Waxman v. Waxman - TRUSTS · Waxman v. Waxman Between ... credited against amount recoverable from...

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Page 1 Waxman v. Waxman Between Morris Waxman and Morriston Investments Limited, Plaintiffs, and Chester Waxman, Chester Waxman, in trust, Chesterton Investments Limited, Robert Waxman, Gary Waxman, Warren Waxman, I. Waxman & Sons Limited, Greycliffe Farms Inc., Robix Financial Corporation Limited, Circuital Canada Inc., RKW Standardbred Associates Inc., RKW Standardbred Management Inc., and Glow Metal Trading Inc., Defendants And between I. Waxman & Sons Limited and Chester Waxman, Plaintiffs by Counterclaim, and Morris Waxman, Michael Waxman, Shirley Waxman, Douglas Waxman, the Waxman Holding Corporation Inc., Morriston Investments Limited, Solid Waste Reclamation Limited, Solid Waste Reclamation Inc. and General Environmental Technologies Corporation, Defendants to Counterclaim [2007] O.J. No. 3433 Court File No. 33234/88 Ontario Superior Court of Justice M.A. Sanderson J. Heard: May 15-18, 2007. Judgment: August 30, 2007. (133 paras.) Civil procedure -- References and inquiries -- Procedure -- The report -- Master's report calculating salary en- titlements of defendants for purpose of determining plaintiff's entitlement to compensation from company pro- fits confirmed -- Master did not err in rejecting evidence from defendants regarding their entitlement to com- pensation and in accepting evidence from plaintiff's expert -- Master did not err in awarding compound inter- est on award where defendants were savvy investors -- Master did not err in refusing to re-open hearing where defendants could have raised new issues earlier. Civil procedure -- Interest -- Calculation of -- Master did not err in awarding compound interest on award where defendants were savvy investors. Motion by Morris Waxman to confirm Master's Reference Report -- Motion by Chester, Warren and Robert Waxman opposing confirmation of Report and seeking order amending Report to fairly compensate them -- Facts underlying motions involved long-term management of family company, IWS, by Chester, in manner

Transcript of Waxman v. Waxman - TRUSTS · Waxman v. Waxman Between ... credited against amount recoverable from...

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Waxman v. Waxman

Between Morris Waxman and Morriston Investments Limited,

Plaintiffs, and Chester Waxman, Chester Waxman, in trust, Chesterto n

Investments Limited, Robert Waxman, Gary Waxman, Warren Waxman, I. Waxman & Sons Limited, Greycliffe

Farms Inc., Robix Financial Corporation Limited, Circuital Canada Inc., RKW Standardbred Associates

Inc., RKW Standardbred Management Inc., and Glow Me tal Trading Inc., Defendants

And between I. Waxman & Sons Limited and Chester Waxman, Plaint iffs

by Counterclaim, and Morris Waxman, Michael Waxman, Shirley Waxman, Doug las Waxman, the Waxman Holding Corporation Inc., Morris ton

Investments Limited, Solid Waste Reclamation Limite d, Solid Waste Reclamation Inc. and General Environmen tal Technologies Corporation, Defendants to Counterclai m

[2007] O.J. No. 3433

Court File No. 33234/88

Ontario Superior Court of Justice

M.A. Sanderson J.

Heard: May 15-18, 2007. Judgment: August 30, 2007.

(133 paras.)

Civil procedure -- References and inquiries -- Procedure -- The report -- Master's report calculating salary en-titlements of defendants for purpose of determining plaintiff's entitlement to compensation from company pro-fits confirmed -- Master did not err in rejecting evidence from defendants regarding their entitlement to com-pensation and in accepting evidence from plaintiff's expert -- Master did not err in awarding compound inter-est on award where defendants were savvy investors -- Master did not err in refusing to re-open hearing where defendants could have raised new issues earlier. Civil procedure -- Interest -- Calculation of -- Master did not err in awarding compound interest on award where defendants were savvy investors. Motion by Morris Waxman to confirm Master's Reference Report -- Motion by Chester, Warren and Robert Waxman opposing confirmation of Report and seeking order amending Report to fairly compensate them -- Facts underlying motions involved long-term management of family company, IWS, by Chester, in manner

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which was dishonourable, to obtain all shares of company to detriment of Morris -- Chester and his sons, Warren, Gary and Robert, worked for company and were entitled to some salary for their work, but not what they actually were paid -- Morris received some payment for his shares in company, but not what he should have received -- Reference directed Morris to recover from Chester and IWS 50 percent of profits and distri-butions of equity of IWS between December 22, 1983 and June 27, 2002, and directed Morris to recover from Warren, Robert and Gary Waxman any amounts they obtained from IWS during relevant period, to be credited against amount recoverable from Chester and IWS -- Gary settled with Morris prior to motions -- Report dealt with calculation of Morris's entitlement -- Master considered fair market compensation for Ches-ter and sons, and fair market value for Morris's 50 percent interest in IWS's profits over relevant period -- Master rejected evidence from Robert and Warren relating to roles, responsibilities, contributions and ser-vices to IWS by Chester and sons, where trial judge had found them unreliable witnesses -- Evidence showed Robert and Warren were being paid large bonuses by IWS while they worked for other companies -- Master rejected evidence from Cozzi about salary and bonuses paid by his company as comparators for ap-propriate salary and bonuses Chester and sons were entitled to receive -- Master accepted evidence from Gore, Morris's expert, with respect to fair market compensation for Chester and sons, where Master found Chester and sons failed to provide helpful evidence to be used in calculation -- Master held compound inter-est warranted on award against Chester where they had claimed they were savvy investors -- After argument but before Report released, Master refused to allow Chester and sons to re-open their case to challenge as-sumptions and calculations put forth by Morris -- HELD: Motion by Morris allowed and motion by Chester and sons dismissed -- Deference owed to Master's decision refusing to permit Chester and sons to re-open case before Report released -- Master entitled to exercise discretion not to re-open case where he found Chester and sons could have raised issues earlier -- Master did not err in principle or patently misapprehend evi-dence of Robert, Warren and Cozzi -- Chester and sons did not prove other companies were paying salaries and bonuses similar to what they were receiving from IWS during relevant period -- Master entitled to accept Gore's evidence -- Award of compound interest was warranted in circumstances of case. Counsel:

Mr. Richard B. Swan and Mr. Gideon C. Forrest for the Plaintiffs.

Mr. Edward J. Babin, Mr. Davit D. Akman for the Defendants (except Gary Waxman).

Mr. Edward J. Babin, Mr. Davit D. Akman for the Plaintiffs by Counterclaim.

Mr. Richard B. Swan and Mr. Gideon C. Forrest for the Defendants to Counterclaim.

REASONS FOR DECISION

M.A. SANDERSON J.:--

Introduction

1 Two related motions are before me: Morris Waxman's ("Morris" or "the plaintiffs") to confirm the Refer-ence Report of Master Linton dated January 4, 2007 (the "Report") and Chester, Warren and Robert Wax-man's (the "Chester parties" or "the defendants") to oppose confirmation of the Report and for an Order amending the Report to "fairly compensate" the defendants during the relevant period.1 At the hearing, I di-rected that counsel for the Chester parties would make their submissions first, counsel for Morris would re-spond and counsel for the Chester parties would then have a right of reply.

2 The directions for the Reference in the formal Order of the Ontario Court of Appeal are as follows:

4. THIS COURT ORDERS AND ADJUDGES that Morris Waxman shall recover from Chester Waxman and IWS, severally but not jointly, 50 percent of: the profits and distributions of equity of IWS between December 22, 1983 and June 27, 2002 (the "IWS Profits"), as determined on a reference before a Master (of which Mor-ris Waxman shall have carriage) in accordance with the directions set out in para-

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graphs 1676-1682 of the Reasons for Decision of the trial judge in this action, fol-lowing an election by Morris Waxman in accordance with paragraph 2592(a) of the said Reasons for Decision (the "Adjusted Amounts").

6. THIS COURT ORDERS AND ADJUDGES that Morris Waxman shall recover from Warren Waxman, Robert Waxman and Gary Waxman any of the Adjusted A-mounts that each personally received directly or indirectly, whether by way of bo-nuses or other distributions from IWS, or otherwise. Any amounts collected by Morris Waxman under this paragraph shall be credited against the amount recov-erable by Morris Waxman under paragraph 4, above.

3 The directions for the Reference in the Reasons mentioned in paragraph 4 of the Order of the Court of Appeal are as follows:

para. 1675 What is the amount of the lost profits? How can that amount best be deter-mined?

Alternative One

para. 1676 One obvious option is a reference to determine with precision 50% of IWS

profits since December 22, 1983 during the period of the constructive trust. Morris is en-titled to such a reference, and if he so elects, I shall so order.

para. 1677 However I am cognizant that a reference to determine the profits of IWS in

the interim with precision would be very expensive, acrimonious and time-consuming.

Alternative Two

para. 1678 I therefore give Morris the alternative of electing to accept my best estimate of profits on the shares held in trust between December 22, 1983 and the date of this ju-dgment, calculated with reference to the documentary evidence, the evidence of Ches-ter, Linton and Wiseman and the evidence of Vettese as follows:

(1) 50% of $27,284,000 as adjusted & explained below

plus

(2) 50% of $30,420,031 as adjusted & explained below

minus

(3) $2,094,721, as explained below.

