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Facts and commercial background
Logistik Unicorp Inc. is a Quebec-based company that designs, manufactures and distributes uniforms and workwear, primarily to large public-sector clients such as defence, postal, transport, law-enforcement and healthcare entities in Canada and abroad. It operates both through a “managed clothing solution” model, supported by proprietary IT, and through “bulk order” and prime-vendor contracts. Prior to the transaction at issue, Logistik was owned by three groups of shareholders: the Shotgun Funds, Clearspring Capital Partners, and Placements Louis Bibeau Inc., the holding company of founder and CEO Louis Bibeau. Clearspring and the Shotgun Funds together held the majority of shares and had board representation, while Placements Bibeau held the remaining minority interest.
By 2017, Clearspring and the Shotgun Funds wished to exit and mandated CIBC to run a sale process. A Confidential Information Memorandum was provided to prospective buyers, including Wynnchurch Capital. In June 2018, Wynnchurch submitted a letter of intent, proposing to acquire 100% of Logistik’s shares for a base price of CAD 241 million (including assumed debt), plus a CAD 15 million earnout tied to Logistik’s performance in fiscal 2020 and 2021. The sellers accepted this offer over a competing proposal, and on 1 August 2018 they executed a Share Purchase Agreement (SPA) with 9381-7187 Québec Inc. as purchaser, later renamed Logistik Unicorp Holdings Inc. (Unicorp Holdings), a Wynnchurch-controlled holding company. Placements Bibeau rolled over its share of proceeds into Unicorp Holdings and remained a minority shareholder, with Mr. Bibeau continuing as CEO of Logistik.
The reverse earnout mechanism and EBITDA definition
The SPA implemented Wynnchurch’s earnout proposal using a “reverse earnout” structure. Unicorp Holdings issued a series of promissory notes (the Reverse Earnout Notes) to the Shotgun Funds, Clearspring and Placements Bibeau, with an aggregate face amount of CAD 15 million. These notes would either be reimbursed or cancelled depending on Logistik’s actual EBITDA performance in fiscal years ending 31 May 2020 and 31 May 2021. The parties agreed that they reasonably expected the notes to be fully reimbursed, and that this earnout mechanism was part of their approach to determining the fair market value of the shares.
Eligibility for reimbursement turned on whether Logistik’s “2020 EBITDA” and “2021 EBITDA” exceeded CAD 34 million for each year, or at least met a cumulative CAD 68 million threshold across both years. If 2020 EBITDA exceeded CAD 34 million, the 2020 notes would be payable, and similarly for 2021. Even if 2020 alone missed the threshold, the notes for both years would still be payable if cumulative EBITDA for 2020–2021 exceeded CAD 68 million. Conversely, if annual or cumulative thresholds were not met, the corresponding notes would be returned for cancellation.
The SPA contained a bespoke definition of EBITDA. Earnings before interest, taxes, depreciation and amortisation were to be calculated from the audited financial statements prepared under ASPE, but certain items were expressly excluded: management fees, non-recurring gains and losses, non-cash gains and losses, specified transaction expenses, and “any one time expenses or income that are not incurred or realized in the ordinary course of business”, with an additional clarification that out-of-ordinary-course expenses that do not generate additional EBITDA in the period should also be excluded. This contractual definition—and how it applied to pandemic-related items—became the core legal and accounting battleground.
The pandemic, Medical PPE sales and CEWS subsidies
Before COVID-19, Logistik’s business did not include Medical PPE. Its healthcare-sector work focused on uniforms and related workwear. The pandemic rapidly changed this. In April 2020 the Government of Canada urgently approached Logistik about dedicating its manufacturing capacity to medical gowns. Logistik decided to “join the effort” and invested in equipment and supply chains to produce gowns at scale. It secured a significant federal contract to supply over 4.3 million gowns with a total contract value exceeding CAD 126 million, and also obtained sizeable gown orders from CHU de Québec – Université Laval and from Ontario Health Services. Deliveries largely occurred before fiscal year-end 2021.
A separate opportunity emerged in nitrile gloves. Through a contact of one of Mr. Bibeau’s children, Logistik accessed glove suppliers and obtained large glove orders from CHU de Québec and, after a competitive tender, from the City of Montreal. Unlike the gowns, gloves were sourced rather than manufactured by Logistik. Medical PPE sales (gowns and gloves) ultimately generated more than CAD 4 million in 2020, over CAD 191 million in 2021, and additional amounts in 2022, before Logistik exited the PPE market as conditions normalised and margins shrank.
During the same period, Logistik received wage subsidies under the Canada Emergency Wage Subsidy (CEWS) program, intended as a temporary emergency measure to help employers retain staff. CEWS was in effect from March 2020 to October 2021 and involved periodic applications and multiple payments over successive fiscal periods.
