COURT FILE AND PARTIES

COURT FILE NO.: CV-13-495636

DATE: 20141204

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

RONNA WINKLER

Plaintiff

– and –

HAVANA 57 INC., CARLO LICONTI and ROBERT TERSIGNI HOLDINGS LTD.

Defendants

Corey Bergstein, for the Plaintiff

Brendan van Niejenhuis and Stephen Aylward, for the Defendants, Havana 57 Inc. and Carlo Liconti

Ian Speers, for the Defendant Robert Tersigni Holdings Ltd.

HEARD: November 14, 2014

LEDERMAN j.

NATURE OF MOTION

[1] The plaintiff seeks summary judgment against the defendants, Carlo Liconti (“Liconti”) and Havana 57 Inc. (“Havana 57”) (together, the “Liconti defendants”) in an action for repayment of a loan. The defendant, Robert Tersigni Holdings Ltd. (“RTHL”), a joint lender with the plaintiff, is not seeking repayment of the loan. However, it does not oppose this motion, including not taking a position on the validity of the demand for repayment of the loan by the plaintiff and the granting of judgment against the Liconti defendants. RTHL was added as a party defendant as it has an interest in these proceedings. It has entered into an agreement with the plaintiff to address the handling of the proceeds of any judgment in this matter, including the enforcement, collection and distribution of the loan amount and the interest and costs associated therewith.

BACKGROUND FACTS

[2] The plaintiff’s husband, Murray Winkler (“Murray”), and the defendants have a history of dealings before the present one in issue.

[3] Liconti is a film producer. Prior to Murray passing away, he and Liconti had worked on five production deals together and had a business relationship dating back to 2006.

[4] A similar relationship existed between Robert Tersigni (“Tersigni”) and Liconti. They have known each other since approximately 2002 and had worked on numerous business deals together. Tersigni first met Murray through Liconti in late 2008 while working on another film production entitled, Looking in Obituaries.

[5] In or around early 2011, Liconti contacted the plaintiff through her husband, Murray, and also contacted Robert Tersigni on behalf of the defendant, RTHL, and requested a loan of money for use in the production of a film titled “Havana 57” (“The Film”).

[6] The plaintiff met with Liconti and Tersigni on several occasions to discuss the amount and terms of the new loan. Murray also attended these meetings in order to assist his wife, the plaintiff, with the negotiations.

[7] The parties agreed that the plaintiff and RTHL would jointly loan $400,000 to Havana 57. Although Murray was involved in the negotiation of terms, it was to be the plaintiff who was to be the named lender, and funds held in her name were the funds to be advanced by way of loan.

[8] As part of the transaction the parties executed three written instruments in a meeting held on October 11, 2008. They were as follows:

(a) A Loan Agreement which set out the basic terms of a joint loan from the plaintiff and RTHL including the principal amount of $400,000, an interest rate of 12% per annum calculated semi-annually and a guarantee of the loan by Liconti in his personal capacity. Of importance is the fact that the Loan Agreement provided that the loan would be “due on Payable on Demand”. The Loan Agreement was executed by the plaintiff and RTHL as lenders, Havana 57 as borrower, and Liconti as guarantor;

(b) A Promissory Note executed by Liconti on behalf of Havana 57 as evidence of its indebtedness to the lenders;

(c) A third document set out the priority in which revenue from The Film and from the film Looking in Obituaries would be applied against liabilities incurred in their production and how profits would be shared. This agreement was executed by Liconti, the plaintiff and Tersigni (the “Third Document”).

[9] Thereafter, the plaintiff and RTHL each advanced the sum of $200,000 to Havana 57.

[10] On several occasions in 2012 and 2013, the plaintiff, together with her financial advisor, met with Liconti to ask him about the status of the production and the sale of The Film. Specifically they asked for financial documentation concerning the production and sale of The Film. The only document that was eventually provided by Liconti was a copy of the unaudited 2012 financial statement for Havana 57 Inc. Upon review of that document, the plaintiff believed that Havana 57 was in financial trouble.

[11] On or about September 20, 2013, the plaintiff served the Liconti defendants with a first demand on the loan, which at that time was a demand for a repayment of only the $200,000 she had lent plus interest. The Liconti defendants did not pay any money in respect of this demand.

[12] On or about October 11, 2013, the plaintiff served the Liconti defendants with a second demand for the repayment of the loan, this time for repayment of the entire $400,000 lent to Havana 57 pursuant to the Loan Agreement plus interest. The Liconti defendants did not pay any money in respect of that demand.

