Oswald v. Start Up SRL

2020 BCSC 1730 Oswald v. Start Up SRL

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Oswald v. Start Up SRL, 2020 BCSC 1730 Date: 20201116 Docket: S166959 Registry: Vancouver Between: Nevil Oswald Plaintiff And Start Up SRL Defendant And Narendra Mhamunkar and Nevil Oswald Defendants by Counterclaim Before: The Honourable Mr. Justice Giaschi Reasons for Judgment Counsel for Plaintiff and Defendant by Counterclaim, Nevil Oswald: K. McEwan, Q.C. E. Aitken Counsel for Defendant: T. Tomchak Y. Li-Reilly T. Miller Counsel for Defendant by Counterclaim, Narendra Mhamunkar: A. Morrison Place and Date of Trial/Hearing: Vancouver, B.C. June 3 -7, 10-14, 17 & 18, 2019 October 25, 2019 March 2-4, and May 13-14, 2020 Place and Date of Judgment: Vancouver, B.C. November 16, 2020 Table of Contents Introduction. 4 Credibility. 5 Facts and Evidence. 9 The Parties. 9 ICTC and its Subsidiaries. 10 Marketing of ICTC Shares. 12 Mr. Sacchet Purchases the Traub and Balmer Shares. 13 The MOU. 16 Post MOU Events. 26 The Reorganization. 29 Mr. Oswald's Resignation. 30 Tax Assessments, Financial Mismanagement and Investigations. 34 Issues. 38 Analysis. 38 Is the MOU an Enforceable Contract?. 38 Applicable Principles. 38 Onus and Burden of Proof 44 Synthesis of the Law on the Onus and Burden of Proof 46 Discussion. 47 Was there an Intention to Contract?. 47 The Wording of the MOU. 48 The Conduct of the Parties Leading up to Signing the

MOU. 49 The Conduct of the Parties Following Signing the MOU. 49 Conclusion on the Intention to Contract 51 What Are the Terms of the Contract and Are they Sufficiently Certain?. 51 Is the MOU Unenforceable as Being Merely an Agreement to Agree?. 56 Was there Consideration?. 57 Did Start Up Breach the MOU?. 58 Is Start Up Entitled to the Remedy of Rescission Based on Misrepresentation?. 58 Pleadings and Submissions. 58 Legal Principles Applicable to Rescission. 61 Discussion of Rescission. 63 Were There Misrepresentations?. 64 Tax Liabilities. 64 Provident Fund. 75 Bribes and the Jai Mata purchase. 78 Fixed Assets and Inventory. 85 Loss on Receivables and Advances. 87 Wrong Assigned Costs. 89 Materiality. 89 Did Mr. Oswald and Mr. Mhamunkar Make the Representations?. 91 Reliance. 93 Conclusions on Rescission. 96 The Counterclaim.. 97 Is Specific Performance the appropriate remedy?. 97 Order. 98 Introduction [1] The plaintiff, Nevil Oswald, was the Managing Director of Hero Products India Private Limited ("Hero India"), and a director of Hero India. He was also a shareholder of ICTC Holdings Corporation ("ICTC"), the parent company of Hero India. [2] Mr. Oswald claims that he entered into a contract with the defendant, Start Up SRL ("Start Up"), also a shareholder of ICTC, which obligated Start Up to purchase shares held by him in ICTC at a price of $3,109,368. The shares

included shares legally and beneficially owned by him as well as shares held by him in trust on behalf of the defendant by counterclaim, Narendra Mhamunkar. [3] Mr. Oswald and Mr. Mhamunkar say the contract is contained in a document entitled Memorandum of Understanding, dated July 11, 2015 (the "MOU"). They seek specific performance of the contract. Start Up denies that the MOU is an enforceable contract. In summary, Start Up says there was no intention to contract, that the MOU was merely an agreement to agree, and that in any event, the terms of the MOU are too uncertain to render it a binding agreement. [4] In the alternative, Start Up says that it is entitled to an order of rescission on the grounds of misrepresentation. In essence, Start Up says: a) that the December 31, 2014 Financial Statement of Hero India misrepresented the financial health and profitability of Hero India; b) that these misrepresentations carried over to the Consolidated Financial Statements of ICTC; c) that the misrepresentations resulted in the EBITDA (earnings before interest, taxes, depreciation and amortization) of ICTC being overstated; and d) ultimately, that these misrepresentations resulted in a significant overvaluation of the shares in ICTC as of January and July 2015. [5] Start Up says that the December 31, 2014 Financial Statement of Hero India did not accurately reflect the tax

liabilities and Provident Fund[1] dues owed by Hero India, and that it misreported the assets, inventories, collectibles and receivables of Hero India. Start Up also pleads that Mr. Oswald and Mr. Mhamunkar failed to advise it of these issues prior to July 2015. [6] Start Up also has a counterclaim against Mr. Oswald and Mr. Mhamunkar in which it alleges the aforesaid misrepresentations were made fraudulently or negligently. It says that as a consequence of the misrepresentations, it purchased shares in ICTC from other shareholders at a value in excess of the true value of the shares. It seeks damages for the excess amount it paid. [7] There is also a counterclaim by Mr. Mhamunkar against Start Up for specific performance of the contract contained in the MOU. The counterclaim by Mr. Mhamunkar is mostly duplicative of the notice of civil claim of Mr. Oswald. [8] For the reasons set out below, I am of the view that the claim of Mr. Oswald and the counterclaim of Mr. Mhamunkar must succeed and that the counterclaim of Start Up must be dismissed. The parties intended the MOU to be a binding agreement and its terms obligated Start Up to purchase the shares in ICTC held by Mr. Oswald, including those shares held in trust for Mr. Mhamunkar, for a total price of $3,109,368. Further, Start Up has failed to prove on a balance of probabilities that Mr. Oswald and Mr. Mhamunkar

misrepresented the financial circumstances of Hero India or ICTC. Credibility [9] Before addressing the facts and evidence, I summarize my findings concerning the credibility of the main witnesses who testified. Those witnesses were Mr. Anthony Traub, Mr. Oswald and Mr. Mhamunkar for the plaintiff and Mr. Alessandro Sacchet and Mr. Garbriele Rinero for Start Up. [10] Mr. Traub was a majority shareholder in ICTC. He had no personal interest in the outcome of this litigation. He gave his evidence in a clear, consistent and careful manner. He readily acknowledged when he could not recall matters and he did not speculate about things that were beyond his personal knowledge. I found him to be a credible and reliable witness. [11] I also found the plaintiff, Mr. Oswald, to be reliable and credible. Contrary to the submissions of Start Up, I found his evidence was mostly consistent throughout and largely corroborated by contemporaneous documents. He was not evasive when under cross-examination. He had a reasonably good recollection of what transpired. Although he was sometimes confused or unsure about the exact sequence of events, he was quick to advise or acknowledge when he did not have a good recollection. Any inconsistencies between his evidence and the pleadings did not detract from my overall assessment of his credibility. [12] I also found the defendant by counterclaim, Mr.

Mhamunkar, to be credible and reliable. Start Up submits that Mr. Mhamunkar's evidence was inconsistent with his pleading, inconsistent with his discovery evidence, and inconsistent with the contemporaneous documents. Start Up also submits that at times his evidence was simply not believable. I do not agree. [13] The alleged inconsistency between Mr. Mhamunkar's pleading and his evidence related to whether the prices paid by Start Up for the shares of Mr. Traub and Mr. Balmer, other shareholders of ICTC, were based on a multiple of the EBITDA of ICTC. Mr. Mhamunkar had no involvement in the discussions or negotiations leading to the sale of the Traub and Balmer shares and admitted that he had no personal knowledge of how the purchase prices were arrived at. This does not detract from his credibility. [14] The inconsistencies alleged to exist between Mr. Mhamunkar's discovery evidence and trial evidence were either in relation to minor collateral matters, or there was not a clear inconsistency demonstrated. Additionally, his evidence was for the most part consistent with the documents. Finally, I did not find his evidence to have been unbelievable. To the contrary, I found him to be a credible and reliable witness. [15] Mr. Sacchet is the majority shareholder and directing mind of Start Up. I did not find him to be particularly credible or reliable. Most importantly, in my view,

he attempted to colour or manipulate his evidence. The most blatant example of this was in relation to the basis of the price paid for the Traub and Balmer shares. Mr. Sacchet testified during his examination in chief that it was agreed between him and Mr. Traub that the price was to be 6.5 times EBITDA plus a bonus of $1 million. This evidence was consistent with Start Up's pleadings and with its general theory of the case. However, it was directly contradicted by Mr. Traub who testified that he never discussed EBITDA or multiples of EBITDA with Mr. Sacchet in relation to the sale of his shares, and that there was no formula used to determine the price. Moreover, in cross-examination Mr. Sacchet eventually acknowledged that there was no formula and that Mr. Traub had never said the price was 6.5 times EBITDA. [16] There were other problems with Mr. Sacchet's evidence, including that he was frequently evasive when answering questions during cross-examination, his evidence was at times inconsistent, he failed to make appropriate and reasonable concessions, and at times he gave evidence that was clearly false. Examples include: a) At his examination for discovery he testified that the purpose of the MOU was to address Mr. Oswald's concerns about his position once Start Up gained control of the majority of the shares in ICTC and to ensure that those concerns did not materialize.

At trial, he attempted to resile from this evidence; b) When asked if he authorized the sending of an October 2016 letter to customers of Hero India, advising them of criminal misconduct by Mr. Oswald and Mr. Mhamunkar, he refused to directly confirm he authorized the letter but evasively replied that he was aware the letter was sent; c) He gave inconsistent answers as to the extent that he considered the reported EBITDA of ICTC was "engineered". At times he said it was just in relation to salaries and that he knew the amount that it had been inflated whereas, at other times, he said he did not know the extent of the engineering; d) He testified that he received regular updates from lawyers in India regarding a criminal complaint made against Mr. Oswald and Mr. Mhamunkar. No documents corroborating any such updates were produced at trial and his evidence was, in any event, patently untrue since unbeknownst to him the criminal complaint had been dismissed; e) During his cross-examination, he initially refused to acknowledge that a Shareholders' Agreement remained valid and enforceable by Mr. Oswald as of July 2015. He testified to a "common agreement" or "general understanding" that negated the need for complying with the Shareholders' Agreement. However, when confronted with an email from Mr. Oswald dated July 13, 2015, advising that Mr. Oswald would not release the other

shareholders from the Shareholders' Agreement, Mr. Sacchet relented and acknowledged the Shareholders' Agreement was still applicable; and f) When confronted with the fact that the list of uncollectible debts owed to Hero India (a component of the alleged misrepresentation) included sums owed by subsidiaries of ICTC, he refused to acknowledge that the inclusion of these companies in the list was in error. [17] Mr. Rinero, the Chief Financial Officer of Start Up, was wholly unreliable and not credible. He was not an uninterested witness. He was the representative of Start Up present throughout most of the trial and clearly considered that it was his job to do what was necessary to achieve a favourable result for Start Up. [18] Mr. Rinero prepared a spreadsheet of calculations purporting to show the financial impact of the various accounting and other issues that allegedly comprised the misrepresentation contained in the December 31, 2014 Financial Statement of Hero India, and ultimately on the EBITDA of ICTC. His spreadsheet contained multiple and patently obvious errors and exaggerations. He knowingly included amounts that had nothing to do with the 2014 fiscal year. He included other amounts which he knew had been revised or were otherwise incorrect. He simply made no effort to provide an accurate representation of the effects of the alleged misrepresentations. Additionally,

as I will address in more detail later in these reasons, he gave untruthful evidence about an alleged confession by Mr. Mhamunkar concerning the payment of bribes. [19] In view of my credibility findings, I generally prefer the evidence of Mr. Traub, Mr. Oswald, and Mr. Mhamunkar over that of Mr. Sacchet and Mr. Rinero. Facts and Evidence The Parties [20] The plaintiff, Mr. Oswald, is an Indian national and a resident of India. As indicated, he was the Managing Director of Hero India and was also a director of Hero India until October 5, 2015. [21] The defendant by counterclaim, Mr. Mhamunkar, is also an Indian national and a resident of India. He was an employee and director of Hero India until January 10, 2016. [22] The defendant, Start Up, is a corporation incorporated pursuant to the laws of Italy and with a registered office in Fossano, Italy. The majority shareholder and directing mind of Start Up is, and was at all material times, Mr. Sacchet. ICTC and its Subsidiaries [23] Mr. Oswald, Mr. Mhamunkar, and Start Up were, as of July 1, 2015, shareholders in ICTC. Other shareholders of ICTC were 6408788 Canada Corp. ("6408788"), a company controlled by Steve Balmer, and MGSL Corporation/The Traub Family Trust, a corporation and trust controlled by Anthony Traub. The respective shareholdings in ICTC immediately prior to July 2015 were as follows: · Start Up - 44,000 shares or

49.79%; · MGSL Corporation/The Traub Family Trust (the "Traub shares") - 24,075 shares or 27.25%; · 6408788 Canada Corp. (the "Balmer shares") - 12,437 shares or 14.07%; · Mr. Oswald - 7,458 shares or 8.44%; and · Mr. Oswald in trust for Mr. Mhamunkar - 392 shares or 0.44%. [24] All of the shareholders of ICTC executed a shareholders' agreement dated July 31, 2007 (the "Shareholders' Agreement"). Under that agreement, Mr. Mhamunkar agreed that his shares in ICTC would be registered in the name of Mr. Oswald as trustee. The purpose of this was to simplify share registration since Mr. Mhamunkar held such a small portion of the overall shares. [25] The Shareholders' Agreement also included various restrictions on transfers of shares. Clause 2.7 of the Shareholders' Agreement provided for a right of first offer. Essentially, subsequent to December 2010, any shareholder who wished to sell shares was required to deliver a Disposition Notice to the other shareholders, setting out the minimum price the selling shareholder would accept for the shares. The other shareholders then had 30 days to purchase the offered shares at the price offered. Clause 6.3 of the Shareholders' Agreement also included a shotgun clause that permitted Mr. Traub and Mr. Balmer, acting together, or Start Up, acting alone, to offer to buy all of the other shareholdings at a set price, but any such offer also had

to include an offer to sell the offeror's shares at the same price. [26] ICTC was the parent corporation of various subsidiaries, all of which were involved, to some degree, in the manufacturing, distribution, and marketing of painting equipment products including automatic and manual colourant dispensers, paint mixers and shakers. The products of the group were marketed and sold under the "Hero" brand name and the group was sometimes referred to by the witnesses as the "Hero Group" or simply the "Group". [27] The direct wholly owned subsidiaries of ICTC were: ICTC (Barbados) Holdings Corporation, a corporation incorporated pursuant to the laws of Barbados ("ICTC Barbados"); ICTC Holdings (WA) Corporation, a corporation incorporated pursuant to the laws of the state of Washington ("ICTC Washington"); and Seven Imports Ltd., a company incorporated pursuant to the laws of Brazil ("Seven Imports"). [28] ICTC also owned 5% of the shares of ICTC (Hungary) Holdings Limited Liability Company ("ICTC Hungary"). The balance of the shares in ICTC Hungary were owned by ICTC Barbados, which meant that ICTC owned directly and indirectly 100% of the shares of ICTC Hungary. ICTC Hungary in turn owned: · 100% of the shares of Hero Europe SRL, a company incorporated pursuant to the laws of ltaly ("Hero Europe"); · 100% of the shares of Hero India; and · 85% of the shares of Hero Sistemas

Tintometricos Ltda, Brasil, a company incorporated pursuant to the laws of Brazil ("Hero Brazil"); [29] The various direct and indirect subsidiaries of ICTC were each responsible for a distinct geographical area. Hero India was responsible for sales in India. Hero India was managed by Mr. Oswald. Hero Europe was responsible for sales in Europe. Mr. Sacchet managed the business and operations of Hero Europe. ICTC was responsible for sales in Canada. Hero Brazil was responsible for sales in South America. [30] Hero India and Start Up initially joined the Hero Group in 2007. [31] Subsequent to 2007, ICTC did extremely well financially. The various shareholders all got along well and the company experienced continual growth in revenues. Marketing of ICTC Shares [32] In approximately 2012, Mr. Balmer expressed an interest in selling the Balmer shares in ICTC. This resulted in a discussion among the shareholders about getting liquidity out of the company, and ultimately led to a meeting with Canaccord Genuity Group Inc. ("Canaccord") to seek out potential buyers. [33] Canaccord received several expressions of interest from potential buyers, including one from Graco Inc. ("Graco"), dated October 19, 2012. Graco offered, on a non-binding basis, $56 million for the company. Mr. Traub favoured a sale to Graco since it was an industrial company as opposed to an equity company and he

considered their offer to be a good offer. He had many discussions with Graco and thought the sale was a done deal. However, at a meeting held in Vancouver between the shareholders of ICTC and representatives of Graco, Graco asked very specific questions about the auto dispenser technology of ICTC, which had been brought to ICTC by Start Up. Mr. Sacchet was concerned about providing proprietary technology to Graco and told the Graco representatives that the details of the auto dispenser technology could not be provided to them until there was a firm deal. This was unacceptable to Graco and they walked out of the meeting. [34] There were no further developments in relation to a sale of ICTC until 2014 when Canaccord was again retained. This time Canaccord found a potential buyer in EGADS Capital Partners ("EGADS"). EGADS offered $70 million for the company expressed on a total enterprise value basis. The offer involved the existing shareholders retaining approximately $4 million in equity in the company and giving a $10 million vendor take-back mortgage. The EGADS offer did not proceed. Based on the emails passing between the parties at the time and the evidence of Mr. Traub, I find that the EGADS offer did not proceed primarily because of objections raised by Mr. Sacchet. Mr. Sacchet Purchases the Traub and Balmer Shares [35] Following the failure of the EGADS offer, on

September 22, 2014, Mr. Sacchet submitted a "non-binding" offer to purchase the shares of Mr. Balmer, Mr. Traub and Mr. Oswald. The "non-binding" offer did not include the shares beneficially owned by Mr. Mhamunkar. The offered price was: $9.6 million for the Traub shares; $4.99 million for the Balmer shares; and $2.98 million for the Oswald shares. [36] It is noteworthy that the email to which the non-binding offer was attached also made reference to a reorganization of the Hero Group that Start Up intended to complete should it acquire the shares. [37] Mr. Traub considered the offer from Mr. Sacchet was too little and immediately responded by advising Mr. Sacchet that he would purchase Start Up's shares for the same value. Mr. Sacchet in turn responded that he was not interested in selling his shares. [38] On November 6, 2014, Mr. Sacchet sent a memo to the other shareholders advising that he would like to submit a letter of intent to purchase their shares but, before doing so, he requested confirmation that the parties agree to suspend the Shareholders' Agreement for a six month period. This was obviously intended to avoid the shotgun clause in the Shareholders' Agreement. [39] On November 18, 2014, Mr. Traub, unbeknownst to Mr. Sacchet, delivered a binding letter of intent to Mr. Balmer, Mr. Oswald and Mr. Mhamunkar offering to purchase their shares in ICTC. The offer was

in the amount of $3,460,523 for the Oswald shares and $181,876 for the Mhamunkar shares. [40] Mr. Sacchet did not learn of Mr. Traub's attempt to purchase the shares until November 26, 2014, when Mr. Oswald provided him with a copy of the letter of intent. Mr. Sacchet expressed his dismay to Mr. Traub in an email of the same date and told him that he considered it a breach of the Shareholders' Agreement. [41] Mr. Traub's attempt to buy the shares of the shareholders other than Start Up precipitated a breakdown in the relationship between Mr. Traub and Mr. Sacchet. Nevertheless, Mr. Sacchet continued his efforts to purchase the shares of Mr. Balmer and Mr. Traub. Mr. Oswald acted somewhat as a mediator between Mr. Sacchet and Mr. Traub. I note that Mr. Oswald was not particularly happy about being the go-between. In a May 11, 2015 email to Mr. Traub he stated, "I am unnecessarily putting my own relationship with all you guys on the block by making an attempt to find a solution". [42] On May 11, 2015, Mr. Traub advised Mr. Oswald by email that the total amount he would accept for his shares was $10,700,000. In addition, he would require repayment of a loan made by MGSL in the amount of $6,000,000. This information was conveyed to Mr. Sacchet by Mr. Oswald. On May 13, 2015, Mr. Oswald wrote to Mr. Traub advising him that his proposal was in principal acceptable to Mr. Sacchet,

although there were still some minor details to work out. Those details were eventually worked out and a final share purchase agreement between the two was ultimately executed on July 16, 2015, whereby all of the 24,075 Traub shares were sold to Start Up for $10,353,830 (or approximately $430.07 per share). [43] While Mr. Oswald was mediating between Mr. Traub and Mr. Sacchet, Mr. Balmer and Mr. Sacchet were themselves discussing the terms upon which Mr. Balmer would sell his shares. On May 21, 2015, Mr. Balmer gave a "Disposition Notice" or offer to sell his shares for $4,574,375 plus $351,875 in consideration for his remaining on as an employee for 2 years. A final share purchase agreement between Start Up and Balmer was also ultimately executed on July 16, 2015. Pursuant to this agreement, all of the 12,437 Balmer shares were sold to Start Up for a total consideration of $4,747,420 (or approximately $381.72 per share). [44] I note here that during his examination in chief, Mr. Sacchet testified that the prices for both the Traub and Balmer shares were based on a multiple of the EBITDA of ICTC. In respect of the Traub shares, he testified in-chief that the price was based upon a formula of 6.5 times EBITDA plus a bonus of $1 million. He specifically testified that this formula was agreed to between him and Mr. Traub. In respect of the price paid for the Balmer shares, he

