Newfoundland grocer loses legal round against Sobeys

Lawyers say business couple plans to appeal recent court decision

It is one of the longest active civil cases before the Supreme Court of Newfoundland and Labrador, according to Justice Glen Noel.

Judge Noel made that comment in his Jan. 19 decision in the matter of Walsh versus TRA Company Ltd. and Foodland Ltd., Sobeys Group Inc., Sobeys Capital Corporation, Sobeys Land Holdings and Joseph Green.

The formal legal battle began in 2001 and has been wending its way through the court system ever since.

David and Lenora Walsh were owners of two grocery stores in eastern Newfoundland, one in Bay Bulls and one in St. John’s.

According to court documents, in 1983 the Walshes signed on to TRA’S Foodland program. Foodland is a trade name owned by Sobeys and was used to expand sales in the province through the Foodland banner-store concept for small rural grocers.

The Walshes decided to become a Foodland banner store on Jan. 1, 1984, renaming Southern Discount in Bay Bulls as Walsh’s Foodland. They owned shares of Walsh’s Foodland Ltd. through shares of Davlen Holdings Ltd.

When they bought a second grocery store on Merrymeeting Road in St. John’s in 1995, through a separate corporation, they operated as Walsh’s Family Foods. Although it was not a Foodland banner store, the Walshes said the supply arrangement with TRA also applied to that store.

Through the supply arrangement with TRA, the couple hoped to benefit from joining one of the biggest buying groups in Canada. It meant they could be part of TRA’S buying power, acquiring groceries and other stock at better rates than if they were buying smaller volumes, at higher prices, as a single wholesale customer.

The Walshes also alleged they had been promised the benefit of supplier discounts and allowances (rebates) for volume discounts and co-op advertising costs.

Lawyers for the defendants, however, said the contention that the Walshes corporations were to receive “all trades deals off” meaning TRA promised to provide “dead net” costs (cost of product net of all trade deals. They called that “a commercially absurd proposal.

“No other TRA customer, including the Sobeys stores, received such a deal.”

During court proceedings, witnesses for TRA and Sobey’s testified that if TRA had supplied the Walshes on such a basis, TRA would have lost money.

The Walshes allege TRA did not hold to their promises and, as a result, their grocery stores became unprofitable. When they eventually sold the shares of their corporations, they said, they lost money.

The Walshes calculated their losses at $1.7 million.

The Bay Bulls Foodland store was sold to Sobeys in 1995, and the Walsh’s Family Foods was sold to Colemans in 1996.

According to testimony given by Mr. Walsh, the Walshes were paid $1.625 million for their sales of the shares and property of the Bay Bulls Corporation, and $1.285 million for shares in the Merrymeeting Road Corporation.

SYMPATHETIC VS RULE OF LAW

In his summary, Judge Noel noted, “Mr. Walsh’s preoccupation for all these years has been to expose and share in “all the trade deals” that the buying power of TRA and Sobey’s was able to generate.

“He claims that is what the defendants promised, never passed on and never shared with his corporations. If they had, the Walshes’ (say) corporations would have been more profitable and the value of their shares much higher.”

In the end, however, Justice Noel dismissed the Walshes claims, saying they had not been able to prove TRA or the other defendants had made negligent or fraudulent misrepresentations.

“The Walshes failed to establish an independent and separate wrong to them personally as shareholders, and the claims for loss of share value are damages sustained by the Corporations and not a direct loss to them as shareholders,” Noel wrote in his final decision.

He also determined the Walshes had failed to establish losses associated with the sale of their stores.

In his written summary of the case, Judge Noel expressed some sympathy for the Walshes.

Mr. Walsh is in his late 70s now and has health issues.

“I searched long and hard to find a path for the Walshes to succeed,” said Justice Noel. “I would like to be in a position to award them some measure of damages. But unfortunately, their claim is fraught with legal barriers and evidentiary shortfalls, and the damages not what the Walshes seek.

“The law restrains judges from doing what they prefer and their heart desires. I have to do what the law demands and the evidence reveals.

“As much as I want the Walshes to be vindicated and succeed in this lawsuit, I cannot be governed by my sympathy for them.”

When it came to the matter of who should pay the court costs, however, Noel gave the Walshes a break.

“I am quite mindful the Walshes have made serious and unproven allegations of fraud against the defendants …. (But) the defendants are not without fault,” wrote Noel.

“While TRA and Sobeys spent considerable resources on their experienced litigation counsel and got the result they so ably advocated, they may have been able to avoid all of this if they had instructed their corporate counsel to draft and document the Supply Arrangement agreed to with the Walshes’ Corporations,” Noel determined. “TRA and Sobeys were obviously attuned to the uncertainty and confusion that could give rise to supply arrangements as early as 1984, since they made sure to do so in the 1984 Sobeys Supply Agreement.

“Although there is no duty at law to document commercial transactions between parties, Sobeys had the resources available and ought to have done so to avoid misapprehension on the part of the Walshes on promises made to them.”

Paul Dicks and Megan Reynolds represented the Walshes in this case.

Neither would offer comment on the judge’s decision, but they indicated the 20-year-old legal battle may not be over yet.

They are preparing to file an appeal on behalf of the Walshes.