Adjustments & Explanations

(1) The $27,284,000 is the total of bonuses and dividends declared by IWS between

January 4, 1984 and the sale to Philip in 1993. I have dealt with the 1993 divi-dend to Chester in (2) below. I would reduce the $27,284,000 by any amounts that Warren, Robert and Gary would be under-compensated by way of salaries received [for services provided to IWS in the same period 1984-1993] in the ab-sence of any bonuses measured against market rates of remuneration of em-ployees for comparable services in similar-sized companies in the scrap industry in the same period. A reference is needed to determine what, if any, bonuses to Chester's sons were warranted between 1984 and 1993 measured against mar-ket rates in addition to the salaries and other remuneration actually received.

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Chester and his sons operated IWS in Morris' absence between 1988 and 1993. To compensate for the disparity of participation of the owners during that period, an adjust-ment should also be made to reflect the fair market value of their services, including Chester's services, to IWS October 26, 1988-September 1993.

I have been troubled by the fact that Chester has directed the fortunes of IWS for a

lengthy period of time. I have considered that the restoration of Morris' shares may seem to be an extreme remedy. However, in the particular circumstances here, I am strongly of the view that the restoration to Morris of his shares is appropriate. Chester cannot be allowed to profit from his dishonourable actions. If he were right about uneven "contribu-tion" he could have acted openly and decently to obtain all of the shares of IWS.

The true value of the services provided by Chester and his sons to IWS can be objec-

tively determined by reference to market compensation paid to employees in the scrap industry during the relevant period for similar services. After fair compensation for ser-vices is determined, and the appropriate adjustments made, then the balance of the $27,284,000 will be divided 50/50 [subject to further adjustment in respect of 1993 divi-dend amount as set out below.]

(2) The $30,420,031 is the proceeds of the sale to Philip in 1993. It is unclear on the

evidence before me whether any or all of the proceeds of the Philip sale remain in IWS. As Morris is receiving 50% of IWS' shares, any amounts still in IWS should not be double-counted. A reference is needed to determine the amounts, if any, of the proceeds of sale to Philip in 1993 still in IWS. [Further, I have included in the $27,284,000 a 1993 dividend to Chester in the amount of $2,250,000. To the extent that that dividend was paid out of the proceeds of the Philip sale, it should not be double-counted.] To the extent that Philip sale proceeds are still in IWS, those amounts should be deducted from the $30,420,031.24.

(3) The $2,094,721 is comprised of $1,594,721 plus $500,000, calculated as follows. $1,594,721 is the amount I have found to be that which Morris actually received under the Share Sale. In arriving at that conclusion, I have noted in the Quantifi-cation section, under the heading "How Much Did Morris Actually Receive?" that $500,000 deducted from Morris' loan account did not affect the profits of IWS be-cause Morris was in effect being paid with his own money. However, on the as-sumption that loss of profits should be calculated as if the share sale never oc-curred, the $551,058.02 of drawings that Morris took from IWS between 1984 and the end of 1988 would have to be factored into the equation. I have ordered Mor-ris to pay the overdraft of the loan account [$51,058.02] in the Counterclaims, so I would factor into the formula to be applied the $500,000 that Morris did take by way of drawings between 1984 and 1988.

[Morris' share of the 1983 IWS dividend is included in that sum, but his $412,000 that

was reallocated to Chester is not. The $412,000 is included under the heading Pre Sale Bonuses, below.]

para. 1679 Therefore, if Morris elects a determination of profits in this manner, I would

order a reference confined to the following three issues:

(1) was any remuneration to Chester' sons warranted for services provided to IWS over and above salaries paid between 1984 and 1993 measured a-gainst market rates paid in the scrap industry during that period for similar services? Was any remuneration to Chester calculated on the same basis warranted between October 26, 1988 and the sale to Philip?

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(2) what amounts of the 1993 sale proceeds to Philip are still in IWS? In order to avoid a double-counting, is an adjustment required by reason of the 1993 dividend paid to Chester?

(3) the precise calculation of amounts owing under the formula, including in-terest.

para. 1680 If Morris elects to accept this approach, the calculation of Morris' lost profits

would be as follows:

[$27,284,000 less adjustments] / 2 plus

[$30,420,031 less adjustments] / 2 minus

$2,094,721

= Morris' share of lost profits [plus interest if appropriate]

4 Counsel have agreed-upon questions to be answered by the Master [which roughly track the language in paragraph 1679 of my Reasons], as follows:

(1) Is any additional remuneration warranted for Chester, between October 26, 1988 and September 17, 1993, or for Warren, Robert and Gary, between January 1, 1984 and September 17, 1993, for services provided by each of them to I. Wax-man & Sons Limited ("IWS"), beyond the salaries actually paid to them?

Was any remuneration to Chester's sons warranted for services provided to IWS over

and above salaries paid between 1984 and 1993 measured against market rates for si-milar services? Was any remuneration to Chester calculated on the same basis war-ranted between October 26, 1988 and the sale to Philip?

(2) What amounts of the September 1993 sale proceeds from Philip Environmental

Inc. ("Philip") were still in IWS as of June 27, 2002? What amounts of the 1993 sale proceeds to Philip are still in IWS? [the "Philip Proceeds"] In order to avoid a double counting, is an adjustment required by reason of the 1993 dividend paid to Chester ?

(3) What is the precise calculation of amounts owing under the formula, including in-terest?

5 The parties have agreed and the Master has accepted that question 2 should be answered as follows: "The Philip Proceeds are equal to the compensation paid to the Chester parties minus fair market compensa-tion between September 17, 1993 and June 27, 2002."

The Hearing of the Reference

6 The Reference commenced before Master Linton on January 11, 2006, continued over twenty-six days and concluded in July 2006 [after written submissions and two days of oral argument.] Master Linton heard the evidence of experts in the field of executive compensation (David Gore ("Gore"), called by counsel for the plaintiffs, and Phil Wallace ("Wallace"), called by counsel for the defendants), and of accounting experts (Jo-elle Gott ("Gott"), called by the plaintiffs, and Sheree Mann ("Mann"), called by the defendants). He also he-ard the evidence of Robert and Warren Waxman relating to the roles and responsibilities of Chester and his sons at IWS during the Reference Period and to compensation practices within the scrap industry, and the evidence of Albert Cozzi ("Cozzi") as to his experience in the scrap industry.

7 On January 4, 2007, Master Linton delivered his decision orally. Written Reasons for Decision were re-leased on January 10, 2007.

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8 Master Linton accepted almost all of the findings and conclusions of Gore. He held that the Chester par-ties were liable to Morris in the following amounts inclusive of prejudgment compounded interest up to and including January 4, 2007: Chester and IWS, $37,900,475; Robert, $9,211,556; and Warren, $5,189,869. He held that prejudgment compounded interest will continue to run until confirmation of the Report.

9 On February 7, 2007, the parties appeared before Master Linton to settle the form and content of the Report. At that time, counsel for the Chester parties sought leave to adduce further evidence and attempted to make new submissions on the proper manner to calculate prejudgment compound interest. Master Linton declined to allow them to reopen their case.

The Evidence at the Hearing

10 As mentioned earlier, counsel for Morris called Gore to opine on fair market compensation for the Che-ster parties and Gott to quantify Morris' 50% interest in the IWS Profits, using Gore's fair market compensa-tion estimates.

11 Counsel for the Chester parties called Wallace to opine on the compensation principles to be applied, and Mann to (a) outline the financial performance of IWS and the compensation paid to each of Chester, Warren, Robert and Gary; and (b) comment upon Gott's calculations. Wallace opined that Gore's estimates significantly under-compensated Chester, Robert, Warren and Gary owing especially to his failure to include compensation by way of long-term incentives ("LTIs.") Neither Wallace nor Mann quantified the amount of the alleged under-compensation.

The Standard of Review

12 A party seeking to oppose confirmation of a Reference Report bears the onus of demonstrating an er-ror in principle, excess of jurisdiction or patent misapprehension of the evidence. In Jordan v. McKenzie (1987), 26 C.P.C. (2d) 193; aff'd 39 C.P.C. (2d) 217 (C.A.), Anderson J. set out the test to be applied:

Unless the rules normally governing appeals are to be completely abandoned, and the entire reference made a farce, I ought not to re-try the matter which was tried by the Master. In fairness, it was not suggested in argument that I should do so, although the acceptance of the submissions for either the plaintiff or the defendant would have brought me very close to that process. I think I ought not to interfere with the result un-less there has been some error in principle demonstrated by the Master's reasons, some absence or excess of jurisdiction, or some patent misapprehension of the evidence.

See also Capsule Investments Ltd. v. Heck (1990), 72 O.R. (2d) 481 (H.C.J.); aff'd 12 O.R. (3d) 225 (C.A.)

13 This is not a reference de novo. It is a review to determine if the Master erred in principle, exceeded his jurisdiction or patently misapprehended the evidence. Chris & Richard v. Scott, [2000] O.J. No. 5186 (S.C.J.) at para. 6; see also: Labelle v. Howe, [1996] O.J. No. 759 (Div. Ct.) at paras. 25 to 27.