testified in-chief that the price paid for these shares was also a multiple of EBITDA but he did not specify what the multiple was. [45] I reject the evidence of Mr. Sacchet that the prices paid for the Traub and Balmer shares were based on multiples of EBITDA. I reject his evidence for several reasons. First, Mr. Traub testified that he never discussed EBITDA or multiples of EBITDA with Mr. Sacchet in relation to the sale of his shares. Mr. Traub also testified that there was no formula used to determine the price of his shares. Mr. Traub has no interest in the outcome of this litigation and had no motivation to lie or misrepresent what occurred. [46] Second, Mr. Sacchet eventually acknowledged in cross-examination that there was no formula used to determine the price of the Traub shares and also acknowledged that Mr. Traub had never said the price was based on 6.5 times EBITDA. [47] Third, in an email dated September 23, 2014, to the other shareholders, Mr. Sacchet stated that the price he was offering was "based on recent share transactions plus a considerable premium". Importantly, he did not state in the email that the prices were based on EBITDA. [48] Fourth, Mr. Oswald also testified that Mr. Sacchet did not mention EBITDA as being the basis for the prices agreed on. [49] Finally, the contemporaneous documents do not indicate that the prices were calculated using a

formulaic multiple of EBITDA. [50] Accordingly, and contrary to evidence in chief of Mr. Sacchet, I find as a fact that the sale prices of the Traub and Balmer shares were not based on a formulaic multiple of EBITDA. The MOU [51] While the negotiations for the sale and purchase of the Traub and Balmer shares were progressing, Mr. Oswald and Mr. Sacchet began discussing the possible sale of the Oswald shares to Start Up, and the possibility of Mr. Oswald and Mr. Mhamunkar continuing with the Hero Group after Start Up gained control. Mr. Oswald specifically testified that during a skype call with Mr. Sacchet, he was told that Start Up would purchase his shares at a premium if he could get Mr. Traub and Mr. Balmer to the table at a price reflective of a value for the company of between $32 and $35 million. At that time, they did not discuss when or how that purchase would occur. [52] Mr. Oswald further testified that in late May 2015, once the Traub and Balmer deals had been essentially agreed to, he reminded Mr. Sacchet of his offer to pay a premium for his shares, and told him that the two of them now needed to discuss his situation. He testified to further discussions wherein Mr. Sacchet told him that he wanted Mr. Oswald and Mr. Mhamunkar to stay with the group, and he offered to increase their shareholdings. Mr. Oswald testified that Mr. Sacchet told him their shareholdings

could be increased to 25%. [53] On May 22, 2015, Mr. Sacchet sent Mr. Oswald various diagrams of possible reorganization scenarios that were being contemplated once he acquired the Traub and Balmer shares. Fulvio Bonelli, the accountant for Start Up, explained in his testimony that the diagrams were prepared by him and were intended to show how, through various transactions, the approximate 9% interest of Mr. Oswald and Mr. Mhamunkar in ICTC could eventually be converted to a 15% interest in the new parent company. Upon receipt of these diagrams, Mr. Oswald was concerned that his interest in the reorganized group was represented in the diagrams as being 15%, whereas he and Mr. Sacchet had discussed a 25% interest. [54] On May 23, 2015, Mr. Oswald sent an email to Mr. Sacchet asking for clarification as to why the presentation referred to his shareholdings as being only 15%. In a reply email, Mr. Sacchet clarified that the proposal was for Mr. Oswald to have a 20% interest now plus an additional 5% interest based on performance. [55] On June 6, 2015, Mr. Oswald wrote to Mr. Sacchet advising that he had spoken to his accountant and was told he would have to pay a 20% tax on the exchange of his shares for shares in the new parent company. Mr. Oswald expressed concern about this stating, "If that will be the case, I don't know how to proceed further". [56] On or about June 8 or 9,

2015, there was a skype meeting between Mr. Sacchet, Mr. Bonelli, Mr. Oswald and Mr. Oswald's accountant. According to Mr. Bonelli, the purpose of this meeting was to explain to Mr. Oswald and his accountant the reorganization and the fiscal sequences required to convert Mr. Oswald's shares in ICTC to a 20% interest in the new parent company. [57] On June 10, 2015, Mr. Oswald received tax advice advising, inter alia, that he would be required to pay capital gains and other taxes at an effective rate of 22.66%. On June 12, 2015, he wrote to Mr. Sacchet concerning the tax advice and advised that if there was no other option he would have to sell his shares: It is rather unfortunate, this situation and the thing is that I will paying the same amount of taxes on the same income whenever I exit from the company in the future. (double Tax) This will be sad & emotional for me but if there is no other option and I have to sell, then rest assured that you will have my full cooperation with APAC [Asia Pacific] as agreed between us. [58] On June 16, 2015, Mr. Oswald again wrote to Mr. Sacchet advising that the best course of action was for him and Mr. Mhamunkar to sell their shares at the same time as Mr. Traub and Mr. Balmer, as opposed to staying with the organization: This is with reference to our ongoing discussions & your verbal offer to pay 4MM Immediately + 1MM over 2 years, for

NO/NM/ our shares OR increase Nevil's & Narendra' s share from the present position to initially 20% and 5% more on mutually agreed performance parameters, up to 25%. Further to our on-going discussions on this subject and after sharing every detail with Narendra, getting advice from all quarters and after giving it a lot of thought I have to say with a heavy heart that given the tax situation it will be best for us to sell our shares along with Tony & Steve. The other reason in our mind (me & NM) was to let you rightfully have a full run of the company, and support you from outside so that you have no other interferences during your quest for growth & performance. Alessandro, Honestly speaking it was a really difficult decision to take, given your offer to increase our shares from the present 9% odd to 25%, it was simply gracious, we appreciate and thank you wholeheartedly for your generous gesture. As promised you will have our full co-operation during the transition period and after if required and who knows if COROB happens in that period and if you still wish, we may possibly buy in at that time at your terms. [Emphasis added.] [59] Mr. Sacchet acknowledged receiving the June 16, 2015 email from Mr. Oswald but continued to press Mr. Oswald to remain with the group. [60] At the end of June 2015, Mr. Oswald and Mr. Mhamunkar traveled to Italy to meet with Mr. Sacchet.

According to Mr. Oswald, Mr. Sacchet was keen to have him stay with the group and again told him that he would be given a 25% interest if he would stay. Mr. Sacchet testified that the main point of the June meeting was to explain the intended reorganization to Mr. Oswald and Mr. Mhamunkar and to discuss their future roles in the business, including their salaries and bonuses. Mr. Bonelli, who attended at least part of the meeting in June 2015, confirmed in his evidence that the meeting concerned the restructuring of the group and how to convert the Oswald shares into a 20% or 25% interest in the new parent company. [61] By early July 2015, Mr. Oswald had become concerned not only about the tax consequences that might apply to any disposition or conversion of his shares, but also by the fact that he did not have any binding agreement with Start Up. He was aware that following the purchases of the Traub and Balmer shares, which were to be completed on July 16, 2015, there would be a reorganization of the group and he would no longer have an ownership interest in the parent company. He testified that, in view of those concerns, he wanted a binding agreement with Start Up that his shares and the shares held by him in trust for Mr. Mhamunkar would be purchased by Start Up for at least the amount paid for the Balmer shares, if they could not agree on terms for him to stay with the

reorganized group. [62] Mr. Oswald expressed his concerns to Mr. Traub. Mr. Traub then wrote several emails on July 10, 2015. The first email was to Mr. Sacchet and copied to Mr. Oswald. It states, in part: Today I had a telephone call with Nevil who is concerned about his minority interest in ICTC. I am a director of ICTC and have fiduciary responsibilities towards all stakeholders. As a director, I cannot allow value to be taken away from any shareholder. Through the re-organization, I have not been informed as to how Nevil's approx. 9% will be protected. From what I have been following, with respect to the re-organization, Nevil will remain as a 9% shareholder of ICTC which will only own the NA division. The other 3 divisions will be 100% owned by Start Up. It appears to me that Nevil, through this re-organization will lose his entire value of the other 3 divisions. I assumed that you have come to terms with Nevil and have an agreement with him for his part of the worldwide enterprise into the future. Nevil informs me that you have n[o] such agreement. As a director I request that you provide me with your Agreement with Nevil so that I can determine if I and Steve have fulfilled our fiduciary responsibilities as a Directors. [63] Mr. Sacchet replied to this email stating: There is NO agreement between me and Nevil at this point in time. Whatever is going to happen (if

anything will...) between us as shareholders will happen starting a minute later you won't be anymore shareholder nor director of the company. [Emphasis added.] [64] A second July 10, 2015 email from Mr. Traub was addressed to Mr. Oswald, but copied to Mr. Sacchet. In this email Mr. Traub reported on a conversation he had had with Mr. Sacchet. It states: I had a conversation with Alessandro and Fulvio and while Alessandro agrees that the 2 of you have not agreed on a deal going forward he is willing to provide an agreement for either of the following, at your option: - Buy Nevil/Narendra at a value of 35mm and an employment agmt for 2 years OR - Allow Nevil/Narendra to retain their proportionate equity in HERO worldwide with a SHA to protect his minority position What Alessandro is not willing to do is to enter into a transaction with you which would see you exit immediately. I know option 2 could trigger some tax; however, there may be a way to structure something where you don't sell VCR and buy Hungary for a nominal value to put you in the same equity position you are in today which would bel 15.14% with Narendra and leave Start Up at 84.86%. [Emphasis added.] [65] I note that Mr. Sacchet admitted this email correctly summarized his conversation with Mr. Traub. It is also noteworthy that Mr. Sacchet replied to Mr. Oswald in respect of this email saying, "I'll give you a call

tomorrow morning to clarify, Please don't worry at all". [66] A third July 10, 2015 email of Mr. Traub was addressed to Mr. Sacchet and copied to Mr. Oswald. It states: Alessandro I have just spoken with Nevil and he has chosen to sell with Steve's deal and he will stay with a 2 year employment contract. His only condition, which is no different than what Steve is receiving, is to have his transaction close with mine and Steve's prior to any reorganization. Nevil C$2,954,098 payable C$2,363,278 on closing and C$295,410 per year for 2 years Narendra C$155,270 payable C$124,216 on closing and C$15,527 per year for 2 years This may delay closing for a day or two for which I am willing to accommodate. Please confirm that this is acceptable and we shall have Stuart start the SPA immediately. Once Stuart has a draft SPA Nevil confirms that his lawyer is available to immediately review so as not to delay closing. [Emphasis added.] [67] It is clear that as of July 10, 2015, Mr. Oswald's concerns about the reorganization had been conveyed to Mr. Sacchet. It is further clear that as of that date, there was no agreement between Mr. Sacchet and Mr. Oswald in relation to the terms upon which Mr. Oswald and Mr. Mhamunkar would stay with the reorganized group, or in relation to the sale of their shares. As of July 10, 2015, Mr. Sacchet wanted Mr. Oswald and Mr. Mhamunkar to stay with the

reorganized group and was not willing to discuss any other arrangement. Mr. Oswald, on the other hand, although willing to stay with the Group for a period of time, wanted to sell his shares at the same time as Mr. Balmer and Mr. Traub. [68] The next day, July 11, 2015, Mr. Sacchet and Mr. Oswald continued their discussions. Mr. Oswald's evidence, which I accept, was that Mr. Sacchet attempted to reassure him that everything would work out. However, Mr. Oswald advised Mr. Sacchet of his concerns about being a minority shareholder in the reorganized group. He expressly told Mr. Sacchet that he required a binding agreement from Start Up that it would purchase his shares for a minimum price. His evidence was that Mr. Sacchet said "okay" and that Mr. Oswald should have his lawyer draft something. Mr. Sacchet's evidence of these discussions, which I do not accept, was that the discussions centered on Mr. Oswald's role in the reorganized group. [69] Mr. Oswald's evidence of the July 11, 2015 discussions are reflected in and confirmed by emails dated July 11, 2015. The first email is from Mr. Oswald's lawyer to Mr. Oswald, with suggested wording for an email to Mr. Sacchet. Mr. Oswald then wrote two emails to Mr. Sacchet. In one email he simply forwarded his lawyer's email to Mr. Sacchet. In the other email he advised Mr. Sacchet that he had received a suggestion from his lawyer that

he would send, and he requested that Mr. Sacchet "go through it and it will give me some comfort if you agree to that". The text of the email from Mr. Oswald's lawyer that was forwarded to Mr. Sacchet was as follows: Dear ----, Further to our call a little while back, I have been advised by my lawyers that even if we cannot have an LOI in place prior to your closing the transaction with the Canadian shareholders, we can still execute a MOU or an LOI stating that we are negotiating my future role in the HERO business with the two options that are stated as below: In case we decide to stay back in the business, we have a choice or raising our shareholding to 25% in the Hungarian. This would be paid for by selling or leveraging our combined stake in the ICTC business. OR You would buy out our entire combined share at a value that is not lower than the value paid to the Canadian shareholders. I have been advised that signing such an LOI/LOU would not amount to you being in breach of any agreement with the Canadian. Please let me know, in case this is acceptable & I can send out a draft LOI/MOU for your signature within the next hour. Regards, NO/NM [70] Mr. Oswald's viva voce evidence that he and Mr. Sacchet reached agreement is confirmed by a July 11, 2015, email to Mr. Traub and Mr. Sacchet advising that Mr. Oswald and Mr. Sacchet had agreed to sign a binding letter of

intent: Tony, I have had detailed discussions with Alessandro today and we have agreed to sign a binding LOI immediately on him buying both your & Steve's shares in the company. [71] Mr. Oswald's viva voce evidence that he and Mr. Sacchet ultimately reached agreement is further confirmed by the fact that he also sent an email to Mr. Sacchet with a draft of the MOU on July 11, 2015: Here is a copy of the MOU as discussed and you can see that I have kept the first option to increase my holding up to 25% who knows maybe we will conclude at that ..... you have six months to make me comfortable. This will follow up with an LOI which we will sign asap on closing Monday/Tuesday. [72] The draft MOU attached to the email had substantially the same terms as the final MOU, except it did not include clause A(vi) which relates to responsibility for taxes. A second draft sent later that day included clause A(vi). [73] Mr. Sacchet signed and returned the MOU to Mr. Oswald. [74] I pause in my narrative to note that, at his examination for discovery, Mr. Sacchet agreed that the reason the MOU was entered into was to address the concerns of Mr. Oswald that Start Up's acquisition of the Traub and Balmer shares and the intended reorganization would be prejudicial to him. The following questions and answers from his examination for discovery were read into the evidence at trial: Q 517 Well, let me

go very slowly, sir, and you can listen both times. You were entering into a transaction with Mr. Traub and Mr. Balmer whereby your shareholding would be significantly increased; correct? A Yes. Q 518 Yes. You've used the word "apprehensive" so I will too. Mr. Oswald was apprehensive about the potential effect of that transaction on his interests; correct? A Yes. From the beginning Mr. Oswald was apprehensive, meaning also from the beginning of when he expressed concern of being a minority shareholder. So that just never changed. Q 519 Yes. And Mr. Traub had also expressed concern as a fiduciary that the transaction might be prejudicial to Mr. Oswald's interest? A Tony Mr. Traub expressed this thought, yes. Q 520 And those concerns, we'll call them apprehensions, were the context of why you entered into a memorandum of understanding; correct? A Exactly. Q 521 Exactly. It was to ensure that those concerns of prejudice didn't come true? A Exactly. [75] In cross-examination at trial, Mr. Sacchet was asked essentially the same questions but gave a very different answer to the final questions. At trial, during cross-examination, when asked if Mr. Oswald's concerns or apprehensions were the context for why the MOU was entered into, he replied they were not. Mr. Sacchet then proceeded to give a very long answer that suggested the main reason for the MOU was to ensure that Mr. Oswald

increased his shareholding and participation in the new reorganized group: Q And those concerns or apprehensions were the context of why you entered into the memorandum of understanding; correct? A No, it's not. The context in which we entered into the memorandum of understanding was because Nevil -- the two of us were always talking about staying together and growing together the company mainly --- and Nevil was elected to stay over there because his reason, the APAC reason was the one in which we were believing the most in term of growth of the company. So the real context, to come to your point, was that he wanted to be paid back of this future development of the company by being a part of the mother -- the holding company, increasing his shares. That was the main objective and the circumstance . [76] After giving this evidence, Mr. Sacchet was taken to his prior discovery evidence and agreed that the discovery evidence he gave was true. [77] I have set out the exact testimony of Mr. Sacchet as, in my view, his attempt to resile from his discovery evidence in relation to a critical point reflects very poorly on his credibility. This is but one example of Mr. Sacchet attempting to portray the discussions between him and Mr. Oswald as being solely concerned with the terms upon which Mr. Oswald and Mr. Mhamunkar would remain with the group, and that any purchase and sale of the

Oswald shares was always in connection with them remaining with the group. He conveniently forgot, ignored or minimized emails and discussions about a sale of their shares unconnected with their remaining with the group. [78] For the sake of clarity and completeness, I accept the evidence of Mr. Oswald and find as a fact that Mr. Oswald was concerned about Start Up acquiring the Traub and Balmer shares, and about the possible negative consequences that the planned reorganization of the group would have for him. I further accept and find as a fact that the purpose of the MOU was to address Mr. Oswald's concerns. [79] In reaching this finding, I have considered Mr. Sacchet's evidence that any deal with Mr. Oswald was always contingent upon Mr. Oswald remaining with the company. Mr. Traub's second and third emails sent July 10, 2015, could be viewed as corroborating this evidence. However, at best, those emails corroborate only that Mr. Oswald was considering staying with the group. The third email from Mr. Traub on July 10, 2015, suggests that there was to be a sale of the Oswald shares at the same time as the sale of the Balmer and Traub shares. In any event, I find that on July 11, 2015, Mr. Sacchet conceded to Mr. Oswald's request for a binding agreement that would require the shares of Mr. Oswald and Mr. Mhamunkar to be purchased by Start Up in the event that the parties

could not agree on the terms of the continued involvement of Mr. Oswald and Mr. Mhamunkar in the reorganized group. [80] The MOU that was executed on July 11, 2015, defined Start Up as the first party and Mr. Oswald and Mr. Mhamunkar as the second party. The MOU contains two options: "option A" and "option B." It provides as follows: This Memorandum of Understanding (MOU) sets for the terms and understanding between the First & Second party to define the terms and obligations of the First Party towards the transaction defined as below; Background The first party & second party are shareholders in I.C.T.C. Holding Corporation (ICTC) which in turn holds various subsidiary companies & other holding at Hungary etc. The first party is in the process of increasing its shareholding & will be buying out the shares of all shareholders except the second party in order to consolidate the business. The second party has over the years developed the APAC business for ICTC & has supported the first party in its plans for future growth. The first party is currently closing the share purchase agreement with The Mr. Traub Family Trust, 6408788 Canada Corp & MGSL Corporation (sellers). The first party is obligated not to execute an agreement with second party & need to defer a written agreement before the share transfer process with the sellers is completed. To provide comfort & a binding obligation of minimum assurance of value to the second party now the parties agree under this MOU to be bound by the conditions as set out below: 1. The parties wish to continue working together so as to expand the business in India & rest of the world.

