of detail required to meet these basic functions very much depends on the context of each case:

 

¶ 44     The degree of detail required may vary with the circumstances. Less detailed reasons may be required in cases where the basis of the trial judge's decision is apparent from the record, even without being articulated. More detail may be required where the trial judge is called upon "to address troublesome principles of unsettled law, or to resolve confused and contradictory evidence on a key issue ...": Sheppard, at para. 55.

 

[15]      For this reason, our role on appeal is not to criticize the level of detail or expression. Instead it is to determine if the functions noted above have been fulfilled to the point where a meaningful appeal is available:

 

¶ 53     However, the Court in Sheppard also stated: "The appellate court is not given the power to intervene simply because it thinks the trial court did a poor job of expressing itself" (para. 26). To justify appellate intervention, the Court makes clear, there must be a functional failing in the reasons. More precisely, the reasons, read in the context of the evidentiary record and the live issues on which the trial focussed, must fail to disclose an intelligible basis for the verdict, capable of permitting meaningful appellate review.

 

[75]         Here the trial judge was well aware of the law with respect to the assessment of credibility.  He referred to Faryna v. Chorny, [1952] 2 D.L.R. 354, [1951] B.C.J. No. 152, where O’Halloran J.A. said:

 

11        The credibility of interested witness[es], particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions. ...

 

[76]         The trial judge gave extensive reasons for every important aspect of the case he had to decide.  The reasons are far from generic.  In my opinion, he stated with considerable clarity the positions and evidence of each party, and considered the overall factual matrix of the relationship between SMS and GSI, including many objective documents and facts.  After doing so, he clearly accepted the evidence of Einarsson.  I agree with the submission of the respondent that the trial judge simply did not find Mr. Kimball to be a credible witness on the important issues; and gave a number of reasons why.  There is no need to go through all of them.  Two will suffice.  They are that the trial judge got the evidence of Matthew Kimball wrong when he referred to an agreement with GSI to bill at $143,900 US per month when fully operational; and the circumstances surrounding the end of the business arrangements, particularly the issue of worksheets being unavailable, to demonstrate how the crewing invoices were calculated.

 

[77]         The appellant asserts that Matthew Kimball’s evidence was consistent; there was an agreement to pay SMS for crew at the rate of $136,700 US per month.  With respect, this is not at all accurate.  Kimball’s evidence on this issue was markedly inconsistent.  Despite the fact that all of the written agreements provided for SMS to bill GSI at cost plus 5%, Mr. Kimball said the actual agreement between SMS and GIS was for a fixed amount.  Kimball said the following about the monthly fee SMS was entitled to charge GSI:

 

A.        Davey came in and had a look at the form.  Davey had been continuously updated by me and Gary Bartlett throughout; and there were some further talks.  Earlier in the week, the vessel value and amortization periods ‑‑ you can see where that’s changed on this form.  Davey took my original costs of 143,900 and reduced it by five per cent.

 

Q.        Now, is that the “People in Office” that appears under “Operational Expenses”?

 

A.        That’s correct. 

 

Q.        All right.

 

A.        There were some other numbers here.  “Mobe costs” were in the ‑ supplied by GSI, I believe.  In the final form, that “Mobe Costs” number is out of there altogether.  It”s a cost to be borne by each side.  And basically, when you change one number, some of the “Total GSI Expense” number changed.  The installation, mobilization costs changed, through discussions.

 

Anyway, at the end, when this document was cleaned up, it was a 50/50 split.

 

Q.        And the item for “People in Office” was changed from 143,9 to what?

 

A.        One hundred and thirty‑six thousand, seven hundred US dollars.

 

. . .

 

A.        At that time, when Gary Bartlett had resigned, I wanted to review with Davey what our basis of agreement was; and I did point out to Davey that he had reduced my fee of One hundred forty‑three thousand nine hundred dollars ($143,900.00) by five per cent to assist in the marriage with Rieber at a 50/50 proposition.  And I told Davey I wanted that five per cent back.

 

Q.        What was his response?

 

A.        Davey said, “Okay, that’s fine.  It was just a vehicle to end the negotiations.  They didn’t seem to be going anywhere,” and it aided him quickly in getting the numbers where, the overall numbers, where he and Sven could sign off on this thing.

 

Q.        And how then was that resolved, that you would get the five per cent back?

 

A.        I added that to the, to my “Total crewing” number, when I submitted the bills.

 

Q.        And did you discuss with him what the costing was going to be for the crew?

 

A.        Well, we had, we had the spreadsheet, the operating – the full operating months were an easy number.  It was the ramp‑up numbers. 

 

But because Davey and I were close, the advantage in all of this is, Davey and I were getting into this venture together.  Whether I was his partner in the first instance wasn’t an issue to me, or to Davey at the time.  We were going to get on with this business.

 

Rieber was a vessel of opportunity and took a lot of risk away from what Davey and I ultimately wanted to do.  I knew all Davey’s costs ’cause I was party to the equipment suppliers; and so those were his large costs; and we felt it was only fair that I would show my costs to Davey.

 

. . .

 

A.        Davey looked at it and I said to him, “Well, what are we gonna do with my 136,7?” Right? We’re low. This is the month of June. It’s not – we’re not into the basis of – here’s your – here’s the crew list, 30 per cent, five per cent, and here’s your bill. Davey Einarsson, for the month of June, owed me One hundred thirty‑six thousand seven hundred dollars ($136,700.00).

 

. . .

 

Q.        Now, following the, that audit in November, did you and Davey Einarsson have any further discussions about your arrangements?

 

A.        No.

 

Q.        Was there any further discussion about the level of your invoices?

 

A.        Yes. When Davey – during this period when Davey and I were meeting and did this Agreement, again, Sable Mary’s invoices that Davey was looking at were lower than the anticipated level. We’d agreed to look at that back in our June meeting and, again, Davey had cash flow problems. I intended, at this point in time, to split the 136,7 invoicing half each pay period; and again, Davey said he could not afford that.

 

. . .