14 In Regan v. Regan-Graham Ltd., [1993] O.J. No. 2877; aff'd [1994] O.J. No. 2039 (C.A.), MacDonald J. opined that the reviewing court must take a very cautious approach and must not "retry" the case:

para. 12 It is axiomatic that on a motion to oppose confirmation of a report under this ru-le, the court must take a very cautious approach. To do otherwise could make a "farce" of the process of a reference, to use of the words of Anderson J., in McKenzie v. Jordan, supra. I decline to retry the matters which have already been tried twice by the Master during a total of twenty days of hearing. Mr. Gamble in his responding argument re-minded me of this point, and commented to the effect that he had already heard many of the detailed submissions of Mr. Upenieks at the re-hearing before Master Linton. I have no doubt that many of the issues emerging from the areas where evidence was alleged to have been misapprehended by Master Linton were canvassed as extensively before him in the rehearing as they were before me.

The Parties' Submissions

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15 Counsel for the Chester parties submitted that this Court should not confirm the Report because it con-tains numerous errors of law and misapprehensions of and/or abject failures to consider critical evidence. I should exercise my discretion and amend the Report and fairly compensate the Chester parties for their ser-vices to IWS during the relevant period.

(a) The Master Erred in Rejecting the Evidence of R obert and Warren Waxman and Cozzi

16 The defendants submitted the Master erred in law and in principle in rejecting the evidence of Robert and Warren and in treating my findings of fact and credibility at trial as binding.

17 The Master expressly rejected Warren and Robert's evidence as it related to the roles, responsibilities, contributions and services provided to IWS by Chester and his sons during the Reference Period, as follows:

[53] Warren and Robert Waxman gave evidence at the reference hearing about what they did for IWS. It seems to be quite clear that they gave similar evidence at trial. War-ren was found by the trial judge to lack objectivity and perspective, especially regarding his own abilities. The defendants Waxman rely heavily on their own testimony since their experts did not provide quantification for the court by giving evidence as to how much the adjustment should be to reduce the figure for bonuses and dividends ...

[54] After considering the findings of the trial judge and the evidence that Warren and

Robert gave at the reference hearing, I cannot rely on what they said to determine what would be reasonable compensation for them during the period in question.

18 The Chester parties submitted the Master abdicated his fact-finding responsibility. He erred in com-pletely rejecting their evidence. He should have accepted what they said about their dedication and commitment to IWS; their love of and involvement in the family business; their tremendous business acumen and success.

19 Counsel for Morris submitted the Master made his own determination about the reliability of their evi-dence given at the Reference and found it wanting. In paragraph 54 of his Reasons, he referred to Warren and Robert's evidence at the reference hearing. He was entitled to reject their evidence.

Robert's Evidence

20 Counsel for Morris submitted that the Master had good reason to reject Robert's evidence. At the Ref-erence he purported to have worked full-time at IWS during the relevant period. However, there was evidence upon which the Master could conclude he was also involved in other businesses. On his 1984, 1985, 1986 and 1987 tax returns, he described himself as a full time horse-racer/breeder. There was evidence on which the Master could conclude Robert was operating Greycliffe, Big Rig, Icarus Leasing, Servtross, Robix, BryHill and Circuital Canada Inc. during all or part of the Reference Period. He was cross-examined about his income from these ventures. Exhibit R-164 lists his additional employment income, management fees and dividends from those other endeavours between 1984 and 1993 excluding horse racing and breeding income totaling $2,991,887. [Gott did not include the $2,991,887 in Robert's 1984-93 income. Counsel for Morris submitted that if the Master had considered and included this amount in Robert's income, he could have concluded that Robert was over-compensated by some $2.18 million, not [as he did] that apart from bonuses received he was under-compensated by about $800,000 over the ten-year period.]

21 Robert suggested in evidence that the Master should consider his compensation from Philip in deter-mining the value of the services he provided to IWS. Counsel for the Chester parties submitted before me that the Master erred in ignoring/refusing to accept that evidence. Counsel for Morris submitted there was e-vidence upon which the Master could conclude that it was inappropriate to calculate Robert's value to IWS based on his purported income from Philip. Since the collapse of Philip, Robert's compensation has been called into question. Philip has sued Robert to recover the bonuses he received, as they were allegedly ba-sed on overstated earnings. Had Philip's earnings been accurately reported, Robert would not have received the bonuses he did. Further, Philip was a much larger company than IWS and Robert's roles and responsi-bilities at Philip were not comparable to those at IWS.

22 Counsel for Morris submitted the Master was entitled to reject Robert's evidence in chief about the va-lue of his Philip stock options ($4.8 million at the time he left Philip in January 1998.) On cross-examination

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he conceded he did not exercise any of them. Further, the Philip stock price had collapsed soon after he left. Those options were rendered valueless.

23 Counsel for Morris submitted the Master had a valid basis for rejecting Robert's evidence about the va-lue of IWS. On cross-examination Robert conceded that the price paid by Philip for IWS' operating assets was based on a multiple of adjusted earnings. In its "Investment Ticket" (Exhibit R-147). Philip adjusted IWS earnings to "normalize" all of the bonuses paid to Chester, Warren, Robert and Gary.

Warren's Evidence

24 The plaintiffs submit the Master had good reason [i.e., amply evidence] to reject Warren's evidence a-bout his contributions at IWS between 1974 and 2002. He was entitled to consider that after the 1981 Lasco transaction, although Warren's employment relationship was technically with IWS, he spent almost 100% of his time working for IW&S Ferrous. IW&S Ferrous reimbursed IWS for Warren's services, based on Lasco's scale for similar employment [in 1981 $40,000 per annum, in 1984 $46,600 per annum.]

25 Like Robert, Warren earned income from other business endeavours, which Gore did not include in his fair compensation estimates. In chief Warren gave evidence that between 1987 and 1991, he received salary of approximately $30,000 a year from Glow Metal Trading, but none thereafter. On cross-examination he conceded that after 1991 he assigned his Glow income to his ex-wife in partial satisfaction of ongoing sup-port obligations. Between 1999 and 2002, Warren received $1.1 million from Waxtek in respect of "non-IWS" scrap business. He conceded in cross-examination that he and Chester decided that IWS would not do that business.

26 Counsel for Morris submitted the Master was entitled to reject Warren's evidence that his activities with Glow and Waxtek required very little of his time, and did not interfere with his IWS duties. On cross-examination Warren was shown Exhibit R-137, a document he had prepared at the time Triple M Metal was attempting to purchase IWS. In that document, Warren estimated a week per month would be needed to ful-fill his obligations to Glow/Waxtek. Warren said that estimate was inaccurate, included to "make sure it woul-dn't bite me."

27 There was also evidence upon which the Master could reject Warren's evidence in chief about his va-lue to Philip. Warren agreed that Exhibit R-116 set out his total compensation from Philip. He gave evidence in chief about his negotiations with Philip in 1997 to increase his salary to $250,000 and to include a struc-tured bonus tied to tonnage and a discretionary bonus. In cross-examination he conceded he was unable to conclude that deal with Philip. His 1996 and 1997 bonuses did not change. His salary remained quite static. Apart from one bonus in 1995 of approximately $25,000, he received little or no bonus income from Philip.

28 Counsel for Morris submitted that Warren's total cash compensation at Philip did not significantly differ from Gore's fair market compensation figures, even though Warren had more responsibility at Philip than he had at IWS.

29 I note that Warren received a $200,000 bonus from IWS in 1997 while he was working full-time at Phi-lip, not at IWS.

30 Counsel for Morris submitted there was evidence upon which the Master was entitled to reject Warren's evidence in chief about offers he said he received from Triple M Metal, an IWS competitor. He said that company offered him $100,000 per month to transfer his scrap accounts to it and to look after them. In cross-examination he agreed he never received that offer formally from Triple M. Warren also gave evidence in chief that between 1999 and 2000 Triple M offered him a salary of $175,000 per year plus participation in its profit sharing plan. In cross-examination he conceded he had no idea what the terms of the profit sharing plan would have been and that Triple M would have had sole discretion to modify or terminate it. He also conceded that he discontinued negotiations with Triple M after becoming concerned that its offer was a ploy to obtain Warren's scrap accounts and then to get rid of him on some pretext. Counsel for the Chester par-ties did not call anyone from Triple M Metal to give evidence to corroborate Warren's evidence in chief.

31 They submitted the Master was entitled to reject Warren's evidence about his value to IWS in attracting customers after 1998. He conceded that the substantial growth in IWS' sales in the post-1998 period was due, at least in part, to the collapse of Philip in 1998-1999. In cross-examination he agreed that many of his

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IWS accounts after 1998 were IWS customers before 1993, which became Philip customers in 1993, and became IWS customers again after Philip collapsed.

Cozzi's Evidence

32 Counsel for the Chester parties submitted that the Master erred in rejecting Cozzi's evidence about sa-lary and bonus amounts paid by his company CIM and long-term incentives ("LTI") paid by CIM and CIM's ultimate acquiror, Metal Management Inc.

33 Counsel for Morris submitted that the Master was entitled to reject Cozzi's evidence. During Cozzi's cross-examination it was evident that of the approximately 25 acquisitions made by CIM prior to the merger with Metal Management, only six had any form of LTI. Cozzi admitted that 18 or 19 of the 25 companies had no LTI program. CIM acquired three significant entities, the Scrap Corporation of America with 1982 annual sales of $15 million (US), Schneider Iron with 1983 sales of $20 million (US), and Igneous Scrap with 1986 sales of $20 million. At Scrap Corporation of America, the only LTI was the promise of equity to one key indi-vidual. At Schneider, the only LTI was a promise of equity [which was not honoured, causing the employee to leave.] At Igneous Scrap, there was a promise of equity to one employee.

