[para1] LAX J.:-- The plaintiff, Round Court, is a company which carried on business in Toronto as an automobile dealership. The defendant, Land Rover, is the Canadian subsidiary of the British manufacturer of Land Rover products. Prior to the formation of Round Court, a predecessor company known as Square Court had sold Land Rover vehicles pursuant to an authorized Dealer Agreement. In 1993, Land Rover gave Round Court a Letter of Intent agreeing to enter into a new Dealer Agreement with Round Court for a three year term. Subsequently, Land Rover revoked the Letter of Intent alleging that Round Court had made material misrepresentations which entitled it to rescind its agreement. Land Rover refused to execute the new Dealer Agreement and ultimately terminated the franchise.

[para2] This litigation concerns the enforceability of the Letter of Intent and the damages which flow from its breach. For the reasons which follow, I have determined that the parties made a binding agreement which Land Rover wrongly terminated. Round Court is entitled to damages for its loss of profits which I find to be the sum of $845,101.00.

BACKGROUND

[para3] The events which give rise to this lawsuit took place in 1992 and 1993. However, the background to the litigation begins much earlier and an introduction to the main participants is necessary.

[para4] Round Court is a company owned by Mr. George Minden. For a very long time, Mr. Minden has had a passion for British automobiles. In 1967, he realized a personal ambition to own one Aston-Martin. From this developed a business interest in British luxury cars which extended over the next twenty-five years.

[para5] Mr. Minden's first venture was Grand Touring Automobiles which he opened in Toronto in 1971. It imported Lotus, Aston-Martin and became the Toronto area dealer for Rolls-Royce. Over the years, it sold these and other foreign luxury cars, eventually from a prime retail location at Davenport and Bay where it operated as Rolls-Royce on Bay, Jaguar on Bay, Infiniti on Yorkville, and from 1990, as Range Rover on Bay.

[para6] When Mr. Minden established Grand Touring Automobiles, he hired John Cox as a professional manager. Mr. Cox became an officer and director of the operating company which ultimately was known as Square Court Investments Limited. He also had a small equity interest. By 1992, Mr. Cox owned a 49% interest in Square Court from profits earned over the years. George Minden was Chairman of the company and the majority shareholder.

[para7] In 1974, Mr. Minden moved his family to England leaving John Cox to manage the automobile dealership. He returned to Canada for one year in 1978 and again from 1992 to 1994, but has otherwise resided in the United Kingdom. In 1985, Brent Bertrand was hired as a financial manager of Mr. Minden's Canadian business interests. Initially, he focused on the restaurant and hotel businesses. When Mr. Minden sold one of these major assets in 1989, Mr. Bertrand became the General Manager of the automobile dealership and continued to look after the other businesses from the Davenport and Bay location. Unfortunately, Mr. Bertrand proved to be an untrustworthy and dishonest business partner and employee. Following an investigation of Mr. Bertrand which was begun sometime in the spring of 1992, Mr. Minden dismissed him. A police investigation ensued which resulted in Bertrand's arrest on fraud charges about sixteen months later.

[para8] Even before the investigation into Mr. Bertrand's activities, Mr. Minden had been concerned with the performance of his automobile franchises. Following Mr. Bertrand's termination, he determined that he would need to return to Canada and take over the business in an effort to salvage his investment. In the summer of 1992, he returned to Toronto to do this. He sold Infiniti of Yorkville, wound down Grand Touring Nissan and set out to re-organize Square Court in order to preserve its core franchises which were Jaguar, Rolls-Royce and Range Rover. Mr. Minden also entered into negotiations with Square Court's major creditors, including its banker, the Bank of Montreal.

[para9] Alan Manessy is the General Manager of Land Rover Canada. Mr. Minden met with him for the first time on July 28, 1992. Mr. Minden informed him of the events which had precipitated Brent Bertrand's dismissal and of Mr. Minden's decision to return to Canada to re-structure the business. He was told of the plan to move the three franchises to Dupont and Christie which at that time was the service facility and compound for the dealership. Mr. Minden's evidence was that Mr. Manessy was also told at that meeting that Mr. Minden had returned permanently to Toronto to attempt to turn the company around and that he intended to do this "with or without John Cox". The evidence is unclear as to whether Mr. Minden in fact made this statement to Mr. Manessy. However, as events unfolded over the next eight months, the remark took on greater significance than was likely intended at the time. Some months later, Mr. Minden determined that he in fact would go forward without John Cox. The defendant's position is that this fundamentally changed Land Rover's obligations to enter into a new Dealer Agreement with the plaintiff.

THE AGREEMENT

[para10] The plaintiff's case is based on a Letter of Intent which is dated November 3, 1992 and signed by Alan Manessy on behalf of Land Rover. Its terms were agreed to on November 5, 1992 by George Minden in his capacity as Dealer Principal of the Range Rover franchise. The Letter confirmed Land Rover's approval of the transfer of the franchise from Davenport and Bay to Dupont and Christie. It stated that a new Dealer Agreement would be executed upon the franchise fulfilling four conditions. These were: (1) Minden was to arrange for his solicitors to provide certain corporate information as detailed in the Letter: (2) Minden was to arrange for a financing commitment letter from his bank in a form supplied by Land Rover; (3) Minden was to provide a Letter of Authorization and Power of Attorney sufficient to execute conditional sales agreements with respect to the motor vehicles purchased from Land Rover; and, (4) the renovated building on Dupont Street was to be completed and appropriate signage installed.

[para11] The Letter concluded as follows:

"Please be advised that failure to accomplish these requirements by 18 December 1992 will render the Letter of Intent automatically null and void. Conversely, upon completion of these requirements we will then enter into a Dealer Agreement with your new corporation and this action will render the agreement with Square Court Investments Limited null and void.

We wish you success at your new location and look forward to a continued mutually beneficial business relationship in the future."

The new corporation referred to in the Letter is Round Court, the plaintiff in this action.