 

Q.        You maintain that your contract with GSI was never a cost plus contract?

 

A.        It never was.

 

Q.        In fact, you testified yesterday, that the deal you had was that you were entitled to charge US One hundred thirty‑six thousand seven hundred dollars ($136,700.00) a month? That’s what you say the deal was, correct?

 

A.        For the two Joint Ventures, that’s correct.

 

Q.        And you say that the cost Sable Mary incurred to maintain the crew were its business, not Mr. Einarsson’s business or GSI’s business?

 

A.        That’s correct.

 

Q.        That’s because you say it was never a cost plus contract?

 

A.        That’s correct.

 

Q.        And your explanation for all this is that this is what Mr. Einarsson told you to do? He agreed to all this?

 

A.        Oh, he certainly did.

 

. . .

 

A.        He ‑ I think the terminology is, is wrong. Right? He didn't have the cash flow to pay the contracted price of 136,7. Okay?

 

Q.        Am I correct in understanding that you’re saying that Mr. Einarsson wanted you to add six per cent;

 

A.        That’s correct.

 

Q.        Thirty per cent?

 

A.        Yes.

 

Q.        Amounts that are not reflected in the written contract,

 

A.        That’s correct.

 

Q.        Yes? Okay.

 

A.        Yeah.

 

Q.        And this served his interests, you say, because it allows him to keep the costs high, closer to the amount that he had been discussing in the negotiations with Rieber?

 

A.        No, closer to the contract price that I had given him.

 

Q.        Which you say is One hundred thirty‑six thousand seven hundred dollars ($136,700.00)?

 

A.        It was One hundred forty‑three thousand nine hundred (143,900) less the five per cent, which is to me...

 

Q. Taking us to...

 

A. The five per cent that we talk about,

 

Q. And that takes us to the One hundred thirty‑six thousand seven hundred dollars ($136,700.00) figure...

 

A.        That's correct.

 

Q.        ...I just referred to?

 

A         That’s correct. 

 

 

[78]         Not only did the trial judge find the evidence of Mr. Kimball inconsistent, he found it to be improbable in light of the overall circumstances, and not in accord with the written agreement and other documentation.  For example, the documentary evidence clearly referred to the spreadsheets prepared for the Rieber/GSI joint venture negotiations as being estimates.  The trial judge mentioned the email from Matthew Kimball of January 13, 1998 where Kimball referred to the expenses shown as being estimates by both parties, and that actual expenses would be available for each to review at the end of the first operating season (para. 107).

 

[79]         The evidence by Mr. Kimball that the actual terms of the contract were for some fixed amount, whether it was $143,900 US or $136,700 US made no sense to the trial judge.  If it was a fixed amount, why then did the parties not simply say so in their own private contract of October 16, 1998?  That document simply said GSI was to continue to pay for the personnel supplied by SMS at cost plus 5%; as did every other document that referred to the contractual arrangement, including many authored by Mr. Kimball. 

 

[80]         If the actual liability of GSI was either of the set amounts per month, according to Kimball, SMS was owed over a million dollars as of August 1999, yet no bill was ever rendered for that amount, let alone an email or any scrap of paper suggestive of that kind of liability.  Instead, when GSI and SMS documented the arrangement they had for the second joint venture in 2000, it was a renewal of the same terms set out in the October 16, 1998 letter, cost plus 5%.   The trial judge could find no logical answer to these questions.  Neither can I.

 

[81]         Somehow a contract between SMS and GSI for a set amount had SMS sending invoices for amounts that bore no relation to $143,900 US or $136,700 US per month.  Kimball’s explanation for this is that because of Einarsson’s plea of no cash flow, it was agreed to have SMS invoice for the total SMS payroll plus 30% plus 6% plus 5%.  Apparently, the additional 6% being added because otherwise the 30% plus 5% would be too low, and Einarsson was fearful that if actual expenses were too low, Rieber may push for a renegotiation of the revenue split away from 50-50.

 

 

[82]         The appellant’s reliance on Laurel Oak Marketing Ltd. v. Royal Canadian Golf Assn., supra, is not helpful.  In that case, the Court of Appeal for Ontario ordered a new trial in a contract case where the trial judge rejected the evidence of a key witness for the appellant as “not credible” but gave no reasons for that finding.  The appellant had no idea why, nor did the Court of Appeal.  The reasons were conclusionary and did not provide a path for the reader as to how the trial judge reached his conclusion.  That is a far cry from this case where the trial judge explained in detail the problems he had with the evidence of Matthew Kimball.  It is clear to the appellant, and to this Court, why he found the evidence of Mr. Kimball not to be credible. 

 

[83]         The appellants lay great stress on certain passages in the trial judge’s reasons as being indicative that he forgot important evidence or mischaracterized certain events, both of which caused the trial judge to err in his credibility findings.  These passages are in relation to the lack of worksheets to demonstrate how the actual amounts on the crewing invoices were calculated.  The judge discussed the circumstances in both the contract and fraud sections of his decision.  In the contract section he wrote (para. 109):

 

...As will be noted in the next section of this decision, one of the substantial problems that the court had with the defendants’ evidence as to the contents of the agreement was the fact that the crewing invoices contained only the final figure, without any breakdown of how that figure was calculated by SMS.  When GSI pressed for the backup documents or worksheets that were used to create the crewing invoices, Kimball stated that they were “gone”.  These were the best ‑ and only ‑ evidence, of the basis of SMS’s crewing invoices.  I find it improbable that no record would have existed in SMS’s files of the worksheet and backup documents; that is, the basis of the crewing invoices.  It caused me to doubt Matt Kimball’s evidence as to the terms of the agreement.

 

[84]         In the fraud section of the decision, the trial judge also discussed the lack of records to demonstrate how the invoice amounts were calculated.  He said:

 

[149]    ...A quick look at the bi‑monthly invoices show that the calculation was obviously not done on the invoice itself.  The only reasonable inference is that calculation was made on a worksheet, based on and supported by back up records and information.  There is no reason that these backup records and worksheets would not be kept.  There are several obvious reasons why they would be kept.  One of them is the obvious obligation to account to GSI for how it arrived at the amount contained in the bi‑monthly crewing invoices.

