Court File and Parties

2016 ONSC 3063 Court File No.: 15-66545 Date: 2016/05/09 Superior Court of Justice - Ontario

Re: Best Theratronics Limited, Applicant/Moving Party And Canadian Nuclear Laboratories Limited and Atomic Energy of Canada Limited, Respondents

Before: Toscano Roccamo J.

Counsel: Eli S. Lederman, Ian MacLeod, and James S.S. Holtom, for the Applicant Kirsten Crain, for the Respondents

Heard: In writing

Endorsement

[1] The Applicant, Best Theratronics Limited (“Theratronics”) seeks leave to appeal to the Divisional Court from the order of Justice Robert Smith dated December 29, 2015, declining to grant an interlocutory injunction which, had it been granted, would have required the Respondent, Canadian Nuclear Laboratories Ltd (“CNL”) to continue to supply irradiated cobalt to Theratronics, pending an arbitration under a Service Agreement (The Agreement) between the parties.

[2] It is common ground that, at the time of the motion, Theratronics was approximately $4 million in arrears in its monthly payments due under the Agreement and this default has continued for a period of two years. Theratronics admits the arrears are owed to CNL. In September 2015, after an extended period of default, CNL served a notice of default requiring the payment of all arrears within 30 days or it would terminate the Agreement. The arrears were not paid and CNL duly terminated the Agreement.

[3] Theratronics delivered an arbitration claim in November 2015 seeking a declaration that CNL’s termination notice was invalid and an order rectifying the Agreement by revising the payment terms.

[4] In considering Theratronics’ motion for an injunction the Motion Judge applied the governing three part test set out by the Supreme Court of Canada in RJR-MAcDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311. The Court accepted Theratronics’ submission that what was being sought was a prohibitive injunction which gave rise to the less onerous test requiring a substantial issue to be tried. However, the Motion Judge determined on the evidence that the issues of irreparable harm and balance of convenience favoured CNL and accordingly exercised his discretion to refuse injunctive relief.

[5] Leave to appeal from an interlocutory order of a judge will be granted in very narrow circumstances. Rule 62.02(4) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provide that leave shall not be granted unless:

a) There is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or

b) There appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involved matters of such importance that, in his or her opinion, leave to appeal should be granted.

[6] The Motion Judge was persuaded that there was a serious issue to be tried as to whether CNL breached its implied contractual duty of good faith by giving Theratronics only 30 days to cure the default in payment before exercising its right to terminate the Agreement. Theratronics also submitted that there were three additional grounds constituting substantial issues to be tried but the Motion Judge considered these claims not to have been made out on the evidence.

[7] Given that the Motion Judge found that there was a substantial issue to be tried on the adequacy of notice issue, the determinative issues on the motion was the likelihood of irreparable harm to Theratronics if the injunction was not granted and balance of convenience.

[8] Theratronics argued that irreparable harm would be suffered by cancer patients if CNL was not obliged to continue to supply cobalt to Theratronics pending the arbitration. This was rejected by the Motion Judge as not being substantiated on the evidence before the Court. The Court stated:

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.

[9] I observe that the Motion Judge’s conclusions as to the alleged irreparable harm to cancer patients was based on a consideration of what, in his view, were shortcomings in the evidence put forward by Theratronics.

[10] On the irreparable harm and balance of convenience issues, Theratronics relied on the devastating effect the failure to continue to supply Cobalt-60 pellets would have on its business.

[11] The Motion Judge held that:

[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.

[12] He further stated at para. 91:

[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.

[13] Theratronics states in paragraph 52 of its Factum that it provided a reliable and worthy undertaking as to damages. The Factum states that Theratronics has significant assets within Ontario. In particular, it owns real property in Ottawa with a net market value of approximately 10 million dollars. This would seem to beg the question as to why Theratronics is unwilling to finance its indebtedness to CNL on the strength of this real property asset.

[14] It is not this Court’s function to adjudicate on the intrinsic merits of the matters submitted to arbitration. That will be for the arbitration tribunal to the extent it may be necessary to adjudicate these issues before them. The issue for this Court is whether leave to appeal should be granted under Rule 62.02 of the Rules of Civil Procedure.

[15] Dealing first with subsection a) of the Rule, are there conflicting decisions on the issues pertaining to the granting of injunctions to compel a continuation of supply agreements pending an arbitration between the parties? The case law reflects that injunctions have been granted in these circumstances, see: Siemens VDO Automotive Inc. v. Rhodia Canada Inc. (Siemens), [2005] OJ No 6141 and 674834 Ontario Ltd. (cob Coffee Delight v. Culligan of Canada, Ltd (Coffee Delight), [2007] OJ No 979. In contrast some courts have declined to compel performance pending arbitration, see: Axia Supernet Ltd v. Bell West Inc, 2003 ABQB 195.

[16] All these cases generally apply the same principles and cannot be said to be in conflict. The differing results reflect differing fact scenarios and the differences in the exercise of the court’s discretion in each case.

[17] I agree with the Respondent CNL’s submission that “there is no decision providing that a judge must grant injunctive relief where the parties have agreed to continue performance pending arbitration. Injunctive relief is by definition discretionary.” And, the various cases are examples of the exercise of discretion.

[18] There are other considerations which mitigate against granting leave to appeal or, in the words of the subsection bear on the issue of whether it is “desirable that leave to appeal be granted.” Courts should be cautious in intervening in matters subject to pending arbitration. Arbitration can be held rapidly, particularly on the fairly narrow legal and accounting issues presented in this conflict. Theratronics has apparently done nothing to expedite the arbitration. i.e. they have not taken steps to appoint an arbitrator in the four months since arbitration was initiated by them. The availability of arbitration as a forum for rapid dispute resolution can be contrasted with the time and expense inherent in an appeal to the Divisional Court in this case, particularly when the merits of the dispute must ultimately be decided in the arbitration.

[19] Finally, I respectfully see no good reason to doubt the correctness of the Motion Judge’s order. His order reflects a reasonable exercise of discretion on the balance of convenience issue.

[20] As the Motion Judge stated:

[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.

[21] Accordingly, the motion for leave to appeal in this matter is dismissed.

[22] If the Respondent wishes to seek costs of the motion, it shall provide a brief written submission within 14 days of the release of this Endorsement and the Applicant shall respond within 14 days of receiving the Respondent’s submission.

Justice G. Toscano Roccamo Date: May 9, 2016