[para12] On January 29, 1993 Mr. Manessy wrote to Round Court and to the Bank of Montreal confirming that the terms of the Letter of Intent had been fulfilled notwithstanding that appropriate signage had not yet been installed. It stated that Round Court had satisfied all conditions necessary for the right to sell Range Rover products and to become part of the dealer network of Range Rover. Land Rover undertook and agreed to execute and deliver the Dealer Agreement within 14 days.

[para13] This letter cleared the way for the re-organization to proceed. January 29, 1993 was a Friday. Square Court made an Assignment in Bankruptcy which took effect on Monday February 1st. The following day, the Bank of Montreal advanced funds with which Round Court purchased the assets of Square Court from the receiver and emerged as the owner of the franchises. The next day, George Minden informed John Cox that he would not be part of the new company. Early the following week, on February 8th or 9th, David Geneen was in place as the new General Manager.

[para14] A week later, Land Rover revoked the Letter of Intent. Its reasons for revocation are found in the following paragraph of its letter dated February 15, 1993:

"The letter of 29 January 1993 was predicated on a number of issues, a key component of which was the names of directors and officers of Round Court Investments. On 5 February 1993, John Cox announced his departure which in our view changes the structure considerably."

The letter went on to say that the issuance of a Dealer Agreement would be postponed until Round Court provided a pro forma "clearly outlining a business plan with specific attention to working capital and debt to equity positions that is acceptable to us and a revised list of directors attested to by Round Court Investments attorneys and acceptable to us." Notwithstanding the revocation of the Letter of Intent, Land Rover intended to conduct "business as usual" and offered its assistance in making the business a success. It concluded by asserting its confidence in the changes that had been made to the size and location of the business.

[para15] Business was "conducted as usual" for a short period of time. Then, on April 16 1993, Mr. Manessy wrote to Mr. Minden informing him that the business plan which he had received some weeks earlier was inadequate and that Land Rover did not intend to execute a new Dealer Agreement. Mr. Minden attempted both with Mr. Manessy and with the President of Land Rover of North America to reverse this decision. He even offered to bring John Cox back into the dealership, but Land Rover refused to re-consider. The franchise was offered to Lawrence Park Motors which carries on to-day as the only Range Rover dealership in Toronto.

THE POSITION OF THE PARTIES

[para16] The plaintiff's position is that all of the terms of the Letter of Intent were fulfilled and that a binding agreement was concluded on January 29, 1993. The effect of the February 15, 1993 letter was to introduce further terms which the defendant was not entitled to do. The defendant's position is that the first term in the Letter of Intent was not fulfilled in that it misrepresented the true structure of Round Court which did not include John Cox. Both parties support their position with reference to the provisions of the Dealer Agreement.

THE DEALER AGREEMENT

[para17] Appended to the Dealer Agreement is a document entitled Dealer Ownership and Management Exhibit which forms part of the Agreement. It requires the franchisee to disclose and certify the truth of the name of the General Manager and the name of the Dealer Principal as well as the beneficial ownership of the Dealer. The Agreement itself provides that a change in ownership (Article 4.2) or a change in management (Article 4.3) requires prior written consent "which consent will not be unreasonably withheld."

[para18] Article 12 of the Dealer Agreement is headed 'Termination'. Article 12.3 entitles Land Rover to terminate the Agreement on 15 days notice for a number of enumerated failures on the part of the Dealer, including a purported transfer of ownership in violation of Article 4.2. Article 12.4 provides for termination by Land Rover on 90 days written notice for a number of other enumerated failures. However, this is subject to the dealer being afforded an opportunity to correct the failure within the 90 day period. No specific reference to a transfer of management (Article 4.3) is referred to in Article 12. It would therefore appear that a breach of this term falls to be determined under the omnibus provision in Article 12.4.11 which provides for "any breach of another material obligation of this Agreement." A breach of Article 4.3 is therefore subject to the 90 day notice provision with an opportunity to correct the default.

[para19] Both the plaintiff and defendant went to some lengths to point out the provisions of the Dealer Agreement to which I have referred. The defendant's position appeared to be that Round Court was in breach of Articles 4.2 and 4.3 of the Agreement in that it purported to transfer the ownership and the management of the dealership by removing John Cox as owner and manager, and that it did so without obtaining prior written consent. The plaintiff acknowledges that no prior written consent was obtained, but says that Land Rover did not act reasonably in withholding its consent to the new management and that it was fully informed of the change in ownership. It is therefore not entitled to rely on Articles 4.2 and 4.3 as giving rise to a termination. In any event, the plaintiff says that Article 12 is the relevant termination provision and that Land Rover was obliged to give Round Court notice of its default with a 90 day correction period which it did not do.

[para20] The difficulty I have with these submissions is that the Dealer Agreement is largely irrelevant in determining whether or not the parties had a binding agreement. Neither party relies on the Square Court Dealer Agreement as giving rise to the obligations which are at issue here. The Round Court Dealer Agreement never came into existence. In my view, the Dealer Agreement is only of assistance in understanding the contractual obligations which flowed from the Letter of Intent. In this sense, I believe that I am entitled to look to the Dealer Agreement. However, the Dealer Agreement is not helpful in determining if the parties lived up to their contractual obligations. The Dealer Agreement did not govern their obligations. The Letter of Intent did. With this in mind, I turn to consider the Letter of Intent.

WAS THERE A BINDING AGREEMENT?

[para21] There is no dispute that the Letter of Intent of November 3, 1992 was a binding agreement if its terms were fulfilled. The only term about which there can be any question and which the defendant puts in issue is the first term which required the plaintiff to do the following:

1. When we have received a letter from your attorney confirming the new name of the corporation, the names, titles and addresses of the officers of the corporation, the total number of shares outstanding, the classification of the said shares, the distribution of said shares and a description of the restriction on transferability on said shares including the existence of any voting trust agreement and describing the individual holding rights to vote said shares, or holding proxies on any of the other share holders.

