Court File and Parties
COURT FILE NO.: CV-17-588190-00CL
DATE: 20180202
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Shajiraj nadarajalingam AND iDEAL PROPERTIES INC., Plaintiffs
AND:
Jiajia Zhao, onepiece developments inc., Ideal (robinson Glen) developments inc. and Janet lee, Defendants
BEFORE: S.F. Dunphy J.
COUNSEL: Melvyn Solmon and Malliha Wilson, for the Plaintiffs
Shaun Laubman, James Renihan and Bradley Vermeersch, for the Defendants Zhao and Onepiece;
Leigh Youd for the defendant Janet Lee
HEARD at Toronto: January 31 and February 1, 2018
CORRECTED REASONS FOR DECISION
[1] The plaintiff Mr. Nadarahalingam (“Shaji”) alleges that the terms of a clear and unambiguous promissory note he signed in favour of Mr. Zhao (“Andrew”) containing a fixed due date of December 31, 2015 does not reflect the true intent of the parties. He asks me to rectify the contract he signed, proposing a variety of alternate due dates as reflecting the true intent of the parties. In the alternative, he alleges an agreement after demand on the note was made to defer payment until completion of a financing the parties had been negotiating. There is no dispute as to the amount of the debt.
[2] For the reasons that follow, I find in favour of the defendants and rule that the promissory note is enforceable in accordance with its written terms. While the drafting record is unclear as to how the originally proposed March 30, 2018 due date morphed into an outside date of December 31, 2015 in the executed note, I am fully satisfied that the promissory note as signed reflected the actual agreement of the parties and was not the product of mistake on either side. There is nothing to rectify.
[3] I also find that there was no subsequent agreement to defer the time for payment or enforcement of the note. Immediately before and after demand on the overdue promissory note was made, the parties were in discussion about the terms of a possible financing that, if successfully concluded, might have provided a source of funds to re-pay the note. While it is clear that the parties were getting close to reaching an agreement, it is equally clear that no agreement was actually reached whether as to deferring payment of the note and related security documents or as to the terms of the financing under consideration. To the contrary, the plaintiff emphatically rejected the proposal made on Andrew’s behalf.
[4] An interim injunction was granted on consent on December 11, 2017 restraining the defendants Zhao and Onepiece Developments Inc. from enforcing the promissory note or any securities pledged to secure that note. The same order directed this early trial of the issue of the due date of the promissory note. The factual foundation of the consent order was the existence of a dispute regarding the due date of the promissory note and the enforceability of the security held for it. That issue and thus the foundation of the injunction has now been resolved against the plaintiffs. However, since that time the plaintiff has expanded its claims with an “Amended Fresh as Amended Statement of Claim” that raises a variety of additional claims, not all of which are related to the note or the right of the defendants to demand and enforce the security held for it.
[5] At the close of the hearing, I advised the parties that in the event I found against the plaintiffs (as I have now done), I would be dissolving the injunction with effect from February 14, 2018. It is neither fair nor reasonable to maintain in place an injunction in these circumstances. If the plaintiffs have grounds not pleaded at the time the consent order was made that they believe justify an injunction, they ought to bear the onus of justifying a fresh injunction on those new grounds. The February 14, 2018 date was chosen after discussion with the parties as being a compromise date that afforded the plaintiffs a reasonable opportunity to determine whether to pursue new injunction and bearing in mind the absence of counsel for some of that time period.
[6] I am producing these reasons under some time constraints given the commercial time pressures and given the possibility that the plaintiffs may wish to apply for a fresh injunction on grounds not argued before me. I should not have been in a position to do so absent the excellent co-operation and advocacy demonstrated by both sides. While both advanced their opposing viewpoints with vigour, they were able to provide me with written arguments, agreed document briefs, informative legal briefs and an efficiently run hearing under what I know was great time pressure. There are winners and losers in litigation – both parties benefitted from a more efficient hearing and counsel are to be congratulated on making that happen.
[7] My more detailed findings of fact and reasons follow.
Factual background
[8] The relationship between Shaji and Andrew dates to some time in or about September 2014. At that point, Shaji had grown his own development company from humble roots in 2010 to something that had approximately 30 employees. Shaji had ideas and some development experience but lacked money; Andrew had money but lacked development experience. Of such things are business relationships born.