How the EBITDA dispute arose
In September 2020, Unicorp Holdings issued the 2020 EBITDA Statement required by the SPA. It calculated 2020 EBITDA at CAD 23,391,000, below the CAD 34 million annual threshold. That figure reflected “COVID-19 Deductions” totalling CAD 3,305,000: CEWS wage subsidies of CAD 1,223,000 and CAD 2,082,000 of Medical PPE revenues, both characterised as non-recurring. Without these deductions, 2020 EBITDA would still have remained under the annual threshold, at CAD 26,696,000, but the treatment of these items would matter greatly once 2021 results were known. Clearspring and the Shotgun Funds promptly served a Notice of EBITDA Objection, arguing that these deductions were inconsistent with the contractual EBITDA definition and should be added back.
In September 2021, Unicorp Holdings issued the 2021 EBITDA Statement. It reported 2021 EBITDA of CAD 19,891,000 and cumulative 2020–2021 EBITDA of CAD 43,282,000, again far below the annual (CAD 34 million) and cumulative (CAD 68 million) thresholds. This statement made much larger COVID-19-related deductions: CEWS subsidies of CAD 1,822,000 and CAD 37,777,000 of Medical PPE sales, now described as “COVID-19 medical contracts”. Without those deductions, 2021 EBITDA would have been CAD 59,490,000 and cumulative EBITDA for 2020–2021 would have reached CAD 86,186,000—enough to trigger full reimbursement of all Reverse Earnout Notes. The plaintiffs issued a second Notice of EBITDA Objection, seeking an upward adjustment of CAD 39,598,000 to 2021 EBITDA and payment of both years’ notes.
The contractual expert determination process
The SPA contained a dedicated, contractually agreed process for resolving disputes about post-closing accounting items (working capital, net debt and, by cross-reference, EBITDA). Under sections 2.8(b) and (c), and 2.10(i), if the parties failed to resolve an EBITDA objection within a set period, any remaining dispute was to be referred to an “Independent Accounting Firm” for expert determination. That firm was mandated to receive written submissions from each side, issue a written report within a specified timeframe and determine the disputed calculations. The SPA stipulated that the expert would act as an expert, not an arbitrator, and that the determination would be “final and binding” and “not subject to appeal, absent manifest error”. Costs of the expert were to be shared equally; each side bore its own preparation costs.
When the plaintiffs first sued for payment of the notes, Unicorp Holdings tried to characterise this clause as an arbitration agreement and sought a referral to arbitration and a stay of the court action. The court (in an earlier 2023 decision in the same matter) rejected that argument, holding the clause created an expert determination mechanism rather than arbitration, so the Superior Court retained jurisdiction. However, the court stayed the litigation to allow the parties to complete the expert process they had bargained for. The parties agreed on BDO Canada LLP as the independent firm, with partner Alan Mak leading the engagement. They set a detailed timetable for written submissions, responsive briefs, questions from BDO, comment rounds and a draft report limited to factual corrections.
The BDO expert report and its conclusions
In August 2023, BDO issued its final expert report on the EBITDA dispute. It focused on two central questions: whether Medical PPE revenues should be deducted from EBITDA, and whether CEWS subsidies should also be excluded, under the SPA’s wording on “non-recurring gains” and “one time expenses or income that are not incurred or realized in the ordinary course of business”.
On Medical PPE, BDO concluded that the revenues were not “gains” but “revenue” in the ASPE sense, because they arose in the ordinary course of Logistik’s commercial activities: selling goods it designed, manufactured or sourced, through models consistent with its “bulk order” and prime-vendor approaches. BDO noted that Logistik had historically pursued profitable bulk opportunities (including one-off bulk orders such as winter jackets for Syrian refugees) as part of its normal business strategy, and that the PPE activity fell within that pattern of seizing market opportunities within its capabilities. BDO also observed that PPE sales occurred across multiple contracts, multiple customers and three fiscal years, so they were neither “non-recurring” nor “one-time”.
On CEWS, BDO found that the wage subsidies were not the result of ordinary operating activities and therefore were best characterised as “gains” rather than revenue. However, because CEWS payments were received repeatedly over successive months and two fiscal years, the grants were recurring rather than non-recurring or one-time items. On that basis, they too did not fit within the SPA’s exclusions for “non-recurring gains” or “one time income not realized in the ordinary course of business”.