   Please ensure that this letter includes the information necessary to complete the Dealer Ownership and Management Exhibit (draft copies enclosed) which will form part of the Dealer Agreement.

[para22] Both Mr. Minden and his corporate solicitors complied with the request by forwarding to Range Rover on or about January 13, 1993 a Corporate Information Summary. It disclosed a number of changes. With respect to ownership, it showed that the shareholder of Round Court was now Jacobean Investments Limited whereas the shareholder of Square Court was Regent's Park Holdings Inc., a company in which the shares were held by George Minden as to 51% and by John Cox as to 49%. Jacobean Investments Limited is in fact a corporation owned by Mr. Minden and his family.

[para23] With respect to management, there were also changes. Under the Dealer Agreement with Square Court, Mr. Minden and Mr. Cox were named as Dealer Principals, whereas under the proposed Dealer Agreement with Round Court, Mr. Minden alone appears as the Dealer Principal. John Cox and George Minden are officers and directors of Round Court and had been officers and directors of Square Court. John Cox is shown as the proposed General Manager of Round Court replacing Brent Bertrand.

[para24] It is evident from the Corporate Information Summary that a new company, Jacobean Investments Limited, was to be the sole 100% shareholder of Round Court. It is the defendant's position that the ownership of the franchise is a material term under the Dealer Agreement and was a material term of the Letter of Intent. If this is so, it was the defendant's responsibility to make the necessary inquiry to be satisfied that this change was acceptable to it. Land Rover did not raise any question about this, although Mr. Manessy may have erroneously assumed that John Cox was a shareholder of Jacobean Investments Limited. In fact, it was never contemplated by either Mr. Minden or Mr. Cox that John Cox would be a shareholder of this company, or would otherwise participate as an owner of Round Court, at least not in its initial stages. If Mr. Manessy understood otherwise, this was not due to any action or inaction on the part of Round Court. Had Mr. Manessy inquired, I believe that Mr. Minden and Mr. Cox would have informed him that Mr. Cox did not have any shares in the new company.

[para25] Mr. Manessy knew from the summer of 1992 that Mr. Minden had returned to Toronto to take control of the financial aspects of the business. This ought to have reassured Mr. Manessy. If he knew nothing else about Mr. Minden, he at least knew that Mr. Minden was the financial backer and had money. The franchise was significantly short of its working capital requirements and had been for some period of time. Indeed, Mr. Minden embarked on the re-organization to avert the financial disaster to which Square Court, a company owned by Mr. Minden and Mr. Cox, was inevitably headed. In my view, John Cox's participation as an owner in Round Court should not have made any difference to Land Rover so long as the franchise was now headed on a financially healthier course which it appeared to be. It had been re-capitalized and had strong financial backing. In any event, there was no change to the ownership of Round Court either before or after January 29, 1993. Accordingly, Land Rover cannot rely on a non-fulfilment of the ownership aspect of the first term which was satisfactorily performed by Round Court.

[para26] Other considerations apply with regard to Mr. Cox's involvement as General Manager. Mr. Cox had been the de facto General Manager of the dealership since the inception of the relationship with Land Rover. With Mr. Minden in England, he was the 'face of the company'. The Corporate Information Summary represents that Mr. Cox is the General Manager of Round Court. It also represents that he is to be an officer and director. I must therefore attempt to determine whether this representation was untrue at the time the information was provided on or about January 13, 1993 and whether there was a material change prior to closing on January 29,1993 which Round Court concealed. Finally, did the departure of John Cox shortly after January 29, 1993 alter Land Rover's obligations?

WAS THERE A MATERIAL MISREPRESENTATION?

[para27] Until the beginning of January, 1993 the evidence establishes that everyone contemplated that John Cox would be the General Manager of Round Court. However, in the first week in January, George Minden received a telephone call from David Geneen expressing interest in the dealership. Mr. Minden and Mr. Geneen met to discuss this early in January. However, I find that they had not reached any agreement at the time that the Corporate Information Summary was prepared and forwarded to Land Rover on or about January 13, 1993. Accordingly, the information provided in this document was true when it was prepared by Round Court's solicitors and received by Land Rover. There was no misrepresentation at that time as to either the ownership or management of Round Court.

[para28] It is fair to say that when Mr. Minden returned to Toronto in the summer of 1992, he was questioning whether his confidence in Mr. Cox was misplaced. The evidence of both Mr. Minden and Mr. Manessy was that Mr. Cox had been distracted for a period of time and had let things slide. He had not been devoting the kind of energy to the dealership that was expected of him. The equity in Square Court was gone and Mr. Minden was disappointed that Mr. Cox had not found them an equity partner or that Mr. Cox was not prepared himself to put money into Round Court as Mr. Minden had done. The appearance of David Geneen gave Mr. Minden a realistic alternative to John Cox. Mr. Geneen had previously owned and operated an automobile dealership in Toronto which sold used exotic luxury cars. Mr. Geneen was interested in the dealership and was prepared to invest money in it.

[para29] Mr. Minden and Mr. Geneen continued their discussions through the month of January. However, I accept that their discussions did not result in any firm arrangement until a meeting between them which took place the last weekend in January, which was subsequent to the January 29,1993 closing. Following that meeting, Mr. Minden made a business decision to terminate Mr. Cox as General Manager and to replace him with Mr. Geneen. I think it is likely that it was agreed at this meeting that Mr. Geneen would participate in some way as an owner, but the details were left to be worked out at a later time. Accordingly, Mr. Geneen was not an owner then, nor did he in fact become an owner until much later. This is consistent with Mr. Minden's evidence that at the time of Mr. Cox's termination on February 2nd or 3rd, Mr. Minden told him that he would leave open for six months a first right of refusal in Mr. Cox's favour to buy Mr. Minden out or to find him an equity partner. Mr. Geneen testified that he was aware of this outstanding offer.

