2015 ONSC 7993

COURT FILE NO.: 15-66545
DATE: 2015/12/29

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

Best Theratronics Limited
Plaintiff

– and –

Canadian Nuclear Laboratories Ltd and Atomic Energy of Canada Limited
Defendants

Eli S. Lederman, Ian MacLeod and James S.S. Holtom, for the Plaintiff

Kevin LaRoche and Kirsten Crain, for the Defendants

HEARD: December 10, 2015

REASONS FOR Decision

R. Smith J.

Overview

[1] The plaintiff, Best Theratronics Limited (“Theratronics”) has brought a motion for an injunction to prevent the defendants, Canadian Nuclear Laboratories Ltd and Atomic Energy of Canada Limited (referred to as “CNL” and “AECL” respectively) from terminating the Cobalt Irradiation Service Agreement dated March 31, 2014 (the “Agreement”) and from reducing the supply of irradiated Cobalt to Theratronics until their dispute is resolved by arbitration.

[2] Theratronics acknowledged that it was in arrears and owed CNL $4,219,380.00 as of September 30, 2015 and $3,882,356.90 as of October 31, 2014. Theratronics also acknowledged that it has not paid the amounts invoiced for services rendered within 30 days as set out in their March 31, 2014 Agreement, but submits that CNL should be ordered to continue to supply it with irradiated Cobalt-60 (“Co-60”) without any further payment until their arbitration dispute is completed.

[3] Theratronics also submits that an injunction should be granted because hundreds of cancer patients around the world will be deprived of life saving treatments if CNL does not continue to supply it with Cobalt-60. CNL disputes this assertion and submits that no one will be deprived of life saving treatment because Theratronics is only a broker of Co-60 and is no longer licenced to receive radioactive Co-60 and directs delivery of all Co-60 to Nordion in any event. CNL will continue to supply Co-60 to the market through Nordion and Theratronics and their customers could purchase the required Co-60 from another source. In addition, Co-60 has a half-life of 5 years and so existing supplies of Co-60 can continue to be used to provide effective cancer treatment by increasing the length of treatment slightly.

[4] CNL submits that Theratronics is seeking a mandatory injunction as the court is being asked to order CNL to take positive action of removing a radioactive rod, processing it and delivering it as directed by Theratronics pursuant to the Agreement without any further payment. CNL submits that the plaintiff does not meet the requirement of a strong prima facie case necessary to obtain a mandatory injunction. CNL also submits that it is in breach of the Agreement by failing to pay approximately $4 million of invoices within 30 days as agreed and the breach has continued for 16 months. Theratronics has not shown that it would be caused irreparable harm if an injunction were not granted or meet the balance of convenience test to obtain an injunction.

[5] CNL also alleges that Theratronics undertaking in damages is worthless because it has several unpaid judgments, and has failed to comply with an Order by its regulator to provide a letter of credit of $1.176 million in respect of its environmental obligations at its Kanata facility, and it owes it approximately $4 million.

Issue #1

Should an injunction be granted ordering CNL to continue to supply Theratronics with irradiated Cobalt-60, without any further payment, until their arbitration dispute is completed?

FACTS

[6] Theratronics has 165 employees who design, manufacture and install therapy machines used to treat cancer and purify blood products around the world. It also supplies the cancer treatment industry with radioactive material.

[7] AECL is a federal Crown corporation. It owns the Chalk River laboratory site that is home to two operating nuclear reactors. In 2013, AECL underwent restructuring and CNL was created as a wholly owned subsidiary of AECL. AECL assigned the March 2014 Agreement entered into with Theratronics to CNL on or about November 3, 2014.

[8] In 1990 AECL had entered into a long term exclusive 20 year contract with Theratronics’s predecessor company Theratronics International Limited (the 1990 Agreement). Under the 1990 Agreement, AECL supplied Cobalt-60 exclusively to Theratronics International Limited.

[9] In May of 2008, Theratronics completed an asset purchase from Theratronics International Limited wherein it acquired the contractual rights under the 1990 Agreement and thereafter, AECL supplied Theratronics with Cobalt irradiation services until the expiry of the 1990 Agreement on September 30, 2009.

[10] Between August of 2010 and March of 2014, AECL provided Cobalt irradiation services to Theratronics without a written agreement and AECL did not invoice or demand any payment from Theratronics over the course of approximately four years. During this four year period, AECL did not invoice Theratronics and Theratronics did not pay AECL for any of the irradiated Cobalt rods that they received. As a result, by March of 2014, Theratronics owed AECL over $7 million for past services.

[11] On March 31, 2014 AECL and Theratronics signed an Agreement wherein they agreed that Theratronics owed AECL $7,627,560 exclusive of tax, for pre-agreement irradiation services that had been provided to Theratronics between 2010 and 2014, that had not been previously invoiced.