[13] The plaintiff then commenced this action to recover the full amount of the loan and sought the consent from RTHL to add it as a plaintiff. RTHL refused to provide such consent and was thus added as a party defendant.

THE THIRD DOCUMENT

[14] The Third Document that was signed on October 11, 2011 is not titled. Consistent with their positions on this motion, the plaintiff and the Liconti defendants refer to it by different names: the plaintiff calling it a “Revenue Agreement” and the Liconti defendants referring to it as a “Repayment Agreement.” This Third Document was signed by Liconti, the plaintiff and Tersigni in their personal capacities and addressed both the Havana 57 film and the earlier film, Looking in Obituaries.

[15] The document acknowledges the loans advanced by the plaintiff, Tersigni, and Liconti himself (who also advanced funds) and addresses the manner in which revenue from the two films would be distributed. Of particular relevance are the following clauses:

ARTICLE 1.00 – LOANS

1.01 Liconti, Tersigni and Winkler have in respect to “Looking in Obituaries” and “Havana 57” loaned money to the production company to produce the said films and have entered into loan agreements and promissory notes to evidence the loans and identify the interest rate and terms of repayment;

ARTICLE 2.00 – PROFIT SHARING

2.01 Liconti, Tersigni and Winkler acknowledge that as the lenders for the films produced by Liconti, they shall be entitled to a share of the profit of the said films.

2.02 Liconti, Tersigni and Winkler covenant and agree that the profit of the films shall be shared amongst them in the following proportions:

LICONTI – undivided 1/3 interest

TERSIGNI – undivided 1/3 interest

WINKLER – undivided 1/3 interest

2.03 Receipts and revenues of the films, from any source whatsoever, shall be applied and distributed in the following order of priority, no distribution being made in any category set forth below unless and until the preceding category has been satisfied in full, unless the parties otherwise unanimously agree in writing:

The payment of all debts, obligations, liabilities, costs and expenses in connection with or on account of the film production budget, including the repayment of any financing required for the film project, save and except the loans from the parties herein;
The loans and interest on the loans to the parties herein;
The salaries or wages of the writer, director, producer and executive producer, and
The profit sharing in accordance with the agreement herein.

POSITION OF THE LICONTI DEFENDANTS

[16] The Liconti defendants submit that the Loan Agreement and the Third Document have to be read together and comprise the deal between the parties. They submit that while the Loan Agreement provides for financing of The Film by way of a loan, the deal also has equity characteristics. They argue that the debt aspect of the financing deal relates to repayment of the principal plus accrued interest in priority to the payment of salaries to the writer, director, producer and executive producer and to the distribution of any profits. However, the financing deal also displays characteristics of equity financing in that the lenders participated in the risk of The Film production by subordinating their debt interest to other liabilities of Havana 57, including the interest of other creditors. They argue that the lenders had unlimited upside exposure through their entitlement to an equal share in the profits of the film.

[17] The contention of the Liconti defendants is that the Third Document expressly contemplates that repayment of the funds advanced under the Loan Agreement would be subordinated to other liabilities of Havana 57, as was fully understood by all parties when it was negotiated.

[18] The Liconti defendants submit that this interpretation is correct when one takes into account the past history of the parties investing in films. They point out that Liconti, Tersigni and Murray had previously produced several films together. In the event that one film was not profitable, their practice had been to “roll over” their loans into another deal to allow the parties to recoup their investment. In fact, Tersigni appears to be prepared to roll over his advance in this way in connection with the Havana 57 Film.

[19] The Liconti defendants assert that the lenders bargained for and obtained an extremely attractive 12% interest rate to reflect the higher risk associated with subordinated debt. Moreover, on the face of the Loan Agreement, the loan is callable on demand by the lenders. This would be an entirely illogical term for a film production loan, as it is notorious that films do not generate cash flow for the early years of their production and that many films never generate positive cash flow. Allowing the loan to be called before the film had become profitable would have been ruinous for the project.

[20] In short, the Liconti defendants’ position is that the “on demand” language of the Loan Agreement was meant to be subject to the satisfaction of the preconditions set out in the Third Document.

POSITION OF THE PLAINTIFF

[21] The plaintiff submits that the Loan Agreement can stand with the Third Document as the latter does not state that it is amending or modifying any of the terms of the Loan Agreement. In fact, the Third Document specifically recognizes the Loan Agreement and its primacy.