[para30] It is fair to say that this was a surprising turn of events. Nevertheless, I accept that this is in fact what happened and that at the time of the January 29, 1993 commitment letter from Land Rover to Round Court, Mr. Minden through Jacobean Investments Limited was the sole owner of the franchise and it was contemplated that Mr. Cox would be the General Manager. The document represented the true state of affairs at that time. Therefore, there was no misrepresentation on January 29, 1993 when Land Rover confirmed its intention to execute a Dealer Agreement with Round Court.

[para31] I turn then to consider whether the departure of John Cox a few days later altered the obligations which Land Rover had assumed to execute a new Dealer Agreement. This involves a consideration of whether or not the Letter of Intent was materially changed by his departure as General Manager so that it can be said that this term was not satisfied.

[para32] Subsequent to January 29, 1993, there clearly was a change in management. However, I find it significant that as soon as this occurred, Mr. Minden took immediate steps to introduce David Geneen to the manufacturers of each of the franchises. The meeting with Alan Manessy took place on February 10, 1993, that is, within days of Mr. Geneen's arrival at Range Rover on Bay. Mr. Manessy testified that he did not know David Geneen and that this raised questions for him about Mr. Geneen's ability to run the dealership. However, I do not think that Mr. Manessy ever made any sincere attempt to determine his qualifications. Had he done so, he would have learned of David Geneen's considerable experience with the clientele of this dealership and of his skills and background with similar products.

[para33] Within several weeks of Mr. Geneen's arrival, a number of supervisory staff left and were replaced. Mr. Manessy did not know the new Sales Manager, but acknowledged that sales had never been a problem with the franchise. A persistent problem had been service which was the responsibility of John Cox. Improving service was precisely the reason that Mr. Manessy was pleased about the consolidation of the sales and service departments at the Dupont location and had consented to the re-location. Mr. Manessy thought very highly of the new Service Manager who was hired by Mr. Geneen. In fact, all the objective indicators were that the dealership would emerge stronger and healthier under its new management.

[para34] The change in management brought with it changes to the officers and directors of Round Court. Mr. Manessy was advised that John Cox would be resigning as an officer and director and that David Geneen would be replacing him as soon as he had obtained the necessary legal advice. I attach no weight to the fact that this formality was not concluded. It was not a reason to terminate the franchise.

[para35] Land Rover's revocation of the Letter of Intent was effectively a refusal to consent to the new management. When I look to the provisions of the Dealer Agreement, I find support for the defendant's submission that the management and beneficial ownership of the franchise are material terms. However, I do not interpret Articles 4.2 and 4.3 to mean that Land Rover can impose a particular management or ownership on the dealership without specifically providing for this. Round Court was never told that John Cox was essential to the franchise, nor that his continued management was a term of the transfer of the franchise to the new company. One can only speculate what Mr. Minden would have done had this been made a term of the new Dealer Agreement. But, it is difficult to see how Round Court could have breached a term that was not part of its agreement. In my view, if John Cox was in fact a "key component" of the franchise, Land Rover ought to have made this an express term of its Letter of Intent which it did not do. It therefore had no reasonable basis for withholding consent to the new management. It follows that Land Rover was not entitled to terminate the Letter of Intent unilaterally and introduce new terms into the bargain as it purported to do on February 15, 1993. Accordingly, it cannot rely on Round Court's alleged failure to fulfil these terms as the reason for refusing to execute a new Dealer Agreement.

[para36] The Dealer Agreement which Land Rover was obliged to execute was for a three year term. The defendant's position is that the Agreement would have terminated on the sale of the franchise to Mr. Geneen in July 1994. Under Mr. Geneen's management, the tide of losses was stemmed and by June 30 1994 year end, the dealership was breaking even. The dealership is profitable to-day and Mr. Manessy was candid to acknowledge that David Geneen had done an outstanding job with it. As will become clear from the discussion on damages which follows, the introduction of the 'Discovery' model was an enormous success in which Round Court would have participated had the Dealer Agreement been executed. The totality of the evidence is that the dealership would have prospered. In my view, the reasonable inference from this is that Land Rover would have had no basis to terminate the Dealer Agreement in 1994.

THE 'DISCOVERY' MODEL

[para37] The first Square Court Dealer Agreement with Land Rover entitled it to sell a vehicle known as the 'Range Rover'. Initially, this was the only Land Rover product available in Canada. Subsequently, a model known as the 'Defender' was introduced. As it was not covered by the Dealer Agreement, Square Court and Land Rover executed a separate document. Its effect was to extend the Dealer Agreement to the new product. Another model, known as the 'Discovery' was launched in Canada in May 1994. This of course was subsequent to the termination of the franchise. At trial, the defendant contended that even if there was a binding agreement, it did not extend to the 'Discovery' model. I have no difficulty in rejecting this position. The evidence of Mr. Manessy was that the new model was offered to the entire dealer network. I find that it would have been offered to Round Court. There would have been absolutely no reason for it to refuse the new model as the introduction of new models into the market invariably has a positive impact on the sales of a dealership.

CONCLUSIONS ON LIABILITY

[para38] In summary, there was no Dealer Agreement in existence subsequent to January 29, 1993 and therefore, none of its provisions apply. However, the Dealer Agreement assists in understanding the obligations which flowed from the Letter of Intent. Ownership and management were material to the Letter of Intent. However, Land Rover could not impose a particular owner or manager on the franchise under the Dealer Agreement and was therefore not entitled to do this under the Letter of Intent without expressly providing for it which it did not do. Land Rover had the right under the terms of its Dealer Agreement to require Round Court to obtain consent to changes in ownership and management, but was obliged to act reasonably in considering proposed changes. Land Rover did not act reasonably in revoking the Letter of Intent five days after being informed of new management nor did it afford Round Court a genuine opportunity to demonstrate that the new General Manager was a qualified and trained person.