 

[150]    Instead, when GSI asked for these invoices in 2002, SMS first delayed, then refused to provide the information, and then, incredibly, stated that all its backup records were “gone”.

 

. . .

 

[152]    It is not credible that those worksheets and back up records, when pressed for, went missing and have never surfaced since.

 

[153]    The missing records, being the backup record for the crewing invoices, contain the only original contemporaneous information that would show the basis of SMS’s crewing invoices and therefore how it interpreted the contract.  At trial, no document, contemporaneous with the submission of the crewing invoices, was produced that might support (a) SMS’s interpretation of the crewing contract, and (b) that the crewing invoices were in accord with SMS’s interpretation.  The absence of any documents which clearly existed at one time, and which logically would have been retained for some period of time, causes me to conclude that the defendants knew that the invoices were not in accord with the agreement ‑ the agreement either as interpreted by GSI, or as interpreted by the defendants.  The evidence of Wayne Lam and Matthew Kimball dealt with the events leading to Kimball’s September 30, 2002 e‑mail that the worksheets were “gone”. 

 

[85]         The complaint by the appellant is the trial judge mischaracterized the events concerning the worksheets – that it is not fair to say Mr. Kimball was “pressed”; and that the judge forgot about Kimball’s evidence that he had deliberately thrown out the worksheets showing the invoice calculation, with the approval of Davey Einarsson, in August 2002. 

 

[86]         I earlier set out the evidence concerning the exchange between Chief Financial Officer Wayne Lam of GSI and Mr. Kimball in late September 2002 when Lam was looking for information from Kimball to explain why the crew costs had decreased so significantly.  The contact in September 2002 by Mr. Lam was the first request for backup for the crew invoices.  Mr. Kimball did not deny that Mr. Lam had called him looking for such information, which obviously included documentation.  When Lam had not heard back from Kimball in a week or two, he called and left messages.  This led to Kimball’s email of September 30 where he wrote that after a quick look at his notes, all worksheets for people invoices were “gone”.  He referred to these worksheets being just that, derived for the period, adjusted for prior billings and there is nothing remaining.  Kimball added that individual salaries were none of GSI’s business.  As of “today, I am not prepared to dig into this stuff, and try to reproduce any of the past, for any invoice”. 

 

[87]         Although the time frame of the initial request to September 30 does not appear to have been very long at all, and the number of attempts to elicit the information not terribly repetitive, the tenor of the exchange from Mr. Kimball certainly conveys the impression that Kimball felt he was being pressed for the information.  A variety of different descriptors could well fit the pursuit by Mr. Lam of information from Mr. Kimball.  I am not convinced that the trial judge’s descriptor is an error, let alone one that would amount to reversible error.

 

[88]         With respect to the trial judge having forgotten the evidence of Mr. Kimball that the worksheets were not “gone” but had been deliberately destroyed by Kimball when he moved from his house in August 2002, it is well accepted that a trial judge is not required to deal with every detail in his or her reasons (Royal & Sun Alliance v. Baltzer, 2009 NSCA 110 at para. 20; Hubley v. MacRae, 2011 NSCA 25 at para. 46).  Furthermore the omission to address this evidence presupposes that the trial judge believed the explanation offered by Kimball as to what happened to the worksheets. 

 

[89]         At trial Mr. Kimball testified that he in fact prepared worksheets to prepare the crew invoices, and strangely enough, without those worksheets could not demonstrate how the invoice amounts were arrived at.  This is despite the fact that payroll and other records were available for all of the relevant time periods.  What then happened to the worksheets?  At trial Kimball testified that at the end of August he had sold his house and was moving.  In his home were 12 to 14 boxes of records from SMS.  He said he called Davey Einarsson and asked if Davey needed to see anything in the documents.  Kimball testified that Einarsson asked him if the documents were in relation to invoices that he had approved.  On hearing from Kimball that they were for approved invoices, Einarsson approved destruction, even though Kimball says he made it clear the documents he was contemplating destroying were for crew invoices. 

 

[90]         This explanation defies logic.  Wayne Lam is no longer a GSI employee.  His evidence was accepted that long before August 2002 he had been trying to rationalize the significant drop in the crew costs.  He discussed his concerns with Davey Einarsson, who then at the end of August supposedly approved Kimball’s destruction of the backup documents for SMS crewing invoices.

 

[91]         Davey Einarsson’s evidence was also accepted.  He testified he did not have a conversation with Matthew Kimball approving destruction of backup documents.  When Mr. Lam contacted Kimball less than a month after Kimball claims to have gone to the trouble of contacting Einarsson to approve the destruction of 12 to 14 banker boxes of the backup documentation, Kimball doesn’t seem to recall he just destroyed the information being sought.  Not only does Kimball make no reference to this destruction in the follow-up email of September 30 to Lam, he boldly asserts the worksheets are gone and it was none of GSI’s business, in any event.  If it was none of GSI’s business, why did he seek Einarsson’s approval of the destruction of the documents?

 

[92]         The post facto explanation by Kimball why he cannot reconstruct how the invoice amounts were calculated gets more bizarre.  A hearing to contest the ex parte Anton Piller Order was held in February 2003.  Mr. Kimball swore an affidavit dated February 3, 2003 that “ I have never deliberately destroyed any documents in relation to the SMS and GSI Agreements except in the ordinary course of business.”  At trial, Kimball did not attempt to say the claimed destruction in August 2002 of the worksheets was done in the ordinary course of business.  Instead he asserted that the worksheets were not “documents”. 

 

[93]         Furthermore, in the email of September 30, Kimball plainly held out the prospect that there was stuff he could still dig into to try to reproduce materials for past invoices – just that he would not then do so.  Payroll and other records were and are still in existence.  They were used by KPMG to calculate that the crewing invoices should have been utilizing a formula of actual cost plus 5%.  Yet, even as late as the hearing of this appeal, the appellants acknowledged that they could not take even one of the disputed invoices and demonstrate how the amount was calculated in accord with any of the claimed methodologies. 

 

[94]         In light of the trial judge’s reasons, the only reasonable conclusion is that he simply did not believe the claim by Mr. Kimball that he had destroyed the spreadsheets and there were no backup of these documents. 

