11 August 2006

Insights into the Premier's mindset

From the decision of an Ontario judge on a lawsuit filed by Henley Capital against Cable Atlantic, Inc. in a dispute over fees owed to Henley for advice and support provided Danny Williams and Dean MacDonald in selling Cable Atlantic to GT Group Telecom and Rogers in 2000:
"We are adamant that your client is not entitled to any additional compensation and will only pay same if ordered to do so by the Supreme Court of Canada.

Judge yourself accordingly!"
Danny Williams to solicitor for Henley Capital, January 5, 2001.

At that point, Cable Atlantic had paid Henley slightly more than $65,000 against an invoice for services rendered that eventually totaled almost $400,000.

Williams, who apparently had not seen the agreement between Henley and Cable Atlantic until after the sales were concluded, contended in the letter that the fees agreed upon were considerably less than Henley billed and that Cable Atlantic hadn't really needed Henley's assistance since the company principals - Williams, MacDonald and other senior officers - knew enough to conduct the sale themselves without Henley.

At several points in the decision, the judge notes that Williams and MacDonald considered Henley's work to have been a "hobble", local slang for a small, inconsequential job.

The pattern in this case is interesting on several points.

Firstly, Henley's work is diminished by Williams and MacDonald to the point of near insignificance despite evidence that Henley's work and his advice garnered significant financial benefit to Williams and MacDonald. The court was told and repeats the characterization that Henley's contract was considered a hobble.

Secondly, Williams is described in the decision as going "ballistic" when seeing Henley's invoice. Williams' temper is legendary.

It is almost incomprehensible that MacDonald did not show the Henley contract to Williams . Since the court has accepted this as fact, there is nothing to do but marvel at the notion that such a failure would occur. Perhaps Williams never paid the final settlement and the legal costs out of his own pocket, requiring instead that MacDonald foot the bill.

Thirdly, as in the quote above, Williams is prepared to take firm positions - perhaps in the heat of the moment - and then to sustain that position despite the costs.

In this instance, had Williams as majority shareholder decided to settle the account at the outset, the total outlay would have been around $400, 000 on a gross profit of close to $300 million in cash and stocks.

Even if Williams had settled this matter after trial - the decision was rendered on 31 May 2004 - the total costs would have been considerably less than the final tally.

Instead, Williams expended considerably more than that over a five year period in legal fees and associated costs including giving evidence in a Toronto courtroom. The case went through a first hearing and a subsequent appeal to the Ontario Court of Appeal that rendered judgment in a succinct four paragraph judgment in late June 2006.

There is holding to a position on principle; then there is holding to a position despite the financial and other rationales in favour of settlement.

This entire court case is odd since Williams' law firm based its insurance business on the simple premise that, in almost all instances, insurance companies are prepared to settle for a quantity of cash based on a rational cost/benefit assessment. In Williams' case, he apparently operates on the basis of never changing a position and never settling under any circumstances until there are simply no alternatives.

Fourthly, there is an interesting comment on Williams' memory of events or his account of events. At one point, henley gave evidence, supported by testimony from John Tory, then heading Rogers, that Tory had contacted Williams on a particular date to make another offer on cable Atlantic. Williams denied having spoken to anyone from Rogers on that date.

Fifth, MacDonald is described in the 2004 decision as having amended his testimony or altered his testimony as evidence was presented contradicting his statements during discovery.

Sixth, overall, it is interesting to note that at no point did Williams or MacDonald attend to negotiating a final version of the initial contract, addressing performance bonuses or, after the deals were concluded to achieve a resolution of the dispute other than through court.

The initial decision notes that MacDonald's response to an e-mail from Henley containing a draft services contract was "bantering", but apparently not substantive. Subsequently, and despite repeated efforts by Henley to talk cash with MacDonald on additional fees and charges, no discussions took place. Finally, when the dispute arose over the invoice, neither Williams nor MacDonald ever met with Henley face-to-face in an effort to resolve the dispute short of court.

This fits the seat-of-the-pants approach taken to the federal government in 2004/05. At that point, no firm proposals were presented to the federal government until November 2004.

It also suggests that similarly slap-dash negotiating style that would have contributed ultimately to the collapse of the Hebron talks. Poor communication could easily have led to both parties misunderstanding what had been agreed upon. Ultimately, Williams tendency to take firm decisions and not back off them - irrespective of the consequences - can easily be seen to parallel the experience with Hebron. Once he had decided on an equity position, he would easily sacrifice $10 billion for a mere $1.5 billion in the same way that in Henley v. Cable Atlantic he was prepared to pay out twice or three times the disputed invoice in total costs only to ultimately wind up losing the battle.

For Max Ruelokke, the implication here is that we may well see the matter headed to a higher court. We may also see the appeal period played out and an announcement made settling the matter as quietly as possible. The only thing certain is that Williams is unlikely to comply with the recent Supreme Court decision unless he absolutely has no alternative.

For Hebron, it's hard to know what henley might indicate other than giving a better understanding of how the supposedly masterful negotiator could fail, without a good reason. Once he locked his mind into a position, there simply is no shifting him, no matter how irrational the consequences are.