2019 ONSC 6372

COURT FILE NO.: CV-19-620982

DATE: 20191101

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: NSR Toronto Holdings Ltd., Plaintiff/Defendant to Counterclaim (Respondent)

AND:

CIM Development (Markham) LP, CIM Mackenzie Creek Residential GP Inc., CIM Commercial LP, CIM Mackenzie Creek Limited Partnership, CIM Mackenzie Creek Commercial GP Inc., CIM Mackenzie Creek Inc., CIM Homes Inc., CIM Global Development Inc., 10184861 Canada Inc. and Jiubin Feng, Defendants/Plaintiffs by Counterclaim (Moving Parties)

BEFORE: Kimmel J.

COUNSEL: Michael Miller, Michael Brzezinski, for the Moving Parties

Michael Schafler, Kristjan Surko, Alexandre Toupin, for the Respondent

HEARD: October 29, 2019

ENDORSEMENT (urgent motion for interlocutory relief)

Background and Introduction

[1] NSR Toronto Holdings Ltd. has exercised its rights under a Put Option Agreement (the “Option Agreement”) between NSR and the Moving Parties (each of whom were party to the Option Agreement, comprised of the corporate “CIM Parties” and Jiubin Feng). The Option Agreement prescribes the mechanism by which NSR may sell its 51% investment in the Mackenzie Creek real estate development project in Markham (the “Project”) and, under certain circumstances, may arrange for the sale of the Mackenzie Creek Securities representing not only its own but all of the other ownership interests in the Project held by the CIM Parties (the “Mackenzie Creek Securities”).

[2] The CIM Parties have been unable to secure the funds necessary to purchase NSR’s 51% interest in the Project, as they had the right to do under the Option Agreement. The Moving Parties seek an injunction to prevent the sale of all the Mackenzie Creek Securities to Sunny Development Holdings Inc. (“SDH”) on the basis that its offer contained in a security purchase agreement dated September 18, 2019 (the “SDH Offer”) is not a bona fide Third Party offer under the Option Agreement.

[3] The Moving Parties are dissatisfied with the SDH Offer because it repays NSR’s investment plus most of the 15% interest payable to NSR under the Option Agreement but, once that payment is made to NSR, there will be no sale proceeds left and the CIM Parties’ 49% investment will be lost. If the sale to SDH closes, the Moving Parties are concerned that all sale proceeds will be repatriated to the NSR parent or affiliates in Hong Kong, China, or elsewhere and they will have no recourse to recover the damages claimed for their lost investment should their counterclaim be successful. They want more time to try to secure a superior offer for all the Mackenzie Creek Securities that will give the CIM Parties some return on their investment. Alternatively, they want to freeze the sale proceeds so that they are not taken out of Canada.

[4] NSR wants to close the SDH Offer. Its patience has worn thin, having afforded the CIM Parties extra time to come up with the necessary funds to purchase NSR’s investment under the Option Agreement - but each time the CIM Parties failed to secure a firm commitment and were unable to complete the transaction. Now, more than fifteen months after NSR exercised its Put Option, it is being asked to again delay and potentially lose the SDH Offer that would make it whole, in favour of an uncertain and open-ended sales process that has yet to be defined. NSR is not prepared to agree to this, particularly in the face of ongoing monthly carrying costs for the Project of $200,000.00 that it has been covering for the past few months and the significant mortgage that has already been extended and comes due on December 1, 2019 (the “Morrison Mortgage”).

[5] NSR maintains that the Moving Parties have not met the requirements for an injunction to stop the sale of the Mackenzie Creek Securities to SDH or to freeze the sale proceeds.

[6] This motion was brought and timetabled on an urgent basis to be heard on October 29, 2019 because the purchase of the Mackenzie Creek Securities under the SDH Offer had an October 30, 2019 closing date. Counsel advised at the hearing on October 29, 2019 that it was not likely that this transaction would close on October 30, 2019, for among other reasons, that the parties wished to await the decision on this motion (although it did appear that there were other reasons why it might not be ready to close). I agreed to release my decision on this motion by the end of the week.

