An Abbotsford firearms magazine manufacturer has been ordered to pay $237,243 over an acquisition deal that misfired and found itself in the crosshairs of B.C. Supreme Court.
Cross Industries Ltd. was a client of Langley-based Advantage Tool & Machine Ltd., a plastic mould manufacturer. Shortly after the two companies got into business with one another, they began talking about Cross Industries purchasing Advantage’s operations to allow the owner of the latter to retire.
Cross Industries agreed in March 2019 to pay $450,000 for the purchase of the mould-making operation, according to a recent B.C. Supreme Court decision.
The price tag included equipment ($118,700) and consulting fees ($331,300) for retiring owner Mark Howlett. The sale price did not include the company’s liabilities or debts.
The agreement failed partway through the purchase, leading to a lawsuit by Advantage for $450,000 for breach of contract by failing to complete the sale. Cross Industries countersued for misrepresentation in the deal.
The deal stalled mainly over two issues: the failure of one of Advantage’s key employees to continue working at the newly acquired operation and a discovery of $175,000 in liens against the equipment.
According to the agreement, four “key” Advantage employees were required to sign employment contracts with Cross Industries.
One employee was the source of contention between the parties.
Saravanan Alagarsamy was described in the decision as an experienced mould designer. Cross Industries owner David Cross testified that after Alagarsamy refused to sign an employment agreement, Cross hired and fired several other mould designers in an effort to replace him.
Cross said in court he wouldn’t have signed the agreement if he knew Alagarsamy wouldn’t continue working with him.
He acknowledged in cross-examination his company’s in-house moulding processes had been sped up with the remaining Advantage mould-makers. But Cross saw Alagarsamy as the most valuable.
The agreement required all four key employees to sign, and Cross was under no obligation to go ahead with the agreement without obtaining employment agreements from all four.
But Justice Paul Riley found that Cross still went ahead and took control of Advantage’s mould operations and paid installments on the purchase, effectively waiving that requirement, despite Cross’s argument he only did so in good faith with hopes of renegotiating the deal.
Cross refused to pay installments on the consulting fees starting in June 2019, saying he would only pay those once Howlett agreed to reduce the sale price by $100,000.
After filing legal action against Cross, Advantage regained possession of the Langley shop, and Howlett testified that he found the shop had been “devastated,” with machinery missing.
Cross claimed the shop was left in better condition than when he got it.
Of 24 pieces of equipment at the shop, Cross Industries admitted it took 12, which it said it had paid for as part of its installments prior to the agreement failing.
Riley found Advantage’s failure to clear the liens amounted to a breach, but not one so fundamental as to terminate the contract.
As a result, Riley found Advantage was entitled to the purchase price of $450,000. From that, the judge subtracted $106,607 for the amount Cross Industries had paid, $90,650 for the amount Howlett had recovered from selling some equipment and $29,000 for the piece of equipment Howlett still had up for sale for that price as of trial date.
Riley also subtracted damages of $15,000 to Advantage for failing to clear the liens.