[12] Unlike the 1990 Agreement with Theratronics’s predecessor, AECL agreed to provide Cobalt irradiation services and process and supply Cobalt-60 to supply to Theratronics on a non-exclusive basis.

Payment Terms

[13] Pursuant to paragraph 9.4 of the Agreement, Theratronics agreed to pay AECL for the services provided between October 1, 2009 and February 29, 2014 (incurred before signing) in accordance with the payment schedule set out in Appendix F to the Agreement. Appendix F provides for a payment schedule over a period of time and Theratronics has complied with this payment schedule.

[14] Paragraph 7.5 of the Agreement states that “Invoices are payable” not more than 30 days following the date of the invoice. Interest shall be payable by Theratronics on a monthly basis on all overdue accounts from and including the first day following the date upon which the payment was due to the actual date of payment to AECL. Such interest to be at the Bank of Montreal prime rate prevailing on such date plus two and one half percent …”

[15] The Agreement commenced on February 28, 2014 and ends on October 31, 2018 provided that AECL continues to operate the NRU reactor.

Termination

[16] Paragraph 19(b) of the Agreement reads as follows:

Either party may be entitled to terminate this AGREEMENT immediately upon the occurrence of any one of following events

b) the other party fails to fulfill any of the obligations to be fulfilled by it pursuant to the terms of this Agreement within 30 days after written notice of any such failure has been given to it…

Arbitration

[17] The Agreement also contains an arbitration clause in paragraph 20. The arbitration clause reads as follows:

Both parties shall act in good faith and utilize their best efforts to negotiate a resolution of any dispute arising in connection with this agreement. All such disputes which are not resolved shall be finally settled under the Commercial Arbitration Act of Canada, 1986, S.C., c. 22.

[18] Paragraph 20.4 dealing with the arbitration proceedings states as follows:

…the performance of their obligations under this agreement by both Theratronics and AECL shall continue during any arbitration proceedings.

[19] Rod CCR-062 was scheduled to be withdrawn from the reactor core on October 18, 2015, processed and ultimately delivered as directed by Theratronics. However, on September 28, 2015, CNL gave notice to Theratronics that it was in default under the payment terms of the Agreement and gave it 30 days to pay the arrears owing to it in full, failing which the Agreement would be terminated.

[20] On the next day, September 29, 2015, the president of Theratronics advised AECL in writing that it would not be able to meet the payment demand within the 30 days. Theratronics did not pay the approximately $4 million that was owing to it within the 30 days and CNL gave notice of termination of the Agreement effective on October 29, 2015 at 12:01 a.m.

[21] The 30 day notice letter also advised Theratronics that CNL would not be removing rod CCR-062 from the reactor on October 18, 2014 as previously planned unless Theratronics paid the full amount due with interest by no later than October 29, 2015 at noon.

Production of Radioactive Cobalt-60

[22] Cobalt is a mineral which is processed into a powder and compressed into small pellets which are then inserted into aluminum wafers and are then assembled into a long narrow rod. The rod containing the Cobalt wafers is then placed in the core of the nuclear reactor and is irradiated (baked) in high flux positions for 3 to 5 years which creates a radioactive isotope called Cobalt-60.

[23] AECL has historically maintained approximately 12 Cobalt rods “baking” in the reactor at any time. Rods are harvested at intervals when the reactor is scheduled for maintenance shutdowns. Once a rod is ready to be harvested, it is removed from the NRU and is processed on AECL’s site in a “hot cell facility”. The irradiated pellets are then shipped to the purchaser or their agent. It takes approximately 6 to 8 weeks to process a rod from the time of harvesting to shipment. A shutdown of the nuclear plant is planned and the work is scheduled at least 13 weeks in advance. As a result, there is a limited ability to accommodate last minute changes.

[24] CNL is the only Canadian producer of Cobalt-60 and it produces most of the world’s supply of the Cobalt-60 isotope. The reactor at Chalk River is facing the end of its lifespan and will be shutdown in March 2018. In order to help the market adjust, CNL is producing additional supplies of Cobalt-60. There are currently seven rods in positions which are not subject to the agreement at issue in this litigation. This litigation concerns another five rods.

[25] Theratronics does not have an ownership in any of the five rods that are currently baking in the nuclear reactor. Theratronics pays a monthly fee for radiation services depending on how many rods are baking in the nuclear reactor core.

[26] The 2014 Agreement states that harvesting of the rods shall be negotiated between the parties. CNL agreed that if the service agreement had not been terminated due to Theratronics non-payment, the planned harvesting schedule for Theratronics from September 2015 would have been:

(1) CCR-062 in position C20 in October of 2015;

(2) CCR-065 in position K21 in February of 2016;

(3) UCC-253 in position Q15 in May 2016; and

(4) CCR-066 in position L12 in August of 2016.