BDO therefore recalculated EBITDA in accordance with the SPA’s contractual definition, adding back the Medical PPE and CEWS deductions. It concluded that Logistik’s proper EBITDA was approximately CAD 26.7 million for 2020, CAD 59.5 million for 2021, and CAD 86.18 million cumulatively. These figures exceeded the SPA’s CAD 68 million cumulative threshold, meaning the Reverse Earnout Notes ought to be reimbursed in full.
Return to court and standard of review
After receiving the BDO report, Unicorp Holdings declared it “fundamentally flawed” and refused to pay. The plaintiffs reactivated their suspended court proceedings, now seeking judgment to enforce the expert determination and payment of the notes. Unicorp Holdings, for its part, attacked the BDO report, arguing that it was tainted by “manifest error” and should be set aside.
The core legal question for the Superior Court was how far it could, or should, go in reviewing an expert determination that the SPA labelled “final and binding, absent manifest error”. Drawing heavily on English and Canadian authority on expert determinations, the court held that its review was rooted in contract: the parties had chosen expert determination rather than arbitration, and had also explicitly inserted a “manifest error” safety valve. Absent fraud or the expert departing from its mandate, the court could not revisit the merits, and even plain error would not suffice unless the error was both obvious and capable of affecting the outcome.
The judge interpreted “manifest error” as a deferential standard with three dimensions: the error must be obvious or easily demonstrable without extensive investigation; it must be clearly wrong such that reasonable experts could not differ; and it must be material in the sense of being capable of affecting the determination. Against that backdrop, the court had to decide whether Unicorp Holdings had discharged its burden to show such an error in BDO’s treatment of Medical PPE revenues and CEWS subsidies.
Fresh evidence and the role of a competing accounting expert
Both sides filed voluminous evidence, including all materials provided to BDO, an expert report and supplemental letter from MNP (prepared by Mr. Jas Chahal) obtained by Unicorp Holdings after the expert process, sworn statements from current and former executives, and related transcripts. The plaintiffs argued that, given the SPA’s “appeal absent manifest error” language, the court should severely limit fresh evidence, essentially following the appellate “fresh evidence” test from R. v. Palmer and confining itself largely to the record before BDO.
The court rejected a strict Palmer-only approach, noting that this was not a statutory appeal but a contractual enforcement action and that, in some circumstances, fresh expert evidence can legitimately assist in showing that an expert misunderstood or misapplied professional norms. However, it also warned that most fresh evidence will be an impermissible attempt to have the court redo the very exercise entrusted to the expert. As a result, the judge formulated a tailored relevance test: fresh evidence on the merits of the determination is admissible only if it is logically capable of demonstrating an error that is obvious, clearly wrong, outcome-affecting and does not invite the court to re-run the expert’s task.
Applying this approach, the judge found that some aspects of the MNP report—those merely substituting MNP’s own analysis of the EBITDA questions—were not especially helpful. More relevant was MNP’s criticism that BDO had not expressly engaged with certain ASPE-related guidance on “unusual items” in the CPA Canada materials (GASPE), and Canadian Securities Administrators’ guidance on non-GAAP and “non-recurring” items. Ultimately, however, the court held that BDO’s focus on the actual contract language (“non-recurring gains”, “one time income” and “ordinary course of business”) was appropriate. The SPA did not incorporate concepts like “unusual items”, “normalized EBITDA” or “adjusted EBITDA”, and the drafting history showed that the parties had negotiated specific wording rather than adopting those broader labels.
Findings on Medical PPE revenues
Turning to the substance, the court carefully reviewed BDO’s treatment of Medical PPE. It accepted BDO’s understanding of Logistik’s business model, particularly its split between managed clothing solutions and bulk orders and its history of opportunistic bulk contracts, including winter coats for Syrian refugees. The judge found that Logistik, in both its marketing materials and due diligence documents, had consistently portrayed “chasing bulk opportunity” as part of its normal business, with such contracts sometimes later converted into managed-service offerings.
Against that backdrop, the court held there was no manifest error in classifying Medical PPE sales as consistent with Logistik’s bulk order model and thus within the ordinary course of business. The fact that COVID-19 was exceptional and that PPE was a new product line did not transform revenues from the sale of manufactured or sourced goods into “gains” or “unusual items” outside the company’s business scope. Nor did the intensive, but time-bounded, PPE activity convert those sales into “one-time” or “non-recurring” income when they spanned multiple customers, multiple contracts and three fiscal periods.
The court also rejected reliance on Note 17 of Logistik’s 2021 audited financial statements, in which management and auditors had described the COVID-19 PPE contracts as “one time, non-recurring, short-term” and “outside its core business”. Those descriptors, the court held, could not dictate the outcome under the SPA. Allowing Logistik’s management and auditors—acting for a company controlled by the defendant shareholder—to bind the independent expert on the meaning of a purchase-price adjustment clause would undercut the very purpose of the expert mechanism. BDO was entitled to consider Note 17 but to give it limited weight in applying the SPA’s contractual EBITDA definition.