[para39] There were no material misrepresentations by Round Court upon which Land Rover relied in confirming the Letter of Intent on January 29, 1993. All of the representations by Round Court were in fact true. Subsequent to January 29, 1993, there was a change in management. However, it was never a condition of the Letter of Intent that John Cox would be either an owner or the General Manager of Round Court. Land Rover was not entitled to make this a condition after the fact, nor entitled to introduce new conditions into the agreement. It was therefore obliged to execute a Dealer Agreement in 1993 which would have extended for a three year term. This Agreement would have included the 'Discovery' model.

DAMAGES

[para40] The plaintiff's claim for damages is a claim for loss of profits for the years 1994, 1995 and 1996. I was provided with an analysis prepared by Mr. Alan Wintraub, an accountant who testified on behalf of the plaintiff. Mr. David Aldridge of BDO Dunwoody testified on behalf of the defendant.

[para41] The methodology employed by Mr. Wintraub and Mr. Aldridge was fundamentally different, thereby resulting in projections which ranged from Mr. Wintraub's projected loss of profits of just over $1 m. to Mr. Aldridge's projection of no lost profits at all. In view of the conclusions I have reached, it is necessary to review this evidence in some detail.

MR. WINTRAUB'S ANALYSIS

[para42] Mr. Wintraub approached his analysis on the basis that the business was essentially a Jaguar dealership. He sought to determine the expenses associated with the Jaguar business which he said would exist in any event to operate this franchise. These expenses were Personnel Costs, Semi-fixed expenses (company car and truck and data processing) and fixed expenses (rent, leasehold and equipment depreciation, property insurance, real estate taxes, heat and light and equipment rental). From the financial statements of the dealership for the 11 month period July 1, 1992 to May 31, 1993, he identified the total dealership expenses which were just over $3 m. From this, he deducted the three categories of expense which he said would have existed with or without a Range Rover franchise. This amounted to about $1.3 m. representing 60% of the total expenses. He then allocated the remaining 40% of the expenses among the three franchises -- Jaguar, Rolls-Royce and Range Rover. To arrive at Range Rover's allocation, he used a factor of 20%, which, in the year ending June 30, 1993 was this franchise's contribution to dealership revenues. In the result, his expense allocation factor for Range Rover for the remaining expenses was 8.15% (20% of 40% rounded up).

[para43] His sales projections were based on several scenarios. His original report contemplated sales of the existing models (Range Rover and Defender) to be 35, 40 and 50 cars for the years 1994, 1995 and 1996 respectively. He presented three different projections of sales of the new Discovery model assuming increases of 25%, 35% and 50%. He subsequently modified his projections to take account of the fact that the Discovery model was first launched in May 1994 thereby representing sales for the plaintiff only for May and June in that year. He also increased his estimate for existing models based on evidence of the defendant which established that sales of existing models increased from 1993 to 1994 by 40 to 50%. This resulted in further projections, but the projection which the plaintiff ultimately relied on assumed sales of 52 existing models and 10 Discovery models in 1994, 40 existing models and 95 Discovery models in 1995 and 50 existing models and 110 Discovery models in 1996. Mr. Wintraub then calculated cost of sales to arrive at a Margin, net of direct expenses (Gross profits) for New Cars, Used Cars, Parts and Service. He then allocated Range Rover's share of personnel, semi-fixed and fixed expenses to arrive at the net loss of profits for the three years. This is represented by Table A below.

 
Table A
                1993        1994     1995         1996
New Cars
Existing          35          52       40           50
Discovery                     10       95          110
                  35          62      135          160
 
Margin, net of
direct expenses
              294740      468433    670695       851367
 
Share of other
expenses
Personnel
Semi-Fixed
Fixed
              292252      296345     300643      305155
Net             2488      172088     370052      546211

On the basis of the above calculations, Mr. Wintraub concluded that the three year loss of profits was $1,088,251. In fact, my arithmetic produces a figure of $1,088,351.

MR. ALDRIDGE'S ANALYSIS

[para44] Mr. Aldridge approached his analysis on the basis that the Range Rover franchise was one of the three product lines of the business. He essentially accepted Mr. Wintraub's gross profit calculations, which varied only in accordance with the projected sales of existing and new models. He thought the most reasonable projection was sales of 35 existing models and 10 new model cars in 1994, 40 existing models and 70 new models in 1995 and 50 existing models and 80 new models in 1996. He otherwise accepted Mr. Wintraub's calculations and assumptions in arriving at Margin, net of direct expenses for New cars, Used cars, Service and Parts.

[para45] Mr. Aldridge parted company with Mr. Wintraub on the allocation of other expenses. It was his view that Range Rover's share of Personnel, Semi-fixed and Fixed expenses was more appropriately allocated on the basis of its contribution to the dealership. He did not agree that this allocation should be determined by first extracting the expenses referable to the Jaguar product line as Mr. Wintraub had done. Instead, he used allocation ratios. In the case of New cars, the ratio was based on total new Range Rover sales units as a percentage of total new car units and produced a ratio of 28%. For Used Cars, Service and Parts, he assumed that Range Rover contributed to 50% of non-Jaguar revenues and calculated ratios for these departments as a percentage of total revenues. These were 20.5% for Used Cars, 14.0% for Service and 12.5% for Parts. The ratios were then applied to Personnel, Semi-fixed and Fixed expenses of the dealership for the 11 month period July 1, 1992 to May 31, 1993 and pro-rated for one additional month.

[para46] Mr. Aldridge also identified unallocated expenses from the financial statement for this period and applied an allocation ratio of 25% to these expenses. These are referred to in his report as Administration Expenses. To allow for inflation and some increased expenses due to volume, the expenses were increased by 5% for 1994, 1995 and 1996. Finally, Mr. Aldridge applied a discount rate to present value the loss of profits to July 1, 1993. Table B below reflects Mr. Aldridge's conclusions.