 

 

PATENTLY WRONG FINDINGS OF FACT

 

[95]         In this section I will comment on the appellants’ complaints that the findings of the trial judge were not consistent with the evidence at trial and were palpably wrong; he made contradictory findings; and he gave undue weight to certain evidence and little or no weight to other evidence.  It is fundamentally the role of a trial judge to listen to the evidence, assess it in light of the overall circumstances, including documentary exhibits, make findings of fact, including the drawing of inferences that are justified by the record.  The weight that a trial judge decides to place, or not, on certain evidence is subject to considerable deference on appeal.  It is well to recall the statement of these principles by Cromwell J.A. (as he then was) in Davison v. Nova Scotia Government and General Employees Union, 2005 NSCA 51:

 

[61]      Findings of fact will not be reversed on appeal unless the trial judge made a palpable and overriding error. The same degree of deference is paid to inferences drawn from the evidence and to all of the trial judge’s findings whether or not they are based on findings of credibility: Housen v. Nikolaisen, [2002] 2 S.C.R. 235 per Iacobucci and Major, JJ. at paras. 10 and 23 to 25.

 

[62]      The “palpable and overriding error” standard underlines that a high degree of deference is paid on appeal to findings of fact at trial. An error is palpable if it is one that is plainly seen or clear. An error is overriding if, in the context of the whole case, it is so serious as to be determinative in the assessment of the balance of probabilities with respect to that factual issue: see Housen v. Nikolaisen, supra, at paras. 1 to 5 and Delgamuukw v. British Columbia, [1997] 3 S.C.R. 1010 at paras. 78 and 80. Thus, not every misapprehension of the evidence or every error of fact by the trial judge justifies appellate intervention. The error must not only be clear, but “overriding and determinative.”

 

[63]      If the trial judge failed to consider relevant evidence, the appellate court should reconsider the evidence if the trial judge’s omission is material. A failure to consider evidence is material if it gives rise to a reasoned belief that it affected the judge’s conclusions: see Delgamuukw, supra, at para. 90; Van de Perre v. Edwards, [2001] 2 S.C.R. 1014 at para. 15; Fralick v. Dauphinee (2003), 219 N.S.R. (2d) 238, N.S.J. No. 434 (Q.L.) (C.A.) at paras. 19‑20. As LaForest, J. stated in Schwartz v. Canada, [1996] 1 S.C.R. 254 at para. 35:

 

35        ...the appellate court must, in order to disturb the trial judge's findings of fact, come to the conclusion that the evidence in question and the error made by the trial judge in disregarding it were overriding and determinative in the assessment of the balance of probabilities with respect to that factual issue.

 

[64]      A trial judge does not err because the appellate court would draw different inferences or would emphasize some portions of the evidence over others: Housen at para. 56. It is wrong for an appellate court to intervene simply because it would give a different interpretation of the evidence as a whole: Housen at paras. 20 and 29.

 

[96]         I have carefully reviewed all of the findings of fact by the trial judge, and inferences drawn from facts, and his conclusions on questions of mixed law and fact.  They disclose no errors so clear and obvious as to be palpable, nor so serious as to be determinative and hence overriding.  For the most part, the submissions by the appellant are really little more than an attempt to re-argue their case before this Court in the hope that we will accept the arguments that did not hold sway before the trial judge. 

 

[97]         There is one issue raised by the appellants that is deserving of discussion.  It is the seemingly inconsistent findings by the trial judge in different areas of his decision.  The first section of the trial judge’s decision dealt with a determination of what were the contractual arrangements between Mr. Kimball, SMS and GSI, and what did the terms in those arrangements mean.  The trial judge’s finding was as follows:

 

[120]    I conclude that the only reasonable interpretation of the contract signed by the parties on October 16, 1998, was that GSI was obligated to pay for the personnel, meaning the seismic personnel supplied by SMS, an amount equal to the cost to SMS of supplying those personnel ‑ actual wages, benefits and other seismic crew costs, plus 5%.  The only reasonable interpretation, based upon the admissible evidence before the Court, was that the term “cost” meant the wages paid to, and benefits and related costs paid in respect of the seismic crew whose names were shown on each of the crewing invoices.  I accept the evidence of Davey Einarsson, and the submission of GSI, that the term “plus 5%” was not a reference to the recovery by SMS of the 5% deducted from the calculations made during negotiations of the GSI‑Rieber joint venture in January 1998, but was rather, as stated by Mr. Einarsson, an amount to supplement the SMS cost to process payment of crew wages and benefits; that is, office staff.

 

[98]         In the second section, the trial judge considered the issue whether the respondent had established on a balance of probabilities that the appellants committed fraud by the submission of the crew invoices.  To find fraud in the sense of the tort of deceit, the respondent had to establish that Matthew Kimball, the operating mind of SMS, knew that the crew invoices were not in accord with the contractual arrangements with GSI – that is they knew the representations being made in the invoices were false, or made recklessly without knowing whether they were true or false, and that the respondent relied upon the false representations to pay the invoices. 

 

[99]         After analysing the evidence that the trial judge considered to be suggestive of fraud by the appellants, he turned to evidence he considered suggestive that GSI knew at some point that the crew invoices were not being rendered at cost plus 5%.  After referring to some of this evidence, the trial judge also noted the exchange of draft agreements in April 2001 between Paul Einarsson and Matthew Kimball, where Kimball proposed monthly fees for SMS and salary for himself, and that SMS would bill GSI at cost plus 5% for crew, but that cost was defined to be payroll plus benefits billed as gross salary plus 30%.  The trial judge then said:

 

[157]    I accept that the draft agreement  Paul Einarsson caused his legal department to prepare and forward to Matt Kimball was not intended to change the provisions of the crewing contract.  Equally I am satisfied that Matthew Kimball’s revised agreement was not intended as a new proposal but rather a reflection of his understanding of the crewing contract.