[27] When the rods are harvested, CNL processes the rod and ships the capsules of Cobalt-60 pellets directly to Nordion on Theratronics’s behalf. Nordion would then use the pellets to manufacture different types of beam therapy source products for medical uses, including products for use in Theratronics machines. Nordion would then ship the products around the world to purchasers on behalf of Theratronics. Only some of those products were therapy sources to be used in Theratronics machines. Theratronics sold a significant amount of the material shipped to Nordion to other third parties within the supply chain, including to Nordion for their customers.

[28] CNL alleges that Theratronics role in the supply of Co-60 was that of a “broker” as Theratronics never took physical possession of the Cobalt-60 pellets, and may no longer be permitted by its regulator to do so. The Canadian Nuclear Commission (“CNC”) is the regulator that issues the licence for the possession, use, transfer, and storage of nuclear substances. It recently issued an order in August of 2015 against Theratronics affecting its licence for its failure to post a 1.1 million dollar line of credit as a financial guarantee to decommission and provide safe disposal of radioactive material at its Kanata site.

[29] The demand for Cobolt-60 exceeds the supply and if CNL did not sell the Cobalt-60 to Theratronics it could immediately sell it to one of several other third parties, including Nordion. Theratronics did not present any evidence that Nordion would not agree to sell it a portion of its Co-60 for inclusion in its machines and its medical devices. As a result, there is no evidence that Theratronics could not make an agreement with Nordion to supply the Co-60 product to its customers who are users of Theratronics machines.

Invoice and Payment History

[30] On March 31, 2014 Theratronics and AECL signed the service agreement (the “Agreement”). The next day AECL issued its first invoice for $4,309,571.40. Two days later on April 2nd, 2014 Theratronics requested a conference call which occurred on April 4th, 2014. During that call Theratronics advised AECL that it was having “cash flow issues” and asked for debt relief in the form of an extension of time to pay the first invoice. Theratronics requested 60 days to pay the entire first invoice to help them through this tight spot.

[31] On April 7th, 2014 Theratronics promised that $500,000 would be paid within 30 days and the remainder within 60 days. This did not occur. By letter of April 29th, 2014 Theratronics requested additional debt relief. The President stated, “I would like to inform you about the delay in paying the payment due at the end of this month … I apologise for this matter in which to reiterate our commitment to fulfilling our obligations to AECL”. Theratronics did not take the position that no extension was required because the monies were not due and payable; which is the position asserted in this proceeding and in the arbitration proceeding.

[32] On June 17th, 2014 Theratronics wrote to AECL to explain the various options being pursued to raise funds so that Theratronics could pay all of the outstanding amounts owing under the service agreement. He wrote, “My goal is to pay all of the $7 million by the end of next month or sooner.” The amounts were not paid at the end of July. Theratronics wrote on June 27th, 2014 to advise that his plan to raise funds was unsuccessful. “Since I was optimistic based on the messages I had been receiving, however now it looks like it may take a couple to a few weeks more, but definitely by the end of next month (August)”.

[33] The outstanding amounts were not paid by the end of August, 2014 and on October 24, 2014, Theratronics advised of the “new plan”. He stated that “I am still hoping we will be able to raise substantial funds, either from a loan on real estate with my personal guarantee or invest or loan to Kitsault Energy before the end of this year to pay the overdue payments to AECL in full with interest. In September of 2014, Theratronics provided CNL with a spreadsheet forecasting expected charges along with proposed new monthly payment schedule. Theratronics proposed it would pay specified amounts between $500,000 and $1.5 million monthly on an ongoing basis. The September proposal included a proposed payment of $1.5 million in November 2014.

[34] In an email dated November 19, 2014, Theratronics advised that it would likely not be able to make the November payment of $1.5 million on time. She wrote, “I am really sorry, but hope you understand it is our intention to continue to meet the payment schedule given to you.”

[35] April 30, 2015, Theratronics acknowledged that it was $1,000,000 behind the September proposal. She advised that Theratronics would be able to catch up the $1,000,000 by May or June, but after that, they planned to continue to pay in accordance with the September proposal.

[36] Theratronics did not make the $1,000,000 payment in June of 2015. Instead, Theratronics sent a letter dated June 12, 2015 thanking AECL “…very much for your continued support and assistance in allowing us to pay these invoices of CNL over a period of time by charging the interest on past due accounts.” He advised that Theratronics would make payments of $750,000 per month including June 15, 2015 until Theratronics’s payments were current and there were no past due balances. Theratronics failed to make the July 15, 2015 payment.

[37] Shortly after August 25, 2015, CNL learned that the regulator had issued an order with respect to Theratronics licence because of Theratronics inability to fund its financial guarantee to the regulator. It had been obliged to provide by letter of credit by July 31, 2015 of $1.176 million in respect to its environmental obligation at its Kanata facility. This development concerned CNL as the licence was fundamental to Theratronics’s business. During submissions, Theratronics advised that it had been granted an extension until July 31, 2016 to obtain the $1.176 million line of credit but there is no evidence that it has done so as of today’s date.