34 Cozzi gave evidence in chief that seven of the twenty-five integrated companies were comparable in size to IWS. However, when asked to list these "comparables," he said that Issacs had revenues of $100 mil-lion (US) in 1997 (increased to $176 million on cross); Proler had revenues of $40 million (US) in 1997; CIM had revenues of $250 million (US); M. Schiavone and Sons had sales of $120 million (US); Sussman and Blumenthal had revenues of $100 million (US); Naparano Iron & Metal had revenues of $120 million (US); and M. Kimerling and Sons had revenues of $70 million (US). Counsel for Morris submitted the Master was entitled on the evidence to conclude that only Proler was comparable in size to IWS, and to note that Proler had no long-term incentive program.

35 Counsel for Morris submitted that in reaching his conclusions, it was open to the Master to draw ad-verse inferences from the fact that counsel for the Chester parties did not call specified witnesses.

36 They mentioned Shelly Kumer, Chester's brother-in-law, who was not called to give evidence at the Re-ference about his own earnings and the contributions to IWS of the Chester parties. Kumer worked at IWS from the late 1950s or early 1960s until the sale to Philip in 1993, at Philip between 1993-1997 and at IWS thereafter. He initially received the same compensation at Philip as Warren did. Warren gave evidence that he sought to negotiate with Philip in 1997 after he found out that Kumer was being paid more than he was.

37 Wayne Linton, the IWS controller at the material times, who despite his obvious first-hand knowledge, was not called to give evidence about the role and contributions of the Chester parties during the relevant period, IWS payment structures in the 1998-02 period (including the $12 million dividend and the payment by IWS of interest thereon), and the rationale for the granting of the bonuses. Counsel for Morris referred to evi-dence Linton had given at trial that the 1981-82 bonuses paid to the Chester parties were in his view a distri-bution of equity, and to a document he prepared at the time of the IWS sale to Lasco commenting, "we may be hard-pressed to justify ... that bonuses on the books for 1981 and 1982 are justifiable in relation to ser-vices rendered, industry standards or as compensation for non-competition clauses ..." (para. 284).

38 Linton clearly had information that would have been relevant to the issues decided on the Reference.

39 Although the Chester parties did not call Linton to give evidence at the Reference hearing, Linton had been examined for discovery. A number of answers were given by Linton regarding rationale for allocation and declaration of bonuses and dividends to the Chester parties 1984-1993, which were relevant to the is-sues to be decided by the Master. At discovery he said in January of each year he discussed allocation of bonuses for the prior year with Chester as part of an overall attempt to defer tax [IWS received an immediate deduction when a bonus was paid but recipients of bonuses would not be required to pay taxes on those bo-nuses for two or three years (QQ. 213-216, 220, 223).] Linton said he believed the $172,000 dividend in 1984 was declared for tax reasons (Q. 239). His best recollection as to why Chester received a $625,000 bonus in 1985 was that he had to make a share sale payment to Morris (QQ. 241-242). In 1986, he thought Chester received a $600,000 bonus because he needed to make another share sale payment to Morris (QQ. 243-245). In 1987, Chester received a $2.1 million bonus and Robert a $1.05 million bonus. Linton thought Chester needed to make a share sale payment to Morris. He could not recall anything extraordinary that Ro-bert had done to justify his large bonus. Linton speculated it might have been declared because Robert had

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purchased a house that year (QQ. 246-252) In 1988, he said Chester's $3 million bonus, Robert's $2.5 mil-lion bonus, Warren's $1.7 million bonus and Gary's $1.55 million bonus were paid at the start up of mutual fund limited partnerships (QQ. 253-260). He thought the millions of dollars in 1989 bonuses were likely in-vested in mutual fund limited partnerships (QQ. 262-264) Linton could not recall anything in particular that Robert did to deserve a $1.5 million bonus in 1990. He said perhaps it was an extraordinary year for the copper chopping lines (QQ. 265-269). Chester's $1 million 1991 bonus may have related to a share sale payment (Q. 271). In 1992, no bonus was paid to any of the defendants. After examining the IWS financial statements, Linton said it was "pretty obvious that we had satisfied or had no tax payable corporately and didn't need to accrue bonuses to drive that down" (QQ. 277-284). In 1993, although IWS made over $21 mil-lion before tax from the Philip sale, no bonuses were declared because IWS could avoid tax by paying a $2.25 million dividend to Chester (QQ. 285-293).

40 Linton's evidence at discovery with respect to bonuses and dividends in the post-1993 period included the following: the declaration of $7 million in dividends payable to Chester between 1994 and 1998 was likely driven by the refundable dividend tax account (QQ. 358-361). Linton did not know why salary and bonuses were paid to Chester in 1995-1997 during the time that IWS was inactive. He thought it might have been to cover certain expenses, or to purchase limited partnerships (QQ. 364-367). With respect to the $200,000 bo-nuses declared in favour of Warren, Robert and Gary in 1997 when they were not working for IWS, Linton could not recall specifically, but thought it might have related to the purchase of partnership units or other in-vestments (QQ. 374-375). He said the $12 million dividend to Chester in 2000 was tax-driven - to clear out the dividend refund account (QQ. 368-372).

(b) The Acceptance of Gore's Evidence

41 Counsel for the Chester parties submitted the Master erred in accepting Gore's evidence, in preferring form over substance and that he abdicated his ultimate fact-finding responsibility to Gore. Master Linton had everything required to make his own fair and appropriate determination as to market rates of compensation and he should have done so. He erroneously held that Gore's failure to include LTIs did not affect the reliabil-ity of his estimates.

42 In accepting Gore's evidence on fair market compensation and rejecting the defendants' evidence and submissions on long term incentives, Master Linton reasoned as follows:

[71] The defendants Waxman offered the court little or no assistance in quantifying the precise adjustment that they requested. Essentially, all that they did was to attempt to destroy the assistance that the plaintiff attempted to give the Court. I find that not only were both Gott and Gore impartial, they were generous to the defendants Waxman in their opinions as to what fair market compensation should be.

...

[73] Even if the Gore report were found to be flawed because it failed to take into ac-

count long-term incentives, that would not mean that it was of no value in assisting the Court. However, no expert evidence as to figures has been offered to indicate numeri-cally the extent to which it might be flawed. Wallace candidly admitted that he did what he was retained to do, and that he was not retained to provide specific figures.

[74] The law would appear to be clear that a Court may draw an adverse inference whe-

re a party fails to call relevant evidence. Although Wallace was called he did not, in fact, provide evidence as to the amount of the adjustment, although it seems clear that he had the expertise to provide such a figure should he have been called upon to do so. The reason given was that it would have been too expensive for him to do more than he did. Whether I exercise my discretion or not, one thing is clear, neither Wallace or any-one called on the defendants Waxman's behalf who had the expertise and objectivity to do so quantified the adjustment.

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[75] There are certain problems with the defendants Waxman's evidence and submis-sions respecting LTIs. Firstly, if IWS is to attract and maintain employees to do what Chester, Robert, Warren and Gary did for the period in question, would it have had to of-fer LTIs in addition to bonuses? Gore's answer: not if adequate bonuses were offered. Secondly, if IWS had offered LTIs, what would they have been? Both Gore and Wallace seemed to agree, too speculative to say. Thirdly, if IWS offered LTIs, what would they have been worth? Wallace did not say. Fourthly, if LTIs were not offered, but if offered would have been worth something, would the bonuses offered be increased to make up for there being no long-term incentives? Simple logic would suggest "yes". That was Go-re's opinion and I agree with him. Finally, conversely, that is, if LTIs were offered, then that the bonuses would be decreased would also be probable.

[76] When Gore's methodology is considered, I do not find that his not putting a value on

LTIs affects the reliability of his report.

43 Counsel for Morris submitted that the Chester parties were incorrect in submitting that the Chester par-ties had established on the evidence that IWS' comparators were paying LTIs. Wallace and Gore disagreed about the prevalence of LTIs offered by private companies during the relevant period. In the exercise of his professional judgment, Gore opined that LTIs were inappropriate for IWS, due to its size and complexity. He said the availability of LTIs increases with size and complexity. Privately-owned companies do not typically provide equity-based compensation to employees and compete by granting larger annual performance bo-nuses [such larger bonuses would already have been embedded in the Watson Wyatt data that he em-ployed.]

44 Counsel for Morris submitted the Master was entitled to prefer Gore's evidence on LTIs over Wallace's. Although Wallace suggested they were more common than Gore did, in cross-examination he conceded he had not undertaken any analysis to determine the percentage of private companies offering "phantom stock" LTIs during the relevant period. He was asked to review Exhibit IR-115, a brief of extracts from the Watson Wyatt surveys with respect to LTIs. He eventually conceded that the Watson Wyatt data did not support his conclusion that Gore under-compensated the defendants because he did not include LTIs. Wallace did not refer to other empirical or survey data supporting his own conclusions. He relied only on anecdotal evidence.