[22] Furthermore, even if the two agreements conflict, Article 6.11 of the Loan Agreement makes it clear that the terms of the Loan Agreement are to prevail:

6.11 Conflict. In the event of any conflict or discrepancy between the provisions of this Agreement and the provisions of the Security and any other collateral agreements, the provisions of this Agreement shall govern.

[23] The plaintiff submits that Article 2.03 of the Third Document addresses only the situation where The Film generates revenues and the manner of distribution of such monies. It does not say anything if The Film fails to make any money.

ANALYSIS

[24] The Liconti defendants place much store in the fact that in previous dealings with Murray and Tersigni, they had an understanding that they would not call the loan in the event a film did not generate revenue but that they were content to “rollover” their advances into a new film production.

[25] However, the plaintiff, Ronna Winkler, is not Murray nor Tersigni. She was the one advancing her own money and the terms for doing so are not based on “any understanding” that the Liconti defendants may have had with Murray or Tersigni.

[26] It is evident that the plaintiff relied on the terms of the Loan Agreement (and in particular the Payable on Demand provision) and the Promissory Note when she advanced her portion of the loan amount to Havana 57. Havana 57 used the money for its benefit in the production of The Film.

[27] The Liconti defendants, in essence, are saying that the plaintiff’s deal was never a true loan but, for all intents and purposes, was an investment whereby the plaintiff took the risk that The Film may not earn any money and thereby would not be repaid out of this project.

[28] This argument flies in the face of the express terms of the Loan Agreement and is inconsistent with Liconti having to provide a personal guarantee for repayment of the loan. The Liconti defendants’ interpretation would render the Loan Agreement nugatory and such an interpretation should be avoided.

[29] The language in the Loan Agreement could not be clearer. The phrase, “Payable on Demand”, is not ambiguous in any way.

[30] Further, the Third Document cannot be interpreted as a forbearance agreement permitting a demand for payment of the loan to be made only after payment of certain prior debts. Article 1.01 of the Third Document acknowledges the Loan Agreement and Promissory Note, and, in particular, states that they “evidence the loans and identify the interest rate and terms of repayment.” (emphasis added).

[31] The deal was simply that the plaintiff was advancing a loan which she could call at any time. Given the notorious risk of such a loan, she bargained for a 12% interest rate and a personal guarantee from Liconti. As further consideration, if The Film actually produced revenue, she would be able to share in any profits arising therefrom, but only after revenue was applied in accordance with the priority list set out in the Third Document. Considering that the Liconti defendants needed the loan, and that traditional lenders, such as banks, may not readily advance loans for film productions, it cannot be said that the terms that the plaintiff bargained for in the Loan Agreement are commercially unreasonable. The Liconti defendants took the risk that the plaintiff would not exercise her right under the Loan Agreement to demand repayment if The Film did not earn revenue. In the past, when Murray was a lender, Liconti knew that the loan was on demand and could be exercised by Murray at any time. On his cross-examination, Liconti noted:

“I think my belief is that Murray did that in case there was some massive disagreement, we had, you know? [If] we didn’t get along further. He had a hammer to hold over me, as he said once. Basically he used it to know that, you know, to be paid.” [at p.35]

In the same vein, Liconti knew that the plaintiff had the same “hammer”, but this time she dropped it, as she was entitled to do.

DISPOSITION

[32] There is no requirement in the Loan Agreement or Promissory Note that the plaintiff’s demand be made together with Tersigni. A loan by two lenders may be enforced by one of the lenders (Poole v. Poole 2004 O.J. No. 493 (SCJ) at para. 11). Tersigni is not formally opposing the motion, including not taking a position on the validity of the demand or the granting of judgment against the Liconti defendants.

[33] As the issues in this case can be decided on the documentation, there are no genuine issues requiring a trial. For these reasons, the plaintiff will have judgment against the Liconti defendants in the amount of $400,000 plus pre-judgment interest at the rate of 12% per annum, calculated semi-annually from October 11, 2011 to the date of judgment and post-judgment interest calculated semi-annually from the date of judgment to the date of payment.

[34] If the parties cannot agree on costs, they may make brief written costs submissions: the plaintiff within 15 days of the release of these reasons; the Liconti defendants 15 days thereafter; reply, if any, 10 days thereafter.

Lederman J.

Released: December 4, 2014