[38] CNL sent a letter dated September 28, 2015 advising Theratronics that it was in breach of its obligations under the Service Agreement and that it was obliged to remedy the default within the 30 day notice period failing which the Agreement would be terminated. The next day, in response, the president of Theratronics advised that he would not be able to meet the payment demand. He proposed to pay the amounts past due by the first quarter of 2016. Theratronics owed CNL approximately $4.2 million on outstanding invoices as of September 28, 2015.

[39] Theratronics did not pay the arrears owing and cure the breach by October 29, 2015. On November 4, 2015, CNL notified Theratronics that in light of their failure to cure the breach, the Service Agreement was terminated effective October 29, 2015.

The Law

Test for an Obtaining an Injunction

[40] Section 101(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 allows a judge to grant an interlocutory injunction or mandatory order in a pending or intended proceeding on such terms as are considered just or convenient.

[41] In R.J.R. MacDonald Inc. v. Canada (Attorney General), [1994], SCR 311, at page 334, the Supreme Court of Canada set out a three part test in order to obtain and interlocutory injunction as follows:

(a) There must be a serious issue to be tried;

(b) There must be irreparable harm to the moving party;

(c) The balance of convenience and public interest considerations must favor granting the injunction.

[42] The test for obtaining a mandatory injunction was set out by the Ontario Court of Appeal in Cytrynbaum v. Look Communications, 2013 ONCA 455 at paragraph 54 witch held that the test to obtain a mandatory injunction was more onerous than for other injunctive relief, namely the moving party must show a strong prima facie case rather than just a serious issue to be tried. This means that the moving party must show that it is “almost certain to succeed on the merits” in order to obtain a mandatory injunction.

Mandatory or Prohibitive Interlocutory Injunction

[43] Theratronics submits that it seeks a prohibitive interlocutory injunction and must only meet relatively low test of advancing a serious issue to be tried. It frames its request in the negative, seeking an injunction enjoining CNL from terminating or taking any steps to terminate the Service Agreement and enjoining CNL from interfering, diverting or reducing the supply of irradiated Cobalt-60 to Theratronics until the payment dispute is resolved by arbitration.

[44] In 1711811 Ontario Ltd v. Buckley Insurance Brokers Ltd, 2044 ONCA 125 at paragraphs 57 and 86, the Ontario Court of Appeal contrasted the usual type of injunctive relief which prohibits certain acts with those of a mandatory injunction.

A mandatory injunction is one that requires the defendant to act positively. It may require the defendant to take certain steps to repair the situation consistent with the plaintiff’s rights, or it may require the defendant to carry out an unperformed duty to act in the future…Mandatory injunctions are rarely ordered and must be contrasted with the usual type of injunctive relief, which prohibits certain specified acts.

[45] CNL argues that Theratronics is seeking a mandatory injunction as it is asking the Court to order it to continue to supply irradiated Cobalt-60 to Theratronics until the arbitration dispute is completed. CNL submits that Theratronics is asking the Court to impose a positive obligation to do something, namely to require CNL to remove and harvest rod CC-062, at a specific time, to order CNL to process that rod at a cost to it of approximately $400,000.00, and then to deliver the Cobalt pellets after they have been processed.

[46] In the decision of 674834 Ontario Ltd (c.o.b. Coffee Delight) v. Culligan, 2007 8014 (ON SC), [2007] O.J. No. 979, L.A. Pattillo J. held in a franchise agreement that the order to require Culligan to continue to provide water to Coffee Delight was prohibitive and not mandatory as Coffee sought to enforce rights under an existing agreement between the parties. Pattillo J. further held that there was no evidence that Coffee Delight had breached the agreement or that Culligan was unsatisfied with Coffee’s business throughout the years. This is different from the case before me where Theratronics has breached its part of the agreement by failing to pay approximately $4 million of invoices within 30 days.

[47] In TDL Group Ltd. v. 106284 Ontario Ltd., [2001] O.J. No. 3614 (Ont. Div. Ct), the Divisional Court held that an order that establishes a new right is mandatory, while an order requiring the parties to act in accordance with an existing agreement is prohibitory and not mandatory.

[48] Theratronics is asking the Court to order CNL to take positive steps in the future and to order it to continue to comply with the Service Agreement in circumstances where Theratronics has not complied with its part of the Agreement, as it has not paid the invoices within 30 days and is in arrears of payments in the amount of approximately $4 million. Theratronics asks the Court to order CNL to take positive steps and incur additional processing costs in the future by harvesting a specified rod and processing that rod over the next 6 to 8 weeks, but Theratronics does not seek to establish a new right but to order CNL to comply with an existing agreement.