[9] Andrew and Shaji had a couple of relatively discrete and purely financial dealings in 2014. Andrew invested in a project and bought a house that Shaji had built. The details of these are not material here.
[10] In March 2015, the relationship between Andrew and Shaji was taken to a new level. At that time, they formed Ideal (MS) Developments Inc. and the investment holding companies of each (2453364 Ontario Inc. for Andrew and Ideal Properties Inc. for Shaji) each became shareholders in the new company.
[11] The investment made by the two in Ideal MS was structured using, among other documents, a Shareholders Agreement. Pursuant to the MS Shareholders Agreement, each of the two shareholders were to have a 50% equity interest after injecting $6 million in equity each. Ideal Properties’ equity investment in Ideal MS was funded as to 80% (or $4.8 million) by way of a personal loan from Andrew to Shaji bearing a 10% interest rate. The promissory note that evidenced that loan bore a due date of March 30, 2018.
[12] Soon afterwards, Shaji and Andrew decided to invest in the “Robinson Glen” project. As with the Ideal MS project, Shaji used his in-house lawyer Kubes Navaratnam. Mr. Navaratnam worked at Shaji’s company, Ideal Developments as director of corporate and legal affairs. Andrew relied upon his own lawyer, Ms. Janet Lee.
[13] While there have been allegations that Ms. Lee also acted on behalf of Shaji in respect of the RG project, each of Shaji and Mr. Navaratnam conceded that this was not the case during the negotiation phase of this investment. Ms. Lee did not advise Shaji in relation to any of his or his company’s agreements, including the RG Note that is the subject-matter of this trial. She did act for a time as corporate counsel of Ideal on purely routine matters, a matter of no relevance to the issues before me. That argument (regarding Ms. Lee’s alleged conflict) was not pursued before me in argument – an understandable concession given the admissions made in oral testimony.
[14] On May 29, 2015, Mr. Navaratnam sent a draft set of documents regarding the Robinson Glen project to Ms. Lee to review in relation to this investment. There were a number of changes from the MS project reflected in these documents. The investment vehicle was identified as “Ideal (Angus Glen) Developments Inc.” (a name that was later changed to “Ideal (Robinson Glen) Developments Inc.”). I shall refer to this entity as “Ideal RG”. The required equity of the two investors was $3 million each instead of $6 million. Andrew would lend Shaji only 60% of his portion of the equity instead of 80% and that loan would bear a much higher interest rate: 20%. However, Shaji was permitted to raise most of the balance by way of a second mortgage on the property to be purchased. In other words, Shaji’s economic interest in the RG development was almost entirely carried.
[15] Among the draft documents sent by Mr. Navaratnam to Ms. Lee on May 29, 2015 was a draft of the RG Shareholders Agreement and a draft of the RG Note, in each case almost identical copies of the corresponding Ideal MS documents that the parties had only recently negotiated and signed. Indeed, this first draft RG Note retained not only the same due date (March 30, 2018) but also the same loan amount ($4.8 million). The due date was clearly placed in square brackets, an indication understood by sender and recipient (and most lawyers) as an indication of a matter to be discussed.
[16] There was considerable debate in the hearing before me as to whether the Robinson Glen investment was intended exclusively to be a long term development project. In 2015, the subject lands consisted of four farm properties with houses and sheds on each. Shaji testified that it would take several years to “add value” to the land by seeking the various municipal approvals required to re-develop the property. Andrew testified that Shaji also told him of the possibility of making a profit through a “quick flip” of the property.
[17] The two investment goals (long-term or quick flip) are not at all mutually exclusive and I have no hesitation in accepting Andrew’s evidence on this subject. It is far more consonant with commercial common sense.
[18] On June 12, 2015, Ms. Lee sent comments on the draft documents back to Mr. Navaratnam, black-lined to the original drafts and containing marginal comments and questions to be discussed. The RG Note continued to have a due date of March 30, 2018 in square brackets.
[19] At 1:04 a.m. on June 17, 2015, Ms. Lee sent a further set of draft documents to Mr. Navaratnam. Ms. Lee asked Mr. Navaratnam “in particular” to comment on the highlighted provisions, one of which was the March 30, 2018 due date on the draft of the RG Note. This issue was clearly an outstanding, unresolved issue at that time.