45 Wallace did not quantify the numerical value of the LTIs because he said to do so would have been too complex and too speculative. He did not specify the amount of salary and bonus Chester, Warren, Robert and Gary each should have received, although he had originally been asked to do so. He did not take any issue with Gore's numbers for salary and bonus for each. He explained as follows:

At one point in the beginning I was intending on commenting on that. You'll probably see notes in there where I did not want to get into a professional disagreement on points of assumptions made, and it would be very difficult to put mine up against his without get-ting into that kind of debate and I didn't think that was what I should be doing at that point in time. So on specifics, on the calculations, on direct things as Gore did, I was not going to get into that debate.

46 Wallace agreed with Gore that the relevant market, the compensation market, need not be in the same industry or sector or geographically proximate. They agreed the size of the organization was one of the most important factors in determining compensation - larger companies pay more.

47 Counsel for the Chester parties criticized Gore's evidence on a number of additional grounds. They su-bmitted that Gore's data was unreliable as a proxy for market rates of compensation in similar-sized compa-nies in the scrap industry. Although Gore claimed he used data from industries with "similar skill sets, similar experiences, and reasonably similar in terms of their operating style, nature of the business" (i.e., "broad manufacturing sector", with "a heavy emphasis on durable manufacturing"), reflecting the Ontario market-place, he admitted on cross-examination that he had no way of knowing or confirming (i) what percentage, if any, of the reporting organizations in the data he used were actually manufacturing organizations; or (ii) that the data reflected the Ontario marketplace.

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48 Counsel for Morris submitted the Master did not err in principle in that regard. Wallace used only the Watson Wyatt surveys and commented favourably on the relative "robustness" of the data. He did not criti-cize the manner in which Gore used the survey information. He agreed that surveys like Watson Wyatt are commonly used.

49 Wallace agreed there are various methods of interpreting data, and that he did not want to get into try-ing to say that what Gore did was wrong. Compensation practice is an art involving judgment calls, not a sci-ence. Judgment calls include deciding whether to exclude certain "outliers," whether to make adjustments to the raw data, and whether to employ "smoothing" to reduce fluctuations in salary and bonus figures from year to year.

50 Counsel for the Chester parties submitted the Master erred in finding that Gore was generous to Ches-ter et al. despite failing to include long-term incentives.

51 At paragraph 80 of his Reasons, Master Linton explained why he reached that conclusion, as follows:

(a) Gore made no deduction for the time Chester, Warren, Gary and Robert devoted to IW&S Ferrous Limited, although they were entitled to a credit only for services they provided to IWS. The evidence demonstrated that between 1984 and 1993, Chester and Warren devoted almost all, Gary devoted 25-50 percent and Robert devoted at least a small portion of their time to the IW&S Ferrous business;

(b) Gore made no deduction for the time Robert spent on other employment or re-lated matters, including his personal horse-racing business, the horse racing busi-ness within Greycliffe Farms, the services he provided to the horse-racing limited partnerships (RKW Standardbred), or the time he devoted to any of his compa-nies, such as Icarus, Servtross and Circuital, which provided trucking, driver, leas-ing and employee services to IWS (for Robert's own benefit);

(c) Gore made no deduction for the time Warren spent on other employment or re-lated matters, including his involvement in Glow Metals and his activities in the post-1998 period for Waxtek Metals Inc. ("Waxtek") regarding US scrap accounts (as described below);

(d) Gore did not use the position match of "senior industrial buyer" for Warren and Gary, even though the description of the activities of a senior industrial buyer mo-re closely matched the services that Warren and Gary were providing to IWS. The senior industrial buyer total cash compensation shown in the Watson Wyatt sur-veys was about 50% lower than the position matches that Gore used;

(e) Gore assumed that market salary and bonus figures at the 75th percentile in the surveys was appropriate, rather than salary and bonus at the 50th percentile; and

(f) Gore reviewed the data reported in respect of the other revenue cuts and very of-ten selected and employed a higher salary and/or bonus (i.e., one more favour-able to the defendants), even if it was from a higher or lower revenue cut.

52 Counsel for Morris submitted there was ample evidence upon which the Master could reach those con-clusions.

53 Counsel for the Chester parties submitted the Master erred in principle and in law and/or patently mis-apprehended the expert evidence before him in finding Gore "did far more research [than Wallace] to back up his opinion."

54 Counsel for Morris submitted there was ample evidence to support his conclusion. Wallace conceded he did not interview the individual defendants about their duties, responsibilities or functions. Other consid-erations included the brevity of Wallace's investigation to back up his opinions; his failure to thoroughly review the trial transcripts; to conduct interviews with knowledgeable individuals in the scrap industry; to contact the executives Gore listed in his report.

55 Counsel for the Chester parties submitted the Master erred in principle and in law and/or patently mis-apprehended the expert evidence in failing to consider compensation paid by Philip to Chester and his sons.

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56 I have already reviewed the Master's reasons for rejecting Robert's and Warren's evidence to the effect that the pay they received from Philip was relevant to the value of their services to IWS. I note also that Gore did review the Philip contracts. However, he did not consider Philip to be an appropriate comparator because Philip was much larger than IWS.

(c) Increases in Value in IWS

57 Counsel for the Chester parties submitted that in determining the defendants' compensation, the Mas-ter made a reversible error in failing to consider the increase in the value of IWS during the relevant period. They referred to schedules in the Mann report purporting to set out that increase.

58 I note that Mann was not asked and did not prepare a formal valuation of IWS. She agreed that the only way to quantify value is to do a formal valuation. She was only asked to provide comments "around va-lue." She did not estimate maintainable earnings for IWS or apply a multiplier to those earnings. She did not review Vettese's 1998 valuation of IWS as of December 1983, or the report prepared for the trial by her prin-cipal, Low. She said she may have "skimmed" Cole's report. She acknowledged that Cole had opined at trial that IWS was worth considerably more than Vettese had estimated. She ultimately agreed that comparing Vettese's 1983 valuation with the Philip sale proceeds in 1993 was like comparing apples and oranges. Mann agreed she had "absolutely no idea" about the value of IWS in 1998 or 2002.

Refusal to Adjourn the Hearing

59 Counsel for the Chester parties also submitted that the Master erred in law and committed a reversible error in principle in refusing to briefly adjourn the hearing of the Reference to permit counsel for the Chester parties to call Mr. Holt, the former comptroller and general manager of Lasco, causing them significant preju-dice. He submitted a need for clarification became apparent only during Robert's cross-examination about Chester and his sons' roles and responsibilities at IWS and IW&S Ferrous after the Lasco transaction, and particulars of the compensation they were to receive. They said Holt would have given independent evidence about the roles, responsibilities and contributions of Chester and his sons at IWS and IW&S Ferrous be-tween 1981 and 1994. He would have said the tonnage fees paid to IWS were part of the remuneration received by each of Chester, Robert, Warren and Gary, in addition to the salaries paid to them under their employment agreements with IWS. This evidence "would have helped to refute Morris' contention that Chester and his sons' only compensation under the Lasco transaction was their base salaries from IWS." Had the adjournment been granted, there would have been no prejudice to the Morris parties not compensable in costs. 60 At the time the request to call Holt was made, two hearing days remained: Wednesday, July 5 and Thursday, July 6, 2006. Holt was unable and/or unwilling to give evidence on those days. Counsel for the Chester parties requested a brief adjournment. The Master refused that request on the basis that he was un-available after July 6 until September, and was unwilling to delay the completion of the Reference.

61 Counsel for Morris submitted the Master did indicate that he would accommodate the request to call Holt if he was produced prior to the scheduled conclusion of the Reference (even on an August date.) The Chester parties would not produce him then.

62 Counsel for the plaintiffs submitted the Master did not err in refusing to adjourn the hearing to allow Holt to give evidence. The granting of an adjournment is a discretionary matter. There is no basis to interfere with the Master's exercise of discretion in refusing to grant an adjournment, given the particular history of this case and the circumstances at the time of the request for the adjournment. In any event, the defendants ha-ve failed to show that Holt's evidence would have affected the outcome.

Pre-Judgment Interest

Arguments on Interest Made at the Reference Hearing

63 At all times before the Master released his Reasons for Decision, counsel for the Chester parties con-fined their submissions on pre-judgment interest to the appropriateness of simple versus compound interest.

64 After reviewing Gott's report, the Chester parties' accounting expert, Mann had not challenged Gott's interest calculations.

65 In his Reasons Master Linton noted:

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[94] The calculation of compound interest by Ms. Gott was not disputed by the defen-

dants Waxman. Their dispute was restricted to whether compound or simple interest should be awarded.

[95] Accordingly, Ms. Gott's calculation is accepted as correct, subject to its being up-

dated as provided for in a following paragraph.

66 The Master held that the conduct of the Chester parties warranted an award of compound interest. He reasoned at paragraphs 84 and 87 as follows:

[84] Insofar as prejudgement interest is concerned the question that needs to be an-swered is was the defendants Waxman's conduct such as to warrant an award of compound interest as opposed to simple interest?

[85] In paragraph 102 at page 68 of the defendants' closing submissions, they purport to

set out the applicable test as follows:

... The applicable test is stated in the Supreme Court's decision in Bank of Amer-ica v. Mutual Trust Co.:

'An award of compound pre- and post-judgment interest will generally be

limited to breach of contract cases where there is evidence the parties a-greed, knew, or should have known, that the money which is the subject of the dispute would bear compound interest as damages. It may be awarded as consequential damages in other cases, but there would be the usual requirement of proving that damage component'.