[7] For the reasons that follow, I am not prepared to grant the urgent interlocutory relief that is requested on this motion and prevent the completion of the sale to SDH pursuant to the SDH Offer if it can be completed and closed in advance of December 1, 2019 when the Morrison Mortgage expires. The balance of convenience favours the completion of that transaction if it truly is a “bird in the hand” as NSR has described it to be.

[8] However, if the SDH Offer has not been completed by then, and the Moving Parties have, in the interim, developed a proposed sales process that is in a form ready for consideration by the court, then they may proceed with their planned motion for approval of that sales process, under the changed circumstances of: (i) a defined sales process proposal, (ii) where the certainty of a transaction with SDH has diminished, and (iii) the parties would likely have had to refinance the Project, and, in that context, the Moving Parties may renew for reconsideration by the court their request for an injunction to prevent the completion of the SDH Offer or any other transaction for the sale of the Mackenzie Creek Securities under the Option Agreement pending such sales process if approved.

Background and Chronology

[9] When NSR acquired its Mackenzie Creek Securities (defined as the “Subject Securities”) and its 51% interest in the Project in May of 2017, the CIM Parties granted NSR and irrevocable put option to sell the Subject Securities for the price and on the terms and conditions set out in the Option Agreement.

[10] At the time that NSR bought into the Project, 141 of the 195 units in Phase I, comprised of residential townhouse units, had been sold and $21 million in deposits from purchasers had been received. Phase II of the project was designated for mixed commercial and residential uses.

[11] The relevant provisions of the Option Agreement are summarized as follows:

a. Section 3 contains an irrevocable Put Option that the CIM Parties granted to NSR, allowing NSR to sell and requiring the CIM Parties to purchase all of NSR’s securities (the “Subject Securities”) within 60 days if all of the prescribed Phase II Conditions were not satisfied by June 30, 2018 (the “Triggering Event”).

b. The mechanics for exercising the Put Option are contained in section 5, which allowed NSR to give a written Option Exercise Notice in the 60-day window after the Triggering Event.

c. The formula to calculate the purchase price payable by the CIM Parties is set out in section 4, payable on closing which was to take place 60 days following the delivery of the Option Exercise Notice unless otherwise agreed.

d. Pursuant to section 9(a), if a Triggering Event occurred NSR had the right if it had not been paid the purchase price owing for the Subject Securities by the CIM Parties, to provide a Preliminary Sales Notice that it intended to pursue a potential sale of all the outstanding Mackenzie Creek Securities.

e. Pursuant to section 8, Feng agreed to (and did in fact) provide a guarantee of the performance of the CIM Parties obligations under the Option Agreement.

f. Pursuant to section 9(b), if NSR obtains a third party offer to purchase all the outstanding Mackenzie Creek Securities that NSR wishes to accept, NSR may obtain from the Third Party a bona fide offer (a “Mackenzie Creek Offer”) addressed to NSR and each of the CIM Parties to purchase all their securities.

g. The CIM Parties had 15 days to accept the Mackenzie Creek Offer, but if they failed to do so, NSR was irrevocably appointed as their attorney with authority to accept it on their behalf and bind them to it, with their covenants and consents to do whatever was necessary to give effect to such acceptance and to complete the sale of their securities (pursuant to sections 9(d) and 10), with the sale proceeds on the closing of this transaction to be applied pursuant to section 9(f) to first pay NSR the aggregate purchase price owing to in connection with the exercise of the Put Option (under section 4) and then any remaining balance to be paid to the CIM Parties pro rata.