 
Table B
 
                1993        1994     1995         1996
New Cars
Existing          35          35       40           50
Discovery                     10       70           80
                              45      110          130
 
Margin, net of
direct expenses
              295106       357417   576483       726200
 
Share of other
expenses
Personnel
Semi-Fixed
Fixed
Administration
              666768      6925575   719673       748125
Net          -371662      -335159  -143190       -21925
 

[para47] As can be seen from Table B, Mr. Aldridge concluded that the dealership would have lost money in each of the three years. In his opinion, the present value of these losses was $(423,077). If I accept this analysis, the plaintiff will recover only nominal damages.

MY ANALYSIS

[para48] I begin by attempting to determine which of the several forecasts of sales of existing and new models of Land Rover automobiles proposed by Mr. Wintraub and Mr. Aldridge is most reasonable. Evidence of actual sales of Land Rover cars in Canada for the years 1992 through 1995 is reproduced in Table C below.

Table C
               1992      1993      1994      1995
 
Range Rover     143       203       159       232
Defender          8        24        49        31
Discovery        --        --       327       553
TOTAL           151       227       535       816
 

[para49] Range Rover on Bay accounted for 20% of the Canadian market in the years prior to the termination of the dealership. I think it is fair to infer that Range Rover on Bay, located in the largest city in Canada would have shared in the dramatic market growth of Land Rover products as reflected on Table C. Although it is not possible to know precisely what portion of the market it might represent today, I note that six dealerships have been added to the dealer network since 1993, but there remains only one dealership in Toronto, Lawrence Park Motors. It achieved sales of 163 cars in 1995, representing 20% of the Canadian market. It was acknowledged by Mr. Manessy that Mr. Geneen had done an outstanding job with the remaining franchises. I believe he would have done an outstanding job with the Range Rover franchise as well. I think it reasonable to conclude that Range Rover on Bay would have continued to represent at least 20% of the Canadian market.

[para50] It is not possible to make an exact comparison between the sales which are reflected in Table C and the forecasts of the accountants. The former is based on a calendar year while the latter is based on forecasts for fiscal years ending June 30, 1994, 1995 and 1996. However, Table C provides a reasonable approximation of the sales which could have been achieved in these years. Mr. Wintraub and Mr. Aldridge essentially agreed on the forecasts for existing models. The main difference between them is their projections for the Discovery model in 1995 and 1996.

[para51] Mr. Wintraub forecast 95 sales in 1995 for a year end total of 135 and 110 sales in 1996 for a year end total of 160. Mr. Aldridge estimated 70 sales in 1995 for a year end total of 110 and 80 sales in 1996 for a year end total of 130. The actual sales of the Discovery model in the 1994 and 1995 calendar years was 880 cars. If Range Rover on Bay continued to represent 20% of the Canadian market, sales for these years would have been 176 cars. Mr. Wintraub forecast sales of 195 cars and Mr. Aldridge forecast 150 cars. While Mr. Wintraub's forecast is somewhat high, it is closer to the actual sales achieved in the 1994 and 1995 calendar years. I also note that Mr. Wintraub's projected total sales for year end 1996 of 160 cars closely approximate the actual sales of Lawrence Park Motors in 1995. In any event, Mr. Wintraub's projections withstood cross-examination which substantially focused on his expense projections. I am therefore satisfied that on balance, Mr. Wintraub's projections are reasonable and I adopt for the purpose of my analysis the unit sales projections of Mr. Wintraub in Table A.

[para52] As I noted earlier, Mr. Aldridge accepted Mr. Wintraub's methodology and calculations to arrive at gross profits. They differed only in their sales projections which I have now found to be most appropriately reflected in Table A. Therefore the relevant gross profit numbers are:

 
        1994          1995           1996
     468,433        670,695        851,367
 

EXPENSES

[para53] Mr. Wintraub's analysis proceeded on the assumption that the fixed expenses of the dealership should primarily be borne by Jaguar as the principal franchise. He also assumed that Land Rover products would have continued to represent 20% of the dealership revenues. In order to accept Mr. Wintraub's expense estimates, I need to first be satisfied that Land Rover products would have continued to represent 20% of the dealership revenues.

[para54] I have already accepted Mr. Wintraub's estimate that the dealership would have sold 160 cars in 1996. On a unit basis, the dealership would have had to sell 800 cars in 1996 in order for Range Rover to represent 20% of the units sold at the dealership in that year. I accept Mr. Wintraub's evidence that in order to fairly assess what percentage of revenues Range Rover would contribute based on these sales, it is necessary to look at profits as well since Range Rovers do not produce as much profit on a per unit basis as Jaguars and Rolls-Royce. It follows from this that Range Rover could, at least in theory, continue to represent 20% of the dealership revenues even if fewer than 800 cars were sold. Unfortunately, I was not provided with the evidence to determine this. I am therefore left to make the best of the evidence I do have.

[para55] I appreciate that Mr. Wintraub's 20% estimate was not only based on new car sales, but included revenues from sales of used cars, parts and service. I note however that new car sales represent the most significant profit centre for a car dealership. Mr. Geneen testified that in 1995, he had achieved sales of 199 new cars. Mr. Wintraub estimated sales of 135 cars in that year which I have found to be a reasonable estimate. Had the dealership continued with the Range Rover franchise, total sales in 1995 would have been about 334 cars (199+135=334). Accordingly, 67.8% of total new car units would have been represented by Land Rover products in that year. Even if I accept that on a per unit basis Jaguars and Rolls Royce are more profitable, it seems far-fetched to conclude that 67.8% of the units sold would only represent 20% of the revenues. I expect the contribution of Land Rover products to revenues would have been higher than 20%. How much higher, it is not possible to know. However, on balance, I think it is more likely that, given the dramatic growth in Land Rover products, this division would have contributed more than 20% to the revenues of the dealership.

[para56] I also believe that evidence could have been presented to demonstrate the relative percentage contributions of the three franchises to the profitability of the dealership based on the actual revenues of Mr. Geneen's dealership and the sales projections of Range Rover on Bay. Mr. Wintraub in fact relied on information from the August 1 1994 to June 30 1995 financial statements of Mr. Geneen's dealership in preparing his analysis of expenses. This evidence was not led from which I infer that it would not have assisted Mr. Wintraub's assertion that 20% remained a reliable estimate of Range Rover's contribution to the dealership. I therefore reject Mr. Wintraub's assumption that Range Rover on Bay would have continued in 1994, 1995 and 1996 to represent 20% of the revenues of the dealership.