2. Since the parties are still negotiating on the actual valuation & role in the new entity prior to as well as post restructuring, the first party promises to offer one out of the two options as below to the second party. A. The first party would offer terms of continuing for the second party: (i) that would be favorable enough for the second party to continue working both on APAC region business (ii) as well as remain a shareholder with ICTC (iii) These terms would be offered, finalized & an agreement reached within 7 days of signing this MOU. (iv) Besides other benefits, the second party would get an option to get a 25% share of the company ICTC (Hungary) Holdings KFT or any other company that would emerge as the holding company. (v) The second party would obtain this 25% holding in lieu of its currently holding in ICTC subject to a fresh shareholders agreement between the parties. (vi) All taxes applicable to the second party would be the responsibility of the second party only & the first party would not be responsible for such tax liability, whatsoever. B. In case option A is frustrated & both parties are unable to reach a settlement as to the actual benefits for the second party, the first party through this MOU assures the second party a minimum valuation of at least CAD 3,109,368 (Canadian dollars three million one hundred nine thousand three hundred sixty eight only)

towards for it's shares held in ICTC. Post MOU Events [81] Immediately following the signing of the MOU, on July 12, 2015, Mr. Oswald sent a draft employment agreement to Mr. Sacchet and wrote to him concerning the need for a share purchase agreement and his desire to have it completed before the completion of the purchase of the Traub and Balmer shares. [82] Also on July 12, 2015, Mr. Traub advised he needed Mr. Oswald and Mr. Mhamunkar to agree to a termination of the Shareholders' Agreement. Mr. Oswald's evidence was that he was concerned about his position if the Shareholders' Agreement was terminated. Accordingly, he responded by email on July 13, 2015, to Mr. Sacchet advising that he would not consent to a termination unless his shares were purchased immediately: Your purchase of ICTC shares from Tony and Steve and the related proposed transactions to reorganize the ICTC Enterprise is unfairly prejudicial to my interest as a minority shareholder. I have received your request to send a formal release to the other shareholders from their responsibilities under our Shareholders agreement. I am afraid unless my shares are purchased on at least the same terms as rest of the shareholders, I would not be able to accord my consent nor send out a formal release to the shareholder from our shareholders agreement. [Emphasis added.] [83] The requirement for Mr. Oswald to agree to

terminate the Shareholders' Agreement was avoided by Mr. Sacchet agreeing to provide an indemnity to Mr. Traub and Mr. Balmer. This was explained in an email from Mr. Traub to all shareholders on July 14, 2015. That email also made reference to a new set of discussions concerning a possible new agreement: Gents I have spoken to Alessandro/Fulvio and subsequently to Nevil. Alessandro is willing to enter into a binding agreement w/Nevil prior to the Mr. Traub/Balmer closing, which will close after the Balmer/Mr. Traub closing, on the condition that Nevil remains for a minimum of 2 years, and I add that I think Alessandro hopes forever. The reason for completion after the B/T closing is that its not appropriate, in the eyes of his bankers, to change the terms of what Alessandro is doing now and a new item may prejudice the financing. The binding agreement can be for either: (1) the Nevil/Narendra's shares on the same valuation as the Balmer shares with 2 years of employment (2) Nevil/N to remain with no less equity in the worldwide business with the existing SHA or a new SHA which would contain the same or more protection for minority shareholders. Nevil is aware of Alessandro's desire with respect to Nevil. In discussion with Nevil he has chosen option 1 and he and Narendra will stay for a minimum of 2 years. [Emphasis added.] [84] On July 15, 2015, at 11:56 a.m., Mr. Sacchet

provided some comments on the draft employment agreement that had been provided to him on July 12, 2015, and also expressed his belief that Mr. Oswald was asking him to "close before the time we have agreed in our previous binding MOU". He further said: Nevil, of course, if we come back to the agreement that you proposed me on Saturday in the MOU on which (apparently) we got an agreement then all agreements we took at that point in time will still be valid. [85] On July 15, 2015, at 12:15 p.m., Mr. Sacchet wrote to Mr. Oswald saying, "Contrary to what you are saying, you still have all the options available for your sole decision". When Mr. Oswald asked "what options?" Mr. Sacchet replied at 12:23 p.m. "those contained in the MOU". [86] The sale of the Traub and Balmer shares closed on July 16, 2015, as I have indicated, without Mr. Oswald and Mr. Sacchet coming to any agreement concerning the draft employment agreements or Mr. Oswald and Mr. Mhamunkar's future involvement in the reorganized group. However, subsequent to July 16, 2015, and continuing until early October 2015, Mr. Sacchet and Mr. Oswald had multiple discussions and email exchanges concerning, inter alia, the terms of the employment, the involvement of Mr. Oswald and Mr. Mhamunkar in the reorganized group, and the terms upon which their ICTC shares would be acquired by Start Up. I do not consider it necessary to

review these discussions and email exchanges in detail, however the exchanges included: a) On July 22, 2015, Mr. Oswald sent Mr. Sacchet a "draft deal sheet" based on an offer of $4 million for the shares. b) On August 11, 2015, Mr. Oswald sent draft employment agreements and promised that a draft "share purchase agreement" would be forthcoming shortly. c) On August 21, 2015, Mr. Oswald sent Mr. Sacchet drafts of the share purchase agreements. d) On September 5, 2015, Mr. Oswald sent Mr. Sacchet a draft proposal on salaries for himself and Mr. Mhamunkar. e) On October 2, 2015, Mr. Oswald sent revised employment agreements and share purchase agreements to Mr. Sacchet. The draft share purchase agreements were for Start Up to purchase Mr. Oswald's shares for $3,800,268 and Mr. Mhamunkar's shares for $199,732. The purchase price was to be paid in three installments. [87] It was Mr. Oswald's evidence that the share purchase agreements that were discussed subsequent to July 16, 2015, were in relation to "option A" under the MOU, not "option B". I accept this evidence. Although option A under the MOU does not expressly contemplate a sale of shares or a share purchase agreement, it does so impliedly. Option A speaks to the possibility of Mr. Oswald and Mr. Mhamunkar eventually acquiring a 25% interest in the new parent company. A sale of shares would be required to eventually achieve

that result. [88] Further, Mr. Oswald's evidence that the share purchase agreements being discussed between July 16, 2015, and early October 2015 were in relation option A of the MOU did not appear to be disputed by Mr. Sacchet. In fact, in an email dated October 31, 2015, Mr. Sacchet wrote to Mr. Mhamunkar that the share purchase agreement was linked to the employment agreements. Also, in cross-examination Mr. Sacchet agreed that the implementation of option A under the MOU necessarily required a sale of the shares of Mr. Oswald and Mr. Mhamunkar. Further corroborating Mr. Oswald's evidence that the share purchase agreements being discussed were under option A of the MOU is the fact that the share purchase agreements were expressly made conditional on each of Mr. Oswald and Mr. Mhamunkar having an employment agreement with Hero India. The Reorganization [89] On July 20, 2015, four days after Start Up's purchase of the Traub and Balmer shares, the reorganization of the group was implemented, with Start Up selling all of its shares in ICTC, which by then amounted to 91% of the total shares, to Hero Europe for €21.5 million. Subsequent to this sale and the reorganization, Start Up owned 100% of Hero Europe, which in turn owned: 91% of ICTC; 100% of Hero Brazil; and 100% of Hero India. [90] The effect of this reorganization was that Hero Europe became the parent company and ICTC

became a subsidiary. Accordingly, Mr. Oswald and Mr. Mhamunkar became shareholders in a subsidiary rather than the parent company. As a further consequence of the reorganization, any value generated by Hero India, Hero Brazil or Hero Europe would henceforth bypass ICTC and therefore Mr. Oswald and Mr. Mhamunkar. [91] I pause here to note that the sale of Start Up's shares in ICTC to Hero Europe was in apparent breach of clause 2.7 of the Shareholders' Agreement since Start Up had not provided a Disposition Notice to the other shareholders, namely Mr. Oswald and Mr. Mhamunkar. The agreement under which Start Up sold its shares in ICTC to Hero Europe contained a clause whereby Start Up warranted that the shares being sold were not subject to, among other things, "any shareholder agreement". [92] In cross-examination, it was put to Mr. Sacchet that this warranty was false and that the shares were subject to a shareholder agreement. Mr. Sacchet could have simply answered this question in the affirmative. Instead, he provided a long-winded and evasive reply to the effect that less than 100% of the shares were being sold, everyone was aware the sale was to occur, no one objected to the sale, and Mr. Traub had previously breached the Shareholders' Agreement. [93] Upon further questioning, and after being cautioned by the Court to listen to the questions asked and to limit his answers

to the questions asked, Mr. Sacchet testified that clause 2.7 of the Shareholders' Agreement was no longer operative because of Mr. Traub's attempt to purchase the shares of the other shareholders in 2014. He then made further gratuitous comments about there being a "common agreement" and "general understanding" that any restrictions in the Shareholders' Agreement would not apply to the reorganization. He then purported to have no recollection of Mr. Oswald expressly advising in writing that Mr. Oswald would not give up his rights under the Shareholders' Agreement. [94] It was only after Mr. Sacchet was taken to Mr. Oswald's email of July 13, 2015, wherein Mr. Oswald wrote that he did not consent to a termination of the Shareholders' Agreement or to releasing the other shareholders from that agreement, that he conceded Mr. Oswald was relying on his rights under the Shareholders' Agreement. Mr. Sacchet eventually conceded that the warranty in the agreement for the sale of the ICTC shares to Hero Europe was untrue. I have highlighted this evidence as it illustrates Mr. Sacchet's selective memory and his tendency to distort the facts. Mr. Oswald's Resignation [95] By early October 2015, the terms of the continued involvement of Mr. Oswald and Mr. Mhamunkar with the reorganized group had not been agreed upon. Further, Mr. Oswald's term as Managing Director of Hero India had expired

on March 31, 2015, and had not been renewed. Accordingly, on October 5, 2015, Mr. Oswald resigned as a director of Hero India. However, he testified that he hoped to resume his employment with Hero India once the details of his new employment agreement and his relationship with the reorganized companies were finalized. [96] Start Up submits that the October 5, 2015, resignation of Mr. Oswald was backdated. Mr. Oswald and Mr. Mhamunkar both denied the resolution was backdated in their evidence and explained why the resignation occurred on October 5, 2015. [97] Concerning backdating, Mr. Mhamunkar acknowledged in cross-examination that sometimes resolutions of Hero India were backdated and that certain other resolutions dated October 5, 2015, were backdated. The backdated resolutions were, however, in relation to Mr. Oswald continuing as a signing authority for cheques and online payments. His evidence in this regard is corroborated by emails dated October 27-31, 2015, between Mr. Mhamunkar, Mr. Rinero and Mr. Sacchet. Both Mr. Mhamunkar and Mr. Oswald denied the resignation resolution was backdated. [98] Further, both Mr. Oswald and Mr. Mhamunkar explained why the resignation occurred on October 5, 2015. Mr. Oswald held his position as Managing Director pursuant to a Managing Director Employment Agreement dated April 1, 2010, that had been entered into with ICTC Hungary, the

parent company of Hero India at the time. The term of that agreement was for five years, although it could be extended for an additional two years at the discretion of ICTC Hungary. The five-year term of Mr. Oswald's tenure as Managing Director of Hero India expired on March 31, 2015. Mr. Oswald and Mr. Mhamunkar both testified that Mr. Oswald continued as a director after March 31, 2015, because Indian law required that companies have two directors and that persons acting as directors have a Director Identification Number ("DIN"). This meant that Mr. Oswald could not resign until there was someone with a DIN to replace him. His replacement, Taripicharan Sahu, did not obtain his DIN until October 1, 2015, which then permitted Mr. Oswald to resign on October 5, 2015. [99] Subsequent to October 5, 2015, there were no further discussions or communications between Mr. Oswald and Mr. Sacchet in relation to the continued involvement of Mr. Oswald in the reorganized group or in relation to the MOU. Each blamed the other for the lack of any further discussion. However, there were some discussions and communications involving Mr. Mhamunkar. [100] On October 27, 2015, Mr. Mhamunkar wrote to Mr. Sacchet and Mr. Rinero advising of the facts surrounding Mr. Oswald's resignation as a director and complaining that neither the employment agreements, which had been in discussion since July, nor

the share purchase agreements had yet been finalized. I again note that the share purchase agreements being referred to are in relation to option A of the MOU. In this email Mr. Mhamunkar also tendered his own resignation, effective November 9, 2015. [101] Mr. Sacchet responded to Mr. Mhamunkar on October 31, 2015. In this email, Mr. Sacchet expressed his concern about tax audits being conducted by Indian tax authorities (which are addressed in more detail below) and suggested that the share purchase agreements would not be finalized until he had a full understanding of what was going on. This is also the email, referred to above, wherein Mr. Sacchet recognized that the employment agreement was linked to the share purchase agreement: all you wrote is probably right but I want to clarify what I thought was already clear. Nevil's EA is linked to the SPA just because of his decision/request to get his salary included into the sale of his shares to pay less taxes. His EA could have been agreed (actually was already ... ) time ago. It can be closed/decided even tomorrow if it won't be linked to the SPA. The SPA is a different story. Yes the draft is under review of my lawyers but before to finalize it we need to understand what's happening over there. This VAT issue has come unexpected, it is big and very unclear to us. We were waiting a detailed document describing it and actions

you took in its regards but it didn't come. We didn't play any role in this matter. You have given us updates on thing/decisions/actions already taken. It couldn't have been different since we were/are completely unaware on this matter. In addition to this Gabriele has been told about a possible/probable new audit from another tax department and he is also having difficulties to get detailed financial information. Also Deloitte is having difficulties to get information. All of this is scary to me. It's not right to say I'm not doing nothing. It's right to say I'm trying to understand what's going on and what we may expect for the future before to finalize an SPA. That's it. It doesn't look to me as an abuse of power (since you said you were treated as minority SH ... ). It's just a buyer that is looking inside what he's going to buy. I still want to close the deal. [102] Mr. Mhamunkar later purported to resign his position with an effective date of between November 9 and November 30, 2015. However, he travelled to Italy in November 2015 to discuss the employment and share purchase agreements with Mr. Sacchet. He also met with Mr. Rinero in December to again discuss these matters. Mr. Mhamunkar did not actually leave Hero India until January 10, 2016. [103] There were no further discussions or communications until April 3, 2016, when Mr. Oswald sent an email to Mr. Sacchet

demanding payment for his shares in accordance with the MOU. The email provided, in part: The Memorandum contemplated that I would remain a shareholder of I.C.T.C. Holdings and HERO group of companies, and an active participant in the affairs of Hero India, if you and I could agree to terms as to the valuation of my shares, and the extent of my shareholdings in I.C.T.C Holdings, or some other entity, such as Hero Hungary, going forward. The Memorandum also contemplated that in the event we were unable to reach an agreement you would pay to Mr. Mhamunkar and I a minimum of $3,109,368 (Canadian dollars). As you are aware, despite some negotiations, you have never extended to me agreeable terms, as required by the Memorandum of Understanding and we have never come to an agreement. I note that under the terms of the Memorandum of Understanding, it was contemplated that we would reach an agreement within seven days of the execution of that agreement. This has not occurred. I am also quite concerned about your non-responsiveness on this matter. It is clear that a reorganization to recognize the share value which was unilaterally taken from me will not occur and accordingly I am no longer able to accept that negotiations will address the fact that I have suffered and continue to suffer, considerable harm as a minority shareholder in a reorganized and diminished version of I.C.T.C.

Holdings. Therefore, please take this as my formal demand for payment of pursuant to our mutual Memorandum of Understanding. I require that this transaction be completed by no later than April 22, 2016. In the event that we are unable to resolve this, I intend to pursue to bring this matter to a resolution by commencing litigation. [104] Mr. Sacchet did not respond to the demand, and as a consequence Mr. Oswald filed a notice of civil claim on July 29, 2016. Tax Assessments, Financial Mismanagement and Investigations [105] On October 6, 2015, the day after Mr. Oswald resigned from Hero India, a group of auditors from an Indian taxation authority appeared unannounced at the offices of Hero India to conduct an audit related to sales tax, also referred to in the evidence as value added tax or "VAT". There is no evidence that Mr. Oswald had any advance notice of this audit and the fact that it occurred the day after his resignation is purely coincidental. [106] The October 6, 2015 audit resulted in a re-assessment of the VAT owed by Hero India for the period from 2009-2015 and an order that Hero India pay approximately ₹[2]46 million. [107] As a result of the October 6, 2015 audit and assessment of the VAT, Start Up, primarily through Mr. Rinero, began to make inquiries into the circumstances of the VAT assessment of Hero India. In December 2015, Mr. Rinero traveled to India with

an accountant, Mr. Lombardo. Mr. Rinero testified that he met with Mr. Mhamunkar in India and that Mr. Mhamunkar told him bribes had been paid by Hero India to Indian tax authorities, and that the bribes had been falsely recorded in the financial records of Hero India as a deposit on the purchase of a fictitious property and as payments to various suppliers. Mr. Mhamunkar vehemently denies that this occurred. This contradiction in the evidence is something that I address later. What is clear, however, is that in the late fall of 2015 and into 2016, Start Up conducted a full investigation of the affairs and financial activities of Hero India. The investigation was headed by Mr. Rinero. [108] Mr. Rinero testified that the investigation team consisted of various persons in India including the General Manager of Hero India, the accounting staff at Hero India, lawyers in India and the auditors of Hero India. Regrettably, none of the individuals who actually conducted the investigations testified at the trial. The only person who testified as to the investigations was Mr. Rinero who resided in Italy and who had no first hand knowledge of what transpired in India. Nevertheless, he purported to give evidence that the investigation uncovered various financial matters that were not reported or recorded in the December 31, 2014 Financial Statement of Hero India. The matters allegedly

uncovered were: a) unreported tax liabilities (VAT, income tax and service tax) of Hero India for the period prior to December 31, 2014; b) significant amounts owed by Hero India to the Employee's Provident Fund for the period prior to December 31, 2014; c) bribes disguised as third party payments; d) inaccurate recording and reporting of fixed assets and accounts receivable; e) inaccurate recording and reporting of advances to employees; and f) incorrectly assigned costs in accounting records. [109] Mr. Rinero also purported to give evidence of the financial impact of these matters on the December 31, 2014 Financial Statement of Hero India and how these matters affected the EBITDA of ICTC and the value of the shares of ICTC. [110] A voir dire was held during the course of trial (Oswald v. Start Up SRL, 2020 BCSC 205) concerning the admissibility of various source documents relied upon by Mr. Rinero and the admissibility of his calculations and his opinion on the value of the ICTC shares. I ruled that his evidence on the value of the shares was inadmissible opinion evidence. Concerning the source documents, I ruled that the following documents, among others, were admissible: · financial statements of Hero India; · documents generated by the management information system or "SAP" of Hero India; · journal entries made by the accounting staff of Hero India; and · correspondence

received by Hero India from governmental authorities. [111] On June 30, 2016, an extraordinary meeting of the board of directors of Hero India was held. The directors present at the meeting were Mr. Sacchet and Mr. Rinero. At this meeting, they resolved to file a criminal complaint against Mr. Oswald and Mr. Mhamunkar. [112] The following day, July 1, 2016, a criminal complaint was filed by Hero India with the Superintendent of Police. In this complaint it was stated that Mr. Oswald and Mr. Mhamunkar had been responsible for "huge manipulations in the financial accounts of the company" and "siphoning off of funds", and that they entered into sham transactions and fraudulent payments. The letter summarized the complaint as follows: In the month of March, 2016 during its regular inspection the complainant company found huge manipulations in the financial accounts of the company for the financial year 2015 leading to siphoning off of funds causing wrongful loss to the Complainant company. On examining the records of the company, it was discovered that sham transaction was entered into by the ex-directors of the complainant company Mr. Nevil Benedict Mr. Oswald (Ex-Managing Director), Mr. Tarinicharan Sahu (Ex-Director), and Mr. Narendra Raosaheb Mhamunkar: - (Ex-Director), acting in concert with each other, whereby payment had been made fraudulently causing grave wrongful loss to

the Complainant company. In addition to huge manipulations, it was also found that the above-mentioned Ex-Directors played fraud on the company and also stole and destroyed data from company laptops. [113] The criminal complaint made three specific allegations. The first concerned a payment made in October 2015 to Jai Mata Di Realty ("Jai Mata") in the amount of ₹10,000,000. Although this payment was purportedly made to purchase a commercial property from Jai Mata, Hero India alleged the purchase was fictitious and fraudulent and the payment was a misappropriation of the funds of the company. The second criminal allegation concerned the company's financial records. Specifically, it was alleged that the records recorded payments of ₹911,221,924 made for fictitious purchases of inventory. The final criminal allegation concerned a company laptop in the possession of Mr. Mhamunkar. It was alleged that he refused to return the laptop and replaced its hard disk to destroy the records of the fraudulent transactions he engaged in. [114] In October 2016, Hero India circulated a letter to customers in which it alleged that Mr. Oswald and Mr. Mhamunkar had colluded and conspired to cause losses to the company. The letter stated that their actions were discovered in the latter part of 2015 and resulted in the Hero Group head office commencing "a deep investigation involving local auditors,

consultants and lawyers". The letter advised that: After the investigation it was clear the ex-managers of the Company, in connivance with suppliers, were found to have defrauded the company in a manner which was prejudicial to the interest of the Company and its Stakeholders. In addition it was clear, from the details of the internal investigation made by new management, that the ex-management, in connivance with the above mentioned suppliers, had made a fraud of Crores of Rupees against the Company. [115] The criminal complaint was withdrawn by Hero India's representative Gaurav Wahal at a meeting with the Police Superintendent on January 7, 2017. Subsequently on June 8, 2017, the Assistant Police Inspector issued a report that effectively dismissed the complaint. [116] It is extremely noteworthy that Start Up appeared to be completely unaware of the withdrawal and dismissal of the criminal complaint until January 2019 when documents in relation to the withdrawal and dismissal were produced in this action by Mr. Oswald and Mr. Mhamunkar. As will be addressed further below, the fact that the criminal complaint was withdrawn and that neither Mr. Sacchet nor Mr. Rinero were aware of this for over two years indicates that they had very poor knowledge of what was happening in India and that the officers, employees and other representatives of Hero India were not keeping them

advised. [117] In addition to the criminal complaint, several civil actions relating to the matters allegedly uncovered during the investigation have been commenced in India by Hero India against Mr. Oswald and Mr. Mhamunkar. Issues [118] The issues to be decided are as follows: a) Is the MOU an enforceable contract? This, in turn, involves a consideration of: i. Was there an intention to contract? ii. What are the terms of the contract and are they sufficiently certain? iii. Is the MOU unenforceable as being merely an agreement to agree? b) If the MOU is an enforceable contract, did Start Up breach the contract? c) If the MOU is an enforceable contract, is rescission for misrepresentation an available remedy? d) Are Mr. Oswald and Mr. Mhamunkar liable to Start Up for fraudulent, or alternatively negligent, misrepresentation? Analysis Is the MOU an Enforceable Contract? [119] Mr. Oswald and Mr. Mhamunkar plead and submit that the MOU is a binding enforceable contract that obligates Start Up to purchase their shares in ICTC for $3,109,368 pursuant to option B in the MOU. Start Up denies the MOU is an enforceable contract. Start Up submits: that there was no intention to contract; that the MOU is nothing more than an agreement to agree; that the terms of the MOU are not sufficiently certain to make it a binding contract; and that specific performance cannot be ordered due to the