[12] The following is a chronology of the events that occurred in connection with the Option Agreement:

a. The Phase II Conditions were not satisfied by June 30, 2018; the Triggering Event occurred.

b. NSR gave its written Option Exercise Notice on July 1, 2018.

c. The CIM Parties were not able to come up with the purchase price payable on the closing that was to take place 60 days after July 1, 2018 and no other closing date for the purchase by the CIM Parties of the Subject Securities from NSR was set.

d. NSR granted a number of extensions to the September 1, 2018 deadline to allow the CIM Parties more time to come up with the purchase monies, the last extension expiring on October 15, 2018.

e. To protect its position and having not been paid the purchase monies by the CIM Parties within the prescribed 60 days, NSR delivered a Preliminary Sales Notice dated September 18, 2018 confirming its intention to pursue a potential sale of all the outstanding Mackenzie Creek Securities if the option purchase/buy-back did not occur.

f. On October 9, 2018, CIM International Group sent a letter on behalf of the CIM Parties to NSR and its ultimate parent company acknowledging that the failure to satisfy the Phase II Conditions was due to the mismanagement and ineffective work of the CIM entities, apologizing for having breached the contract and failed to live up to NSR’s trust, and advising that they would be unable to complete the buy-back transaction scheduled for October 15, 2018[^1].

g. NSR entered into an exclusive listing agreement with CBRE Limited in February of 2019 to solicit offers for the purchase of the Property, which resulted in non-binding letters of intent from two different prospective purchasers in April of 2019. Although they were unaware of the offers received, the CIM Parties became aware of this CBRE agreement in March of 2019 and advised that they would not agree to a sale of the Property, but only to a sale of the Mackenzie Creek Securities as provided for in the Option Agreement.

h. The parties continued to communicate about possible transactions. On April 22, 2019 the CIM Parties offered to purchase the Subject Securities from NSR on terms that went beyond what was contemplated by the Option Agreement and at a purchase price of $40 million that was almost $2 million less than the purchase price prescribed by the formula under section 4. According to Feng, this offer was backed by an agreement dated May 23, 2019 between one of the CIM Parties and Canada Lanhao Hotel Management Group Co., Limited by which Lanhao had agreed to subsequently purchase all of the Mackenzie Creek Securities from the CIM Parties for $56 million. NSR was not aware of this Lanhao arrangement at the time.

i. NSR countered with some different terms, that included a significant non-refundable deposit to demonstrate that there was a prospect of a real transaction and NSR also offered a revival of the Put Option. This counter-proposal was rejected by the CIM Parties.

j. On May 10, 2019 the nominee owner of the Project lands exercised its six-month option to extend the Morrison Mortgage to December 1, 2019.

k. On May 30, 2019 NSR commenced this action by Notice of Action seeking specific performance of the Put Option.

l. NSR continued thereafter to market the Property for sale.

m. On August 19, 2019 the CIM Parties delivered their statement of defence and counterclaim in this action, challenging the validity of NSR’s exercise of the Put Option.

n. On September 19, 2019 NSR conveyed to the CIM Parties an offer dated September 18, 2019 from SDH that they characterized to be a compliant Mackenzie Creek Offer provided pursuant to section 9(b) of the Option Agreement, which allowed the prescribed 15 days for the CIM Parties to accept it. The SDH Offer was for an aggregate purchase price of $41,700,000.00 for all of the Mackenzie Creek Securities, with sale proceeds to be distributed in accordance with sections 4 and 9(f) of the Option Agreement.

o. On September 25, 2019 the CIM Parties advised that they intended to bring a motion for an injunction to prevent the proposed sale transaction on the basis that the purchase price was below market value and the SDH Offer was not a bona fide offer for purposes of section 9(b) of the Option Agreement.

p. On October 10, 2019 NSR signed back the SDH Offer on its own behalf and as attorney for the CIM Parties, relying on section 9(d) of the Option Agreement.

q. On October 11, 2019 the NSR parent in Hong Kong announced the sale to SDH to its shareholders and the public, indicating that:

i. The purchaser (SDH) is believed to be a third party;

ii. The purchase price was arrived at after arm’s length negotiations and determined with reference to the bidder prices received through the public tender, an independent valuation of the Project by an independent valuer and the purchaser’s agreement to assume outstanding debts and liabilities of the Project of not less than $46 million (including an estimated $27 million in debt);

iii. The intended closing date of October 30, 2019 could be extended at the option of the purchaser for up to 15 days; and

iv. The NSR parent intended to unlock its investment and use the net sale proceeds to strengthen the general working capital of the group.

r. The CIM Parties received an offer dated October 19, 2019 (which has now been disclosed to be from Lanhao although the identity of the offeror was not known to NSR until the morning of the hearing) to purchase all of the Mackenzie Creek Securities for $50,000,000.00 on otherwise similar but not identical terms to the SDH Offer, with a proposed closing date of November 30, 2019.