[20] At 1:54 a.m., Mr. Navaratnam responded to this latest set of drafts by saying “looks good” and “my comments only as follows”. Precisely two comments were offered, neither expressed as “deal breakers” or mandatory changes so much as comments to be considered. One of those two comments concerned the due date:
There is a fixed Due Date of March 30, 2018; in all likelihood the loan could be needed to be extended longer as Development might not be completed then
[21] On June 17, 2015, the RG transaction was closed. Among the closing documents executed that day were:
a. The RG Shareholders’ Agreement containing, at Schedule A, a draft of the RG Note containing a due date of “the earlier of December 31, 2015 and 60 days after the completion of the site plan agreement” among the two shareholders of Ideal RG: Onepiece and Ideal Properties;
b. The RG Note in the amount of up to $1. 8 million (it was a “Grid Note”) containing the same December 31, 2015 due date;
c. An Irrevocable Direction re Distribution requiring all distributions from Ideal RG to its shareholder Ideal Properties to be paid to Andrew to reduce the RG Note until repaid;
d. The RG Joint Venture Agreement;
e. A Guarantee by Ideal Properties in favour of Andrew of all of Shaji’s obligations; and
f. The RG Securities Pledge Agreement by which Ideal Properties pledged its Ideal RG shares as security for its guarantee of the RG Note.
[22] Shaji testified that he had read drafts of the documents prior to closing but did not read any drafts of the documents on June 17, 2015 when the final drafts were signed by him at closing. He also testified that he did not discuss the issue of the closing date directly with Andrew prior to closing. He did not notice the Due Date on the RG Note although it was clearly visible on the face page of the RG Note. He testified that he relied upon Mr. Navaratnam to tell him that all of the documents were ready and satisfactory when he signed them.
[23] Mr. Navaratnam had no memory of any further drafts of the documents being received after the exchange of emails with Ms. Lee in the early morning of June 17. He was very clear that he would not have allowed his client Shaji to sign the documents until he was satisfied that they were ready. He was equally clear that Ms. Lee had not acquiesced to his comment about the Due Date made in the email. He remembered her as wanting an outside date. He was unable to say whether he had followed up on his email. He was also clear that the development would not be completed in such a short term.
[24] Ms. Lee had no particular memory of how the document evolved after the drafts were exchanged in the early morning hours of June 17.
[25] Andrew is uncomfortable in English. He relied upon his CFO, Mr. Bin Fu and his lawyer, Ms. Lee to ensure that his wishes were properly reflected in the documents he was asked to sign. He did not review them himself.
[26] The bottom line is none of the witnesses had any clear memory of how the final draft evolved on June 17, 2015 from the drafts exchanged early in the morning. The plaintiffs suggested that I ought to draw a negative inference from the failure of the defendants to call Mr. Bin Fu since he was one of the advisors upon whom Andrew relied when he signed documents. There is no evidence that Mr. Bin Fu was even at the closing or played any role in their finalization on June 17, 2015. No witness had any specific memory of his playing a role. The onus is not and was not on the defendants here. I do not fault the defendants for failing to call an additional witness.
[27] A first capital call was made on June 30, 2015 and an initial advance was made to Shaji under the RG Note. The prior day, Shaji and Mr. Navaratnam received a copy of the RG Note to review in advance of the recording of the first advance the next day. No objections were made by either nor did either express surprise regarding the Due Date that was clearly visible on the very short RG Note sent to them. Two further advances were made later such that total advances under the RG Note are $1.5 million. The plaintiffs claim to have noticed nothing about the due date in connection with these advances either.
[28] I shall review the efforts made at re-financing Ideal RG in the fall of 2017 below. At this point I will merely note that:
a. Demand was made on the RG Note on December 1, 2017 accompanied by s. 244 Bankruptcy and Insolvency Act notices;
b. Payment was demanded by 5:00 p.m. on December 11, 2017;
c. Payment was not made that day;
d. The parties entered into a consent injunction restraining Andrew and Onepiece from enforcing their security and setting the timing of the trial that has now taken place before me to decide the “due date” issue raised at the time the injunction was sought.
Issues to be decided
[29] What is the due date of the RG Note?
[30] Is there an agreement to defer the due date or enforcement of rights under the RG Note?
Discussion and analysis
(a) What is the due date of the promissory note dated June 17, 2015?