lack of certainty in the terms of the MOU. Applicable Principles [120] The applicable principles in relation to the requirements of an enforceable contract are not disputed by the parties. Rather, it is the application of those principles to the facts and circumstances where the parties disagree. [121] Matic v. Waldner, 2016 MBCA 60 at para. 57, sets out the three requirements that must be established for there to be a binding contract: there must be an intention to contract; the essential terms must be agreed; and the terms must be sufficiently certain: [57] The principle that can be distilled from Bawitko and Ghitter (Ron) Property Consultants Ltd v. Beaver Lumber Co, 2003 ABCA 221, 330 AR 353 (quoted by Fridman), is that there are three requirements for a binding contract--the intention to contract; the essential terms of the contract have been settled; and the terms are sufficiently certain. Whether the three requirements are met in any case is to be determined from the perspective of the objective reasonable bystander. [122] Matic also sets out that the determination of whether there is an enforceable contract involves a contextual analysis of all the material facts and circumstances, but excluding the subjective intentions of the parties: [63] The determination of whether the requirements for an enforceable contract have been met involves a contextual analysis, taking

into account all the material facts. Such facts can include the subsequent conduct of the parties, including subsequent negotiations. Geoff R Hall, Canadian Contractual Interpretation Law, 2nd ed (Markham: LexisNexis, 2012) states (at p 164): Whether the parties acted as if they had a binding agreement after entering into an understanding is given great weight by the courts in determining whether there is an unenforceable agreement or a binding contract. The parties' subsequent conduct transcends all three of the categories of unenforceable agreements to agree, such that conduct indicating a belief that one is bound will reinforce a conclusion that essential terms have been agreed or that the agreed terms are sufficiently certain or that there was no intention to delay the creation of binding obligations until execution of a formal contract document. [Emphasis in original.] [64] The facts and circumstances that should be considered will depend upon the context of each case but could include written or oral communications between the parties; communications to third parties; the conduct of the parties; the nature of subsequent negotiations, including when and how they came to an end. The subjective intention of the parties is not relevant in this analysis. SM Waddams, The Law of Contracts, 6th ed (Toronto: Canada Law Book, 2010) states (at para 145): The phrase "consensus ad

idem" though frequently appearing in the cases, must be used with caution, lest it should imply that the court should concern itself with the actual subjective state of mind of the parties. The objective principle of contract formation is not a mysterious or arbitrary rule but an inevitable result of the law's attempt to protect reasonable expectations. [123] Madam Justice MacKenzie writing for the Court of Appeal recently addressed intention to contract in similar terms in Leemhuis v. Kardash Plumbing Ltd., 2020 BCCA 99 at paras. 15-17. She noted that it is the objective intention of the parties that is relevant, not their subjective intention, and further noted that the objective intention is to be determined by looking at all of the circumstances or all of the material facts. Ultimately, the question is whether an objective reasonable bystander would conclude the parties intended to contract: [15] While the existence of a binding and enforceable contract requires an intention to contract, it is not subjective intention that is relevant, but objective intention: Aubrey v. Teck Highland Valley Copper Partnership, 2017 BCCA 144 at para. 35; Rudyak v. Bekturova, 2018 BCCA 414 at para.

23. This principle stems from the seminal case, Smith v. Hughes (1871), L.R. 6 Q.B. 597 at 607: If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that [the] other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms. [16] This Court in Berthin v. Berthin, 2016 BCCA 104, put the requirement this way: [46] The test, of course, is not what the parties subjectively intended but "whether parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract": see G.H.L. Fridman, The Law of Contract in Canada (6th ed, 2011) at 15. As stated by Mr. Justice Williams in Salminen v. Garvie 2011 BCSC 339: The test for determining consensus ad idem at the time of contract formation is objective: it is "whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract"; it is "whether a reasonable... [person] in the situation of that party would have believed and understood that the other party was consenting to the identical term": Fridman, supra, p. 15; see also Smith v.

Hughes (1871), L.R. 6 Q.B. 597 at 607 adopted in St. John Tugboat Co. Ltd. v. Irving Refining Ltd., 1964 CanLII 88 (SCC), [1964] S.C.R. 614, 1964 CarswellNB 4 at para. 19, and Remington Energy Ltd. v. B.C. Hydro & Power Authority, 2005 BCCA 191 at para. 31, 42 B.C.L.R. (4th) 31. The actual state of mind and personal knowledge or understanding of the promisor are not relevant in this inquiry: Hammerton v. MGM Ford‑Lincoln Sales Ltd., 2007 BCCA 188 at para. 23, 30 B.L.R. (4th) 183, citing S.M. Waddams, The Law of Contracts, 5th ed. (Toronto: Canada Law Book Inc., 2005) at 103. [At para. 27.] [17] In determining intention to contract, a court is not confined to the four corners of the agreement, but may look at "all the circumstances" or "all the material facts": Langley Lo‑Cost Builders Ltd. v. 474835 B.C. Ltd., 2000 BCCA 365 at para. 21; Vancouver Canucks Limited Partnership v. Canon Canada Inc., 2015 BCCA 144 at para. 75; Lacroix v. Loewen, 2010 BCCA 224 at para. 36 (per Finch C.J.B.C.). In Langley, McEachern C.J.B.C. observed that McLachlin J. (as she then was) in Osorio v. Cardona (1984), 1984 CanLII 364 (BC SC), 15 D.L.R. (4th) 619 (B.C.S.C.), considered "evidence of past agreements involving other parties, the circumstances in which the alleged agreement was made, and future actions and representations by both parties." [124] It is also trite that "an agreement to agree" is not an enforceable contract and neither is a list of guiding principles: Berthin v. Berthin, 2016 BCCA 104 at para.

48. However, if the parties have agreed on all essential terms and merely intend to incorporate those terms into a future formal document, there is an enforceable contract. These principles are set out in in Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 79 D.L.R. (4th) 97, 26 A.C.W.S. (3d) 350 (Ont. C.A.) at 12-13: As a matter of normal business practice, parties planning to make a formal written document the expression of their agreement, necessarily discuss and negotiate the proposed terms of the agreement before they enter into it. They frequently agree upon all of the terms to be incorporated into the intended written document before it is prepared. Their agreement may be expressed orally or by way of memorandum, by exchange of correspondence, or other informal writings. The parties may "contract to make a contract", that is to say, they may bind themselves to execute at a future date a formal written agreement containing specific terms and conditions. When they agree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract. However, when the

original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract. In other words, in such circumstances the "contract to make a contract" is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself. [citations omitted] [125] As indicated above, the parties must have agreed on the essential terms of the contract for a contract to be enforceable. However, the courts will be reluctant to find a contract void for uncertainty. These principles were addressed in Berthin at para. 47: [47] Of course, the terms in question must be enforceable - i.e., must have a definite as opposed to uncertain meaning such that a court can order either for damages or for specific performance in the event of breach. There is no doubt that

courts will "lean heavily against finding contracts void for uncertainty" (Copperart Pty. Ltd. v. Bayside Developments Pty. Ltd. (1996) 16 W.A.R. 396 (S.C., Full Court) at 399, quoted in S.M. Waddams, The Law of Contracts (5th ed., 2005), 42 at fn.128). Thus Madam Justice D. Smith stated in Frolick v. Frolick, supra: An effective agreement requires a meeting of the minds of the parties. An enforceable contract requires a consensus between the parties on all of the essential terms of their agreement. It is the responsibility of the parties, not the court, to clearly express those essential terms so "that their meaning can be determined with a reasonable degree of certainty": Scammell and Nephew Ltd. v. Outston, [1941] A.C.

251. If the parties fail to reach a meeting of the minds on the essential terms of their agreement, or fail to express themselves in such a fashion that the meaning of the terms they agreed upon cannot be reasonably divined by the court, then the agreement will fail for lack of certainty. However, the requirement of certainty of the terms is always balanced with the reality of transactional negotiations. Parties may intentionally leave gaps in the terms of an agreement to provide for future or mutually satisfactory accommodations. In those circumstances, the court should not apply the doctrine of certainty so rigidly so that the intentions of the parties to create a binding agreement are thwarted. Lambert J.A. observed in Griffin v. Martens (1988), 27 B.C.L.R. (2d) 152 (C.A.) at ¶4: "As long as the agreement is not to be constructed by the court, to the surprise of the parties, or at least one of them, the courts should try to retain and give effect to the agreement that the parties have created for themselves." [Emphasis added.] [126] If the parties have left open for future negotiation a key term or terms, then an enforceable contract will not be found: Le Soleil Hotel & Suites Ltd. v. Le Soleil Management Inc., 2009 BCSC 1303 at para. 333; Berthin at para. 49. [127] A particular problem in this matter is the fact that that the MOU is not a finely crafted document or a model

of clarity. It was drafted on short notice by a lawyer in India on the instructions of Mr. Oswald. It is apparent that this lawyer was not a native English speaker. Likewise, none of the parties to the MOU are native English speakers and, having heard the parties testify, it is apparent that although they have competency in English, all of them struggled with the language to some extent. Their limited proficiency in English is also apparent from the many emails they have exchanged. [128] Hoban Construction Ltd. v. Alexander, 2012 BCCA 75, provides guidance as to how a poorly drafted document, such as the MOU, should be approached. Specifically, in such circumstances the court should make every effort to find a meaning in the words used consistent with the intentions of the parties and should avoid applying form over substance: [47] There is no question that the documents the parties signed were inelegantly and inartistically drafted. They contain typographical errors and substantive mistakes. There seems to be little doubt that the form of the contracts and the offers from which they arose did not strictly comply with the specifications in the USA. However, the inquiry is not whether the contracts were competently drafted, but rather whether they disclose the parties' intentions as to the substance of their agreement. In Marquest Industries Ltd. v. Willows Poultry Farms Ltd.

(1968), 1968 CanLII 581 (BC CA), 1 D.L.R. (3d) 513 (B.C.C.A.), the majority outlined the role of the court at 517-18: In the first place, consideration must be given to the duty of a Court and the rules it should apply, where a claim is made that a portion of a commercial agreement between two contracting parties is void for uncertainty or, to put it another way, is meaningless. The primary rule of construction has been expressed by the maxim, ut res magis valeat quam pereat or as paraphrased in English, "a deed shall never be void where the words may be applied to any extent to make it good". The maxim has been basic to such authoritative decisions as Scammell v. Ouston, [1941] 1 All. E.R. 14; Wells v. Blain, 1926 CanLII 134 (SK CA), [1927] 1 D.L.R. 687, [1927] 1 W.W.R. 223; Ottawa Electric Co. v. St. Jacques (1902), 1901 CanLII 17 (SCC), 31 S.C.R. 636, as well as many others, which establish that every effort should be made by a Court to find a meaning, looking at substance and not mere form, and that difficulties in interpretation do not make a clause bad as not being capable of interpretation, so long as a definite meaning can properly be extracted. In other words, every clause in a contract must, if possible, be given effect to. Also, as stated as early as 1868 in Gwyn v. Neath Canal Navigation Co. (1868), L.R. 3 Ex. 209, that if the real intentions of the parties can be

collected from the language within the four corners of the instrument, the Court must give effect to such intentions by supplying anything necessarily to be inferred and rejecting whatever is repugnant to such real intentions so ascertained. Clause 10 of the contract is admittedly a highly inartistic piece of draftsmanship and clearly poses difficulties in construction. However, keeping in mind the rules of interpretation which I have outlined, and approaching the terms of the contract and cl. 10 in what I consider a "reasonable and business manner" (see Wells v. Blain at p. 691), it is my opinion that cl. 10 is not so uncertain as to be meaningless. On the contrary, I consider it has a clear meaning but is badly expressed. ... [48] In Langley, before citing Marquest Industries, McEachern C.J.B.C. stated the following at para. 37: [37] Having determined that the legal force of the arrangements represented by the communications I have described is not contingent upon the preparation of a formal document, it is necessary to consider what the terms of the bargain are and whether they are legally sufficient to constitute a binding agreement. This analysis is carried out according to the standard rules of contract construction: give the words their plain and ordinary meaning where that meaning does not conflict with the context of the communications as a whole. Where there is

ambiguity, extrinsic evidence may be considered. [55] The trial judge did not make every effort to give effect to the parties' intentions by looking at substance and not mere form. Rather than attempting to extract meaning from the parties' expression of their contractual intention as the authorities require, the trial judge applied an overly formalistic and literal approach to interpreting the document. When this approach produced ambiguity and inconsistencies with undisputed facts, the trial judge did not attempt to resolve them by looking to extrinsic evidence, as Langley prescribes. In omitting to apply these principles of contractual interpretation set out in Marquest Industries and Langley, the trial judge erred in law. [Emphasis in original.] Onus and Burden of Proof [129] The parties are not in complete agreement as to who has the onus and burden of proving the existence of an enforceable contract, the terms of the contract and the breach of the contract. [130] Start Up submits that the onus is on Mr. Oswald and Mr. Mhamunkar throughout. Start Up relies on Concord Pacific Acquisitions Inc. v Oei, 2019 BCSC 1190 at paras. 82-83, for this proposition: [82] The onus of proving the existence of an agreement with the Defendants, and of establishing the terms of that agreement, lies with Concord: Malaspina Coach Lines Ltd. v. Awani, 2003 BCSC 700 at para. 6; Cutts v. Alterra

Property Group Ltd., 2013 BCSC 1951 at para. 48; and Shaw Production Way Holdings Inc. v. Sunvault Energy, Inc., 2018 BCSC 926 at para. 146, aff'd 2019 BCCA 72. [83] Similarly, the onus of establishing the breach of an existing contract lies with Concord: Brown v. Insurance Corporation of British Columbia, 2018 BCSC 2089 at paras. 88-89; Grape Expectations Wine Emporium Inc. v. Baker J., 2010 BCSC 658 at para. 81, aff'd 2012 BCCA 15. [131] Mr. Oswald and Mr. Mhamunkar do not contest that they have the onus and burden of proof in relation to the terms of the contract and the breach of the contract. However, they submit that where there is a written agreement, there is a presumption the parties intended to contract and there is a heavy burden on the party seeking to avoid the contract to disprove that intention. They primarily rely on a passage from Langley Lo-Cost Builders Ltd. v. 474835 B.C. Ltd., 2000 BCCA 365, which was cited with approval in Hoban at para. 37: [37] In Langley at paras. 20-21, McEachern C.J.B.C. stated for the Court: [20] There is very little authority about the basis upon which intention to contract should be found. In Tilden Rent-A-Car Co. v. Clendenning (1978), 1978 CanLII 1446 (ON CA), 83 D.L.R. (3d) 400 (Ont. C.A.), it was suggested at 405, that a person "who attaches his signature to the contract intends by doing so to acknowledge his acquiescence to

its terms, and that the other party entered into the contract upon that belief." In A.G. Guest, ed., Chitty on Contracts, 27th ed. (London: Sweet and Maxwell, 1994), it is noted at 152 that in normal commercial transactions, where the intention to be contractually bound is at issue, the onus of proving that such an intention did not exist "is on the party who asserts that no legal effect is intended, and the onus is a heavy one": Edwards v. Skyways Ltd., [1964] 1 W.L.R.

349. Those, however, were cases where the form of the documentation was clearly contractual. The circumstances in the instant case were far more informal. [21] Most authorities suggest that the Court is not confined to the four corners of the alleged agreement, but may look at all the circumstances. In Osorio v. Cardona [(1984), 1984 CanLII 364 (BC SC), 15 D.L.R. (4th) 619], McLachlin J. considered evidence of past agreements involving other parties, the circumstances in which the alleged agreement was made, and future actions and representations by both parties. The investigation is to determine whether a reasonable observer would think that Terry Johnson on behalf of Langley, in signing the faxed document in these circumstances, intended to be contractually bound when he signed and delivered the faxed documents. [Emphasis added.] [132] It is to be noted that Langley concerned a series of verbal and written communications between the parties. There was not a single document that was clearly a contract. In those circumstances, McEachern C.J.B.C. declined to apply a presumption that the parties intended to contract. [133] Mr. Oswald and Mr. Mhamunkar also rely on R. v. CAE Industries Ltd. (1985), [1986] 1 F.C. 129 (F.C.A.), which concerned an alleged letter agreement. More specifically, one party had requested by letter certain commitments from the other party. The other party

replied by letter providing various assurances. Mr. Justice Stone, writing for the majority, held at 503, that in these circumstances the onus of proof shifted to the party denying the existence of a contract. In my view the circumstances in which the letter was written distinguish this case from others where it has been found that no intention to contract was present: see, e.g., Joy Oil Co. v. R., [1951] S.C.R. 624, [1951] 3 D.L.R. 582, and Meates v. A.G., [1979] 1 N.Z.L.R. 415 (S.C.). It is clear from the evidence that the parties treated the document as a binding contract to the extent that it was partly performed. Moreover, as has been pointed out, the onus of proof in a case of this kind "is on the person who asserts that no legal effect was intended, and the onus is a heavy one": Edwards v. Skyways Ltd., [1964] 1 W.L.R. 349 at 355, [1964] 1 All E.R. 494 (Q.B.D.); and see also The Polyduke; Bahamas Oil Refining Co. v. Kristiansands Tankrederie AIS, [1978] 1 Lloyd's L. R. 211 (Q.B.D.). It is my view that that burden has not been discharged. I have concluded on the basis of evidence and the findings of the judge below that there was an intention on the part of both parties to enter into a binding legal contract. [Emphasis added.] Synthesis of the Law on the Onus and Burden of Proof [134] In my opinion, Concord Pacific sets out the general rule that the onus of proving the

existence of a contract is on the party who pleads the existence of the contract. Langley and CAE Industries establish a limited exception to this general rule and a reverse-onus situation. The exception applies where, to use the words of McEachern, C.J.B.C., "the form of documentation was clearly contractual" (Langley at para. 20). As to what constitutes "clearly contractual" documentation, this would include formal documents titled "Agreement" or "Contract", signed by the parties and containing words of agreement. "Clearly contractual" documentation might also include letters that unambiguously include terms or phrases of agreement, such as in CAE Industries. [135] I am inclined to agree with Mr. Oswald and Mr. Mhamunkar that the exception to the general rule applies in this case. The MOU contains wording that, in my view, is clearly contractual in nature. Nevertheless, this case does not turn on who has the onus and burden of proof. As will be seen, I am of the view that Mr. Oswald and Mr. Mhamunkar have proven on a balance of probabilities: that there was an intention to contract; the terms of the contract with requisite specificity; and that there has been a breach of the contract. Discussion Was there an Intention to Contract? [136] Start Up submits that there was no joint intention for the MOU to be a legally binding contract. It says a reasonable bystander would not

conclude the MOU created such a contract. [137] In my view, the intention of the parties, as determined from the perspective of a reasonable bystander, was that the MOU would be a legally binding document creating contractual rights and obligations as between the parties. More particularly: the wording and form of the MOU indicates an intent to create contractual relations; the events and circumstances immediately preceding the MOU indicate an intent to create contractual relations; and the events and circumstances after the execution of the MOU indicate an intent to contract. In reaching this conclusion, I have not taken into account the subjective intentions of the parties but rather I have ascertained their intentions from the perspective of an objective reasonable bystander, as I am required to do by the authorities. I shall now expand on my reasons for so concluding. The Wording of the MOU [138] The wording of the MOU is such that it would indicate to any objective reasonable bystander that it was a contractual document intended to create contractual obligations. The first paragraph of the MOU specifies that its purpose is "to define the terms and obligations" of the parties. These are words of contract, indicating an intent to set out terms and define obligations. [139] The fourth paragraph of the MOU is particularly relevant and, in my view, leaves little doubt that

there was an intent to contract. It says, "To provide comfort and a binding obligation the parties agree under this MOU to be bound". The words "binding obligation" and "agree to be bound" are words of contract and leave little doubt but that the parties intended the MOU to create legally binding obligations. [140] Start Up relies, in particular, on the third paragraph of the MOU where it references a "need to defer a written agreement". Start Up says this indicates the parties did not intend the MOU to be itself a written agreement. However, in my view, considering the MOU as a whole, it is reasonably clear that this third paragraph is in reference to deferring the execution of the formal documentation that would be necessary to give effect to the agreement that is contained in the MOU. As was noted in Bawitko Investments, the fact that additional documentation may be required does not alter the binding validity of the original contract provided it contains all of the essential terms. [141] Finally, paragraph six of the MOU, which bears the number two, says "the first party promises to offer one of the two options". The use of the word "promises" indicates a contractual intent. The form of the MOU also indicates an intention to contract. Specifically, the form provided for the signatures of the parties and was, in fact, signed by the parties. This is indicative of an intent to