 

[158]    I conclude, on a balance of probabilities, that at some point during the currency of the contract, likely by the time of Kimball’s reply to Paul Einarsson of April 26, 2001, Davey Einarsson (and therefore GSI) was aware of and believed that SMS, through Matthew Kimball, was invoicing for crew costs on the basis of actual wages of the crew listed on each invoice plus 30%; that is, by the formula used by them in “Old GSI” and in the January 1998 negotiations with Rieber.  To the extent that crew invoices claimed payment for actual seismic crew wages plus 30%, I conclude that GSI, based on the knowledge of Einarsson, did not rely upon the representations contained in the SMS’s invoices.  Otherwise, I find that GSI did rely upon the fraudulent misrepresentations contained in the crewing invoices prepared by Matthew Kimball and issued by SMS.

 

 

[100]     The appellants argue that the finding of what Matthew Kimball considered to be his belief as to the terms of the contract was not taken into account in the trial judge’s analysis in the first section of his decision about what those terms were and what they meant.  They also argue that the finding in para. 158 means the judge did not accept the evidence of Einarsson who had testified that at no time was he aware that the invoices were anything other than actual cost plus 5%. 

 

[101]     I agree that the findings are, on their face, troubling.  Matthew Kimball at no time testified that he thought the contract between SMS and GSI was actual salary plus 30% plus 5%.  As already detailed earlier, at least to the end of the second joint venture in December 2000, he maintained that SMS was entitled to be paid either $143,900 US per month or $136,700 US.  He only billed actual salary plus 30% plus 6% plus 5% as an accommodation, at the request of Davey Einarsson.  Kimball was clear that it was industry practice in estimating costs, to take salary and add 30% to cover statutory and private benefits.  That is what he and Gary Bartlett had done in January 1998 to arrive at the initial figure of $143,900US per month. 

 

[102]     I can find no evidence to substantiate the finding by the trial judge that Matthew Kimball’s April 2001 proposal reflected Kimball’s actual understanding of the crew contract.  Kimball certainly never testified to that effect, nor did the appellants argue this was the case to the trial judge, or in this Court.  

 

[103]     Although the trial judge found that  Davey Einarsson was “aware”, likely by April 26, 2001, that SMS was billing GSI at actual wages plus 30%, the trial judge  nonetheless found fraud based on the fact that SMS included in the crew invoices claims for family members, navigators already being billed separately by Abbott Contracting, and his own salary.

 

[104]     The findings as to Kimball’s subjective belief regarding the terms of the contracts and Einarsson’s awareness that GSI was being billed at actual wages plus 30% plus 5% could well amount to palpable error.  There is really no evidence to support them.  However, the findings are in favour of the appellants.  There has been no cross-appeal nor notice of contention from the respondent seeking to challenge any of these findings or calculations.  Furthermore, the findings are not determinative.  I fail to see how they have any impact on the ultimate conclusion by the trial judge as to the terms of the contract and their interpretation.  I say this for the following reasons.

 

[105]     The findings by the trial judge on what the terms were are based on his findings of fact or mixed law and fact.  Those findings are reasonable and fully supported by the evidence.  To the extent that the findings as to Kimball’s subjective belief or Einarsson’s state of knowledge are inconsistent with the judge’s earlier findings, they are not relevant to the earlier determinations, since the subjective views by a party about the terms and their meanings only play a limited role in the judicial determination of contractual interpretation. (See Indian Molybdenum Ltd. v. Canada, [1951] 3 D.L.R. 497 (S.C.C.); Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129).  It is well to remember that the goal of contractual interpretation is to ascertain the reasonable intention of the parties on an objective basis from the words of the contract and the circumstances at the time it was entered into (see Wetterberg v. Merks Poultry Farms Ltd., 2009 NSCA 70, at para. 20-22).   

 

[106]     On the other hand, in considering if SMS defrauded GSI, the subjective state of mind of the principals was front and centre.  The key issues the trial judge had to be satisfied on were that Matthew Kimball knew the invoices were not in accord with the contract, and that Davey Einarsson relied on the implicit representations contained in the invoices that the amount was calculated in accordance with the contract between SMS and GSI when he approved payment – or, in other words, he was unaware that he was being billed at anything more than actual payroll costs being incurred by SMS for the crew plus 5%.  On these two issues, the trial judge appears to have given the benefit of the doubt to SMS and Mr. Kimball, but that does not alter his conclusion as the terms of the actual contract. 

 

[107]     I would not give effect to any of the appellants’ complaints.

 

LEGAL ERRORS

 

[108]     The appellants identify in their grounds of appeal a host of what they label as being legal errors.  Of course, a trial judge must be correct on issues of law.  However, many of the claimed legal errors cannot be classed as such at all.  Some have already been dealt with.  The remaining ones are that the trial judge erred in law in rejecting the expert evidence of Gary MacKenzie; misapprehended the law in relation to “cost plus contracts”, and in relation to fraud; and erred in not admitting evidence respecting industry standards.

 

[109]     The claim that the trial judge erred in rejecting Gary MacKenzie’s expert evidence is not a question of law.  Mr. MacKenzie provided an expert’s report.  He was qualified to give expert opinion evidence in his field of accounting.  However, it was then up to the trial judge to assess that evidence.  He did so and found it wanting.  The trial judge clearly understood the purpose of the evidence and found it unconvincing.  He expressed his views as follows:

 

[116]    Mr. MacKenzie’s analysis was shown to be seriously flawed in cross‑examination.  I found it to be unreliable.  It was not based on reliable information respecting expenses, and, equally significantly, it did not include all income to SMS from GSI.  The purpose of his evidence was to establish, as extrinsic evidence, the issue raised in Consolidated‑Bathurst Export v. Mutual Boiler and Machinery Insurance, [1980] 1 SCR 888, adopted in Eli Lilly, to the effect that it would be absurd to adopt as the proper interpretation of an agreement, an interpretation which is clearly inconsistent with the commercial interests of the parties.  MacKenzie’s evidence, considered with the benefit of cross‑examination, the KPMG report, and the totality of the evidence, does not establish that SMS make an improvident deal.

 

[110]     I fail to see any error by the trial judge, legal or otherwise.