Bank of America v. Mutual Trust [2002] S.C.J. No. 44 at para. 55 ...

[86] Although that may generally be the case, where there are equitable claims is clearly

one of the exceptions and has been recognized as such by the Supreme Court of Can-ada.

[87] If the facts as found by the trial judge are true, and I have no choice but to accept

that they are true, then the conduct of the defendants Waxman was reprehensible, and an award of compound interest would be appropriate. I note that in these cases it is as-sumed that the wrongdoer and the wronged will use the money in the way that a prudent and cautious investor would, i.e. by, at the very least, investing it at a reasonable interest rate, and compounding interest at least on a yearly basis. Whether by referring to "the usual requirement of proving the damage component" changes what the claimant must provide is a nice question. In the equity cases where compound interest has been awar-ded, there appears to have been no direct evidence proving the damages. Rather, the awards, if not based on assumptions, appear to have been based on inferences drawn from the evidence presented in those cases. It would have appeared somewhat self-serving and hard to accept if claimants testified that, had they had the money, they would have made as much as if they had invested it and the interest had been com-pounded.

...

[91] In this case, I have no hesitation in finding, when I consider the defendants Wax-

man's evidence of how good the defendants Waxman were in making money, that when they received the money that was found to have belonged to Morris Waxman that they would have, at the least, made as much money from its use as they would have if they had invested it and the interest had been compounded.

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[92] Likewise, if Morris Waxman's money had been left in IWS or distributed to him as it

should have been, then I assume that the plaintiff, possibly with the assistance of the de-fendants Waxman, would have used the money so that Morris Waxman would have e-arned as much on his money as if it had been invested and the interest compounded.

67 Counsel for the Chester parties submitted the purpose of prejudgment interest is compensation, not punishment. To the extent that Master Linton based his award of compound interest on the conduct of Ches-ter and his sons he erred in principle and in law. Bank of America Canada v. Mutual Trust Co., [2002] S.C.J. No. 44 at paras. 36-38; Irvington Holdings Ltd. v. Black et al. (1987), 58 O.R. (2d) 449 at 487 (C.A.); Alberta (Minister of Infrastructure) v. Nilsson, [2002] A.J. No. 1474 at paras. 183-85, 187, 191, 196 and 200 (C.A.); Re Taerk (1958), 15 D.L.R. (2d) 443 at 447-49 (Ont. C.A.).

68 Compound interest may only be awarded where the plaintiff has proved that: (i) the defendant traded, speculated, or earned compound interest using the wrongfully obtained moneys; or (ii) the plaintiff would ha-ve earned compound interest had the debt been properly paid; or (iii) a defaulting trustee would have, absent his default, obtained compound interest for the plaintiff. They cited Re Taerk, supra, where Laidlaw J.A. for the court held at pp. 448-449:

There is no rule of law or rule of practice applicable in every case to ascertain the rate of interest or the method of calculating the amount of interest chargeable against an execu-tor or trustee who has used money or other property belonging to the estate for his own purpose. Each case must be considered and decided in light of the particular facts and circumstances.

...

[T]he Court should not charge [the defendants] with compound interest as punishment

for their wrongdoing. The proper basis is compensation to the residuary legatees of the estate and, in the absence of evidence that the respondents obtained any benefits and advantages over and above the amount of simple interest calculated at the rate of 5% per annum, it should be held in this circumstances of this case that the executors should be charged with simple interest only.

69 They submitted that Morris failed to prove that Chester, Robert, Gary or Warren had had the benefit of compounding interest. The Master erred in principle in presuming that Chester and his sons earned com-pound interest. They did not have the benefit of compounding because the bonuses under scrutiny were (i) (in part) loaned back to IWS, with little or no interest, (ii) used by Chester to pay Warren and Gary's salaries in 1998 and 1999; and/or (iii) frozen (or effectively frozen) after 2003 by Orders of this Court. Part of the bo-nuses received were used to pay taxes. To award Morris compound interest in the circumstances was to o-ver-compensate him.

70 Counsel for Morris submitted that the calculation of interest with respect to causes of action arising on or before October 23, 1989 is governed by sections 138 and 139 of the former Courts of Justice Act, 1984 (the "1984 Act"). Subsection 138(1) of the 1984 Act reads as follows:

A person who is entitled to an order for the payment of money is entitled to claim and have included in the order an award of interest thereon at the prejudgment interest rate, calculated,

(a) where the order is made on a liquidated claim, from the date the claim of action

arose to the date of the order; or (b) where the order is made on an unliquidated claim, from the date the person enti-

tled gave notice in writing of his claim to the person liable therefor to the date of the order.

Subsections 138(3)(f) and 139(5) of the 1984 Act preserve the Court's discretion to award interest on an eq-uitable basis outside of the terms of the statute.

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71 The Ontario Court of Appeal in Brock v. Cole (1983), 40 O.R. (2d) 97 (C.A.) ("Brock") held that subsec-tion 36(5)(f) of the Judicature Act, R.S.O. 1980, c. 223 [later subsection 138(5)(f) of the 1984 Act], consti-tuted a "statutory recognition that there continue to be rights to interest on judgment claims that are found outside the general provisions of s. 36." A party had a "right" to compound interest once it "established the conditions which must be met in order to warrant the exercise of the court's equitable jurisdiction" (p. 102). In Brock, the Court of Appeal cited Wallersteiner v. Moir (No. 2), [1975] 1 All E.R. 849, and continued:

... in equity, interest is awarded whenever a wrongdoer deprives a company of money which it needs for use in its business. It is plain that the company should be compen-sated for the loss thereby occasioned to it. Mere replacement of the money -- years later -- is by no means adequate compensation, especially in days of inflation. The company should be compensated by the award of interest ... But the question arises: should it be simple interest or compound interest? On general principles I think it should be pre-sumed that the company (had it not been deprived of the money) would have made the most beneficial use open to it ... Alternatively, it should be presumed that the wrongdoer made the most beneficial use of it. But, whichever it is, in order to give adequate com-pensation, the money should be replaced at interest with yearly rests, i.e. compound in-terest.

72 In Claiborne Industries Ltd. v. National Bank of Canada (1989), 69 O.R. (2d) 65 ("Claiborne") at 107, the Ontario Court of Appeal upheld an award of compound interest against the defendant bank, which had knowingly assisted in the fraud of a customer. The Court held there was jurisdiction to award compound in-terest, apart from the interest provisions of the Courts of Justice Act.

73 Counsel for the defendants submitted that the Master erred in failing to distinguish the facts in Brock v. Cole (1983), 142 D.L.R. (3d) 461 at 469 (Ont. C.A.) and Clairborne Industries Ltd. v. National Bank of Can-ada (1989), 59 D.L.R. (4th) 533 at 576-77 (Ont. C.A.) (where there was evidence that the defendants had earned compound interest on the monies improperly received), from the facts in the case at bar.

74 As he noted in paragraphs 85-87 of his Reasons, Master Linton concluded Morris was not required to demonstrate that the Chester parties earned compound interest or the use to which he [Morris] would have put them.

75 Counsel for the plaintiffs submitted the Master did not err in law in presuming that Chester and his sons would have invested the money they received in a manner that would have produced compound interest, and that Morris would have done the same. In any event, it was open to him to conclude on the evidence be-fore him that the defendants would have earned compound interest. Linton gave evidence on discovery (read into the record at the Reference) that many of the bonuses and dividends paid out to the defendants were put into mutual fund limited partnerships, which were highly profitable. Similarly, although Chester did loan back to IWS the $12 million dividend he took from the company in 2000, he was paid interest on those a-mounts until at least 2003 (including over a million dollars in interest in 2001) [Affidavit of Chester, dated March 23, 2003, Exhibit I-126].

76 Counsel for Morris submitted that Courts have an equitable jurisdiction to award compound interest where a party has breached his fiduciary duties or otherwise engaged in wrongful conduct. Where, as here, the liability of Chester is in breach of trust, and of Warren, Robert and Gary is, inter alia, in knowing receipt, it cannot be said the Master erred in principle in requiring them to pay compound interest. Chester and his sons deprived Morris of his rightful share of IWS profits for some 20 years. While Chester may have had a procedural right to resist Morris' claim, he should not be allowed to benefit from the delay in payment. In all the circumstances, the Master was entitled to exercise his discretion to award compound interest and to ac-cept the approach taken by Gott.

77 Counsel for Morris submitted that there is ample authority to support the Master's exercise of his equi-table jurisdiction to award compound interest where a party has breached a fiduciary duty or otherwise en-gaged in wrongful conduct: Reichman v. Vered, [2003] O.J. No. 1029 (S.C.J.) at paras. 270-279 (breach of fiduciary obligations with respect the use of funds derived from a joint venture); Nubury Properties Ltd. v. Gunraj, [2004] O.J. No. 1409 (S.C.J.) at paras. 5-7 (breach of fiduciary duty and fraudulent misrepresentation by former employee); Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board, [2006]

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O.J. No. 27 (Ont. C.A.) at para. 181 (oppression remedy action is an equitable claim which can warrant an award of compound interest).

78 Counsel for Morris submitted that in Peppiatt v. Nicol, [2001] O.J. No. 2584, the Ontario Court of Ap-peal held that an award of compound interest was appropriate in circumstances where the defendant bank had engaged in breach of trust by wrongfully, and knowingly, receiving and retaining investors' money (pa-ras. 68-71).