The Issues to be Decided

[13] It is common ground that the Moving Parties who seek to enjoin the sale to SDH must satisfy the well-known requirements for an interlocutory injunction that:

a. There is a serious issue to be tried;

b. They will suffer irreparable harm if the injunction is not granted; and

c. The balance of convenience favours granting the injunction.

See RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), 1994 CarswellQue 120, [1994] 1 S.C.R. 311, at paras. 48 and 81-86.

[14] The Moving Parties, who seek in the alternative an order under Rule 45.02 freezing the purchase monies if the sale to SDH is not enjoined, must establish that:

a. Those sale proceeds constitute a specific fund;

b. There is a serious issue to be tried regarding their claim to that fund; and

c. The balance of convenience favours the requested order preventing the use or distribution of those sale proceeds by NSR.

See Sadie Moranis Realty Corp. v. 1667038 Ontario Inc., 2012 ONCA 475, 111 O.R. (3d) 401, at para. 18.

Analysis

(i) Is there a Serious Issue to be Tried?

[15] The Moving Parties have restricted themselves to a single issue on the merits of their claims for purposes of this motion[^2]: Is there a serious issue to be tried about whether the SDH Offer is a bona fide Third Party offer within the meaning of section 9(b) of the Option Agreement?[^3]

[16] NSR concedes that this is a low threshold involving the application of common sense and a limited review of the merits (RJR, at paras. 54 and 83), but nonetheless maintains that it has not been met in this case.

[17] The merits assessment turns upon the interpretation of section 9(b) of the Option Agreement and what is meant by a bona fide Third-Party offer. No issue has been raised about whether SDH is a third-party and there is no indication in the record that SDH is connected to or affiliated with any of the parties.

[18] The Ontario Court of Appeal had occasion to consider the meaning of a bona fide offer in deciding whether an acquisition proposal was a bona fide offer when made in breach of a standstill agreement that expressly prohibited the offer from being made. See Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 83 O.R. (3d) 254, at paras. 5 and 59-61. This term was found to import concepts of acting in good faith, sincerity, genuineness, authenticity, and that the offer is not a sham. Like the parties in that case, there is not much disagreement between the parties in this case about which adjectives should be used to describe what is meant by a “bona fide” offer.

[19] Where the parties here diverge is that the CIM Parties contend that a Third Party offer under section 9(b) of the Option Agreement must also be at a reasonable price to be bona fide and they say that the SDH Offer is not. They rely on the case of Talus Capital (Eastern Ave.) Ltd. v. Chesham Group Inc., 2015 ONSC 7808, 52 B.L.R. (5th) 101 (at para. 21) to support this contention. That was a case where the main argument was that the offer in question (being used to trigger a right of first refusal to allow one of the limited partners to obtain veto rights) was a sham in that the offering party had no intention of completing the transaction. Various factors were relied upon to make this point, all of which were rejected. In rejecting the arguments, the court found that the offer was bona fide and above board and noted that it had been made by a third party at a reasonable price. In this context, the fact that it was at a reasonable price was additional support for the conclusion that the offer was bona fide.

[20] The Talus case does not stand for the proposition that the term “bona fide” necessarily imports the concept of reasonable price. Certainly, if it had been intended that the Third-Party offer under section 9(b) of the Option Agreement had to be at market price or fair market value that could have been specified in the Option Agreement, and it was not. That said, the reasonableness of the offer price may be one among other relevant considerations, particularly if the offer that is being assessed is demonstrated to be for an unreasonable price or improvident.