 

[111]     The appellant says the trial judge misapprehended the law in relation to cost plus contracts because the basis of such contracts is that the contractor is to make a profit – the vendor’s cost plus some amount, percentage or other consideration, and SMS could not or did not make a profit merely on the basis of cost plus 5%.  This argument by the appellant has no merit.  The appellants fail to identify any mis-statement of the appropriate legal principles.  Instead they simply assert the trial judge erred in his conclusion that the arrangement between SMS and GSI was a cost plus contract.  That conclusion is one of mixed fact and law.  Absent an extractable legal error, it can only be disturbed where the trial judge has made a palpable and overriding error.  I see neither.

 

[112]     The appellants’ assertions of error in relation to fraud include the suggestion of misapprehending the law, and by finding the elements of fraud had been established by the evidence at trial, and a claim the finding of fraud cannot stand in light of the result in the Anton Piller application where fraud was not established. 

 

[113]     The trial judge cited the authorities referred to by the parties with respect to the law of fraud.  The appellant does not in its factum or oral argument identify what they say is the misapprehension by the trial judge as to the law of fraud, including the elements of fraud that needed to be established by the respondent.  Instead they simply submit “ the trial judge erred in finding that the elements of fraud had been established by the evidence adduced at trial.”  Whether fraud had been established by the evidence is a question of mixed law and fact.  The appellants have failed to identify any error in law in the analysis by the trial judge, nor in my opinion, have they identified any palpable and overriding error in the finding by the trial judge that Matthew Kimball, and hence SMS, knew there was no legitimate basis to charge GSI for relatives that were not seismic crew; for some navigators working under the Abbott contract; for Kimball’s own wages; nor the additional markup of 6%. 

 

[114]     Similar to earlier arguments, the appellants wish to re-argue the case and have this Court substitute a different view of the facts and disagree with the findings of the trial judge.  Their submissions identify certain aspects of evidence not referred to by the trial judge.  Individual pieces of evidence rarely can dictate outcome.  Usually it is the totality of the evidence.  It is correct that the trial judge did not specifically refer to some of the evidence the appellants say was important.  These same pieces of evidence were argued at trial.  As noted earlier, merely because the trial judge did not specifically discuss certain pieces of evidence does not equate to reversible error.  I am not convinced the trial judge committed any palpable and overriding error in his finding that GSI had been defrauded.

 

[115]     The appellants made no submissions on the notion that a finding of fraud was somehow precluded by an absence of such a finding at the Anton Piller application. There is patently no merit in this ground.  The application judge who heard the application by SMS to set aside the Anton Piller Order was not asked to make a finding of fraud (2003 NSSC 73), and the evidence at trial was far more substantial than available for that interlocutory hearing.

 

 

[116]     Admissibility of evidence is a question of law.  A trial judge must be correct in his or her identification and application of the law on the admissibility of evidence,  but deference is afforded to trial judges with respect to issues such as discretionary rulings or factual findings that may impact on ultimate admissibility (see R. v. West, 2010 NSCA 16).  Here the appellants say the trial judge erred in law in failing to permit them to adduce evidence respecting industry standards.  They make no submissions in their factum or orally as to how they say the trial judge erred. 

 

[117]     I have nonetheless reviewed the submissions made at trial concerning this issue and the oral decision by the trial judge refusing admission.  I have also had the benefit of submissions from the respondent.  I agree with the essence of the respondent’s submissions.  I fail to see any error in the conclusion of the trial judge that the proposed evidence on industry standards did not meet the threshold for use as extrinsic evidence to interpret a contractual term; and that the appellants had only disclosed the existence of the three purported experts on the eve of trial.

 

OTHER ERRORS

 

[118]     The appellant claims that the trial judge erred in dismissing their counterclaim for profit sharing, and in his assessment of damages. 

 

[119]     The counterclaim by the appellant was based on there being an agreement between SMS and GSI to profit share, but without a specific formula.  Without such a formula it requested the trial judge to award damages for breach based on quantum meruit.  The trial judge reviewed the principles of contractual interpretation and concluded there was only “an agreement to agree” on profit sharing and as such it was unenforceable.  With respect to quantum meruit, the trial judge also found there was no basis upon which it applied.  He concluded:

 

[201]    The principle of quantum meruit applies where the Court finds that services were provided on the basis of a firm promise, or an agreement to pay has been made, but the amount agreed to be paid has not been determined.  In my view, it has no application in the circumstances of this case because there is no evidence of services being provided in reliance upon a success sharing plan, or that any more than an “agreement to agree” had been entered into with respect to success sharing, and the essential terms of the plan had not been agreed to.

 

[120]     The appellants do not challenge the articulation or application of the principles of contractual interpretation that lead the judge to find no enforceable agreement; nor about quantum meruit.  Instead, they frame their argument that the trial judge erred in dismissing the counterclaim because he ignored, misapplied, misapprehended or forgot the expert evidence of Karen Kluska. 

 

[121]     This ground of appeal is legally and factually without merit.  Legally, because Ms. Kluska’s evidence about the profitability of GSI is irrelevant in the absence of an enforceable agreement to profit share.  The finding of the trial judge that there was no such agreement is unchallenged.  Factually, because the trial judge did review the report and evidence of Ms. Kluska along with other evidence (paras. 198-200); and was not satisfied that GSI was “in a profit position” as of October 2002 when Mr. Kimball terminated all agreements with GSI.  I would therefore dismiss this ground of appeal.

 

[122]     The complaint by the appellant about the assessment of damages by the trial judge is a narrow one.  They take no issue with the methodology or calculation of the award of $1,764,251.70 for breach of contract.  The sole complaint is in relation to the joint and several award against SMS and Matthew Kimball of $451,885.41 for fraud.

 

[123]     As to the standard of review when considering an appeal from a trial judge’s award of damages, the award will not be disturbed unless we are satisfied that the judge applied a wrong principle of law, reached conclusions for which there was no evidence or set an amount so inordinately high or low as to be a wholly erroneous estimate (see 2703203 Manitoba Inc. v. Parks, 2007 NSCA 36 at para. 76; Purdy Estate v. Morash, 2011 NSCA 123 at para. 13). 