[31] The RG Note is neither a long nor complicated document. The first line (after the title and place of execution) of the document reads as follows (bold type in original):
DUE DATE: the earlier of December 31, 2015 and 60 days after the completion of the site plan agreement relating to the Property…
[32] The document, bearing an execution date of June 17, 2015, is plain and unambiguous.
[33] That same very short document was put in front of the both Mr. Navaratnam and Shaji only two weeks later when the June 30, 2015 initial advance was made and recorded on the grid. Neither of the two recalled noticing the Due Date on that occasion either.
[34] The burden of proof to establish mistake is with Shaji. He has admitted executing the RG Note, admits the receipt of consideration and the amount owing under it. Can he establish that a mistake was made?
[35] In my view he cannot.
[36] I start by reviewing the legal standards that must be met to make out a case for rectification. I have undertaken to produce my reasons to the parties under very tight time constraints. I reproduce below a portion of the written argument of the Andrew and Onepiece in the interest of time:
The Supreme Court of Canada has recently addressed the test for rectification. Rectification comes in two forms: (i) rectification for a common mistake shared by both contracting parties; and (ii) rectification for the unilateral mistake of one party.
Where a party seeks rectification of a common mistake, it must show:
(a) the parties reached a prior agreement, the terms of which are “definite and ascertainable”;
(b) the agreement was still effective when the instrument was executed;
(c) the instrument fails to accurately record the agreement; and
(d) if rectified as proposed, the instrument would carry out the agreement.
- If the alleged mistake is said to be unilateral, then in addition to the above requirements, the mistaken party must also satisfy the following “demanding preconditions”:
(a) the party resisting rectification must have known or ought to have known about the mistake; and
(b) permitting the party to take advantage of the mistake must amount to “fraud or the equivalent of fraud”.
Regardless of which type of mistake is asserted, rectification is a remedy to be exercised “with great caution”, as a “relaxed approach to rectification as a substitute for due diligence at the time a document is signed would undermine the confidence of the commercial world in written contracts.”
Compelling evidence is required to demonstrate, on a balance of probabilities, that the test for rectification is met. As the Supreme Court has put it, a “party seeking rectification faces a difficult task in meeting this standard” and a “court will typically require evidence exhibiting a high degree of clarity, persuasiveness and cogency before substituting the terms of a written agreement with those said to form the party’s true, if only orally expressed, course of action.”
Evidence that the parties “intended” certain things is not sufficient to obtain rectification. There must be evidence of an actual, definite agreement. A failure to record what is discussed at a meeting can itself pose a hurdle for rectification.
[37] I find that the above is an accurate summary of the law as recently affirmed by the Supreme Court of Canada in Canada (Attorney General) v. Fairmont Hotels, 2016 SCC 56, [2016] 2 S.C.R. 720, (at para. 13-14 and 36) and Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678, (at para. 31).
[38] Rectification is not an open-ended remedy permitting a court to create the agreement a party wished he or she had or even one that appears more sensible to the court. It is a highly circumscribed remedy that enables the court to correct the written document so that it accurately reflects what the parties agreed to.
[39] The lack of clear evidence as to how the draft documents morphed on the day of closing (June 17, 2015) does not amount to proof of mistake. It is not enough for Shaji to prove that there are unanswered questions about how the document was finalized, he must prove that the document he actually signed does not answer that question. Far from proving that a mistake was made, I am persuaded that the document reflects what was decided.
[40] I attach no weight to Shaji’s testimony regarding his assumptions regarding the due date and what he would or would not have agreed to. These very recent pronouncements are, naturally, heavily coloured by wishful thinking and projecting current wishes into past circumstances. Although Shaji readily agreed to the importance of business documents reflecting the understanding between the parties, his answers on cross-examination revealed that he considers himself only bound in the loosest of possible ways by the written word. A plain and clear acknowledgement regarding the MS Note signed by him on November 2, 2017 was said to have been the product of “brainwashing” and is not binding. The due date of the MS Note was itself just a date “plugged in” to make Andrew’s lawyer happy but wasn’t the “real” date because it would have to be extended. None of these expressions of devout wishes bears the remotest credibility.