[49] In his book Injunction and Specific Performance (Toronto: Canada Law Books, 2015), chapter 9 at paragraph 9.50, Justice Sharpe stated as follows:

9.50 Rigid adherence to a formal distinction between positive and negative obligations would produce awkward results. It is possible to phrase a positive obligation in negative terms by excluding everything but the positive act which the contracting party has undertaken to perform. This point was made by Lindley L.J. in Whitwood Chemical Co. v. Hardmann, [1891] 2 Ch. 416 (C.A.) at p. 426:

Now every agreement to do a particular thing in one sense involves a negative. It involves the negative of doing that which is inconsistent with the thing you are to do. If I agree with a man to be at a certain place at a certain time, I impliedly agree that I will not be anywhere else at the same time, and so on ad infinitum; but it does not at all follow that, because a person has agreed to do a particular thing, he is, therefore, to be restrained from doing everything else which is inconsistent with it. The Court has never gone that length, and I do not suppose that it ever will.

9.60 In applying the Doherty v. Allman, principle then, the courts are to be governed by the substance of the obligation and not the form.

Dispostion of Issue of Prohibitory or Mandatory Injunction

[50] In substance, I find that Theratronics is seeking to impose a positive duty on CNL; however, it is not seeking to establish a new right but rather to enforce the terms of an existing agreement and therefore following the TDL Group decision, I find that it is seeking a prohibitory injunction which requires it to only demonstrate a serious issue to be tried.

Serious Issue to be Tried

[51] In the motion for an injunction, Theratronics submits that the issues to be determined in the arbitration are:

(a) Whether CNL breached the Agreement by purporting to terminate the Agreement and refusing to supply Cobalt-60 before the purported termination could have been effective; and

(b) Whether CNL breached the Agreement by failing to act honestly and in good faith by seeking to renegotiate the terms of the Agreement from a stronger bargaining position by purporting to terminate the Agreement.

[52] In the arbitration proceeding, Theratronics claims relief that is slightly different than argued in its factum and set out above. It claims as follows:

(a) A declaration that CNL breached the Cobalt Irradiation Services Agreement dated March 31, 2014;

(b) A Declaration that the termination notice issued by CNL on September 28th is invalid and of no force in effect; and

(c) Rectify the agreement by revising the payment terms in accordance with the intention of the parties; and

(d) Awarding damages to Theratronics for breach of the agreement.

Rectification

[53] In the arbitration, Theratronics seeks to obtain rectification of the March 31, 2014 agreement by revising the payment terms in accordance with the intention of the parties. In Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 SCR 678, 2002 SCC 19 at paragraph 31, the Supreme Court stated that the standard applicable for rectification of commercial contracts, executed by sophisticated parties was demanding. Rectification is an equitable remedy to prevent a party from fraud or “misconduct equivalent to fraud.” and, will be granted with great caution.

[54] Secondly, in the Performance Industries decision at paragraph 37 to 41 the Supreme Court stated that in order to obtain rectification arising from a unilateral mistake a party must prove:

(a) The existence and content of the inconsistent prior oral agreement; and that

(b) The defendant either knew or ought to have known of the mistake in reducing the oral terms to writing and permitting the defendant to take advantage of the mistake that would amount to “the equivalent of fraud” and see the precise the form in which the written instrument can be made to express the prior intention.

[55] I agree with CNL that Theratronics has not presented any evidence to support its theory of unilateral mistake. The payment terms in the service agreement clearly state that invoices were due and payable in 30 days from the date they were dated. At paragraph 17 of her affidavit, Ms. Nickels states that: “the payment arrangements reflected in Appendix F to the agreement are incorrect and do not accurately reflect the intention of Theratronics”. This statement is unsupported by any other evidence and certainly not evidence that is the equivalent of fraud.

[56] Theratronics and AECL are both sophisticated commercial bodies. They signed a written agreement after negotiating the terms for approximately four years, which contained very clear payment terms set out in paragraph 7.5. Paragraph 7.5 states that invoices are due, for future services, and payable in 30 days after the date of the invoices.

[57] This term is also in accord with standard commercial practice. The evidence from the emails sent by Theratronics to CNL shortly after the Agreement was signed and on several subsequent occasions, never disputed that the amounts owing on the invoices were due and payable within 30 days. In fact, Theratronics acknowledged that the amounts invoiced were owing and payable and made several proposals for payment and sought further extensions of time to make payments.

[58] On the claim for rectification of the payment terms, I find that Theratronics has not established that there is a serious issue to be tried that the payment terms did not reflect the intentions of the parties, the written terms of the contract are clear and were acknowledged by Theratronics on several occasions by written communications requesting extensions of time.

CNL’s Alleged Breach of its Duty of Good Faith and Invalid Termination

[59] Theratronics also seeks a declaration that the Notice of Termination issued by CNL on September 28, 2015 is invalid with no force and effect.