[para57] I turn then to consider the approach which Mr. Wintraub employed in allocating Personnel, Semi-fixed and Fixed expenses. It was based on the assumption that these costs would exist with or without a Range Rover franchise. He therefore removed these expenses from the total expenses of the dealership to arrive at the remaining expenses which represented 60% of the total expenses for the dealership. He notionally allocated 60% of the expenses to the Jaguar franchise leaving 40% of the expenses to be allocated among all three franchises. Since Range Rover total revenue from sales, parts and service in fact represented 20% of the total dealership revenues for the year ending May 31, 1993, he concluded that this franchise should be absorbing 20% of the expenses. He then further allocated 20% of the remaining 40% to arrive at an allocation ratio for Range Rover of 8.15%.

[para58] When this approach is applied to the actual expenses for that year, it results in the Jaguar franchise absorbing $2.3 m or 85% of the total $2.7 m expenses and the Range Rover franchise absorbing approximately $300,000 or 11% of the total expenses. In my view, this is an anomalous result given that the Jaguar franchise represented about 70% of the revenues in that year while Range Rover represented 20% of the revenues.

[para59] Mr. Wintraub maintained that even if Range Rover sales volume substantially increased, as indeed he projected it would, this would not increase personnel expenses as the dealership would continue to employ the same number of supervisory personnel. However, he made no adjustment at all for increased volume or inflation. He acknowledged in cross-examination that semi-fixed expenses would increase slightly, but maintained that there would be no change to fixed expenses (heat, rent, taxes, etc.) which on his analysis are substantially allocated to the Jaguar franchise. I find this approach difficult to accept. It is surely the case that the supervisory personnel are serving Range Rover clients and that fixed expenses such as showroom space and service bays are utilized by this franchise. In my view, it is more appropriate to allocate expenses in proportion to the relative contributions of the franchises. I therefore prefer the approach used by Mr. Aldridge.

[para60] I have earlier discussed the assumptions used by Mr. Aldridge in determining the allocation ratios for used cars, parts and service. These were predicated on the assumption that Range Rover revenues for these departments approximated 50% of non-Jaguar revenues. Mr. Aldridge acknowledged in cross-examination that he was unaware that ratios based on actual figures for the period July 1, 1992 to May 31, 1993 were included in Mr. Wintraub's report on Schedule 8. Mr. Aldridge accepted that if these ratios were used, it would change his numbers. In my view, these are the appropriate ratios to apply. I have therefore taken the revenues from sales of New cars, Used cars, Service and Parts which appear on Schedule 8 of Mr. Wintraub's Report and annualized these amounts to arrive at 12 month figures which are:

 
Table D
 
New cars  $ 2177890
Used cars $  522900
Service   $  161039
Parts     $  220014

[para61] I then calculated ratios for Used Cars, Service and Parts using the total dealership revenues for each of these departments as set out in Note 10(c) to Mr. Aldridge's report. To determine the ratio for new cars, I used the sum of $13,968,340 which appears on Exhibit 9 as the 11 month total sales of the dealership. I then subtracted from this the total of the revenues for Used cars, Parts and Service to arrive at New car sales for the 11 month period. This amounted to $7,526,499. I produced a ratio by applying the Range Rover New cars revenues of $2,177,890 to this number. Mr. Aldridge employed an allocation ratio of 25% to unallocated administration expenses. He agreed with Mr. Slattery's proposition that it would make more sense to use a ratio based on actual sales which in this case is 20.2% from Exhibit 9. This is the ratio I have used. My ratios therefore are:

 
Table E
 
New Cars        $  2,177,890 = 28.9%
                $  7,526,499
 
Used Cars      $     522,900 = 19.1%
               $   2,737,104
 
Service        $     161,039 = 10.9%
                   1,475,349
 
Parts          $     220,014 =  9.8%
               $   2,229,388

[para62] I was unable to determine from Mr. Aldridge's report whether or not the total revenues which appear in Note 10(c) are annualized. In my view, they should be and this would alter the ratios I have produced. The ratio for New cars would also change as I did not bring the total sales of new cars on Exhibit 9 from 11 to 12 months.

[para63] Mr. Aldridge applied the allocation ratios to the actual expenses to arrive at Range Rover's share of expenses for 1994 1995 and 1996. He then increased these expenses by 5% each year to allow for inflation and some increased expenses due to increased volume. I accept this approach.

[para64] He also employed a discount rate of 15% to establish the value of the lost profits as at July 1, 1993. The discount rate he employed combined the cost of money (bank prime in July, 1993 = 6%) and the risk of achieving the projections. However, I do not agree that a present value calculation applies here. This is not a case of trying to determine the present value of future economic losses. Nor is this a case of establishing to-day the value of this business in the future. It is simply a case of arriving at a determination of profits that would have been earned over the last three years had the agreement been fulfilled. I therefore do not think that a present value calculation is appropriate.

[para65] Finally, Mr. Aldridge acknowledged in his evidence that it would be appropriate to deduct from the expenses the non-recurring legal and audit fees. During his examination-in-chief, he was asked to calculate these deductions. My understanding of his evidence is that the deductions are $65,139 for 1994, $60,190 for 1995 and $55,925 for 1996. These amounts are to be deducted from the total allocated expenses for each of these years.

[para66] I come then to consider the expense estimates in Mr. Aldridge's report (Exhibit 16). His estimates were predicated on three different scenarios. First, he calculated the loss on the basis of a three year projection for 1994, 1995 and 1996 as Mr. Wintraub had done. Second, he calculated the loss on the assumption that Land Rover did not grant dealership rights in connection with the new Discovery model. Third, he assumed that the dealership agreement was terminated at the time the business was sold to Mr. Geneen in August 1994. Having found that Land Rover was bound to execute a Dealer Agreement which would have extended for three years, it is my view that the proper measure of damages is based on a three year projection of lost profits.