[41] The simple fact of the matter is that Shaji had succeeded in investing little to none of his own money in two significant projects and he has succeeded in convincing Andrew to advance nearly all of the funds required. Shaji may have expected he could continue to persuade Andrew to carry him and assume the lion’s share of the financial risk of their investments – Andrew had no obligation to be persuaded and failure to be persuaded breaches no fiduciary or other duty. If Andrew was insisting on having an early due date for the RG Note, Shaji was in no position to refuse his request.
[42] It is inconceivable that a lawyer as careful as Mr. Navaratnam would have failed to follow up on the only two points or questions he raised regarding the entire body of draft closing documents. He knew that his comment had not been accepted and that Ms. Lee (and thus Andrew) were insisting on more definition around the due date than he had proposed. He would not have permitted his client to have signed the documents without knowing that the due date issue had been “put to bed” and without verifying the manner in which this was done. I find that Mr. Navaratnam did read the revised documents and was fully aware of the December 31, 2015 due date before his client was given the green light to sign the RG Note. He may have forgotten that detail over the intervening two years. There was no reason (then) for it to be a memorable fact.
[43] I reject categorically any suggestion that Ms. Lee “tricked” Mr. Navaratnam and inserted changes in the draft documents without telling him. She was a careful, meticulous and certainly honest lawyer and witness.
[44] It is not necessary that the parties be able to re-create the back and forth of discussions that led to the final resolution. The way in which the due date was expressed (including a very likely irrelevant reference to the date of the site plan agreement) suggests a certain amount of “back and forth” that the parties have lost the paper trail of (possibly because it happened face-to-face in the boardroom or over the phone). There is nothing at all unusual about lawyers being unable to recreate a blow-by-blow of negotiations, particularly on matters that may not have been considered as having high importance at the time.
[45] If there had been a genuine mistake, Mr. Navaratnam and Shaji would certainly have noticed it when the subsequent advances were made under the RG Note. The suggestion that neither of them noticed something that they now characterize as a fundamental departure from the deal are simply not credible. They raised no objection at the time because they had none.
[46] A short term promissory note made perfect common sense in the context of the deal and in no way detracted from the intended term of the RG Joint Venture. Shaji would have plenty of time to arrange other financing for his equity injection if he wished to. The very high interest rate (20% per year) gave him plenty of incentive to do so. There was always the possibility of a quick flip. Or he might persuade Andrew to extend the loan.
[47] It is also noteworthy that the plaintiff has expressed multiple versions of what it suggests that the due date ought to be. Even if the plaintiff had established a mistake (and he has not) that is not sufficient. Rectification requires me to identify what the parties did intend. The plaintiff has no evidence whatsoever of an express agreement to any other date that failed to be recorded. The March 30, 2018 date that found its way into prior drafts was always just a placeholder for an issue to be decided. The drafts make that quite clear. There is simply no evidence beyond the final signed document regarding how the issue of the due date was resolved.
[48] The plaintiff suggests that the requirement of the RG Joint Venture Agreement that the RG Shareholders Agreement shall be “in the form substantially the same as” the MS Shareholders Agreement means that I should adopt June 30, 2018 as the due date. The reasoning is that the due date of the MS Note was the 30th of the month three years after it was made and June 30, 2018 would be substantially similar. The argument for doing so is quite circular. “Substantially the same” also means “sometimes different”. The RG Shareholders Agreement was signed at the same time as the Joint Venture Agreement. The best evidence of what “substantially the same” was intended was the RG Shareholders Agreement that was signed at the same time which is indeed substantially the same as the MS Shareholders Agreement.
[49] I conclude that the RG Note contains no mistake. The Due Date expressed therein reflected the intention of the parties. The RG Note was due on December 31, 2015 and was validly demanded on December 1, 2017.
(b) Is there an agreement to defer the due date or enforcement of rights under the promissory note?
[50] On December 6, 2017, Mr. Bin Fu (CFO of Onepiece) sent an email to Shaji the full text of which reads as follows:
We have the updated commitment letter and ready to proceed.
I heard from Andrew that from your conversation yesterday, there might be some misunderstanding regarding the use of the fund.
As per the shareholder’s agreement and Andrew’s understanding, any of your withdrawal from ideal (robinson glen) needs to be used to pay off Andrew’s loan against ideal (robinson glen) first.
If you are in agreement, Andrew agrees with proceeding with the loan. If you do not honour the shareholder agreements or promissory notes, Andrew would prefer not to proceed with this loan.