 

[124]     The appellants do not identify any claimed error in legal principle.  They make the broad claim that the trial judge ignored, misapplied, misapprehended or forgot critical evidence, came to patently wrong conclusions, and made mathematical errors. 

 

[125]     The correct approach to assessment of damages for fraud is quite uncontroversial.  The award of damages is to put the respondent in the same position as if the deceit or fraud had not been committed (see Huff v. Price (1990), 76 D.L.R. (4th) 138).  Fridman, G.H.L., in The Law of Contract in Canada (5^th ed.) (Toronto:  Carswell, 2006) sets out the following (pp. 293-4):

 

Fraud has effects both at common law and in equity, and gives rise to remedies under the law of tort and the law of contract.  A fraudulent misrepresentation amounts to the tort of deceit, for which the injured party will receive damages from the misrepresentor.  A contract induced by fraud is voidable at the election of the defrauded party.  It is not void ab initio; it is liable to be upset.  Rescission may be granted.  But the equitable remedy of rescission is discretionary.

 

Damages may be awarded as well as rescission.  Such damages will be calculated on the basis of the loss suffered through the deceit, so as to put the injured party into the position he would have been in had the fraud not occurred.                                                   [Emphasis added]

 

[126]     GSI claimed at trial that it was defrauded in the amount of everything billed by SMS in excess of actual wages and actual benefits plus 5%.  The trial judge found the crew invoices submitted by Matthew Kimball and SMS, to the extent that they were based on actual wages plus 30% plus 5%, were not fraudulent.  Anything beyond that amount he found to be fraud.  This included those invoices which claimed for persons other than seismic crew, such as family members, navigators being paid separately by GSI, markup on Matthew Kimball’s own wages, as well as the undisclosed markup of 6% (paras. 159, 164).  The trial judge expressed his difficulty in trying to quantify damages.  He said:

 

[163]    I have struggled to quantify the amount of over billing that was fraudulent.  The oral evidence of Matthew Kimball was not reliable. SMS’s original worksheets and back up documents are “gone”. The only reliable evidence is contained in the KPMG analysis, but it alone does not provide a complete picture of what portion of SMS’s crewing invoices were other than for the actual wages of the crew members named in each invoice, plus 30%.

 

[127]     To the extent that the appellants complain that the trial judge ignored, misapprehended or forgot evidence, I see no basis whatsoever to interfere.  The appellants again ask this Court to disagree or change the factual findings of the trial judge and recalculate damages to accord with its view of what the evidence of Matthew Kimball, Merle Carr and Davey Einarsson established.  That is not our function.

 

[128]     One of the issues raised by the appellants is that the trial judge referred to Ms. DeCoste’s salary as being included in the total undisclosed payments of $87,531.68 to relatives.  In my opinion, the error is one of semantics.  Ms. DeCoste is not a relative, but that does not change the fact that for specific periods of time, her salary was billed to the respondent without her name appearing on the crew invoice.  I also see no basis to interfere with the trial judge’s decision to award damages for fraud by virtue of SMS billing for navigators in the crew invoices who were also being paid under a separate invoice from Abbott Contracting Ltd.

 

[129]     The appellants do make one submission about the calculation of damages for fraud that is worthy of closer scrutiny.  The trial judge did not have the benefit of an evidentiary hearing or submissions on the best way to tease out from the documents, including the KPMG report of Mary Jane Andrews, the information to best inform his calculation of damages for fraud based on his findings as to liability.  The trial judge did extract the information on the over-billing for people that were not crew, including Matthew Kimball’s relatives, Darlene DeCoste, and navigation crew from the Andrews report.  He also relied on information from that report to calculate what he found to have been a fraudulent billing of an additional 6% on the crew invoices.  Having reviewed the approaches available to the trial judge, I am not convinced that in light of all of the circumstances, it is appropriate to change the award of damages for fraud.  Let me explain.

 

[130]     In calculating the undisclosed 6% markup on the crew invoices, the trial judge examined the Andrews report and relied on her calculations of what the 5% markup was for each of the three periods that SMS submitted crew invoices:  the first Rieber/GSI joint venture from 1998-99; the second Rieber/GSI joint venture in 2000; and when GSI leased or owned its own vessels in 2001 and 2002.  The 5% markup for all three periods, according to the Andrews Report, came to $216,252.24.  The trial judge then multiplied that amount by 5 and divided by 6 to arrive at a hypothetical 6% markup of $259,502.68.  There are a number of problems with this approach.  Some favour the appellants.  Others do not.

 

[131]     The issue stressed by the appellants is that the only evidence that an undisclosed markup of 6% was ever applied to any invoice came from Matthew Kimball.  His evidence was that 6% was only applied to the invoices submitted during the Rieber/GSI joint ventures.  There was no evidence he did so in 2001 and 2002.  Employing the same methodology used by the trial judge would reduce the undisclosed 6% markup on the joint ventures invoices to $138,222.32.

 

[132]     However, in my respectful opinion, the trial judge made a number of other errors in his attempt to calculate the damages for fraud based on the notional addition by Matthew Kimball of the additional 6%.  One of them is the trial judge’s calculation of the 6% markup is based on the KPMG computation of what should have been the 5% markup.  The 5% markup calculated by KPMG relied on actual wages plus actual benefits plus 5%.

 

[133]     The invoices submitted by SMS, according to Matthew Kimball, were actual wages plus 30% plus 6% plus 5% during the Rieber/GSI joint ventures; and actual wages plus 30%, plus 5% in 2001 and 2002.  The trial judge did not use the KPMG schedules that show actual wages, add 30%, and then add 6% of that amount.  In my opinion, if an attempt is going to be made to try to calculate what Matthew Kimball said he did, then the better approach would be to determine what is 30% of actual wages for the invoices submitted in the two joint ventures, and take 6% of that number.  This comes to $159,423.24 for the first joint venture ($2,043,887 @ 30% = $613,166 plus $2,043,887 = $2,657,054 @ 6% = $159,423.24); and $42,170.23 ($540,644 @ 30% = $162,193 plus $540,644 = $702,837 @ 6% = $42,170.23) for the second joint venture, for a total fraudulent billing of $201,593.47 based on a notional 6% undisclosed markup on actual wages plus 30%.