[21] The CIM Parties also contend that the contractual duty of good faith that the Supreme Court of Canada affirmed in the case of Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 (at para. 60) imposes a duty on NSR to realize a fair market value for the Mackenzie Creek Securities. I do not agree with that contention. At paragraph 65 of Bhasin the Court makes it clear that the organizing principle of good faith performance under a contract is fact specific and does not always require a party to serve the interests of the other contracting party ahead of their own but “merely requires that a party not seek to undermine those interests in bad faith.”

[22] It is a matter of contractual interpretation whether the bona fide Third Party offer under section 9(b) of the Option Agreement is required to be made at fair market value or market value. The absence of such an express requirement or any suggestion of a value maximization requirement in a commercial agreement such as the Option Agreement whose purpose is to allow NSR to get its investment out of the Project if certain conditions had not been met after affording the CIM Parties the opportunity to buy NSR out at a prescribed price is inconsistent with the implication of such a duty on NSR to realize fair market value. The words of section 9(b) are clear. The ordinary, grammatical and literal meaning of the words does not require NSR to undertake a value maximization process or to secure an offer at a fair value or fair market value price.

[23] This takes us back to the original contention by the Moving Parties that the SDH Offer price is not reasonable or is improvident. According to the Moving Parties, the appraised value of the Property in 2018 indicates a market value of the Property (the primary asset of the entities in which the securities are held) that exceeds by more than $30 million the value attributed to the Property in the SDH Offer, and exceeds the value of even the higher end earlier offers of $51 million and $48 million that NSR received but was not able to complete. Even acknowledging that the Mackenzie Creek Securities might be valued at less than what the underlying Property would sell for on its own, the CIM Parties rely on the Lanhao Offer at $50 million and other expressions of interest in the shares and in the underlying Property as indicia that the $41.7 million purchase price in the SDH Offer is not reasonable.

[24] However, there is no valuation of the Mackenzie Creek Securities that are being sold and the Property appraisals relied upon are more than a year old. In the absence of expert assistance, I am not prepared to conclude that the SDH Offer is improvident or unreasonable where there is also evidence of other offers that were at implied values similar to (at $42 million) or lower than (at $35 million) the SDH Offer Price. This evidence suggests, to the contrary, that the SDH Offer price falls within a range indicated by offers received in the past eight months.

[25] The other considerations that the Moving Parties suggest demonstrate that the SDH Offer is not bona fide include:

a. The SDH Offer is coincidentally just enough to cover the amount that would be payable to NSR under the Option Agreement, with nothing leftover for the CIM Parties; and

b. The Moving Parties were able to secure, over a short period of time, the Lanhao Offer that is superior from a financial point of view and with equivalent and some slightly improved terms to the SDH Offer, which suggests that other even more superior offers might be available and have not been sufficiently explored.

[26] There is no evidence of bad faith on the part of NSR or that NSR is purposefully attempting to undermine the interests of the CIM Parties. There is nothing in the record that suggests that the SDH Offer is a sham or is not authentic or that the contemplated transaction is not capable of being completed. The SDH Offer is not actually enough to cover the amount that NSR is entitled to receive under the Option Agreement; it results in a shortfall of approximately $1.7 million according to NSR (the formula to calculate NSR’s entitlement as of October 30, 2019 translates into an entitlement of $43,390,521.00[^4], only $41.7 of which is covered by the SDH Offer).

[27] NSR also observes that the Lanhao Offer was not secured in the three weeks after the SDH Offer was conveyed to the CIM Parties because Lanhao had backed a previous offer made back in April by the CIM Parties and it was thus familiar with the Project. NSR maintains that it engaged experts and in a meaningful process to market the Project over a period of more than six months. Even if it could not have sold the Property without the consent of the CIM Parties, it maintains that its process (as is described in the October 11, 2019 press release of the NSR parent to its public shareholders) sufficiently tested the market and when it went back to solicit the interest of prospective buyers in a purchase of securities, the SDH Offer was the best offer received.