create a legally binding contract. The Conduct of the Parties Leading up to Signing the MOU [142] The discussions and emails leading up to the signing of the MOU also indicate an intent to create a legally binding contract. Mr. Oswald made known his concerns as to the pending sale of the Traub and Balmer shares and the contemplated reorganization of the Hero Group. Mr. Sacchet was aware of those concerns and although he attempted to minimize the connection between those concerns and entering into the MOU, I find as a fact that the MOU was executed for the express purpose of addressing and alleviating Mr. Oswald's concerns. As Mr. Sacchet stated during his examination for discovery, the purpose of the MOU was to ensure Mr. Oswald's concerns did not materialize. [143] Additionally, the discussions and emails between the parties on July 11, 2015, immediately before entering into the MOU, indicate an intention to contract. Mr. Oswald specifically advised Mr. Sacchet verbally that he required a binding agreement. He followed up by writing to Mr. Sacchet that he had received a suggestion from his lawyer that he would send and asked Mr. Sacchet to "go through it and it will give me some comfort if you agree to that". The lawyer's suggestion that he then forwarded to Mr. Sacchet contained two options similar to those found in the MOU. An email was later sent by Mr. Oswald to Mr. Traub

and Mr. Sacchet advising "we have agreed to sign a binding LOI immediately". The repeated use of phrases such as "binding agreement", "agree" and "agreed" indicate an intent to contract. The Conduct of the Parties Following Signing the MOU [144] The events between July 11 and July 15, 2015, also indicate that the parties intended the MOU to be a binding contract. It was during this period that Mr. Oswald was asked for his consent to terminate the Shareholders' Agreement and to provide a release. He declined to do so unless his shares were purchased at the same time as the Traub and Balmer shares. Although the need for any new agreement was avoided by Mr. Sacchet agreeing to provide an indemnity to Mr. Traub and Mr. Balmer, on July 15, 2015, Mr. Sacchet wrote several emails to Mr. Oswald. In one of the emails he referred to their "binding MOU" and to their "agreement". In the other email he stated "you still have all the option available for your sole decision". When Mr. Oswald asked "what option?" Mr. Sacchet replied at 12:23 p.m. "those contained in the MOU". These emails clearly conveyed to any reasonable bystander that Mr. Sacchet considered they had reached a binding agreement in the MOU and that Mr. Oswald had the two options contained within the MOU. [145] Start Up submits that the discussions and emails that occurred after July 18, 2015, indicate the parties did not

intend the MOU to be contractual. Start Up refers to the fact that under option A of the MOU, the parties were to come to agreement on the terms of Mr. Oswald and Mr. Mhamunkar continuing with the reorganized group within seven days. Start Up submits that there was no extension of this seven-day time period and that the continuing discussions between the parties after the expiry of the seven-day time period must have been in relation to option B, thus indicating the parties had not reached agreement on option B. I do not agree with these submissions. [146] Option A of the MOU does stipulate that the parties were to finalize an agreement concerning the continued participation of Mr. Oswald and Mr. Mhamunkar in the reorganized group within seven days. However, this did not occur and the parties continued long after the seven-day period to discuss employment terms and how Mr. Oswald and Mr. Mhamunkar's shares in ICTC would eventually be sold. The parties' discussions and communications following July 18, 2015, were solely in relation to trying to come to an agreement under option A, not option B. This was the evidence of Mr. Oswald and Mr. Mhamunkar, and their evidence is corroborated by the fact that the draft share purchase agreements that were being exchanged and discussed were conditional on the continued employment of Mr. Oswald and Mr. Mhamunkar. It is true that the parties

never formally extended the seven-day time period in option A. However, it is equally clear that the parties, by their conduct, implicitly agreed to either disregard or to extend the seven-day time period. Conclusion on the Intention to Contract [147] Accordingly, given the wording of the MOU, the conduct of the parties immediately before the execution of the MOU and the conduct of the parties subsequent to the MOU, I find, applying the objective standard of the reasonable bystander, that the parties intended to contract upon the terms set out in the MOU. The question now becomes what those terms were, and whether they were sufficiently certain. What Are the Terms of the Contract and Are they Sufficiently Certain? [148] As I have noted elsewhere, the MOU is not particularly well-drafted. This is undoubtedly because, at least in part, the parties and the lawyer who originally drafted it had limited proficiency in English. Regardless of the reason, the interpretation of the MOU presents difficulties. In approaching the interpretation of the MOU I apply the following principles which are derived from Hoban at paras. 47‑55: a) the proper inquiry is whether the contract discloses the parties' intentions as to the substance of their agreement; b) difficulties of interpretation do not render a clause meaningless provided a definite meaning can be properly extracted from the words

used; c) where there is ambiguity, extrinsic evidence may be considered; d) I should not apply the doctrine of certainty so rigidly that it thwarts the intentions of the parties; e) I should try to retain and give effect to the agreement the parties have created looking at substance and not mere form; f) I should not too readily find the contract void for uncertainty; and g) it is the responsibility of the parties, not the courts, to express the terms of their contract. [149] Mr. Oswald and Mr. Mhamunkar submit that the terms of the MOU provided them with two options. The first, option A, contemplated that they would remain with the reorganized group on terms to be agreed. The second, option B, came into effect in the event the parties could not reach agreement on option A. Option B, they submit, required Start Up to purchase their shares for the price of $3,109,368. [150] Start Up submits that the terms of the MOU are too vague and uncertain to constitute an enforceable contract or to give rise to the remedy of specific performance. Start Up submits that the MOU is vague and ambiguous in relation to whether there is an agreement of purchase and sale of the shares, who would sell the shares, when the shares were to be sold, and the price to be paid for the shares. Start Up further submits that the MOU was nothing more than an agreement to agree. [151] For ease of reference,

option B under the MOU is as follows: B. In case option A is frustrated & both parties are unable to reach a settlement as to the actual benefits for the second party, the first party through this MOU assures the second party a minimum valuation of at least CAD 3,109,368 towards for it's shares held in ICTC. [152] The central and critical issue of interpretation is whether, under option B of the MOU, Start Up was obligated to purchase Mr. Oswald and Mr. Mhamunkar's ICTC shares for the price of $3,109,368 in the event that the parties failed to come to agreement under option A. [153] Start Up correctly points out that the MOU does not contain words such as "buy", "purchase" or "pay" or otherwise contain precise words obligating Start Up to purchase the shares of Mr. Oswald and Mr. Mhamunkar. Start Up notes that the MOU refers to a "minimum valuation" as opposed to a price. Start Up submits that the words used do not obligate it to purchase the shares. Rather, it says the agreement was merely that Start Up would provide a minimum valuation for the shares. [154] Mr. Oswald and Mr. Mhamunkar, on the other hand, effectively submit that the words "value" and "valuation" in the MOU must be interpreted as synonyms for "price" in order to give effect to the expressed intentions of the parties. They submit that to do otherwise would render the MOU meaningless. [155] There is, in my view,

a clear ambiguity in the wording of the MOU. What did the parties intend by the phrase "To provide comfort & a binding obligation of minimum assurance of value "? Similarly, what did they intend by the phrase "the first party assures the second party a minimum valuation of at least CAD $3,109,368 towards for it's shares"? In both phrases, it is the word "value" and its derivative form "valuation" that is the source of the difficulty. [156] One interpretation, the interpretation advanced by Start Up, is that the parties intended the words to mean exactly what they say, namely, that the shares of Mr. Oswald and Mr. Mhamunkar will be given or assigned a value or a worth of at least $3,109,368, without more. [157] However, I agree with Mr. Oswald and Mr. Mhamunkar that, in the circumstances of this case, such an interpretation is completely meaningless. There is absolutely no benefit to anyone to have the shares assigned a value, without more. Moreover, under the MOU it is Start Up that is providing the assurance of a "minimum valuation" to Mr. Oswald and Mr. Mhamunkar. In other words, Start Up is promising or guaranteeing a valuation of their shares of at least $3,109,368. But such a promise is meaningless. In the circumstances of this case, it is an assurance, promise or guarantee that is devoid of any meaning. In my opinion, it would be elevating form over substance if I were to

interpret option B of the MOU as merely assigning a monetary value to the shares of Mr. Oswald and Mr. Mhamunkar, without more. [158] Given the ambiguity in the wording of the MOU, I may look to the surrounding circumstances to determine if the ambiguity can be resolved without doing violence to the words used (Langley at para. 37; Hoban at para. 55). [159] The evidence of Mr. Oswald, which I accept, was that immediately before entering into the MOU he specifically advised Mr. Sacchet verbally that he required a binding agreement from Start Up that it would purchase his shares for a minimum price. Mr. Sacchet responded by saying "okay" and suggested that Mr. Oswald have his lawyer draft something. Mr. Oswald forwarded his lawyer's email to Mr. Sacchet that contained two options similar to option A and option B in the MOU. Importantly, the second option in the email from Mr. Oswald's lawyer referenced that Start Up would "buy out our entire combined share[s]". This was immediately followed by the first draft of the MOU. In my view, the conversation between Mr. Oswald and Mr. Sacchet on July 11, 2015, and the emails exchanged following that conversation show the parties intended that under option B of the MOU Start Up was required to purchase the shares of Mr. Oswald and Mr. Mhamunkar. [160] I also note that Mr. Sacchet was under no illusion or misapprehension as to the meaning

of the MOU. In the course of his testimony in-chief in relation to the MOU, he testified that Mr. Oswald "was asking to have an option to sell his shares". He clearly knew option B involved a sale and purchase of the shares. [161] Further, the overall circumstances prior to entering into the MOU indicate that the parties' intention was for a sale of the shares. Mr. Oswald was concerned about Start Up acquiring the Traub and Balmer shares and about the possible negative consequences that the planned reorganization of the group would have on him. The entire purpose of the MOU was to address Mr. Oswald's concerns and provide protection to Mr. Oswald. Merely agreeing to a valuation of his shares, without more, would provide no protection to Mr. Oswald. He would only be protected if Start Up agreed to purchase his shares at the agreed value. [162] Finally, I bear in mind that the parties are not native English speakers and have limited proficiency in the English language. This affected their ability to express themselves and their intent with precision. [163] I therefore find that the parties used the words "value" and "valuation" in the MOU as synonyms for "price". I further find that option B of the MOU obligated Start Up to purchase the shares of Mr. Oswald and Mr. Mhamunkar for the price of at least $3,109,368. To interpret the MOU in the manner suggested by Start Up would be to

elevate form over substance and would thwart the intentions of the parties. [164] In reaching this finding I have considered Mr. Sacchet's evidence that any deal with Mr. Oswald was always contingent upon Mr. Oswald remaining with the company, which is partly corroborated by Mr. Traub's second July 10, 2015, email. However, in my view, it is clear that on July 11, 2015, Mr. Sacchet conceded to Mr. Oswald's request for a binding agreement that would require the shares of Mr. Oswald and Mr. Mhamunkar be purchased by Start Up in the event that the parties could not agree on the terms of the continued involvement of Mr. Oswald and Mr. Mhamunkar in the reorganized group. [165] Start Up further submits that the MOU is invalid as the shares to be purchased are not identified with sufficient certainty. I reject this submission. The shares are identified as being the shares in ICTC held by the "second party". The "second party" is defined in the MOU as meaning Mr. Oswald and Mr. Mhamunkar. Hence, it is the shares of ICTC in the names of Mr. Oswald and Mr. Mhamunkar that are the subject of the MOU. There is no uncertainty and no ambiguity as to the shares to be purchased. It is agreed that as of July 11, 2015, Mr. Oswald held 7,458 shares in ICTC in his own name and for his own benefit and that he also held an additional 392 shares in trust for Mr. Mhamunkar. Those are the shares that

are the subject of the MOU. [166] Start Up further submits that the MOU is invalid as a specific completion date is not set out in the MOU. I also reject this submission. There is no completion date specified because the sale under option B was not to take place unless and until the parties failed to reach agreement on option A. It was therefore not necessary, and indeed would have been counterproductive, to have a specific date under option B. The sale under option B was to be completed only if and when the parties failed to reach agreement on option A. It is clear that by April 23, 2016, the date of Mr. Oswald's demand under option B, the parties had failed to come to agreement on option A. Is the MOU Unenforceable as Being Merely an Agreement to Agree? [167] Start Up submits that the MOU was nothing more than an agreement to agree. It points to various phrases in the MOU that it says indicate there was to be further negotiation and agreement. More specifically, Start Up points to the following phrases in the MOU: a) Start Up "is in the process of increasing its shareholding and will be buying out the shares of all shareholders except [Mr. Oswald and Mr. Mhamunkar] in order to consolidate the business"; b) Start Up is "obligated not to execute an agreement with [Mr. Oswald and Mr. Mhamunkar] and need[s] to defer a written agreement before the share transfer process with the

sellers is completed"; and c) "the parties are still negotiating on the actual valuation & role in the new entity prior to as well as post restructuring, [Start Up] promises to offer one out of the two options as below ". [168] None of the above phrases from the MOU render option B of the MOU an agreement to agree. [169] The first phrase, that Start Up was in the process of purchasing the shares of the shareholders other than Mr. Oswald and Mr. Mhamunkar, is a mere statement of what was factually occurring. The shares of Mr. Oswald and Mr. Mhamunkar were not being purchased immediately. Rather, they were to be purchased at a future date if the parties could not come to an agreement under option A or if option A was otherwise frustrated. [170] The statement in the MOU that Start Up is "obligated not to execute an agreement with [Mr. Oswald and Mr. Mhamunkar] and need[s] to defer a written agreement before the share transfer process with the sellers is completed" has been addressed above. As I indicated, this statement is merely in reference to deferring the execution of the formal documentation that would be necessary to give effect to the agreement that is contained in the MOU. It does not render the MOU an agreement to agree. [171] The statement in the MOU that "the parties are still negotiating on the actual valuation & role in the new entity" is in reference to the fact that

the parties were still in the process of negotiating the future roles of Mr. Oswald and Mr. Mhamunkar in the reorganized group and what, if any, shareholdings they would have in the new parent company. This is all in reference to option A, which required the parties to negotiate both employment agreements and the precise terms of Start Up's purchase of Mr. Oswald and Mr. Mhamunkar's ICTC shares, or the conversion of their shares to shares of the new parent company, depending on what the parties ultimately agreed on. However, under Option B there was no need for further negotiation, and there was no further negotiation, as the essential terms had been agreed on. Option B undoubtedly required further documentation to formally effect the transfer of the shares, but this did not render it an agreement to agree. [172] Hence, I find that the MOU is not invalid as being a mere agreement to agree. Was there Consideration? [173] Start Up also submitted at trial that "it is questionable" whether there was consideration given by Mr. Oswald and Mr. Mhamunkar. This submission is without merit and was not pursued with any real vigour. There was consideration. The initial consideration consisted of the mutual promises in the MOU. The ultimate consideration depended on the option selected under the MOU. Under option A of the MOU, the consideration was Mr. Oswald and Mr. Mhamunkar's agreement

to continue with the reorganized company. Under option B of the MOU, the consideration was the transfer of the shares of Mr. Oswald and Mr. Mhamunkar to Start Up upon payment of the price. [174] Accordingly, I find that pursuant to option B of the MOU, once the parties failed to come to an agreement as to the terms upon which Mr. Oswald and Mr. Mhamunkar would continue with the reorganized group, Start Up was obliged to purchase the shares of Mr. Oswald and Mr. Mhamunkar in ICTC for the price of $3,109,368. Did Start Up Breach the MOU? [175] Start Up clearly breached the contract contained in the MOU. By email dated April 3, 2016, Mr. Oswald made a formal demand pursuant to option B of the MOU. His demand was not acceded to. Instead, Start Up commenced the criminal complaint and multiple civil actions. It is common ground that Start Up has not paid the amount that I have found it agreed to pay under the MOU. Hence, it is in breach. Is Start Up Entitled to the Remedy of Rescission Based on Misrepresentation? Pleadings and Submissions [176] In the alternative to its submissions that the MOU is not an enforceable contract, Start Up pleads that it is entitled to an order of rescission on the grounds of misrepresentation. At paragraph 22 of its amended response to civil claim, Start Up pleads that: Mr. Oswald and Mr. Mhamunkar misrepresented the profitability of Hero India as of December 31, 2014; failed to advise Start Up of various tax liabilities, Provident Fund dues owing and other accounting issues prior to July 2015; and misrepresented the EBITDA of Hero India, as of December 31, 2014, as being approximately $1.8 million when it was, in fact, negative $3 million.

22. Through their provision of Hero India's financial information to the ICTC Group and their written and oral communications with Alessandro Mr. Sacchet as the representative of Start Up before and around July 2015, Mr. Oswald and Mr. Mhamunkar knowingly or in the alternative, negligently misrepresented to Start Up the profitability of Hero India as at December 31, 2014. Mr. Oswald and Mr. Mhamunkar did not advise Start Up of the Tax Liabilities, Provident Fund Dues, and Accounting Issues prior to July, 2015, when Start Up determined the value of the Acquired Shares, and entered into the MOU with Mr. Oswald and Mr. Mhamunkar. Mr. Oswald and Mr. Mhamunkar provided to Start Up an EBITDA of Hero India as at December 31, 2014 that did not take into account the Tax Liabilities, Provident Fund Dues, and Accounting Issues. Mr. Oswald and Mr. Mhamunkar advised Start Up that the EBITDA of Hero India as at December 31, 2014 was $1,769,920 CAD, when in fact it should have been approximately -$3+ million CAD (the " Misrepresentations"). [177] At paragraph 29 of the amended response to civil claim, Start Up pleads that if Mr. Oswald and Mr. Mhamunkar had accurately represented the EBITDA of Hero India, the valuation of their shares in ICTC would have been $286,000. [178] The "Tax Liabilities, Provident Fund Dues, and Accounting Issues" referred to in paragraph 22 of the amended response to

civil claim are further defined and detailed elsewhere in the amended response to civil claim: a) The Tax Liabilities are addressed in paragraph 10 and include liabilities for VAT, income tax and service tax. With respect to VAT, it is pleaded that between 2006 and 2015 VAT liabilities totalling approximately ₹104.7 million were incurred (₹54.4M, ₹12.9M, ₹23.2M, and ₹14.2M) because Mr. Oswald and Mr. Mhamunkar falsely represented to tax authorities that manufacturing activities were carried out at a facility located in Daman to achieve a lower tax rate. With respect to income tax it is alleged that income tax liabilities of approximately ₹6.2 million were incurred for the period from 2006-2014 and ₹17,380 for the period from 2014-2015. With respect to service tax, it is alleged that liabilities of ₹681,499 were incurred for the period from 2008-2009 and approximately ₹3.6 million for the period from 2012-2015. b) The Provident Fund dues are addressed in paragraph 11 where it is alleged that during the period from April 2012 to September 2015, dues were incurred in the amount of approximately ₹41.2 million. c) The "Accounting Issues" are addressed in paragraph 18 where it is pleaded that, during the course of investigations conducted after October 2015, other significant issues were discovered including: i. Payments were made to suppliers for goods and services not delivered,

and Mr. Mhamunkar advised that portions of these payments were used to make "indirect and unofficial payments to the Department/Commissioner of Sales Tax" in an effort to reduce the VAT liability; ii. Fixed assets were over-reported by ₹1.4 million ; iii. Inventory was over-reported by approximately ₹14.1 million; iv. Accounts receivables were over-reported by ₹16.9 million; v. Losses from uncollectible advances in the amount of approximately ₹3.1 million were not recorded; vi. Costs of approximately ₹4.6 million were improperly or incorrectly assigned; and vii. The "fictitious" purchase of a property and subsequent payments that Mr. Mhamunkar advised were used to make "indirect and unofficial payments to the Department/Commissioner of Sales Tax". [179] The essence of Start Up's case is that the December 31, 2014 Financial Statement of Hero India was false because it did not reflect the various tax liabilities, Provident Fund dues and the other accounting issues and because Mr. Oswald and Mr. Mhamunkar did not correct those inaccuracies by advising Start Up of the true state of affairs prior to July 2015. Start Up says that if these matters had been reported and taken into account, the true state of the profitability and EBITDA of Hero India, and by extension the EBITDA of ICTC, would have been known. [180] Start Up submits that all of the requirements of rescission have been

made out. More specifically, and in very brief summary, it submits that Mr. Oswald and Mr. Mhamunkar, by virtue of their positions at Hero India, were responsible for the financial statements of Hero India and, in any event, reviewed and signed the various financial statements of Hero India. Start Up submits that the December 31, 2014 Financial Statement of Hero India, when incorporated into the Consolidated Financial Statement of ICTC, resulted in an EBITDA and net profit for ICTC that was false because the tax liabilities, Provident Fund dues and other accounting issues of Hero India were not taken into account. It concedes that some of those liabilities relate to the period subsequent to December 31, 2014, but submits that most were incurred prior to December 31, 2014. Start Up submits that those liabilities ought to have been recorded in the December 31, 2014 Financial Statement, or that Mr. Oswald and Mr. Mhamunkar ought to have disclosed these liabilities prior to July 2015. [181] Mr. Oswald and Mr. Mhamunkar submit that none of the requirements for rescission have been made out by Start Up. Legal Principles Applicable to Rescission [182] I have been referred to a multiplicity of case authorities dealing with rescission. However, there is no real dispute between the parties as to the principles applicable when determining the availability of the remedy of rescission, and

it is unnecessary to address the many authorities I was referred to. The general principles and requirements for rescission were most recently set out by the Court of Appeal in Zhang v. Tsai, 2017 BCCA 371, citing Kingu v. Walmar Ventures Ltd., 10 B.C.L.R. (2d) 15, 1986 CanLII 142 (C.A.). The Court in Zhang held: [30] Rescission is a remedy in cases of misrepresentation and fraud. If the Purchase Contract was induced by misrepresentations by the realtor and purchaser, and the purchaser acted in concert with the realtor, the contract may be voidable: see, for example, Bank of Montreal v. Southcombe, 2012 ABQB 20. Likewise, it is a basic principle of contract law that where a party enters into a contract having been misled by fraudulent misrepresentation, the contract is voidable at the instance of the aggrieved party: Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 CanLII 129 (SCC), [1989] 1 S.C.R. 426 at p. 473. [31] Madam Justice McLachlin (as she then was) in Kingu v. Walmar Ventures Ltd. (1986), 10 B.C.L.R. (2d) 15 (C.A.), referred to the requirements the plaintiff must meet to receive rescission. Those requirements were described thus: (a) A positive misrepresentation must have been made by the defendant. Where the defendant owes a fiduciary duty to the plaintiff, as it may be contended Chmilar did to the plaintiffs in this case, failure to disclose material facts may

suffice: Laskin & Bache & Co. Inc. (1972), 23 D.L.R. 385 (Ont. C.A.); Waddams, The Law of Contract, 2nd ed., p. 262. (b) The representation must have been of an existing fact: Anderson v. Pacific Fire and Marine Insurance Co. (1872), L.R. 7 C.P. 65; see also Bisset v. Wilkinson, [1927] A.C.177 (H.L.) (c) The representation must have been made with the intention that the plaintiff should act on it: Peake v. Gurney (1873), L.R. 6 H.L. 377. (d) The representation must have induced the plaintiff to enter into the contract: Shortt v. MacLennan [1959] S.C.R. 3. (e) The plaintiff must have acted promptly after learning of the misrepresentation to disaffirm the contract: Clough v. L.N.W. Ry. (1871), L.R. 7 Ex. 26; Wallbrige v. W.H. Moore & Co. Ltd. (1964), 48 W.W.R. 321 (B.C.S.C.); Dodds v. Millman (1964), 45 D.L.R. (2d) 472 (B.C.S.C.); Bango v. Holt [1971] 5 W.W.R. 522 (B.C.S.C.); Timmins v. Kuzyk (1962), 32 D.L.R. (2d) 207 (B.C.S.C.) (f) No innocent third parties must have acquired rights for value with respect to the contract property: Babcock v. Lawson (1880), 5 Q.B.D. 284. (g) It must be possible to restore the parties substantially to their pre-contract position: Redgrave v. Hurd (1881), 20 Ch. D. 1; Schlote v. Richardson, [1951] O.R. 58 (H.C.J.); McLaughlin v. Colvin, [1941] 4 D.L.R. 568, affd. [1942] 3 D.L.R. 292 (Ont. C.A.); Friesen v. Berta (1979), 100 D.L.R. (3d) 91