Waiver

[60] Theratronics has set out a number of reasons supporting its claim that CNL had waived its right to payment in accordance with the schedule set forth in the Agreement dated March 31, 2014. AECL did not insist on strict compliance of payment within 30 days of invoicing. In fact Theratronics was in arrears for over 16 months by September 28, 2015. AECL did not invoice Theratronics and continued to supply Theratronics with Co-60 between 2010 and 2014. Theratronics has paid off the amounts owing for the period of 2010 to 2014 with interest, however, it has not paid for the ongoing irradiation service invoices sent from March 31, 2014 to September 2015, and had accumulated arrears of $4.2 million for services provided by that date.

[61] Theratronics has always paid the interest on the arrears and argues that they are only required to pay the interest on the arrears. I find no evidence supporting this assertion.

[62] The March 2014 Agreement contains a specific clause in paragraph 17 entitled “Waiver”:

A waiver of any right hereunder on the part of either PARTY shall not be deemed to be a waiver of any other right, and a waiver of any right in any one instance shall not be deemed to be a waiver of that right in any other instance.

[63] The clause means that even though AECL and CNL had not taken action to insist on payment within the 30 days as stipulated in the Agreement previously does not constitute a waiver of their right to demand payment in accordance with the Agreement.

[64] I find that Theratronics’s claim that CNL has waived its right to insist on compliance with the payment terms of the Agreement does not raise a serious issue to be tried because the Agreement contains a clause specifically stating that any failure to insist on the strict terms does not constitute a waiver of its rights under the Agreement.

[65] Theratronics’s claim that CNL is estopped from demanding payment 30 days after the invoice was sent pursuant to the terms of the Agreement does not constitute a serious issue to be tried given the clear waiver clause. Theratronics has not alleged that CNL or AECL made any representations whatsoever that it did not have to pay within 30 days of being invoiced other than by their conduct of not taking any action for a lengthy period of time of approximately 16 months.

Good Faith

[66] In Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 the Supreme Court of Canada recognized a duty of honesty and good faith in completing and carrying out a contract. At paragraph 65, the Supreme Court of Canada also made the following statement about the obligation of good faith in a contract:

The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner… It merely requires that a party not seek to undermine those interests in bad faith.

[67] The principle of good faith as outlined in the Supreme Court decision Bhasin applies to this Agreement, but this principle would require that both parties carry out performance of the contract having regard to the legitimate interests of the other. In this case, Theratronics would also be required to continue to carry out the terms of the contract by making payments as required in accordance with the contract, which it has not done. Theratronics is not prepared to perform its part of the contract by paying the amounts due and owing.

[68] I find that Theratronics’s position that the Court should order CNL to continue to supply Co-60 in accordance with the Agreement when it does not comply with its obligations is an unfair and commercially unreasonable proposition. The refusal of a supplier who continues to supply further product to a customer that is in default of payment and has not been paid for a lengthy period of time, cannot be categorized as a breach of good faith by the supplier.

[69] However, I find that the issue of whether giving only 30 days notice to cure the default in payment, as set out in the parties’ March 2014 Agreement, constitutes a breach of the duty of good faith is a serious issue to be tried.

Breach of the Services Agreement by not removing rod CCR-062 on October 18, 2015

[70] The arbitration panel will have to decide what CNL’s obligations were from September 28, 2015, after it gave the 30 day notice to cure the default in payment. CNL had planned to harvest the rod CCR-062 during that 30 day notice period. The agreement provides that harvesting dates are at CNL’s discretion but the parties had agreed on a harvesting date for rod CCR-062 for October 18, 2015.

[71] Whether CNL was required to proceed to harvest rod CCR-062 knowing that it would incur further expenses of approximately $426,000 for six to eight weeks of additional processing and waste disposable work when Theratronics was in default for 16 months will be decided in the arbitration. The processing of the rod would have extended for 6-8 weeks after October 18, 2015 and well beyond the October 29th termination date.

[72] In any event, Theratronics also gave written notice to CNL after it received the 30 day notice that it would not be able to cure the default within the 30 day notice period. I find that given the clear notice from Theratronics that it would not be curing the default by October 29, 2015, that CNL acted commercially reasonably in not proceeding to incur further substantial expenses by harvesting rod CCR-062 on October 18, 2015 and not proceeding to incur a further $426,000’s worth of expenses on behalf of Theratronics.

[73] Even if CNL is found to have breached the agreement by not removing the rod from the reactor core on October 18, and processing it, Theratronics has not suffered any harm because it would not have been entitled to receive any more processed Co-60 pellets even if the rod had been harvested on October 18th, as it would have taken until approximately December 15th, 2015 to have processed the pellets so that they were fit for delivery.

[74] In the above circumstances, I find that Theratronics has not raised a serious issue to be tried by not removing the rod after it had been advised that the default would not be cured within the 30 days.

Irreparable Harm

[75] At the second stage, the Court must consider whether the refusal to grant the injunction will result in irreparable harm that so adversely affects Theratronics’s interest, that the harm caused could not be remedied by an award of damages.