79 In Bank of America Canada v. Mutual Trust Co., [2002] S.C.J. No. 44 the Supreme Court of Canada upheld an award of compounded pre-judgment and post-judgment interest citing equitable and common law powers, where simple interest would not have adequately compensated the plaintiff for the wrongful deten-tion of its funds. For the Court, Major J. wrote:

To prevent defendants from exploiting the time-value of money to their advantage, by delaying payment of damages so as to capitalize on the time-value of money in the in-terim, courts must be able to award damages which include an interest component that returns the value acquired by a defendant between breach and payment to the plaintiff. (para. 33)

...

Sections 128(4)(g), 129(5) and 130 CJA, each of which allows the judge to award inter-

est other than as specifically set out in ss. 128 and 129, clearly indicate that the rates and calculation methods of interest provided in ss. 128 and 129 are applicable in the ab-sence of more appropriate rates and methods of calculation. Section 130 allows a court, where it considers it just, to vary the interest rate or the time for which interest may be awarded. Sections 128(4)(g) and 129(5) allow a court to award pre-judgment and post-judgment interest, respectively, where interest is payable by another right. (para. 40)

...

Equity has been recognized as one right by which interest may be awarded other than

as specifically stated in ss. 128 and 129 CJA, including an award of compound interest. (para. 41)

Arguments Made After the Report was Released

80 On February 7, 2007, about a month after the Report was released, the Chester parties objected for the first time to Gott's interest calculations incorporated into the Draft Report. At the same time, they at-tempted to deliver a new report prepared by Mann. They submitted that Master Linton had erred in (1) using an average interest rate between November 1988 and January 2007; (2) failing to deduct the Ennis payment in calculating the amounts payable by Chester; (3) applying compound prejudgment interest to the $12 million said in my June 27, 2002 Reasons to be payable; (4) holding that pre-judgment interest would continue to run until the Report had been confirmed.

81 Counsel for the Morris parties took the position at that time that Master Linton should not allow the Chester parties to re-open their case.

82 Master Linton heard a full day of argument with respect to the new issues raised, then refused to re-open the Reference. He then concluded in Supplementary Reasons released February 10, 2007 that even considering the new arguments put forward, the assumptions and calculations put forward by Morris were fair.

The Threshold Issue: Did Master Linton Err in Refus ing to Allow the Defendants to Re-Open their Ca-se?

83 Counsel for the plaintiffs submitted I should first decide whether I should overturn Master Linton's dis-cretionary refusal to allow the defendants to reopen their case before considering the new arguments on their merits. They submitted, citing the decision of the Supreme Court of Canada in 671122 Ontario Ltd. v.

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Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983, that he did not err in principle in refusing to permit coun-sel for the Chester parties to try to present a new case after Master Linton had issued his Report.

84 In Sagaz, the Supreme Court held that a Court has a discretion to reopen proceedings after judgment has been rendered and before a formal order has been entered, if the moving party has established that the evidence, if presented at trial, would probably have changed the result and that it could not have been ob-tained by the exercise of reasonable diligence before trial ended.

85 The Supreme Court held that an appellate court should defer to a decision of a trial judge made in the conduct of a trial, absent an error of law and exercise its discretion "sparingly and with the greatest care" so that "fraud and the abuse of the court's process" do not result. It held:

This Court provided in Hamstra (Guardian ad litem of) v. British Columbia Rugby Union, [1997] 1 S.C.R. 1092, at para. 26:

It has long been established that, absent an error of law, an appellate court

should not interfere with the exercise by a trial judge of his or her discretion in the conduct of a trial.

Appellate courts should defer to the trial judge who is in the best position to decide whe-

ther, at the expense of finality, fairness dictates that the trial be reopened. See Clayton v. British American Securities Ltd., [1934] 3 W.W.R. 257 (B.C.C.A.), at p. 295:

[The trial judge] would of course discourage unwarranted attempts to bring for-

ward new evidence available at the trial to disturb the basis of a judgment deliv-ered or to permit a litigant after discovering the effect of a judgment to re-establish a broken-down case with the aid of further proof.

86 In that case, the Supreme Court of Canada made no reference to any residual discretion to relax the reasonable diligence requirement. However, there is some authority to support the proposition that a Court does have such a residual discretion in exceptional circumstances where it is necessary to avoid a miscar-riage of justice. Degroote v. Canadian Imperial Bank of Commerce, [1999] O.J. No. 2313 (C.A.) at para. 3; 1307347 Ontario Inc. v. 1243058 Ontario Inc. (c.o.b. Golden Seafood Restaurant), [2001] O.J. No. 257 (S.C.J.) at para. 9.

87 In Effigi Inc. v. CG Operations (H/O) Ltd. (c.o.b. Cotton Ginny), [2007] O.J. No. 1613 (S.C.J.) at 17, Pe-pall J. in dismissing a motion to reopen a case, left open the existence of a residual discretion:

In my view, absent exceptional circumstances to avoid a miscarriage of justice, the due diligence requirement should be rigorously enforced. Otherwise, there is a real danger that proceedings become protracted and parties will seek to bolster their cases after the hearing. This is obviously unfair and produces uncertainty and increased expense. As Mr. Myers submitted for the plaintiff, the due diligence requirement is the bulwark to pro-tect the court's process from abuse. I also observe that, in this case, no exceptional cir-cumstances are in existence.

88 In this case, the Chester parties did not tender any evidence to show why the new evidence and new arguments could not have been advanced during the Reference by the exercise of reasonable diligence. Master Linton held, "the evidence and arguments could have been put in much earlier and prior to my deci-sion being given."

89 Despite that conclusion, Master Linton also considered the other branch of the Sagaz test. He held that the Chester parties had also failed to establish that if the new evidence sought to be adduced had been pre-sented at trial, it would probably have changed the result.

90 The Supreme Court of Canada has directed that deference must be given to Master Linton's refusal to exercise his discretion to reopen the case [an exercise of discretion in the conduct of a trial.] In my view, Master Linton was entitled to exercise his discretion in the manner he did. In all the circumstances here, I

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would not interfere with that exercise of discretion. Therefore, it is not necessary to consider Chester's new arguments on the merits.

91 In case a higher court concludes I am incorrect, I shall briefly outline the parties' substantive arguments on the Chester parties' objections to the Master's calculation of compound prejudgment interest.

Use of an Average Rate between November 8, 1988 and January 4, 2007

92 In his Report, Master Linton allowed compounded pre-judgment interest at 7.42% (the average rate be-tween November 18, 1988 [when the Statement of Claim in the main action was issued] and January 4, 2007 [the date of his Report.]) In his Supplementary Reasons for Decision released February 10, 2007, he held that, "averaging the interest rate is fair and legal."

93 Counsel for the Chester parties submitted that since the distributions at issue were made at various ti-mes between 1984 and 2002 (many after the Statement of Claim was issued), the Master effectively awar-ded interest on some of the distributions before they were made. He used the average rate in effect prior to the date on which some of the distributions were actually made, which rate was higher than rates later in ef-fect. The combined effect was to confer a windfall on Morris. They submitted the Court should amend the Master's Report to reflect interest calculated using an installment approach and average annual rates in each year in which each distribution was made.

94 They cited Lowndes v. Summit Ford Sales Ltd., [2006] O.J. No. 13 at paras. 7-8 and 23-28 (C.A.), whe-re the Ontario Court of Appeal held the trial judge erred in not awarding prejudgment interest on an 'install-ment' basis:

... the appellants made severance payments to the respondent over 21 months, for a pe-riod that amounted to approximately 8.5 months notice. I have already concluded that the respondent was entitled to an aggregate notice period of 28 months. Accordingly, his monthly severance payments should have been calculated on the basis of a 28 month notice period and paid accordingly. To the extent of the shortfall between the payments owed and the payments made, the respondent is entitled to prejudgment interest. This recognizes that the respondent's prejudgment interest entitlement concerns only the loss of interest on the moneys that would have been payable to him from time to time had his severance payments been calculated in accordance with the quantum of monthly pay-ments held by the trial judge to be owing and paid during the full notice period.

...

In this case, the effect of the trial judge's award of prejudgment interest from the date of

the respondent's dismissal on the amount of damages payable to the respondent was to award interest on payments before they were due. In effect, the award provided for a prepayment' of interest on salary continuance payments before they were earned. To this extent, the award conferred an impermissible windfall on the respondent: see Cela-nese Canada Inc. v. Canadian National Railway Co., [2005] O.J. No. 1122 (C.A.). [em-phasis added]

See also Schumacher v. Toronto-Dominion Bank (1997), 153 D.L.R. (4th) 187 at 188-90 (Ont. Gen. Div.)

95 Counsel for Morris denied that Gott calculated interest on any amount before it was paid and con-tended that she calculated interest payable in the year in which each amount was paid only from December 31. [To illustrate: if a $1,000,000 bonus was declared in 1989, and paid in the middle of 1990, the interest payable on that amount was calculated commencing on December 31, 1990.]