(B.C.S.C.); Andronyk v. Williams, [1986] 1 W.W.R. 225 (Man. C.A.). (h) An executed contract for the sale of an interest in land will not be rescinded unless fraud is shown: Redican v. Nesbitt, [ 1924] S.C.R. 135; Shortt v. MacLennan, supra; Krah-Hansen v. Kin-Corn Construction & Developments Ltd. (1979), 13 R.P.R. 22 (B.C.S.C.). [183] Concerning the requirement that the misrepresentation be of an existing fact, it is now settled that misrepresentations pertaining to future events or occurrences are not actionable and do not give rise to rescission: Griffin v. 0904713 B.C. Ltd., 2013 BCSC 273 at para. 59; PD Management Ltd. v Chemposite Inc., 2006 BCCA 489 at paras. 14-20. [184] Start Up submits that the onus of proof is as set out in RC Hotel Ventures Ltd. v. Meristar Sub 2C, L.L.C., 2008 BCSC 918 at para. 18: [18] The burden of proof is on the plaintiff to prove that the defendant made a false representation of a material fact. Once the plaintiff has proved a false representation of a material fact, the evidentiary burden shifts to the defendant to clearly show that the plaintiff was not induced by the false representation. In other words, the defendant must clearly show that the plaintiff did not rely on the false representation: Parallels Restaurant Ltd. The plaintiff need not have relied solely on the representation to establish reliance - so long as it was one of the

several factors contributing to his or her decision: Sidhu Estate v. Bains (1996), 25 B.C.L.R. (3d) 41 (C.A.). [185] Although RC Hotel concerned a claim based on fraudulent misrepresentation as opposed to a defence based on rescission, I have been referred to no other authorities addressing the onus of proof and will apply the shifting onus of RC Hotel. Discussion of Rescission [186] Before commencing my analysis of the tax liabilities, the Provident Fund dues and the other accounting issues identified as constituting the misrepresentation entitling Start Up to rescission, I make three general comments that apply to all of the constituent elements of the misrepresentation. [187] First, the financial statements of Hero India are audited by external auditors on an annual basis. None of the audit reports identified any problems or issues with any of the matters raised by Start Up in its response to civil claim. Moreover, Mr. Rinero admitted both at his discovery and in cross-examination at trial that no documents were discovered during the investigations conducted by Start Up that put Mr. Oswald and Mr. Mhamunkar on notice that there was a problem with tax liabilities, Provident Fund dues or any of the other accounting issues that are raised in this matter. [188] Second, at his examination for discovery, which was read into evidence at trial, Mr. Rinero admitted that it was

reasonable for Mr. Oswald and Mr. Mhamunkar to rely upon the reports of auditors for the various financial statements prepared over the years, which did not identify any of the issues that are raised here. [189] Third, the evidence that has been presented on these matters is, in my view, far from complete. The events giving rise to the tax liabilities, Provident Fund dues and other accounting issues relate to events that occurred in India at Hero India, for the most part after Mr. Oswald and Mr. Mhamunkar left the employ of Hero India. Mr. Oswald and Mr. Mhamunkar therefore had limited knowledge of what happened to give rise to these various issues. However, no one from India with first hand knowledge of the events testified at the trial. Mr. Rinero, as an officer and Director of Hero India, was able to testify to some of the accounting matters and business records, but he had very limited first-hand knowledge of what actually occurred in India. He relied upon people in India to report to him, but it is apparent that this reporting was not fulsome. In fact, the reporting of events to Mr. Rinero appears to have been gravely deficient. The failure to advise him of the withdrawal of the criminal complaint is the most egregious example of this deficiency. The overall result is that there are many gaps in the evidence and unanswered questions. I have little confidence that the

minimal amount of evidence presents a complete picture of what transpired and why. [190] I intend to address first the question of whether the financial health of Hero India was misrepresented as of December 31, 2014, or between December 31, 2014, and July 2015. I will review the evidence in relation to the tax liabilities, the Provident Fund dues and the other accounting issues to determine whether the failure to account for them in the December 31, 2014 Financial Statement of Hero India, or to otherwise report them prior to July 2015, amounted to a misrepresentation of an existing fact. I will then address whether such misrepresentations were material, whether they were made by Mr. Oswald and Mr. Mhamunkar, and finally, whether Start Up relied on the misrepresentations. Were There Misrepresentations? Tax Liabilities [191] As indicated, Start Up submits that various tax liabilities arising from assessments and orders made subsequent to July 2015 should have been either included in the December 31, 2014 Financial Statement of Hero India or otherwise reported to it prior to July 2015. These tax liabilities relate to VAT, income tax and service tax. VAT [192] Start Up says the VAT accounts of Hero India were misreported by over ₹58 million in the December 31, 2014 Financial Statement: a) ₹46,382,389 for the period 2010-2015; b) ₹6,901,871 for the period 2011-2012; c) ₹2,245,553

for the period 2014-2015; and d) ₹3,307,286 for the period 2015-2016. [193] The VAT issue relates to a second factory operated by Hero India in Daman. Mr. Oswald testified that until 2009 all of the manufacturing of Hero India was done in Daman. In 2009 a new factory was opened near Mumbai, but Hero India continued to operate the Daman factory to service the local market. Mr. Oswald's evidence was that, after opening the Mumbai factory, Hero India continued to use the Daman facility because it was located within a zone that is subject to lower VAT rates compared to the factory in Mumbai. He further testified that to take advantage of the lower tax rate, Hero India would sometimes ship goods from the Mumbai factory to the Daman factory for resale. [194] Mr. Mhamunkar gave similar evidence to that of Mr. Oswald. He testified that the Daman factory was seven to eight thousand square feet in size and that the inter-branch transactions had been ongoing for years. He further testified that no questions had ever been raised about the inter-branch transfers. [195] The Daman factory and its preferential tax status was also known to Mr. Traub, who testified that the other shareholders were also aware of it. [196] It is undisputed that on October 6, 2015, the Indian tax authorities presented themselves at the offices of Hero India and conducted an audit relating to the inter-branch

transfers. It is further undisputed that as a result of that audit, payments of additional VAT were required to be made by Hero India. VAT returns for the 2009-2015 period were revised and re-filed by Hero India. According to the evidence and calculations of Mr. Rinero, the net result of the October 2015 VAT assessment was a VAT liability of approximately ₹46.4 million. After adjusting for VAT credits available, the VAT liability was ₹14.5 million, which was paid by Hero India. [197] In addition to the October 2015 audit and re-assessment, there were further VAT assessments or reassessments done by the tax authorities that resulted in orders dated: March 30, 2016, for approximately ₹6.9 million for the period 2011-2012; February 27, 2019, for approximately ₹2.2 million for the period 2014-2015; and, February 28, 2019, for approximately ₹3.3 million for the period 2015-2016. [198] Mr. Oswald was present at the offices of Hero India on October 6, 2015, when the tax authorities came, although he had submitted his resignation the day before. He testified that he did not speak with the investigators until the next day, but when they learned he had resigned from Hero India they declined to speak with him further. He testified that he initially did not know the nature of the issue being investigated, but he later learned it was in relation to the branch transfers from Mumbai to Daman,

and that they were disallowed. He also testified to emailing Mr. Sacchet and Mr. Rinero on October 7, 2015, advising them of the presence of the tax auditors and that there was "a situation". He had no further involvement with the VAT authorities or assessments. In cross-examination he was asked whether he was aware of a VAT issue at the time he resigned, to which he replied that he was not. He was also asked in cross-examination if he had ever made inquiries into whether the appropriate VAT tax was being paid. He responded that he relied on the Finance Manager of Hero India and the auditor for that. [199] Mr. Mhamunkar testified that he was taken completely by surprise by the unannounced appearance of the tax authorities on October 6, 2015. He said that he had no warning that they were coming or that anything was amiss. He met with the authorities who said they wanted to scrutinize the books, which they did. He drove with one of the officers to Daman, showed him around the factory, and retrieved some of the records from there for review by the authorities. [200] Mr. Mhamunkar further testified that Tarini Sadhu, the Finance Manager, was the person at Hero India that primarily dealt with the tax authorities in relation to this issue. There was also a consultant involved that had been hired. On October 8, 2015, Mr. Mhamunkar was advised that a 12.5% tax on transactions between

the two factories was going to be applied, but that Hero India would be allowed to use credits that it had accumulated. He says he was advised by Tarini Sadhu and the consultant that their best option was to pay the amount requested and to use the credits to avoid having to pay a higher amount. He says he spoke with Mr. Sacchet on October 8, and that Mr. Sacchet agreed to this course of action. [201] Accordingly, on October 8, 2015, Mr. Mhamunkar authorized an initial payment of ₹5 million to the VAT authorities. He also testified that the settlement with the VAT authorities required that the VAT returns be revised and that further payments would be required when this was done. In total, the amount expected to be paid was approximately $345,000. By email dated October 13, 2015, Mr. Mhamunkar advised Mr. Sacchet of the VAT payments and of the need to revise the VAT returns. He testified that he received no response to this email expressing any concern about the settlement with the VAT authorities or asking him to not make the VAT payments. [202] On October 22, 2015, Mr. Mhamunkar wrote another email to Mr. Sacchet and Mr. Rinero in which he advised that they had revised the VAT returns for the years under scrutiny and further advised of various meetings and steps yet to be taken. Mr. Sacchet responded to this email simply thanking him for the update and his hard work. [203] Mr.

Rinero replied to Mr. Mhamunkar's October 22 email on October 26, 2015. In this email, Mr. Rinero stated that neither he nor Mr. Sacchet had confirmed or affirmed the actions taken by Hero India in relation to VAT. He further complained that actions had been taken without authorization, and that it appeared to him that the VAT issues had arisen because of lack of diligence by the board of directors of Hero India over the past years. This email came as a surprise to Mr. Mhamunkar, who again said that he had spoken with Mr. Sacchet several times and was never told not to deal with the VAT issues the way he had. In respect of Mr. Rinero's allegation that the VAT issue arose because of a lack of diligence, Mr. Mhamunkar testified that Hero India had always had an accountant as Finance Manager, as well as an external auditor, and neither of them had ever identified this tax issue before. [204] Mr. Mhamunkar replied to Mr. Rinero's email on October 27, 2015. This email related to various matters including the VAT issue, and set out the various steps Mr. Mhamunkar had taken to keep Mr. Sacchet and Mr. Rinero informed. [205] Neither Mr. Oswald nor Mr. Mhamunkar had any evidence to give relating to the VAT orders made in March 2016 and February 2019. [206] Start Up submits that Mr. Oswald and Mr. Mhamunkar caused Hero India to incur VAT liability by falsely representing to the tax

authorities that a large amount of its manufacturing occurred in the Daman facility. Start Up relies heavily on the evidence of Mr. Rinero and admissions he says were made to him by Mr. Mhamunkar while he was visiting India in December 2015. [207] Specifically, Mr. Rinero testified that Mr. Mhamunkar told him the VAT issue arose because the Daman facility had been declared as a manufacturing site for VAT purposes but was, in fact, not a real manufacturing site at all. He further testified that Mr. Mhamunkar told him physical goods were not shipped between the two factories but that fake entries were made in the accounting records as though goods had been shipped. He was told that this was done to obtain the tax advantage that is given to factories in Daman. He further testified that he confirmed what Mr. Mhamunkar had told him by looking at the accounting records. It was his evidence that the Daman transactions were not a normal activity, and it was readily apparent that the recorded transactions were not real. [208] Mr. Rinero further testified to other confessions or admissions made by Mr. Mhamunkar during his visit in December 2015. Although I will deal in detail with these other aspects of the alleged confession later in these reasons, I note here that he testified that Mr. Mhamunkar admitted to paying bribes to tax authorities and to falsifying accounting records to hide

the bribes. [209] I do not accept any of the evidence of Mr. Rinero in relation to the alleged confession, which is completely denied by Mr. Mhamunkar. First, and significantly, his testimony on this point is completely uncorroborated by any contemporaneous written records. Second, immediately upon returning to Italy from India, on December 10, 2015, Mr. Rinero wrote an email to Mr. Mhamunkar in which he thanked him for his help and cooperation during his visit. The lack of any contemporaneous written records and the friendly tone of the December 10 email are not consistent with him having recently heard a confession of a multi-year tax fraud, of bribes to officials, and of falsified accounting records over several years. This is especially so when one considers Mr. Rinero's email of October 27, 2015, wherein he did not hesitate to make accusations of mismanagement by the previous managers and directors of Hero India. [210] I also reject the evidence of Mr. Rinero in relation to the alleged confession for the following reasons: a) The part of the confession relating to falsifying inter-branch transactions was not put to Mr. Mhamunkar during his cross-examination. He was asked about his dealings with the tax authorities and whether there had been bribes asked for or paid to authorities, but he was not asked about fake entries in relation to inter-branch transactions; b) It

should have been an easy matter for Start Up to prove that the Daman factory was not a manufacturing facility, a central part of the alleged confession. All that was required was for Start Up to call a single witness from Hero India who had been to the Daman factory to so testify. This could have been easily arranged but it was not; c) Mr. Rinero's evidence that his review of the financial records indicated the transactions were not real is simply not believable given that the financial statements of Hero India were audited annually and the auditors never questioned the inter-branch transfers. If it was so apparent from the records that the transactions were not real, the auditors would have noticed; and d) Finally, Mr. Rinero acknowledged that the Daman site existed and that it was closed in 2017. Start Up offered no evidence as to what was done at the Daman site if it was not a factory. [211] Other than the alleged confession by Mr. Mhamunkar to Mr. Rinero, which I reject, there is no reliable evidence that either Mr. Oswald or Mr. Mhamunkar knew or ought to have known that Hero India had underpaid VAT prior to October 2015 when the VAT audits began. I accept Mr. Oswald and Mr. Mhamunkar's testimony that prior to October 2015, they had no knowledge of any VAT issues. Further, they had no reason to even suspect there might be VAT issues. It is clear that the inter-branch

transactions had been occurring since 2009 and no questions had ever been raised concerning those transactions. Importantly, Hero India was subject to a mandatory annual audit and none of the audits ever questioned the treatment of the inter-branch transactions or raised any issues relating to VAT. [212] I accept that an innocent misrepresentation does not require knowledge on the part of the representor that the representation was false. Nevertheless, the misrepresentation must still have been false when it was made. [213] In the absence of the confession from Mr. Mhamunkar, can it be said that the December 31, 2014 Financial Statement was false or inaccurate because it failed to take into account and reflect the VAT liabilities assessed later? In my view it cannot. The treatment of VAT expenses and liabilities in the December 31, 2014, Financial Statement of Hero India was exactly the same as it had been since 2009. It was not until October 2015 that any issue arose as to the inter-branch transactions and the treatment of VAT. There was no reason for anyone to believe prior to October 2015 that there were any VAT issues. It was future events, the VAT audits by tax authorities, that created the VAT liabilities. As of December 31, 2014, and prior to July 2015, it cannot be said that the reporting of VAT expenses and liabilities was false. [214] I also note that there is

insufficient evidence before me as to why the VAT was reassessed. Was it due to a change in the law? Was it due to a change in tax policy? Was it because of a bribe paid or not paid? Was it because of a personal vendetta? I simply do not know. Further, there is no evidence before me from which I can conclude that the re-assessments are or were correct as opposed to the initial reporting of VAT. In fact, not all of the assessments have been paid and some are apparently subject to an ongoing challenge. The evidence before me is that, of the approximately ₹58.5 million in VAT allegedly assessed, only a small portion has been paid. [215] Finally, none of the witnesses who testified before me had a good understanding of VAT or of the reasons why it was re-assessed. Both Mr. Oswald and Mr. Mhamunkar had little knowledge of the workings of VAT and deferred to the Finance Manager of Hero India who had primary responsibility for VAT. There was also a consultant involved that Hero India had retained. Neither the Finance Manager nor the consultant testified. Mr. Rinero likewise had very little direct knowledge of the VAT issue or of the operations in India. He relied upon personnel in India to provide with him information, but much of the documentation in evidence appeared to be incomplete and was difficult to understand, in part due to language difficulties. The court would have

benefitted from hearing a knowledgeable witness such as the Finance Manager or the consultant who could have properly and fully explained the reasons for the VAT assessments. [216] In my opinion, Start Up has not discharged its onus of proving on a balance of probabilities that, as of December 31, 2014, or prior to July 2015, the VAT position of Hero India as reflected in the December 31, 2014 Financial Statement, was inaccurate, wrong or false, or that the profitability or EBITDA of Hero India was misrepresented. [217] Before leaving the VAT issue, I note that Start Up pleads that Mr. Oswald and Mr. Mhamunkar paid part of the VAT liability without consulting with ICTC or the shareholders of ICTC. In my view, this pleading is irrelevant to the issue of rescission. Nevertheless, I accept the evidence of Mr. Mhamunkar, as supported by contemporaneous emails, that he kept Mr. Sacchet and Mr. Rinero advised of the status of the VAT and of the intended VAT payments. Service and Income Tax [218] In addition to the VAT assessments, the tax authorities issued notices of assessment to Hero India for service tax and for income tax. Two service tax notices were issued in 2016: one for ₹681,499 for which the relevant tax years are not known; and one in relation to the years 2012-2015 and which appears to be in the amount of ₹328,135. Two income tax notices were issued: one in 2016 in the

amount of ₹6,213,238 for the years 2006-2014; and one in 2017 in the amount of ₹17,380 for the years 2014-2015. [219] Mr. Oswald had no evidence to give in relation to service tax and income tax assessments as these issues arose long after he had left the company. [220] Mr. Mhamunkar also had limited evidence to give in relation to the service tax and income tax assessments. He testified that service tax is a tax on services that is required to be paid. His evidence was that service tax was determined by the Finance Manager and that he played no role in this. He further testified that when he left the company in January 2016 he was not aware of any service or income tax owing. [221] Mr. Rinero also had limited evidence to give in relation to the service and income tax assessments other than to identify the various demands made and the journal entries and payments related to them. His spreadsheet included adjustments to the December 31, 2014 Financial Statement for service tax in the amounts of ₹681,499 and ₹3,607,851, and for income tax in the amounts of ₹6,213,238 and ₹17,380. He justified these adjustments by referencing the correspondence and notices from the authorities. He acknowledged, however, that not all of the assessments had been paid and some were still pending. [222] The actual documentary evidence relating to service and income tax is sparse: a) In respect of Mr.