Please let me know.
[51] On December 7, 2017 at 3:36 p.m., Shaji responded directly to Andrew as follows:
Enclosed is the commitment letter. The lender has given us until 4 pm today to execute this. Please have this executed no later than the aforementioned time. With respect to the proceeds, I will honour my obligations to the shareholders agreement.
[52] The plaintiffs take the view that this email exchange constituted a binding agreement between the parties to defer the due date of the promissory note until the loan proceeds referenced are received and distributed under the shareholders agreement.
[53] In order to understand this position and the email exchange, it must be placed in context. When viewed in that context, I am of the view that there was never any agreement either as to the terms of the financing or to defer the time for payment of the promissory note until the receipt of funds from that financing.
[54] Andrew was under financial pressure in the Fall of 2017. He was also owed a considerable sum of money by Shaji. A summary of the amounts owed by Shaji to Andrew would include:
a. The MS Note due March 30, 2018 (principal amount $4.8 million);
b. The RG Note due since December 31, 2015 (principal amount $1.5 million);
c. The “Carolwood Note” due on November 30, 2017 (principal amount approximately $1.8 million)
d. The “JS Note” due November 30, 2017 (principal amount approximately $1 million).
[55] With interest, the total amount owing under the three latter obligations was approximately $5 million.
[56] Andrew and Shaji had discussed the possibility of profiting from the RG development by way of a flip at the time of the formation of the RG Joint Venture. An email of November 27, 2017 makes it clear that the possibility of a private sale was again on the table. A prospectus outlining the planning status, the construction budget and the conceptual drawings was prepared for discussion.
[57] The parties also began the process of seeking potential refinancing that would allow the shareholders to retire some of their equity in the RG Joint Venture. In August 2017 Shaji and Andrew approached a broker to help obtain the financing. Another broker had been approached earlier as well.
[58] While Shaji maintained at the hearing that the RG project has a very considerable equity value, the difficulty the parties experienced in locating financing, the cost of that proposed financing and the terms of the financing offered all suggest to me very strongly that the market attributed a lot more risk to the valuation of the project than the optimistic valuations proffered by Shaji suggest. While I am not required to determine the value of the project at this juncture, I cannot accept any of Shaji’s evidence about the value of the project and do not do so.
[59] On September 8, 2017, the broker delivered a 25 month financing letter proposing a $14.5 million loan to be funded October 30, 2017 by Empirical Capital Corp. The proposed loan was conditional upon satisfaction of a significant number of conditions. The proposed use of proceeds contemplated $6.5 million being used to retire existing debt, $310,000 being used to pay fees and $7,690,000 repatriating equity.
[60] A second financing letter from Empirical was delivered by the broker on or about October 23, 2017, which letter was eventually signed back by Andrew and Shaji on November 1, 2017. This second proposal provided for a loan amount of the lesser of 65% of appraised value or $14.5 million. The use of proceeds proposed included additional fees, higher interest and a correspondingly lesser repatriation of equity. A large number of conditions of funding were proposed. A fee of $5,000 was paid.
[61] Andrew’s lawyers attempted in vain to be put in contact with the Lender’s lawyers in order to move the financing process along. They were never successful in that attempt. Thirty days after signing back a loan proposal letter that contemplated finalization and funding of a fully-executed loan agreement within forty-five days, this was no small matter. There was no final loan document to work from and, without that document, work on closing documents could not be started. The funding proposal was extremely conditional, and vague and general as to important issue. Until the final commercial terms of the Lender were revealed, it was impossible to work on resolving issues that might arise from them.
[62] No such commitment had yet been received when, Andrew demanded repayment of each of the RG Note, the Carolwood Note and the JS Note on December 1, 2017. In each case, payment was demanded to be made by no later than 5:00 pm on December 11, 2017. From the text messages exchanged between Andrew and Shaji that day, I conclude that the demands were delivered first thing in the morning.
[63] Shaji sent a text message asking Andrew to call him at 9:31 that morning and Andrew responded “I’m sorry for what happened but I really got no choice, i can only delay ur loan for so many times, but for now, I really need the cash right away”. Shaji did not then protest that Andrew had demanded payment of the RG Note that was not yet due. He replied “Ok, Andrew. Thanks for replying. How much you need right now? We have been working on the loan together and it is only a few days away to get it. Can we sign Robinson Glen papers and push that funding right way?” Andrew replied “yes I can do that”.