[76] In order to be irreparable, the harm must be of such a nature that cannot be compensated by an order in damages (RJR MacDonald v. Canada at paragraph 340). Evidence of irreparable harm must be clear and not speculative; likeliness of irreparable harm is insufficient; a bald statement is not enough; the evidence must show that an applicant will in fact suffer irreparable harm. The courts have also held that an injunction will not be an appropriate remedy even where assessing damages would be a difficult task but a possible one (Barton-Reid Canada v. Alfresh Beverages Canada Corp, 2002 34862 (ON SC), 2002 CarswellOnt 3653 (ON SC)).

[77] Theratronics’s main argument is that if CNL is not forced to continue to provide it with Co-60 pellets, that hundreds of cancer patients around the world will be deprived of timely access to life saving treatments. If this was the situation, it would constitute damage that could not be compensated by an order in damages.

[78] However, the evidence before me does not support Theratronics’s assertion that cancer patients will be deprived of timely access to treatment for the following reasons:

(a) The assertion was not supported by any evidence other than the statement;

(b) Theratronics is a broker of Cobalt-60 and does not receive the Cobalt-60 from CNL; rather it has it delivered to Nordion. The evidence confirms that CNL is continuing to supply the market with Cobalt-60 and a rod is scheduled to be harvested on December 9, 2015. Theratronics has not provided any evidence it could not simply buy the amount of Cobalt-60 pellets that it needs during the next few months, while the arbitration is being completed, from the purchaser of the rod removed on December 9, 2015;

(c) Theratronics has not provided any evidence of the alleged irreparable harm that would possibly occur between now and the rendering of the arbitration decision, which must be rendered within 90 days of delivery of the terms of reference;

(d) Theratronics has not provided any evidence of the extent of its stockpiles of Cobalt-60 pellets and whether it is sufficient to meet its short to medium term needs;

(e) Theratronics has not provided any details of contractual obligations with other parties that may be affected between now and the arbitral decision; and

(f) Cobalt-60 has a 5 year half-life and so that in the short term, the existing supply would provide for effective cancer treatments to patients by extending the radiation time slightly to compensate for the reduced level of radiation.

[79] Theratronics also submits that if CNL is not ordered to continue to supply it with Co-60, it will be unable to meet its contractual obligations which will destroy its business. This will result in a loss of 147 jobs at Theratronics’s principal place of business in Ottawa and 18 jobs at Theratronics’s offices in British Columbia and the United Kingdom.

[80] Theratronics has not paid for the radiation services for Co-60 that it has received within 30 days as specified in writing and agreed to by Theratronics on March 31, 2014, for approximately 16 months. As a result of its nonpayment, Theratronics now owes CNL approximately $4 million. The effect on Theratronics’s business if it is not supplied with further product because of its failure to pay its supplier is not a valid reason to require CNL to supply further Cobalt-60 pellets without being paid. I find that Theratronics’s lack of cash resources to pay its supplier is not a valid reason to force the major supplier to continue to supply it with product without being paid, regardless of the adverse effect on its business.

[81] CNL advised me that that the estimated value of the Cobalt-60 the rod CCR-062 is approximately $3,518,640.00 based on a price of $12 per ci.

[82] Theratronics states that the agreement it has with AECL pursuant to the Service Agreement dated March 31, 2014 allows it to purchase Cobalt-60 at approximately half of this price or $6 per ci unit giving a value of the Cobalt form the rod of $1,759,320.00.

[83] Theratronics submits that the calculation of $3.5 million for the rod CCR-062 does not take into account that Theratronics has already paid for 80.1 percent of the irradiation services towards rod CCR-062. Theratronics also asserts that the amount sought by CNL greatly exceeds the processing fee of $426,600 to be charged for each rod as agreed by the parties under the Agreement.

[84] Theratronics is prepared to pay by no later than January 15, 2016, which is immediately prior to the next scheduled shutdown of the reactor for harvesting of rod CCR-062, and a further $426,500 in cash no later than February 26, 2016 for the harvesting of rod CCR-065. This would be paid approximately 40 days after the rod is removed.

[85] The arbitral panel will decide what amount if any is to be credited to Theratronics for amounts previously paid for irradiation services and will determine what amount is ultimately owing at the present time.

[86] In any event, I find that whatever amount is ultimately found to be owing does not change the fact that Theratronics owed CNL approximately $4 million for services rendered as of September 28, 2015 and that this amount remains outstanding and Theratronics advised CNL that it would not pay the amount and it has not paid this amount within 30 days. As a result, the Agreement was terminated by CNL

Dispostion of the Irreparable Harm Issue

[87] I find that cancer patients would not suffer any harm if an injunction was not granted as Co-60 may be purchased from other suppliers and Theratronics has not satisfied me that it would suffer any harm that could not be compensated for by an award of damages. As a result, it has not met the second test of demonstrating irreparable harm.