Rinero's first service tax calculation, there is a letter dated November 8, 2016, from the tax authorities that references the amount demanded as ₹681,499 and advises of a hearing on November 17 or 24, 2016. This appears to relate to the years 2013-2014. I do not know whether this hearing occurred or what happened. Mr. Rinero's evidence was that this amount has not been paid and is still pending. b) In respect of Mr. Rinero's second service tax calculation, there is a letter dated July 2016 from the tax authorities advising that during their audit they determined service tax had been short-paid during the period from 2012-2014. According to the notice, the total service tax short-paid was ₹76,810 for the period from April 2012 to March 2013, ₹112,472 for the period from April 2013 to March 2014, and ₹138,853 for the period from April 2014 to March 2015. The total of these amounts is ₹328,135. However, Mr. Rinero's calculation and his evidence was that ₹3,607,851 was owed and paid for service tax. This amount is not supported by the evidence. At most, the amount should be ₹328,135. c) Mr. Rinero's first income tax calculation is that ₹6,213,238 was owed for the years 2006-2014. This amount is confirmed by a letter dated July 4, 2016, from the tax authorities requesting this amount be paid within seven days. This amount has not been paid, as confirmed by Mr. Rinero. The status of

this demand is not known. d) Mr. Rinero's second calculation of income tax owing is in the amount of ₹17,380 for the period 2014-2015. The only evidence in support of this is what appears to be a computer print-out referencing a demand made on December 23, 2016, and the amount. This amount was paid. [223] As I have noted, Mr. Rinero's spreadsheet included adjustments to the December 31, 2014 Financial Statement for service tax in the amounts of ₹681,499 and ₹3,607,851 and for income tax in the amounts of ₹6,213,238 and ₹17,380. In my view, the evidence does not support these adjustments. [224] First, the service tax adjustment of ₹3,607,851 is clearly not supported by the evidence. The demand from the tax authorities was for ₹328,135. Second, two of the demands, one for service tax and one for income tax, have not been paid. Mr. Rinero testified that these demands are still pending but he has no personal knowledge of these matters and he did not identify the source of his information. This is another matter that could have been easily resolved by having the appropriate person from Hero India testify as to their negotiations and other dealings with the authorities. At a minimum, there ought to be further correspondence with the authorities. [225] I am also reluctant to infer that these demands are still outstanding and pending as I am far from satisfied that Mr. Rinero is kept

updated by his subordinates in India. His subordinates failed to keep him updated on the status of the criminal investigation. Also, as will be seen, his subordinates failed to keep him updated on the status of the Provident Fund liabilities. I therefore decline to find that the demands made July 4, 2016, for income tax and November 8, 2016, for service tax are still pending. They could have been abandoned, withdrawn or otherwise resolved. I simply do not know as the proper evidence has not been presented. [226] In any event, the evidence falls far short of establishing that either Mr. Oswald or Mr. Mhamunkar knew or had any reason to suspect that proper amounts for service and income tax had not been paid prior to July 2015. As with the VAT assessments, the service tax and income tax demands were made in 2016 or 2017 and were therefore future events. The tax liability created by them did not exist in December 2014 or July 2015. There is no evidence that the December 31, 2014 Financial Statement could have or should have somehow reflected these unknown demands. Finally, there is minimal evidence before me as to why these assessments were made. The demands themselves do not really specify what was underreported, misreported or disallowed. [227] In the circumstances, Start Up has not discharged its onus of proving on a balance of probabilities that the December 31, 2014 Financial

Statement was inaccurate, wrong or false, or that the profitability or EBITDA of Hero India was misrepresented because of the subsequent issuance of service tax and income tax notices. These tax notices were not anticipated by anyone and have not been explained. For two of the demands, their status is unknown. Provident Fund [228] Start Up leads that under the management of Mr. Oswald and Mr. Mhamunkar, Hero India incurred dues from the Employees' Provident Fund Organization for the period 2012-2015, which were not paid. As with the tax liabilities, it says the liabilities to the Provident Fund were not recognized in the December 31, 2014 Financial Statement of Hero India resulting in a misrepresentation of the profitability and EBITDA of Hero India. [229] The documentary evidence in relation to the Provident Fund consists of: a) A letter from the Provident Fund dated February 10, 2016, requesting documentation from Hero India and advising that it "may be directed" to remit payment of ₹41,171,914 to the Provident Fund in respect of the period from 2012-2015; b) A letter from the Provident Fund dated February 15, 2016, advising that the case was adjourned to February 24, 2016; c) A document entitled "Daily Order" dated March 14, 2019, addressed to Hero India which attached an inspection report dated February 13, 2019. The inspection report assessed the dues owing for the period

from April 2012 to March 2016 at ₹2,142,262; and d) A letter from the Provident Fund dated May 6, 2019, addressed to Mr. Mhamunkar that attached an order dated April 30, 2019. From the contents of the April 30 order, it is apparent that this was an appeal to the Regional Commissioner of the Provident Fund of the dues assessed in the inspection report made on February 13, 2019. The Regional Commissioner assessed the dues owing at ₹2,065,833 for the period from April 2012 to September 2015. [230] The witnesses that testified had very little evidence to give in relation to the Provident Fund dues alleged to be owing. Mr. Oswald testified that he knew nothing about the Provident Fund dues. Mr. Mhamunkar gave general evidence about the nature of the Provident Fund. He testified that the Provident Fund payments made by Hero India were determined by the Human Resources and Finance Managers of Hero India and that he had no reason to believe that the amounts owed were not being paid. He had never seen any notices from the Provident Fund advising that Hero India had underpaid. He was never advised by the auditors of any issues with Provident Fund payments. He also denied that he concealed non-payment of Provident Fund dues. [231] Mr. Rinero purported to give evidence on the Provident Fund. In his spreadsheet he used the ₹41,171,914 figure contained in the February 10, 2016, letter from

the Provident Fund. He testified that he was aware the amount had been reduced and thought it had been reduced by half but he nevertheless used the larger number in his calculations. He also testified that an amount of ₹20 million was still under discussion with the Provident Fund. [232] In cross-examination, Mr. Rinero testified that he was not aware of the April 30, 2019, order of the Provident Fund until he learned that Mr. Mhamunkar had obtained a copy of the Order. He stated that his people in India had not provided him with the order. In this regard, I note that Mr. Rinero wrote an email on May 13, 2019, to the Chief Operating Officer of Hero India, Chandrasekhar Ella, advising that he had just received a copy of the April 30, 2019, order from Mr. Oswald or Mr. Mhamunkar as a production in this legal proceeding and that he had been unaware of it. He urgently requested an update. Mr. Ella responded on May 14, 2019, advising that he thought the amount of the order would be reduced but that he would check with their consultant. He also advised that they expected to receive a second order from the Provident Fund. There then followed a back and forth exchange of emails where Mr. Rinero attempted to discover exactly what had transpired and was transpiring with the Provident Fund issue, but the responses he received were cryptic. [233] Mr. Rinero's treatment of the Provident

Fund dues and his evidence related to them completely undermines his credibility. First, it is clear from the documentary evidence provided that the Provident Fund dues that have been ordered to be paid are in the amount of ₹2,065,833 for the period April 2012 to September 2015. Mr. Rinero was aware of this by the time of the trial but nevertheless, included the amount of ₹41,171,914 in his calculations. Second, it is apparent that Mr. Rinero has no personal knowledge of the Provident Fund issue and relies entirely on people in India to give him information. However, the people in India are not keeping him informed, as evidenced by the fact that they did not advise him of the April 30, 2019 Order. Third, Mr. Rinero purported to give evidence that the Provident Fund issue is still outstanding. However, the only evidence of this is the email responses of Mr. Ella where he referenced the possibility of a second order, but also said that proceedings in respect of the second order had not started and that he did not know the amount. Mr. Ella's emails are hearsay and I do not consider the contents of his emails to be reliable. [234] It is also noteworthy that the period of the second order is not known. It could well be for 2016-2019. [235] In my view, Start Up has not proven that Hero India owes ₹41,171,914 in Provident Fund dues. At best, the amount owed is ₹2,065,833 for the

period from April 2012 to September 2015. However, there is no evidence that Mr. Oswald and Mr. Mhamunkar were aware that these dues were owed or that they ought to have been aware. It follows that they also had no knowledge that the Provident Fund account in the accounting records of Hero India was false or inaccurate. Further, there is insufficient evidence for me to determine why the authorities reassessed the Provident Fund dues or that the amounts originally claimed by Hero India were false or inaccurate. The February 10, 2016, letter from the Provident Fund suggests that Hero India may simply not have provided sufficient records during the audit to support the amounts it had previously claimed. Again, the absence of testimony from a witness with actual knowledge of the Provident Fund assessments, such as Mr. Ella or perhaps the consultant that had been hired, is a glaring omission. [236] In my opinion, Start Up has not discharged its onus of proving on a balance of probabilities that the December 31, 2014 Financial Statement was inaccurate, wrong or false, or that the profitability or EBITDA of Hero India was misrepresented because of a failure to properly report the Provident Fund dues owing. Bribes and the Jai Mata purchase [237] Start Up makes two allegations in its pleadings related to alleged bribes paid by Mr. Oswald and Mr. Mhamunkar. First, it says that Mr. Oswald

and Mr. Mhamunkar disguised bribes to public authorities in the books of Hero India by recording them as payments to suppliers. Second, it says that they orchestrated a fictitious purchase of a commercial property to again funnel bribes to public authorities. [238] The pleading in relation to payments to suppliers is at paragraph 18(a) of Start Up's amended response to civil claim: Mr. Oswald and Mr. Mhamunkar, one of them, or Mr. Mhamunkar at the direction of Mr. Oswald caused Hero India to make payments to suppliers for services and goods never received, as detailed in Schedule A. Mr. Mhamunkar advised Gabriele Mr. Rinero and Stefano Lombado verbally in person in December 2015 during the Investigations that portions of these payments were used to make indirect and unofficial payments to the Department I Commissioner of Sales Tax in or around October 2015 in an effort to reduce the VAT Liability, as assessed in 2015. [239] The suppliers to whom the payments were allegedly made, and the associated invoices and amounts, are set out in Schedule A to the amended response to civil claim. These are: a) Prakash Pumps - invoice dated October 20, 2015, in the amount of ₹3.3 million; b) Vikas Industries - invoices dated October 21 and November 10, 2015, in the amounts of ₹2 million and ₹2.5 million; c) Tanot Contractor - invoices dated October 22 and 31, 2015, in the amounts of ₹650,000

and approximately ₹775,000; and d) Bholanth Precision Engineering - invoice dated October 23, 2015, in the amount of approximately ₹2.8 million. [240] Schedule A to the amended response to civil claim also included four journal entries of payments to Tanot Contractor and Bholanth Engineering in October and November 2015. [241] The pleading in relation to the purchase of the fictitious property is at paragraph 18(g) of Start Up's amended response to civil claim: Mr. Oswald and Mr. Mhamunkar, or Mr. Mhamunkar at the direction of Mr. Oswald, implemented the alleged purchase by Hero India of a fictitious property at Office No. 301, Milan Garnient, Milan Subway, Santacruz West Mumbai, 400054 from Jai Mata Di Realty, without authorization. Mr. Mhamunkar advised Gabriele Mr. Rinero and Stefano Lombado verbally in person in December 2015 during the Investigations that the purchase of this property was fictitious and that portions of the payment to the seller, Jai Mata Di Realty, were used to make indirect and unofficial payments to the Department / Commissioner of Sales Tax in an effort to reduce the VAT Liability, as assessed in 2015. [242] Before addressing the veracity of the allegations concerning bribes made, I wish to note that the various bribes are alleged to have been made in October or November 2015, and that the payment to Jai Mata was also made in October 2015. The impugned

payments were therefore made well after the purchase of the Traub and Balmer shares and after the MOU was entered into. They were obviously not included or accounted for in the December 31, 2014 Financial Statement of Hero India since the transactions had not yet occurred. It follows that these transactions could not have led to any misrepresentation in the December 31, 2014 Financial Statement of Hero India, nor could there have been a failure to advise of these transactions prior to July 2015. This is sufficient to dispose of the allegation that these alleged bribes constituted a component part of the misrepresentation of the financial health of Hero India in December 2014 or prior to July 2015. Nevertheless, due to the seriousness of the allegations made, I will address the evidence relating to them. [243] In the course of their evidence, Mr. Oswald and Mr. Mhamunkar addressed the alleged improper payments to suppliers and the fictitious purchase of property from Jai Mata. Both denied paying bribes or directing others to pay bribes. [244] Concerning the specific payments to the suppliers listed in Schedule A to Start Up's amended response to civil claim, Mr. Oswald had little evidence to give, as these payments occurred after he had left Hero India. Mr. Mhamunkar, however, gave extensive evidence. He testified as to what each supplier had been retained to do, identified the

relevant purchase orders and invoices and confirmed that the suppliers had, in fact, performed the work for which they had been retained. More specifically, his evidence in relation to the various suppliers was: a) He testified that Prakash Pumps had been a supplier of mixers to Hero India since 2007 and that he had asked Prakash to develop a dispenser for Hero India. The terms of the contract were that Hero India would pay an advance of ₹1.3 million. He identified the purchase order and also testified that Mr. Sacchet and Mr. Rinero were aware of the contract. He identified an email dated October 13, 2015, in which he advised Mr. Sacchet of the payment of $100,000 "Toward Project cost development of ELD". He testified that this was the payment to Prakash Pumps. b) He testified that Vikas Industries had been a supplier to Hero India for five or six years and that Vikas had been retained to repair plastic injection moulds. He also clarified that there was only one invoice from Vikas Industries in the amount of ₹2,531,250 in relation to this work. He speculated that the two amounts in Schedule A to Start Up's amended response to civil claim were for the purchase order dated October 21, 2015, in the amount of ₹2 million and for the actual invoice, which included taxes, dated November 10, 2015. c) In relation to Bholanth Precision Engineering ("Bholanth"), Mr. Mhamunkar testified

that Bholanth had been a supplier of stepper motors to Hero India since 2012 and that it had been retained by Hero India to develop a motor. In cross-examination he explained further that Hero India had previously imported motors from Italy but when the prices of those motors increased, Hero India set out to explore the possibility of developing and building motors in India with Bholanth. Initially, Hero India had hoped to pay for the development costs of the motor through purchases of motors from Bholanth. However, Hero India was not able to purchase a sufficient quantity of motors to cover the development costs, which led Bholanth to invoice Hero India for part of the development cost. d) In relation to Tanot Contractor, Mr. Mhamunkar testified that this supplier had initially worked for Hero India when it built a new factory in 2009 and that it had been retained to build partition walls. [245] Concerning the purchase of the commercial property from Jai Mata, Mr. Oswald and Mr. Mhamunkar gave similar evidence, although Mr. Mhamunkar had more detailed evidence to give. Mr. Oswald was aware of the transaction but it was actually handled by Mr. Mhamunkar. Both confirmed that they had been to the property, that it existed, and that a purchase agreement had been signed. They both also testified that one reason for the purchase of the property was that, when in Italy, they had been

advised by Mr. Sacchet to purchase real estate with excess cash that Hero India had on hand. This was denied by Mr. Sacchet. [246] Mr. Mhamunkar testified that upon returning to India, he commenced looking for property to purchase. He found such a property and entered into discussions with Jai Mata. He identified various letters and emails relating to the purchase. In particular, by letter dated August 17, 2015, he advised Jai Mata that they liked the property and he requested that Jai Mata provide them with terms and conditions of purchase. He also noted in that letter that there was to be a refundable advance payment and delayed completion of the sale. Jai Mata responded by letter dated August 20, 2015, providing the details of the property and the terms of an offer. The offer was open for acceptance for one year. Its terms were that the price was ₹35,000,000, which was to be paid by way of an advance payment of ₹10,000,000 by October 15, 2015, with the balance to be paid before the expiry of the offer. By letter dated October 13, 2015, Mr. Mhamunkar confirmed to Jai Mata that two payments totalling the advance had been made. [247] Importantly, it was Mr. Mhamunkar's evidence that Mr. Sacchet was advised of the purchase of the Jai Mata property. He referenced an email from him to Mr. Sacchet dated October 13, 2015, the day the advance payment was made to Jai Mata. In that

email he specifically advised that $200,000 was put "towards project cost for purchase of commercial property". [248] The purchase of the Jai Mata property did not complete and the advance paid by Hero India was eventually returned. [249] Start Up has not called any witnesses from Hero India to testify that the suppliers identified in Schedule A to its amended response to civil claim did not, in fact, provide the services or perform the work that is identified in the various purchase orders and invoices. Start Up has also not called any witnesses who testified that the contractual arrangement with Jai Mata was fictitious or a sham or was otherwise an illegitimate transaction. Finally, Start Up has not called any witnesses who testified that any of these transactions were for the payment of bribes to public officials. [250] As is apparent from Start Up's amended response to civil claim, Start Up's entire case in relation to the alleged bribes rests on the admission or confession allegedly made by Mr. Mhamunkar to Mr. Rinero and Mr. Lombardo in December 2015. [251] Mr. Rinero's evidence was that during October and November 2015, he and Mr. Lombardo discovered what they considered to be large payments, to four or five suppliers. Mr. Rinero testified that when in India he asked Mr. Mhamunkar what the payments were for and why they were so high. He testified that Mr. Mhamunkar told

him a large portion of the payments was used to funnel bribes to the tax authorities, primarily in relation to the VAT issue. He testified that Mr. Mhamunkar also told him that if the payments had not been made, the VAT assessments would have been higher. He testified that Mr. Mhamunkar identified the suppliers involved as Jai Mata, Bholanth, Tanot, Prakash Pumps, and Vikas. He also testified that Mr. Mhamunkar identified the actual invoices involved. He testified that he gathered the documents involved while he was in India and returned to Italy. [252] During his examination in chief, Mr. Rinero was asked what steps were taken to confirm that the payments constituted bribes. He replied that he asked the "team" in India to contact the suppliers. However, no one from the "team" in India was called to give evidence of any attempts to contact the suppliers involved. [253] In cross-examination, Mr. Rinero confirmed that the confession made by Mr. Mhamunkar relating to bribes was made at the same time as his confession relating to the Daman factory being a sham. He also testified that he was shocked, astonished and appalled by the confessions. He testified that he called Mr. Sacchet about the confession but did not put anything in writing because he was concerned a written record might be a problem later. He also said that he did not put anything in writing to Mr. Mhamunkar for the

same reason. [254] I have already noted that I do not accept any of the evidence of Mr. Rinero in relation to the alleged confession. It is uncorroborated by any contemporaneous written records, and immediately upon returning to Italy from India, on December 10, 2015, he wrote an email to Mr. Mhamunkar that is wholly inconsistent with a confession having been made that shocked, astonished and appalled him. [255] I also reject Mr. Rinero's evidence of the alleged confession because his evidence of the confession at trial differed in very important aspects from his evidence at his examination for discovery. At his examination for discovery, he testified that Mr. Mhamunkar confessed to making payments to a single supplier, an unknown portion of which was given to tax authorities, and that this resulted in a reduction in the VAT assessment. At his discovery he could recall nothing more of the confession. At trial he testified he was told of payments to five suppliers, not just one. At trial he also said that he was given the documents relating to the alleged bribes, something he did not testify to at discovery. Considering that he made no notes of the alleged confession and nothing was put in writing, I find it very difficult to believe that he could recall the confessions with such detail at trial when he could recall very little at his examination for discovery. [256] I also

consider that the criminal complaint authorised by Mr. Rinero and Mr. Sacchet as directors of Hero India on June 30, 2016, is inconsistent with Mr. Rinero's evidence at trial. First, the criminal complaint alleges the Jai Mata transaction was simply a fraud to siphon funds from the company, not a bribery scheme. When confronted with this in cross-examination, Mr. Rinero testified that the bribes were not mentioned because he was told by lawyers that it was not possible to make a complaint about bribes. I find this evidence to be simply unbelievable. Second, the filing of the criminal complaint is not consistent with Mr. Rinero's evidence that he did not want anything in writing about the bribes. Although the complaint did not expressly mention bribes, it was almost certainly going to result in an investigation and exposure of the alleged bribery scheme. [257] Further, the correspondence between Mr. Mhamunkar and Jai Mata relating to the purchase of the property occurred in August 2015 and predated the first VAT audit which occurred in October 2015. Therefore, the purchase could not have been to funnel bribes to the VAT authorities to reduce the VAT assessments since the audits had not yet occurred. [258] Additionally, I reject Mr. Rinero's evidence as it is not consistent with Jai Mata having returned the advance paid to it. If the advance paid by Hero India had been funneled

to tax authorities as bribes, Jai Mata would not have had the funds to return. [259] Finally, as I have already noted, insofar as the bribery scheme relates to payments to suppliers for services not rendered, this is something that could have been easily proven by calling a witness or witnesses from Hero India to testify as to whether the work referenced in the invoices of the suppliers was or was not done by the suppliers. [260] I accept the evidence of Mr. Oswald and Mr. Mhamunkar and reject the evidence of Mr. Rinero. I find that the payments to the various suppliers listed in the Schedule to Start Up's amended response to civil claim were legitimate payments made by Hero India for services rendered by those suppliers and that the purchase of commercial property from Jai Mata was a legitimate transaction entered into by Hero India. The evidence presented by Start Up falls far short of establishing, on a balance of probabilities, that these transactions were illegitimate or fraudulent or made to facilitate the transmission of bribes to public authorities. Fixed Assets and Inventory [261] Start Up alleges that the fixed assets and inventory reported in the December 31, 2014 Financial Statement of Hero India were over-reported or over-valued by approximately ₹1.4 million and ₹14 million respectively. [262] Mr. Rinero testified that as part of the investigation conducted after

