Executive Summary: Key Legal and Evidentiary Issues

• Whether the parties' Earn-Out dispute fell within the contract's alternative dispute resolution clause, requiring resolution by an independent accountant rather than the courts.
   
• Determining whether an entire agreement clause could preclude a claim in negligent misrepresentation despite pre-contractual assurances about EBITDA.
   
• Assessing whether fraudulent misrepresentation was adequately pleaded absent a specific representation shown to be false when made.
   
• Examining whether the duty of honest performance extends to conduct occurring during pre-contractual negotiations.
   
• Applying the Rule 9-5(1) test of whether it is plain and obvious a pleading discloses no reasonable cause of action.
   
• Considering whether special costs were warranted given the plaintiff's allegations of fraud.

?

?

Facts of the case

2325524 Ontario Inc. sold its solar energy assets to Charge Solar Renewables Inc. under an asset purchase agreement dated May 1, 2021. As part of the purchase price, two contingent Earn-Out payments tied to the defendant's EBITDA over the following two years were negotiated, with an aggregate maximum of $4,000,000. During negotiations, the plaintiff's president, Adam Webb, dealt principally with the defendant's director, Douglas M. Pulver, who assured him the defendant was budgeting for EBITDA between 10% and 12.5%. In year one, the plaintiff accepted an Earn-Out payment of $2,485,700. In year two, the payment dropped to $301,837.36, bringing the total to $2,787,537.36. The plaintiff then discovered that management fees paid to the defendant's directors — approximately $311,280 in year one and $374,415 in year two — had been factored into the EBITDA calculation, reducing the aggregate Earn-Out by roughly $468,000. After objecting under the agreement's dispute process and reaching an impasse, the plaintiff declined to refer the matter to an independent accountant and instead filed a notice of civil claim on September 27, 2024, alleging negligent misrepresentation, fraudulent misrepresentation, and breach of the duty of honest performance. The defendant applied to strike the pleadings under Rule 9-5(1).

Policy and legislative provisions at issue

Section 3.5(a) of the agreement required the purchaser to deliver financial statements and a Draft Earn-Out report calculating EBITDA within 90 days of each Earn-Out year. Under section 3.5, if the plaintiff objected to that calculation, the parties were to negotiate in good faith, failing which the dispute would go to an independent firm of chartered accountants acting as experts, whose determination would be final and binding. The agreement also contained an entire agreement clause stating that no representations existed between the parties beyond those set out in the contract itself, superseding all prior negotiations and discussions. Rule 9-5(1) of the Supreme Court Civil Rules permits a court to strike pleadings that disclose no reasonable claim, applying the test of whether, assuming the pleaded facts true, it is plain and obvious the claim has no reasonable prospect of success, as articulated in Airbnb v. Ware, 2026 BCCA 110.

Reasoning and analysis

Justice Greenwood concluded that the underlying disagreement was fundamentally about the calculation of Earn-Out EBITDA, a matter the parties had agreed to send to an independent accountant rather than the courts. Rejecting the plaintiff's narrow reading of "calculation" as limited to arithmetic, the court drew on KMH Cardiology Centres Incorporated v. Lambardar Inc. and Avtal Investments Ltd. & Mezuman v. Brault & Bouthillier Ltée to find that the clause's broad language captured disputes over how expenses, including management fees, factored into EBITDA. Philips Electronics v. Westinghouse Canada was distinguished because, unlike that case, no separate issue of contractual interpretation existed outside the four corners of the dispute clause. On the entire agreement clause, the court applied the factors from Molsberry v. Serge, 2025 BCSC 2132 — including the sophistication of the parties and the absence of a standard-form contract — and, following No. 2002 Taurus Ventures Ltd. v. Intrawest Corp and Marrello v. Okinshaw Water Company Ltd, found the clause excluded the negligent misrepresentation claim. Turning to fraudulent misrepresentation, the court applied the test from Wang v. Shao, 2019 BCCA 130, and found no pleaded representation of an existing fact known to be false; the alleged representations were aspirational EBITDA projections incapable of grounding fraud. Finally, relying on Ocean Pacific Hotels Ltd. v. Lee, 2025 BCCA 57, the court held that the duty of honest performance does not extend to pre-contractual negotiations, so the plaintiff's claim on that basis could not succeed as a matter of law.

Ruling and overall outcome

Justice Greenwood granted the defendant's application to strike the plaintiff's pleadings in their entirety, finding the defects could not be cured by amendment, and dismissed the claim brought by 2325524 Ontario Inc. Charge Solar Renewables Inc. was the successful party. The court declined to award special costs, finding the plaintiff's conduct fell short of the "reprehensible" threshold, and instead awarded the defendant its ordinary costs without specifying a dollar figure.