Findings on CEWS wage subsidies
On CEWS, the court agreed with BDO that the subsidies were “gains” rather than revenue because they did not arise from ordinary operating activities. However, it accepted that CEWS payments were recurring in nature: Logistik applied for and received subsidies in multiple months over at least two fiscal years. Given that pattern, and the regulatory guidance discouraging characterising items as “non-recurring” where similar transactions occur within a two-year window, it was not clearly wrong for BDO to treat CEWS as recurring gains rather than one-time or non-recurring.
The judge also noted that, even if one assumed error on the CEWS classification, it would not change the outcome because the inclusion of Medical PPE revenues alone pushed cumulative EBITDA above the CAD 68 million threshold. Any error on CEWS would therefore be immaterial and could not qualify as a “manifest error” capable of undermining the expert determination.
Alleged ethical breaches and the application to exclude evidence
A separate procedural skirmish concerned affidavits from two former senior Logistik executives, Messrs. Alain Raquepas and Matthew Graham, obtained by the plaintiffs’ prior counsel and provided to BDO. Unicorp Holdings argued that these contacts violated Quebec’s Code of Professional Conduct of Lawyers (specifically the rule against communicating with a represented person) and infringed its Charter right to counsel. It sought orders excluding the affidavits from the court record, requiring destruction of information obtained through those contacts, and striking related allegations.
The court analysed when current or former employees of a corporation are treated as “represented persons” for purposes of the no-contact rule. It explained that not all employees or ex-employees fall within that protection; rather, it extends only to those who occupy strategic decision-making roles and are either involved in the facts giving rise to the dispute or in the litigation itself. While Messrs. Raquepas and Graham had held senior roles in the Logistik group before and just after the SPA, they both left well before the pandemic, before the EBITDA dispute arose, and before the lawsuit commenced. The core controversy before the court centred on the treatment of 2020–2021 Medical PPE revenues and CEWS grants, matters in which these former executives had no post-pandemic involvement.
The judge also observed that, prior to the SPA, both men worked effectively on the sellers’ side, not for Unicorp Holdings, and that they now had their own litigation against Logistik for contractual payments allegedly linked to earnout outcomes. That alignment of interests was adverse, not identical, to Unicorp Holdings. In those circumstances, assimilating them to Unicorp Holdings for section 120 purposes—and hence treating them as clients represented by its counsel—would be difficult to justify.
The court further noted Unicorp Holdings’ delay and litigation strategy: it knew of the affidavits during the expert process, complained about them in correspondence, but consciously chose not to seek immediate relief or disruption of BDO’s work, preferring to see the process through. Only after receiving an unfavourable expert report did it seek to weaponise the alleged breach to impeach the report and the court record. The judge held that, even if there had been a breach of the Code (which he did not find), such tactical delay would make it inappropriate to use the issue to invalidate the expert determination. The application to exclude evidence was therefore dismissed, and the alleged ethical breach did not undermine the binding nature of BDO’s work.
Overall outcome and monetary relief
In the final analysis, the court held that BDO had acted within its mandate as the Independent Accounting Firm designated in the SPA, that it had correctly applied the SPA’s bespoke EBITDA definition, and that none of the alleged missteps rose to the level of “manifest error” as contractually understood. The BDO report was therefore binding, and its EBITDA calculations controlled the parties’ earnout dispute. On that basis, cumulative EBITDA clearly exceeded the CAD 68 million threshold once the Medical PPE revenues were properly included and the CEWS deductions were rejected. The Reverse Earnout Notes issued to the selling shareholders had to be reimbursed.
Accordingly, the Superior Court granted the plaintiffs’ Modified Originating Application, dismissed Unicorp Holdings’ defence and its application to exclude evidence, and ordered Unicorp Holdings to pay the principal amounts due under the Reverse Earnout Notes: CAD 1,687,970 to Clearspring Capital Partners US (II) L.P., CAD 3,554,004 to Clearspring Capital Partners II L.P., CAD 4,340,036 to The SF Fund Limited Partnership, and CAD 122,726 to The Shotgun Fund Limited Partnership, for a total principal award of CAD 9,704,736, together with interest at 8% per annum from 14 September 2023 and the plaintiffs’ legal costs (whose precise quantum was not fixed in the judgment and would need to be determined through the usual taxation process).
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Plaintiff
Defendant
Court
Quebec Superior CourtCase Number
500-11-063570-242Practice Area
Corporate & commercial lawAmount
$ 9,704,736Winner
PlaintiffTrial Start Date