October 2015, he received information and documents from Hero India that resulted in write-downs of the fixed assets and inventories of Hero India. Mr. Rinero had no personal knowledge of the fixed assets or inventory of Hero India. He was not involved in any counts of the fixed assets and inventory. He simply received and identified various accounting records and journal entries recording the write-offs. These documents merely indicate that on March 31, 2016, the fixed assets and inventory of Hero India were written-off in the amount of approximately ₹1.4 million and ₹14 million, respectively. They do not disclose why the fixed assets and inventory were written down or when the write-downs were necessitated. In other words, the documents do not necessarily show that the reporting of fixed assets and inventory in the December 31, 2014 Financial Statement of Hero India was false or inaccurate. [263] I again note that no one from Hero India was called to testify as to whether physical inspections or counts of fixed assets and inventory were carried out and, if so, as to the results of those inspections and counts. Further, such a witness could have testified to the reason or reasons for the write-offs. Start Up effectively asks me to infer that the amounts reported in the December 31, 2014 Financial Statement of Hero India for fixed assets and inventory were inaccurate or false

merely because these items were written down in March 2016. Such an inference is not called for. [264] There could be many reasons for the write-offs of fixed assets and inventory. It could be because the assets and inventory never existed or had gone missing and no longer existed. It could be because the assets and inventory, although existing, were deemed to be no longer of use. It could be that there was a change in accounting policies in relation to the useful life of an asset. I simply do not know why the assets and inventory were written off. [265] I also note that there is some evidence that Hero India was having difficulties with its computerized accounting system, called SAP. Mr. Mhamunkar testified that Hero India began using the SAP system in 2014 but that Hero India also continued to use a manual system because of problems with the SAP system. He testified that in March 2015 they discovered a discrepancy between the information in the SAP system and a manual inventory count. The difficulties with the new system continued and are referred to in emails dated November 2015. It is not clear whether those problems were ever resolved. This is important as Mr. Rinero testified that the information used for the write-offs of fixed assets and inventory came from the SAP system. The fact that the SAP system may have been unreliable raises additional questions as to the

validity of the write-offs. [266] I therefore find that Start Up has failed to prove on a balance of probabilities that the values of the fixed assets and inventory of Hero India as reported in the December 31, 2014 Financial Statement were false or inaccurate. Loss on Receivables and Advances [267] Start Up alleges that the December 31, 2014 Financial Statement of Hero India inaccurately reflected the accounts receivable of Hero India and the collectability of advances made to employees. It submits the accounts receivables were overstated by almost ₹17 million and that advances to employees were overstated by approximately ₹3 million. [268] The evidence of these matters consists of spreadsheets prepared from information extracted from the SAP system, various journal entries and the March 31, 2016 Financial Statement of Hero India. At the voir dire I held that all of these documents were admissible, although the weight to be given to them was a matter to be later determined. [269] I am of the view that these documents should be given little weight in relation to whether the accounts receivable and advances were inaccurately reported in the December 31, 2014 Financial Statement. [270] First, there is again no first hand evidence from a person in India as to why the various accounts receivable and advances were declared uncollectible and written off. Indeed, Mr. Rinero did not

know what the Hero India policy was for writing off debts and was unable to give any evidence as to why these particular debts had been written off. This is important, as for some customers some receivables were written off but other debts were not. Also, it is unknown whether there was a change in the accounting policies as to when a debt is deemed to be uncollectible. [271] Second, it is far from clear whether the debts determined to be uncollectible in 2016 were, in fact, uncollectible in December 2014 or ought to have been recorded as uncollectible in December 2014. There is no evidence before me as to the age of the various receivables as of December 2014. They could have been less than one month old or they could have been more than one year overdue. I simply do not know. In fact, and importantly, Mr. Rinero admitted during his cross-examination that some of the receivables that were written-off did not even exist as of December 2014. [272] Third, it is not known what steps, if any, were taken to collect the debts before they were written off. Again, this is important because some of the debts written-off involved companies that were related to Hero India and to Start Up, namely NIT Sales and Hero Latin America. Other debts written off involved companies that Mr. Mhamunkar testified were large entities and good customers of Hero India as of January 2016 when he left the

company. [273] The evidence in relation to the advances to employees written-off suffers from many of the same difficulties as the receivables written-off. The spreadsheet listing the write-offs merely identifies the employees who had left the company as of March 31, 2016 and who owed the company for advances made. The spreadsheet does not indicate when the various employees left the company or when the advances deemed uncollectible were made. It is completely unknown whether the employees listed in the spreadsheet had departed the company before or after December 2014. Therefore, the spreadsheet is simply not evidence of the status of advances made to employees as of December 2014. Again, Mr. Rinero acknowledged in cross-examination that at least some of the advances written off did not even exist as of December 2014. [274] Accordingly, I find that Start Up has failed to prove on a balance of probabilities that the accounts receivable and advances to employees were falsely or inaccurately recorded and reported by Hero India in December 31, 2014. Wrong Assigned Costs [275] Start Up finally submits that errors were made in the assignment of various costs that resulted in an error of ₹4.6 million. The evidence consisted of journal entries adjusting various taxes and costs and a summary of those journal entries. At the voir dire I admitted those documents as business records.

However, the evidence falls far short of establishing exactly what the journal entries are or how they impacted the December 31, 2014 Financial Statement. The journal entries were made on March 31, 2016 and Mr. Rinero had no knowledge of them. He merely testified that these journal entries were made by Mr. Patel of Hero India. Mr. Patel was not called to give evidence as to how these journal entries relate to the December 2014 financial status of Hero India, if at all. Materiality [276] A necessary requirement to establish a right to the remedy of rescission is that the misrepresentation relied on was material. Start Up purports to prove the materiality of the misrepresentations through the spreadsheet of Mr. Rinero. His spreadsheet shows that as of December 31, 2014: the EBITDA of Hero India was $1,769,920; the EBITDA of ICTC was $8,549,935; and, the total value of ICTC, at 6.5 times EBITDA, was $55,574,578. Mr. Rinero then re-calculated those amounts after applying adjustments totalling approximately ₹150 million for the various matters that have been referred to above. Through these calculations, he concluded: the EBITDA of Hero India was, in fact, in a deficit position of -$3,002,847; the EBITDA of ICTC was $3,777,168; and the total value of ICTC, at 6.5 times EBITDA, was $24,551,594. In other words, based on his calculations, the cumulative effect of the various issues was

approximately a 55% reduction in the total value of ICTC, a reduction of approximately $30 million. [277] I would have little hesitation in concluding that the calculated 55% or $30 million reduction in value was material; however, that is not the reduction that has been proven. Mr. Rinero's calculations are based on alleged unreported losses or deductions totalling approximately ₹150 million. However, many of the deductions he made are demonstrably false and he knew they were false. The most significant of these are: a) deductions were made for VAT which totalled approximately ₹58.5 million, yet the actual amount paid by Hero India as a consequence of the VAT assessments was approximately ₹20 million in total; b) deductions were made for service tax in the total amount of approximately ₹4.2 million, yet the amount paid by Hero India as a consequence of the service tax assessments was only approximately ₹1.4 million; c) deductions were made for income tax in the total amount of approximately ₹6,230,000, yet the amount paid by Hero India as a consequence of the income tax assessments was only ₹17,380; d) the deduction for provident fund dues was in the amount of ₹41,171,914, yet the assessed amount was reduced to ₹2,065,833 and it is not known whether this amount has been paid; and e) the deductions of ₹1.4 million in respect of fixed assets, ₹14 million in respect of inventory

losses and almost ₹17 million in respect of accounts receivables have not been proven. [278] Based upon all of the evidence, I find as a fact that Mr. Rinero's deductions of approximately ₹150 million are overstated by at least ₹109 million. In other words, taking the evidence at its most favourable to Start Up, the impact of the various issues identified is approximately ₹41 million or approximately $820,000. This amount represents approximately 2.3% of the consolidated sales of ICTC in 2014 and approximately 5% of the consolidated gross profit of ICTC. In my view, such an amount is not material. [279] In any event, Start Up has failed to prove the misrepresentation is material. It is the value of ICTC shares as of early 2015 that is at issue in this matter. It was the Balmer and Traub shares in ICTC that were purchased by Start Up, and it was the shares of Mr. Oswald and Mr. Mhamunkar in ICTC that were the subject of the MOU. Start Up attempted to submit the evidence and calculations of Mr. Rinero as lay opinion evidence of the value of those ICTC shares. I disallowed this evidence during the voir dire on the basis that the valuation of a subsidiary company, the contribution of that company to the value of its parent, and the valuation of the shares of the parent company are matters of opinion that require specialized knowledge and expertise. There are different methods of

valuing companies and shares, and expertise is required to know what method is appropriate. Expertise is also required for the selection of data to be used in the calculations. Mr. Rinero was not qualified as an expert witness and his evidence was inadmissible as lay opinion. [280] I add that given the many problems that have been identified with Mr. Rinero's spreadsheet and his evidence overall, I have absolutely no confidence in any of his calculations. [281] Accordingly, the misrepresentation is not material and, in any event, there is no proper and reliable evidence before me of the effects of the various assessments, re-assessments and other accounting matters identified on the actual value of the ICTC shares. Did Mr. Oswald and Mr. Mhamunkar Make the Representations? [282] A further difficulty with Start Up's theory of the case is that the misrepresentations it relies on were not made by Mr. Oswald and Mr. Mhamunkar. The alleged misrepresentations are contained in or are derived from the December 2014 financial statement of Hero India and were made by Hero India, not Mr. Oswald and Mr. Mhamunkar. [283] Start Up submits that the misrepresentations can be attributed to Mr. Oswald and Mr. Mhamunkar because they were officers and directors of Hero India, they signed the financial statements, and they were the persons ultimately responsible for the preparation of the financial

statements. Further, Start Up submits that they provided the statements to ICTC knowing the statements would be incorporated into the consolidated financial statement of ICTC. There are several difficulties with these submissions. [284] First, it is the EBITDA and value of ICTC which is ultimately relied upon as having been misrepresented. However, the EBITDA of ICTC and any valuation derived therefrom is contained in the consolidated financial statements of ICTC. These were prepared by Louise Zhang and Mr. Traub, not Mr. Oswald and Mr. Mhamunkar. The consolidated financial statements of ICTC included information from Hero India, but they also included information from all of the other operating divisions of ICTC. [285] Second, although Mr. Oswald and Mr. Mhamunkar were officers and directors of Hero India, the evidence is that the financial statements were primarily the responsibility of and prepared by the Finance Manager of Hero India. The evidence further was that once per year they were audited by external auditors. Mr. Oswald, and to a lesser extent Mr. Mhamunkar, may have had ultimate responsibility by reason of their positions as the Managing Director and Director, but this does not mean that they were the authors of the financial statements or that the information contained in the statements can be attributed to them personally. [286] In my view, Start Up improperly

conflates issues of the duties owed by officers and directors to their company and shareholders with misrepresentation. The issue before me is not whether Mr. Oswald and Mr. Mhamunkar mismanaged Hero India or failed to otherwise discharge the duties they owed to the company and shareholders. The issue before me, ultimately, is whether they personally misrepresented the EBITDA of ICTC and the value of the ICTC shares. There is no evidence that either of them ever made any representations concerning the EBITDA of ICTC. Reliance [287] I note that pursuant to the onus of proof set out in RC Hotel, if I had found that there was a misrepresentation of an existing material fact, then the onus would shift to Mr. Oswald and Mr. Mhamunkar to establish that Start Up did not rely on the misrepresentation in entering into the contract. Although I have not found any such misrepresentations, I nevertheless address reliance as, in my view, Mr. Oswald and Mr. Mhamunkar have established that there was no reliance. [288] There are two factors that indicate there was no reliance on the alleged misrepresentations. First, the evidence falls far short of establishing that Start Up or Mr. Sacchet had even seen the December 31, 2104 Financial Statement of Hero India before entering into the MOU. Second, I am not satisfied that Start Up relied on the reported EBITDA of either Hero India or ICTC when

entering into the MOU or in deciding to purchase the Traub and Balmer shares. [289] In respect of the December 31, 2014 Financial Statement of Hero India, the evidence does not establish that Mr. Sacchet or Start Up had a copy of the financial statement prior to entering into either the MOU or the agreements with Mr. Traub and Mr. Balmer. Mr. Sacchet was asked during his examination in chief if he had seen the December 31, 2014 Financial Statement of Hero India before. He responded that he had, and that he probably asked for it from Mr. Balmer, Ms. Zhang, or Hero India. Importantly, he did not testify as to when he received it. During his cross-examination, Mr. Sacchet was asked if he could point to a single document that showed he received the financial statement before July 2015. He replied that he received an email with the financial statement attached. I do not accept this evidence. There is no such email among the multiple volumes of documents that have been entered into evidence. Further, his testimony is contradicted by other documents. [290] Start Up relies, in part, on an email from Mr. Traub to Mr. Oswald dated March 5, 2015, as establishing that the December 31, 2014 Financial Statement of Hero India was delivered to Start Up. In this email, Mr. Traub thanked Mr. Oswald "for your 2014 results and for the 2015 budget". However, this email was the second email in a

chain. The first email in the chain was from Mr. Oswald to Ms. Zhang in which he stated "Here is the MIS for Q4, let me know if you have queries". It is clear from the email chain that the information being referred to, and that was sent to Mr. Sacchet on March 5, 2015, was merely the fourth quarter results of Hero India and not the financial statement for the entire 2014 year. [291] Start Up also submits that ICTC circulated its Consolidated Financial Statements on or around March 31, 2015, and, therefore, the December 31, 2014 Financial Statement of Hero India must have been completed and circulated by then. However, the premise of this submission is not correct. There is no evidence that the Consolidated 2014 Financial Statement of ICTC was prepared and circulated on or about March 31, 2015. In fact, the documentary evidence indicates otherwise. [292] As of May 2015, Mr. Sacchet clearly did not have the Consolidated Financial Statements of ICTC or the December 31, 2014 Financial Statement of Hero India. In fact, he was asking Ms. Zhang for a copy of the financial statement for Hero India, as well as the financial statements for other divisions. Mr. Traub responded to Mr. Sacchet's request on May 5, 2015, by providing the information that he had from Hero India which consisted of five excel files. Mr. Traub also advised that the consolidation process was ongoing and that it

was possible that the documents he was providing were not final or accurate. The five excel spreadsheets that were provided to Mr. Sacchet are not identified in the evidence. [293] Subsequently, in an email dated July 16, 2015, Ms. Zhang requested that Mr. Oswald and Mr. Sacchet have their respective accountants fill out forms that were attached to her email so that the consolidated and audited financial statements of ICTC for 2014 could be prepared. The information requested in the forms included such things as accounts receivable, inventories, property and equipment, deferred development costs, goodwill and other items. These are all line items on the December 31, 2014 Financial Statement of Hero India. The fact that Ms. Zhang was requesting this information on July 16, 2015, indicates that she did not have the December 31, 2014 Financial Statement of Hero India as of that date. If she had the statement, there would have been no need for her to request the information. Further, it is clear from her email that the 2014 audited and consolidated financial statements of ICTC had not been prepared as of July 16, 2015. [294] Therefore, I find that Start Up and Mr. Sacchet did not have the December 31, 2014 Financial Statement of Hero India or the 2014 Consolidated Financial Statements of ICTC as of July 11, 2015. It follows that Start Up could not have relied upon those financial

statements in entering into the MOU. [295] The second aspect of reliance concerns whether Start Up relied upon the reported EBITDA of Hero India or ICTC. In this regard, I have already rejected the evidence given by Mr. Sacchet in direct examination and have found as a fact that the prices he paid for the Traub and Balmer shares were not based on multiples of EBITDA. I similarly find that the values attributed to the Oswald and Mhamunkar shares were not based upon a multiple of EBITDA. There are no contemporaneous documents indicating that the values in the MOU were based on some multiple of EBITDA. To the contrary, the evidence is that the values in the MOU were derived from the sale price of the Balmer shares. [296] Additionally, I note that the contemporaneous documents indicate that Mr. Sacchet himself questioned the accuracy of the reported EBITDA of ICTC. On May 31, 2014, Balmer wrote to the other shareholders in regards to the EGADS offer. In that email he stated, "We've always known that we've done some "financial engineering" in order to arrive at the EBITDA we have". Mr. Sacchet did not disagree with this statement. During his examination in chief he testified that there was some artificiality to the EBITDA, and he made specific reference to the treatment of salaries and loans. Further, in an email dated September 23, 2014 to the other shareholders, Mr. Sacchet stated

that the EBITDA of ICTC was artificially high for the purpose of getting a better sale price. [297] Finally, I note that the September 2014 "non-binding" offer made by Mr. Sacchet to purchase the Oswald shares (excluding the shares in trust for Mr. Mhamunkar) was for $2.98 million. This "non-binding" offer is almost identical to the price contained in option B of the MOU and was obviously made months before the December 31, 2014 Financial Statement of Hero India was prepared. The fact that the September 2014 offer is almost identical to the price in option B of the MOU leads to a strong inference that Mr. Sacchet did not rely on the December 31, 2014 Financial Statement of Hero India or any EBITDA derived therefrom when valuing the Oswald shares. [298] Before concluding this section, I wish to note that I am cognizant that EBITDA was an important financial measure of performance and value for the shareholders of ICTC and that they often discussed EBITDA. Further, the documents filed contain many references to EBITDA. However, the evidence simply does not establish that the sale prices applicable to the Traub and Balmer shares or in the MOU were based on a specific multiple of EBITDA. [299] In summary on this point, I find as a fact that Start Up did not have either the December 2014 Financial Statement of Hero India or the 2014 Consolidated Financial Statement of ICTC as of

July 11, 2015, and therefore could not have relied upon any information contained in them. I further find that the price paid for the Traub and Balmer shares, and the derivative price of the Oswald and Mhamunkar shares contained in the MOU, was not based on the 2014 EBITDA of ICTC. Conclusions on Rescission [300] In conclusion, and in summary, the remedy of rescission is not available to Start Up for the following reasons: a) The financial status or health of Hero India was not misrepresented in the December 31, 2014 Financial Statement of Hero India; b) Neither Mr. Oswald nor Mr. Mhamunkar made the representations complained of. The representations complained of were either made by ICTC or by Hero India; c) Start Up has failed to prove that the misrepresentations were material; and d) Start Up could not have relied upon the misrepresentations because, as of July 16, 2015, it did not have the December 31, 2014 Financial Statement of Hero India or the 2014 Consolidated Financial Statement of ICTC and, in any event, Start Up did not base the price in the MOU on EBITDA. The Counterclaim [301] The counterclaim of Start Up is for negligent and fraudulent misrepresentation. The counterclaim is based on the same representation as the rescission remedy. The counterclaim fails for the same reasons the rescission remedy fails. Is Specific Performance the appropriate remedy? [302] Mr.

Oswald and Mr. Mhamunkar seek an order of specific performance of the contract contained in the MOU. [303] Start Up submits that specific performance is not an available remedy because the MOU lacks sufficient certainty. Start Up's submissions mirror those it made in relation to whether the terms of the MOU were sufficiently certain to render it a binding contract. For the reasons I have given above, the contract contained in the MOU is sufficiently certain to support a claim for specific performance. [304] Specific performance is often awarded to enforce contracts for the purchase and sale of shares (see for example: Sharpe J.A., Injunctions and Specific Performance, 3rd ed. (Aurora, Ont: Canada Law Book Inc., 2000) at p. 8-28). The availability of specific performance depends on whether damages would be an adequate remedy: UBS Securities Canada, Inc. v. Sands Brothers Canada, Ltd., 2009 ONCA 328, at para. 96. [305] In the circumstances of this case, damages could not possibly provide an adequate remedy to Mr. Oswald and Mhamunkar unless the damages were in the amount of the price agreed to be paid for their shares in the MOU. ICTC is a closely held private corporation and is now a subsidiary of a larger group of related companies. This means there is no market for the shares of ICTC held by Mr. Oswald and Mr. Mhamunkar other than possibly Start Up or Mr. Sacchet. [306] I am

more than satisfied that specific performance is the appropriate remedy. Order [307] In view of my reasons, I make the following orders and directions: a) The Memorandum of Understanding dated July 11, 2015, is hereby declared to be a binding agreement. b) Mr. Oswald and Mr. Mhamunkar are entitled to specific performance of the contract contained in the Memorandum of Understanding dated July 11, 2015. c) Start Up is ordered and directed to purchase: i. the 7,458 shares of ICTC Holdings Corporation held by Mr. Oswald, on his own behalf, and ii. the 392 shares of ICTC Holdings Corporation held by Mr. Oswald in trust for Mr. Mhamunkar, for the total price of $3,109,368.00. d) The Counterclaim of Start Up is dismissed. [308] The parties have leave to speak to me if they cannot agree on how this order is to be implemented. [309] The parties further have leave to speak to me, if necessary, in relation to the costs of these proceedings. "Giaschi, J." [1] The Provident Fund is a pension scheme to which an employer in India is obliged to contribute with the contributions varying by the number of employees and wages paid. It is somewhat similar to the Canada Pension Plan. [2] The symbol for the Indian Rupee. It is agreed between the parties that in 2015 and 2016 one Canadian dollar was worth approximately 50 Indian Rupees.