[para67] Mr. Aldridge's three year projections were prepared in two ways. First, he developed estimates which were derived from actual results for the eleven month period ending May 31, 1993 plus a month projection to bring the figures to a 12 month period (Schedule 1). Mr. Wintraub's projections are also based on this period. Second, he projected expenses based on the four month period ended May 31, 1993 covering operations of the new company, Round Court Investments Limited at the new location. Mr. Aldridge arrived at a 12 month projection by simply tripling the actual results to May 31, 1993. (Schedule 5) Although Mr. Wintraub did not prepare his projections on this basis, he testified that the results at the new location would be more representative of normal levels of expenses for the dealership. This was also Mr. Aldridge's evidence, although he pointed out that the use of four month figures would tend to underestimate the expenses for a 12 month period. Nevertheless, I accept that this is the most relevant period for the purpose of estimating expenses. I need only refer to the evidence of Mr. Cox, who testified for the defendant that the re-organization and move to the new location was, to use his words, "necessary to stop the bleeding". Bringing expenses into line by reducing personnel, rent and other costs was essential to the survival of the business. In fact, the business did survive and the evidence established that by year end 1994, it was essentially breaking even. In my view this is the appropriate period to use to determine the expenses of the dealership in order to arrive at an estimate of the loss of profits for the three year period.

[para68] I have endeavoured to estimate the expenses on Table F below. I have used the expense allocations on Mr. Aldridge's Schedule 8, but applied the allocation ratios on Table E above for the reasons given there. I have allowed a 5% increase for inflation and increased volume. I have then deducted Mr. Aldridge's calculations for non-recurring legal and audit fees in the amounts which he indicated.

 
Table F
 
               1993        1994        1995         1996
 
Personnel    115846      121638      127720       134106
SemiFixed     87841       92233       96845       101687
Fixed         92546       97173      102032       107133
Admin.       104533      109780      115269       121032
Total        400786      420824      441866       463958
less legal
& audit                   65139       60190        55925
 
Expenses                 355685      381676       408033
 

[para69] On Table G below, I set out the gross profits from Table A and the expenses from Table F to arrive at net loss of profits.

 
Tabele G
               1994        1995        1996
 
Margin, net
of direct
expenses      468433       670695       851367
 
Expenses      355685       381676       408033
 
Net profits   112748       289019       443334
 
Total Loss
of Profits     $845,101

[para70] I appreciate that my analysis blends the gross profit estimates of Mr. Wintraub based on the 11 month year ended May 31, 1993 with the expense estimates of Mr. Aldridge based on the four month period February 1, 1993 - May 31, 1993. I also realize that the ratios I have used are derived from expenses for the period July 1, 1992 - May 31, 1993, but have been applied to expenses for the four month period February 1 - May 31, 1993. This may be an imperfect solution. Schedule 9 on Mr. Aldridge's report demonstrates that Range Rover results increased during this four month period as a percentage of total revenues with a corresponding increase in expenses. Nevertheless, Mr. Aldridge used the lower allocated expenses on Schedule 5 for his calculations as I have done. I take some comfort in this. I also take comfort from the events which actually transpired. Once expenses were brought under control and new management and supervisory personnel hired, the dealership survived. At year end 1994, its losses had been reduced to just over $1000.00 from several hundreds of thousands of the dollars the previous year. Mr. Geneen carried on with the Jaguar and Rolls-Royce franchises and testified that the business is profitable today. The Range Rover franchise represented the incremental profits of this business, particularly with the spectacular market success of its products. I am therefore satisfied that Mr. Aldridge's expense projections, as I have modified them, most closely approximate the reasonable expenses which the dealership would have incurred in 1994, 1995 and 1996. For the reasons given earlier, I am also satisfied that Mr. Wintraub's sales projections best reflect the estimated gross profits for these years.

[para71] My conclusion then is that the loss of profits and therefore the amount of damages to which the plaintiff is entitled is the sum of $845,101.00. This finding is subject to the following qualifications.

[para72] First, although I deducted the non-recurring legal and audit fees, I did not add back in any legal and audit fees. The evidence was that audit fees would amount to between $10,000 and $15,000 annually and that legal fees would be negligible. I think that a reasonable estimate for legal fees is $2500.00 and I estimate audit fees to be $12,500 for a total of $15,000. Had these amounts been included, it would increase the expenses, although not significantly.

[para73] Second, the ratios I have used may have been arrived at by using some non-annualized numbers from Note 10(c) and were arrived at by using non-annualized numbers from Exhibit 9 as I have earlier indicated. All of the numbers should, in my view be brought to 12 months.

[para74] Third, it was my intention to arrive at a ratio of New Car sales from actual sales of Range Rover vehicles as a percentage of total New car sales. If I have misunderstood the documents from which I derived this ratio, counsel are to amend my calculations. If counsel are unable to agree, Mr. Aldridge's ratio of 28% based on unit sales is to be applied.

[para75] Fourth, although I have attempted to be careful in my calculations, it is entirely conceivable that there may be inaccuracies. I therefore invite counsel to review my calculations based on the assumptions I have used and subject to the qualifications I have set out above. They should then provide me with a joint written submission for my consideration either confirming or modifying my numbers. This submission may include legal and accounting fees of $15,000 appropriately allocated to the Range Rover division. It may also reflect different expense figures, and accordingly different net profits based on ratios derived from annualized 12 month total revenues for New cars, Used cars, Service and Parts, and, if appropriate, applying a different ratio for New cars. Final judgment will be reserved for 14 days pending receipt of this submission.

[para76] If counsel are unable to agree on pre-judgment interest and costs, I may be spoken to. Or, they may advise me of their agreed position in the joint submission I have requested. I will release Supplementary Reasons following receipt of this submission.