Balance of Convenience

[88] Theratronics argues that the balance of convenience favors granting its request for an order directing CNL to continue to deliver the processed pellets from at least one further Co-60 rod and for which it is prepared to pay $426,000 by January 15, 2016. Theratronics submits it cannot be compensated by damages, for the loss of its business if an injunction is not granted. Theratronics argues that it would suffer greater harm from the refusal to grant an injunction and it also argues that the effect on the public should be considered as cancer treatments patients may be delayed in obtaining their treatment.

[89] Theratronics repeats its argument that 165 jobs will be lost and that cancer patients around the world will be deprived of timely access to life saving treatments if CNL is not ordered to continue to supply it with Co-60.

[90] I have previously held that there is no evidence that cancer patients would not receive timely treatment if an injunction was not granted, because there is no evidence that Theratronics could not purchase Co-60 from other suppliers to be inserted into its machines. Secondly, Co-60 has a half-life of five years and therefore a three or four month delay would not deplete the existing treatment capability of the existing supply by very much (less than 5%). The length of the radiation treatment can be extended to account for any depletion of the Co-60 so that the patients would receive the same dose of radiation, and receive proper medical treatment if an injunction is not granted.

[91] I also find that the potential loss of employment if Theratronics is unable to obtain financing to pay its suppliers cannot be visited on the supplier who has not been paid for its product for a substantial period of time. If Theratronics wishes to preserve its ongoing business and employment, it may have to file for protection under the CCAA or to seek bankruptcy protection if it is unable to secure the required financing. It would not be equitable and does not meet the balance of convenience test to order the supplier of Co-60 to continue to supply product and incur further expenses without being paid, when Theratronics is in default by approximately by $4 million dollars and has been in default for 16 months.

Disposition on the Balance of Convenience Issue

[92] Ultimately, the solution proposed by Theratronics that CNL be ordered to continue to supply it with Co-60 product of a value between $1.7 million and $3.5 million and to incur processing expenses of $426,000, without further payment when there are outstanding arrears of approximately $4 million without being paid up in full and without being paid in cash for the value of future product supply is not equitable and does not meet the balance of convenience test.

[93] I find the balance of convenience does not favour not granting an injunction ordering CNL to continue to supply Co-60 in accordance with the March 2014 Agreement where Theratronics has not complied with its part of the Agreement

Issue #3

Should the Court decline to order an interlocutory injunction on the grounds that the plaintiff does not have clean hands?

[94] Theratronics, seeks an order for an equitable remedy, namely that of an injunction; however it has not paid payments due under its Agreement with CNL. In the Teliphone Corp v. Comwave Wholesale Inc., 2015 ONSC 5142, at paragraphs 41-43, the Court held that it was being asked to compel Comwave to continue to provide services in circumstances where it had not paid Comwave for the services provided pursuant to an order of Himmel J. dated March 9, 2015. An injunction was not granted in those circumstances as the moving party did not come to court with clean hands.

[95] I find that Theratronics’s failure to pay anything on account of the irradiation services reflects poorly upon them especially as the plaintiffs are reselling the products received to other customers. The arbitration clause in the Agreement requires both parties to continue to comply with the terms of the Agreement until arbitration of the dispute is completed. I find that this clause requires that both parties be in compliance with the Agreement and it would not be fair or equitable to require CNL to comply with the Agreement by continuing to supply valuable Co-60 pellets with a value of between $1.7 million and $3.5 million while Theratronics does not pay for the additional Co-60 pellets and is in arrears for 16 months and owes approximately $3.9 million to CNL.

[96] I am also not satisfied that Theratronics has complied with its part of the Agreement by paying only the interest on the arrears owing, when the Agreement clearly states that the full amounts invoiced are due 30 days following delivery of the invoice.

Disposition on the Injunction

[97] For the above reasons, I find that the plaintiff has not met the criteria to obtain a prohibitory injunction. I find that Theratronics has demonstrated a serious issue to be tried on the issues of whether CNL has failed to act in good faith by giving only 30 days notice to cure the default, even though this is the notice period set out in their Agreement. However, Theratronics has not demonstrated that it would suffer irreparable harm, and the balance of convenience does not favor requiring CNL to continue to supply a very valuable product without being paid the arrears and being paid for the supply of any future product. The motion for an injunction is therefore denied.

Costs

[98] The parties may make brief submission on costs within 15 days.

R. Smith J.

Released: December 29, 2015

2015 ONSC 7993

COURT FILE NO.: 15-66545
DATE: 2015/12/29

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

Best Theratronics Limited

Plaintiff

– and –

Canadian Nuclear Laboratories Ltd and Atomic Energy of Canada Limited

Defendants

REASONS FOR JUDGMENT

R. Smith J.

Released: December 29, 2015