 

[134]     This amount should then be added to other over-billed amounts teased out of the documentation by the trial judge for “relatives” and for the billing of navigators as seismic crew.  Leaving aside the calculated value $87,531 for “relatives”, the trial judge referred to Schedule 33 of the KPMG report for the value of $104,851.04 for the undisclosed billing of navigators as seismic crew.  However, it is clear that this amount only refers to the joint venture of 1998-99 (page 2 of Schedule 33, and reproduced on Schedule 13 for the 1998-99 joint venture).  What should also be included are the amounts billed for the navigators as seismic crew for the 2000 joint venture and for the later years.  These numbers are clearly set out in the KPMG report Schedule 33, and summarized in Schedule 18 and 24 as $75,189.86 and $37,302.36 respectively.  It is important to emphasize that the appellants agreed at trial with the accuracy of the calculations set out in the KPMG report.

 

[135]     This would then bring the calculation of damages for fraud to $506,468.42.  But this approach clearly under calculates the true amount of the fraud since Kimball said that, on top of all amounts in the crew invoices submitted and paid, he added another 5%.  Five per cent is not a legitimate fee to charge on the fraudulent billings included in the invoices.  It would also not have been paid had GSI known of the true state of affairs.  An additional 5% would add $25,323.42, bringing the total to $531,791.84.

 

[136]     As already noted, the ultimate goal of the award is to put the victim in the same position he was in if the fraud had not occurred.  The trial judge found, on a balance of probabilities, that GSI was defrauded by SMS over-billing for undisclosed non seismic crew, navigators already being paid, and the additional 6%.  The difficulty in arriving at a precise amount is because the appellants have insisted that they have no means of showing how any invoice was calculated.  As pointed out in Huff v. Price, supra, precision in calculating damages may not be required (pp. 149-150):

 

...Once the fraud or breach of fiduciary duty is shown, then the court assessing damages will not be exacting in requiring proof of the precise loss in circumstances where all reasonable efforts have been made by the plaintiff to establish the amount of the loss and the cause of the loss. The burden of leading the evidence to disprove the amount of the loss and the cause of the loss will then fall on the defendant who has been found to have been fraudulent or in breach of fiduciary duty. Reference should be made to Howard v. Cunliffe (1973), 36 D.L.R. (3d) 212 (B.C.C.A.); Jacks v. Davis (1982), 141 D.L.R. (3d) 355, 22 C.C.L.T. 266, [1983] 1 W.W.R. 327 (B.C.C.A.), particularly at pp. 360-1; London Loan & Savings Co. of Canada v. Brickenden, [1934] 3 D.L.R. 465, [1934] 2 W.W.R. 545 (P.C.), particularly at pp. 469-70; Ruxton and Ruxton v. Kelly, Peters & Associates Ltd., [1985] 1 W.W.R. 66, 58 B.C.L.R. 317 (S.C.), and Diack v. Bardsley (1983), 25 C.C.L.T. 159, 40 B.C.L.R. 240 (S.C.).

 

[137]     The trial judge clearly found the evidence of Matthew Kimball not to be credible.  It is only his evidence that suggests any system of billing invoices, but then claims no backup documentation or present ability to demonstrate how even one invoice matches that system.  The trial judge found that the respondent was billed and paid $1,764,251.70 beyond the terms of the contractual arrangements.   This was the figure calculated by the KPMG report most favourable to the appellants.  Since the trial judge found that Kimball believed he was entitled to have SMS bill at actual wages plus 30% plus 5%, it is only those amounts in excess of this figure that are fraudulent, which would include the undisclosed billings for relatives and double billing for navigation crew.

 

[138]     Rather than try to tease this information out of the various documents and evidence, it seems to me that a legitimate approach to determine how much of the total over-billing was fraudulent would be to simply take actual wages as calculated by KPMG, add 30% and 5% and subtract from the total amount billed for crew.  What is left must be the amount that includes any 6% markup, plus the undisclosed billing for relatives and double billing for navigation crew.  This amount represents what GSI would have paid had they not been deceived by the representation that the “cost” being invoiced was wages plus 30% plus 5%.  The following table illustrates this approach.

 

 

 

 

 

[139]     As demonstrated, the fraudulent over-billing could be as high as $1,091,394.13 for all three billing periods ($589,887.40 plus $311,523.26 plus $189,983.47).  I recognize that this approach is not without its own problems.  For example, included in the crew costs as invoiced are significant amounts billed by SMS to GSI to pay ATO (accumulated time off).  For the joint ventures alone this would amount to $202,867.  It is not possible without further evidence and submissions to understand precisely how much ATO was billed GSI for 2001.  One reference in the KPMG report has it at its highest, $309,447.  There is no evidence that the amounts invoiced for ATO were fraudulently increased.  If they were not, the amounts billed for ATO should be deducted from the crew costs as invoiced.  By this method, the fraudulent over-billing would amount to $579,080 ($1,091,394 less total ATO billed of $202,867 and $309,447).  Nonetheless, this exercise demonstrates that the damage award for fraud in the amount of $451,885.41 may not be entirely accurate for the reasons already set out earlier; but it is not inordinately high.

 

[140]     The respondent has not cross-appealed.  In my opinion, absent a cross-appeal, it would be inappropriate to increase the damage award for fraud.  The damage award arrived at by the trial judge may not be completely reconcilable with all of the evidence, causing him to miscalculate the amount.  If I were to correct the errors by the trial judge, the award would be higher.  In these circumstances, I am certainly not prepared to reduce the amount of damages for fraud.

 

 

[141]     I would therefore dismiss this and all grounds of appeal and award costs to the respondent.  Costs at trial were just over $400,000.  Despite the complexity of the appeal, the parties recognize that an award 40% of that amount would be $160,000, and would over compensate the respondent for its involvement in the appeal.  In my opinion, an award of $32,500, inclusive of disbursements, would be appropriate.

 

 

 

Beveridge, J.A.

 

 

Concurred in:

 

MacDonald, C.J.N.S.

 

Fichaud, J.