[64] Later that morning, the broker delivered a “final commitment letter” asking that it be signed back ASAP “so that we can close ASAP”. The attached “final commitment letter” was significantly different from the funding proposal signed back on November 1. Not only was the lender different (“First National Financial LP” had replaced Empirical as the Lender) but the amount of the loan was reduced to $12 million.
[65] Minutes before the broker delivered the “final commitment letter”, Shaji changed his tone in text messages to Andrew. He alleged at 11:46 that “from your heart” Andrew knows that the RG Note was not due two years ago, that Ms. Lee had “made a mistake” on the promissory note and was acting as his (i.e. Shaji’s) lawyer at the time and “is playing a game with me”.
[66] Ms. Lee was in Asia when the “final commitment letter” was received. She nevertheless organized through her law office to review it. She sent a note to the loan broker on December 4 reiterating the request for the lender’s legal counsel contact information that she had been making “for a few weeks now”. She also confirmed that her client wanted to “expedite this”. Attached were comments on the commitment letter including a number of material business points.
[67] The broker forwarded lender’s counsel co-ordinates shortly afterwards. The broker also relayed Lender comments on Ms. Lee’s mark-up during the course of December 4. Some comments were rejected, others modified, others accepted.
[68] The next day the broker asked for an update and was advised by Mr. Bin Fu (CFO of Onepiece) that Andrew and Shaji were meeting and “there are some issues with their counsel”.
[69] As of 10:30 a.m. on December 6, 2017, my findings regarding the status of matters may be summarized as follows:
a. Andrew had demanded repayment of the three notes by December 11, 2017;
b. There was no dispute as to the November 30, 2017 due date of two of the three notes and I have already found that the allegations of mistake impacting the RG Note were unfounded such that it too was validly demanded on December 1, 2017;
c. The parties received a commitment letter dated December 1, 2017 - clearly a delivery that was accelerated by the issuance of the demand letters earlier that day – that was highly conditional, less favourable and materially different from the funding proposal signed back by Andrew on November 1, 2017;
d. The proposed transaction reflected in that “final commitment letter” was a considerable distance away from being a “closeable deal”;
e. Andrew and his professionals had reviewed the “final commitment letter” and provided material comments on it that had not been accepted by either the Lender or Shaji;
f. There was thus no agreement of any sort with Andrew or Onepiece as to the terms of the financing proposed by the “final commitment letter”;
g. Andrew and his professionals had been engaging rapidly and in good faith to work on the proposed financing as quickly as possible;
h. By the terms of the RG Shareholders Agreement, no such proposed financing could proceed without the consent of Andrew and Onepiece;
i. Shaji had disputed that the RG Note was due and payable and was very clearly marshalling his legal arguments to advance that position; and
j. Andrew had nevertheless not yet left the table and was continuing to pursue the financing proposal.
[70] I can find nothing in Andrew’s demand or negotiations in relation to the demand and the financing that represents a departure from any standards of good faith.
[71] The next communication in evidence before me was Mr. Bin Fu’s email to Shaji on December 6, 2017 at 10:30 a.m. That email requested conformation on two points. Firstly, it asked for confirmation that the proceeds of the proposed funding would be used to pay off the RG Note first “as per shareholder’s agreement and Andrew’s understanding”. Secondly, it asked for that Shaji would be honouring the promissory notes. If both of these fundamental issues were not understood, “Andrew would prefer not to proceed with the loan”.
[72] The loan that Andrew was prepared to proceed with was not one that was already fully negotiated and waiting only for a signature. At 12:06 p.m. that day, the broker asked Andrew, Shaji and their advisors for an update on things. At 2:38 p.m. he reported to the Lender that the Borrower “is in the process of having the document reviewed by their solicitor” and that he had “already received preliminary feedback” and “are awaiting final review to be complete”. While this document has been admitted only as to authenticity and not as to the truth of its contents, there is no other evidence to establish that there had been “sign off” on the final form of the commitment letter circulated the next day. There was not yet an agreed text of the commitment letter, let alone evidence that the conditions were near satisfaction.
[73] Andrew’s two conditions to proceeding with the loan as conveyed by Mr. Bin Fu were never accepted.