96 Counsel for the plaintiffs submitted that the defendants' authorities support Gott's approach endorsed by the Master. In Lowndes v. Summit Ford Sales Ltd., [2006] O.J. No. 13 (C.A), the trial judge awarded in-terest on all payments from the date of termination at the statutory rate. The Court of Appeal awarded interest at the same statutory rate on payments as they came due. [In other words, the Court of Appeal applied the same rate to all of the amounts owing by the defendants, even though many of the payments were not due until later, at a time when the statutory rate was different.]

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97 They submitted that in Schumacher v. Toronto-Dominion Bank (1997) 153 D.L.R. (4th) 187 (Gen. Div.), a wrongful dismissal case, the Court was asked to decide whether interest should be calculated from the da-te of termination, or from the date each payment fell due. The Court held that interest should start to run on each payment as it came due. However, it applied the Courts of Justice interest rate in effect on the date the action was commenced to all amounts owing under the judgment.

Did the Master Err in Failing to Deduct the Ennis P ayments in Calculating Pre-Judgment Interest Pa-yable by Chester

98 Counsel for the Chester parties submitted in calculating the amounts and the prejudgment interest pa-yable by Chester, the Master erred in law in failing to give credit for the $173,145 paid by Ennis in November 2004.

99 Counsel for Morris submitted that in her calculations adopted by the Master, Gott did give Chester credit for the amount recovered from Ennis.

The Master Erred in Applying Prejudgment Compounded Interest to the $12 Million Ordered in the Trial Judgment to be Paid Immediately

100 Counsel for the Chester parties submitted that my Reasons released June 27, 2002 required Chester to immediately make a partial payment of $12 million to Morris. Prejudgment interest on the $12 million should have stopped running on that date. The Master erred in principle in calculating prejudgment interest on the $12 million between 2002 and July 2004 when Morris received $10 million from Chester, and then calculating prejudgment interest on the outstanding $2 million.

101 I note that paragraph 7 of the Order of the Court of Appeal provides as follows:

7. THIS COURT ORDERS AND ADJUDGES that Morris Waxman shall immediately recover the sum of $12,000,000 from Chester Waxman and IWS, severally but not jointly, as a partial payment of amounts recoverable pursuant to paragraph 4, above, with such amount, once paid , to be deducted from the total amount re-coverable pursuant to paragraph 4, above. [Emphasis added]

102 Counsel for Morris submitted that the language of that Order makes it clear that Chester would not be entitled to any credit in respect of the $12 million until it had been paid. Chester made no payment on the $12 million until July 2004. Once he did make a $10 million payment, he received credit for it. Prejudgment compounded interest started to run on the unpaid amount [two million dollars.] Morris has not yet collected the $2 million balance. Further monies received pursuant to Notices of Garnishment are being held by the IWS Receiver.

103 Had I been required to decide the point, I would have held, as specified in the Order of the Court of Appeal, that pre-judgment compounded interest continued to run on the unpaid balance of the $12 million from June 27, 2007 until paid.

Should Prejudgment Interest Run until the Report on Reference is Confirmed?

104 Counsel for the Chester parties submitted the Master erred in law and in principle at paragraph 7 in holding that prejudgment interest would continue to run until confirmation of the Report, when he directed as follows:

[7] As prejudgment interest continues to run until such time as this Report is confirmed, and the date of that confirmation is not known at the present time, I have determined the amounts that Chester and IWS, Warren and Robert will owe to Morris, inclusive of pre-judgment interest, on each day from January 20, 2007 to January 19, 2007, as set out in the attached Schedule 'A'.

105 They submitted that the relevant date for the purpose of calculating prejudgment interest under s. 127(1) of the Courts of Justice Act usually is the date the order is made [the date of the release of the Rea-sons for Judgment], and that there is no basis in principle or policy to distinguish between an Order made on a Reference and an Order made in other proceedings.

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106 Counsel for Morris submitted that s. 127 makes it clear that where an order is made directing a refer-ence, the relevant date for determining the interest is the date the Report on Reference is confirmed.

107 Had I been required to decide the issue, I would have held the Master did not err in principle in this respect. Section 127 of the Courts of Justice Act is clear: pre-judgment interest runs until the date the Report on Reference is confirmed.

CONCLUSIONS

Conclusions on Submissions on Substantive Matters

108 In my view the Master did not err in principle or patently misapprehend the evidence of Robert, War-ren and Cozzi. There was ample evidence at the Reference on which he could properly conclude that evi-dence was unreliable. Those witnesses were effectively cross-examined. The Master was entitled to con-clude they overstated their contributions and worth and that the evidence of Gore and Gott should be preferred. 109 Despite his conclusions on reliability, Master Linton was generous to Robert and Warren. He over-looked substantial income received from other sources during the relevant period.

110 The Master did not simply adopt my findings at trial. He made that clear at paragraph 54 of his rea-sons, where he referred to Warren and Robert's evidence at the reference hearing and concluded he "could not rely on what they said to determine what would be reasonable compensation for them during the period in question."

111 Similarly, there was evidence upon which the Master could reject Cozzi's evidence. He did not err in principle in concluding that Cozzi's evidence was demonstrably inaccurate. Much of Cozzi's evidence in chief was shown on cross-examination to be inaccurate.

112 In my view the Master did not err in principle in rejecting the evidence of Robert, Warren and Cozzi.

113 The experts at the Reference agreed on many of the matters about which the Chester parties are now complaining. Most of the objections they are now raising to Gore's approach are matters that their own ex-pert, Wallace (i) did not see fit to challenge, and (ii) admitted were matters of judgment. For instance, Wal-lace agreed that Gore's use of Watson Wyatt surveys, his decision not to use Philip as comparator, his deci-sion not to include transactional bonuses, his reliance on revenue cut - were appropriate. He was in general agreement with Gore's approach.

114 The major disagreement between Gore and Wallace was with respect to LTIs. In my view, as men-tioned earlier, it was open to the Master to accept Gore's opinion that it was inappropriate to include additional amounts in respect of LTIs.

115 The evidence did not, as counsel for the Chester parties now contends, "establish that IWS' compara-tors were paying long term incentives."

116 I do not accept the submission of counsel for the Chester parties that they proved that IWS' competi-tors were paying LTIs.

117 It was open to the Master on the evidence to accept Gore's reasons for excluding LTIs, and to accept his explanations concerning those aspects of his methodology that the Chester parties are now challenging.

118 The learned Master did not err in principle in accepting Gore's evidence and in preferring it over Wal-lace's.

119 In my view, there was ample evidence on which Master Linton was entitled to accept Gore's evidence. He was entitled to prefer the evidence of Gore over Wallace, especially given Wallace's concession that the Watson Wyatt survey did not support his conclusion re LTIs. He was entitled to accept Gore's evidence on the prevalence of LTIs in private industry, that LTIs are not necessary where adequate bonuses were offered and that such bonuses are embedded in the survey data. He was entitled to conclude that LTIs were not ap-propriate for a company of the size and complexity of IWS. He did not err in principle in so doing.

120 The Master reviewed the Chester parties' criticisms of Gore's evidence, and rejected them. On the e-vidence it was open for him to conclude that Gore's fair market compensation figures were reasonable.

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121 There was ample evidence set out earlier in these Reasons to support the Master's conclusion that Gore and Gott were generous to the defendants. They did not include any of Robert's or Warren's additional income earned outside of IWS, and they made numerous assumptions favorable to the defendants.

122 There was ample evidence to support the Master's conclusion that Gore was better prepared than Wallace.

123 The Master made no palpable and overriding error in accepting Gore's evidence.

124 The Master did not err in principle in accepting the calculations made by Gott using Gore's compensa-tion figures. Like Gore, Gott made many assumptions favourable to the Chester parties. Like Gore, Gott did not include any of Warren's or Robert's additional income.

125 The Master did not err in principle in failing to consider the "value" of IWS.

126 In my view the Master did not err in principle in failing to place reliance on Mann's evidence touching on increases in value in IWS. On the evidence he was entitled to reject Mann's evidence "around value."

127 The Master did not err in principle on the exercise of his discretion in refusing to grant an adjourn-ment, given the circumstances at the time of the request for an adjournment, the history of this case and the failure of the defendants to show that Holt's evidence would have affected the outcome of the Reference.

128 The Master did not err in principle in awarding compound prejudgment interest. While there is no au-tomatic right to compound interest, where an equitable claim is made out and an equitable remedy is gran-ted, compound interest may be awarded. Subsections 138(3)(f) and 139(5) of the 1984 Act allow a Master to exercise his/her discretion to award interest on an equitable basis outside of the terms of the Courts of Jus-tice Act. He made no error in principle in holding that there were sufficient circumstances justifying his exer-cise of discretion in this regard.

129 The Master did not err in the exercise of his discretion in refusing to allow the defendants to reopen their case after his Reasons were released. The defendants did not meet either branch of the Sagaz test.

130 Had I concluded otherwise, I would have referred the issue of the introduction of the new evidence back to the Master, with a direction to schedule a resumption of the hearing after allowing the plaintiff's ex-perts sufficient time to complete responding reports and prepare to adduce responding evidence.

131 In any event, subject to confirmation that Gott did indeed credit the Ennis payment in making her cal-culations, I would have held the Master did not err in principle in concluding that even on their merits, the as-sumptions and calculations put forward by Morris were fair.

Conclusion

132 The Master's Report on Reference is confirmed.

133 The parties may make written submissions on costs by email on or before September 17, 2007.

M.A. SANDERSON J.

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1 Gary Waxman settled with Morris before the Reference.