[74] Shaji’s response, such as it was, was an ultimatum and not an acceptance. It gave Andrew 24 minutes to accept, on a “take it or leave it” basis, a highly conditional financing proposal containing very significant terms that he had never agreed to. That “commitment letter” contained so many wide and broad conditions as to amount to little more than an option on the part of the Lender at all events.
[75] While Shaji’s letter agreed to abide by the RG Shareholders Agreement, he did not agree with Andrew’s expressed understanding of it that any withdrawal of equity by Shaji from Ideal RG would be used to pay off Andrew’s loan first. That is not a quibble. The RG Shareholders Agreement is actually silent on the point and the requirement to repay Andrew from distributions from Ideal RG is found in a stand-alone “Irrevocable Direction re Distributions”.
[76] Shaji’s email also completely side-stepped the issue of honouring the promissory notes. Shaji had clearly expressed the position that the due date on the RG Note was a “mistake”. Andrew’s request to obtain clarity on the RG Note was thus not a quibble either. Given the very weak commitment expressed in the last draft of the commitment letter, failure to affirm the RG Note would amount to assigning the full closing risk to Andrew. He would have no agreement at all if the loan failed to close.
[77] The Commitment was not countersigned by Andrew by 4 p.m. Given the timing, I find that Shaji had no expectation that it would or could have been accepted in accordance with the terms laid down by the Lender pursuant to the Commitment letter. Among other things, a certified cheque in the amount of $25,000 was needed.
[78] Meanwhile, both before and after the Commitment letter was sent by Shaji, Mr. Bin Fu had been attempting to get a straight answer to his email of the prior day to Shaji. He re-sent the email to Shaji at 3:07 pm on December 7, 2017 saying “It’s time sensitive. Please let me know”. Mr. Bin Fu again wrote to Shaji at 4:36 pm: “Please refer to my email earlier. Do you honour both agreements, i.e. promissory notes and shareholders agreement relating to Ideal (robinson glen)”.
[79] The only reply to Mr. Bin Fu’s queries that is before me is in the form of a hostile lawyer’s letter from Mr. Navaratnam dated December 7, 2017 addressed to Ms. Lee. While the letter has no time stamp, its context clearly places it after Andrew declined the ultimatum to sign the commitment letter “as is, where is” within 24 minutes.
[80] Among other things, Mr. Navaratnam advanced the following positions on behalf of the plaintiffs in this letter:
• “we strongly contest that the indebtedness is due as of the Due Date of the Executed Note”;
• “my client is concerned that Zhao is attempting to connive or manipulate a default of the Executed Note and to obtain the security”; and
• “our client takes the position that if you have not properly executed and insured that the loan is in place and drawn to pay this amount, then my client is no longer responsible for the interest of 20%”.
[81] To the extent Mr. Bin Fu’s correspondence with Shaji can be construed as an offer to alter any contractual rights, there are more direct ways to signify acceptance of that offer than a hostile lawyer’s letter following a 24 minute ultimatum. “I accept” or “Yes” spring to mind as more acceptable and less ambiguous ways of sealing the deal.
[82] There was no agreement to change the time for payment of the RG Note, to defer enforcement of it or to tie it in some way to the completion of a financing that itself had never been agreed to by Andrew or Onepiece.
Disposition
[83] In accordance with my reasons, I find:
a. The due date of the RG Note is December 31, 2015 and it was thus due and payable when demand was made on December 1, 2017;
b. There was no agreement to defer payment or enforcement of the RG Note on December 6, 2017 or otherwise; and
c. The consent injunction dated December 11, 2017 is dissolved with effect from 5:00 p.m. on February 14, 2018.
[84] The defendants are entitled to their costs. I will receive the parties submissions as to costs – restricted to five pages exclusive of costs outlines or any offers to settle – by February 21 (defendants) and reply (plaintiff) by February 28. The parties may modify this schedule on their mutual consent without consulting me.
[85] Given time constraints, I released my reasons subject to clerical corrections to be submitted to me by the parties. I have received the suggested clerical corrections of both parties and these have all now been verified by me as being clerical and non-substantive, and have all been incorporated into this final draft. A further spelling correction was made to paragraph 82 that was missed. I am releasing this corrected version as my official reasons dated as of the original issue date being February 2, 2018.
S.F. Dunphy J.
Date: February 2, 2018