[28] Based on a plain reading and interpretation of “bona fide”, and even accepting for purposes of this analysis that it might import some concept of reasonableness, the contentions of the Moving Parties are not supported by the evidence about the marketing process and the values implied by the range of offers received. I find it difficult to conclude that there is a serious issue to be tried about the bona fides of the SDH Offer. However, given how low this threshold is, I would be reluctant to decline to grant the requested injunction if this was the only aspect of the RJR-MacDonald test that was not satisfied, so I will revisit it after considering the other requirements.

(ii) Will the CIM Parties Suffer Irreparable Harm?

[29] The Moving Parties’ counterclaim seeks damages for their lost profits from their investment in the Project, and damages flowing from any alleged breaches by NSR of the Project agreement and transactions.

[30] The Supreme Court of Canada defined irreparable harm in the RJR-MacDonald case (at para. 64) as harm which either cannot be quantified in monetary terms, or which cannot be cured, usually because one party cannot collect damages from the other.

[31] There is no dispute that the CIM Parties will lose their investment in the Project by virtue of the exercise by NSR of the Put Option and the resulting transaction with SDH. The Moving Parties raise two arguments in support of the irreparable harm they will suffer:

a. That their damages will not be quantifiable because the market value of the Property (and thus the Mackenzie Creek Securities) will not be ascertainable once the Property has been sold; and

b. They will be unable to recover their damages from NSR because it is a single purpose company and all of the sale proceeds will be immediately repatriated to companies in Hong Kong or China or elsewhere and will be out of reach and uncollectible.

[32] The contention of the Moving Parties about the inability to quantify their damages is answered fully by the admissions of their own expert Mr. Ip, who conducted his appraisals of the Property on a direct comparison approach using the sales of other properties to estimate the value of this Property. His appraisals did not depend upon a sales process or the active exposure and marketing for sale of the Property in question. Nor is there any suggestion that this Property is unique. Ip admitted on cross-examination that he could undertake this exercise for any valuation date and any time in the future as long as he had three weeks in which to do it.

[33] Mr. Ip explained that, while he is not a securities valuator, he understood that the valuation of the Mackenzie Creek Securities would depend on factors in addition to the Property value. There is nothing in the record to suggest that the further inputs required to value the securities could not also be completed at some future date.

[34] There is similarly nothing in the record to suggest that the quantification of other damages claimed by the Moving Parties for the loss of their investment could not be quantified based on valuation and other information about the nature and extent of their investment and what they could have reasonably expected to earn on that investment. Mr. Feng confirmed that the books and records tracking their investments in this Project have been maintained.

[35] Turning next to the question of the recoverability of damages. The CIM Parties have raised the following concerns:

a. NSR’s only connection to Canada is this Project and that tie will be severed once the Subject Securities have been sold under the Option Agreement;

b. NSR has no Canadian resident directors;

c. The public disclosure of the NSR Parent makes it clear that the intention is to repatriate the proceeds from the sale to SDH to be used by other affiliated companies located outside of Canada to enhance their working capital.

[36] The Moving Parties contend that these concerns are sufficient for the court to infer, where NSR has not denied that this is the intention, that the sale proceeds will be removed from Canada and potentially out of the reach of the Moving Parties should they prove damages and become entitled to some recovery from NSR. They ask me to draw an adverse inference from the failure of NSR to tender evidence within its sole control to counter the concerns raised by Mr. Feng about the intended removal of the sale proceeds from Canada, relying on Kohler Canada Co. v. Porter, 2002 CanLII 49614 (Ont. S.C.), 26 B.L.R. (3d) 274, at para. 52.

[37] The only answer that NSR has offered to this concern is that I should not rely on Mr. Feng’s opinion that the funds received on the sale will be transferred out of Canada to the benefit of the NSR parent and its shareholders because it is just his view. However, the NSR parent’s press release lends credibility to his concern. NSR has not disavowed it or attempted to rebut the presumption that logically flows from it. Thus, I do infer that this is what is likely to happen to the sale proceeds upon the sale to SDH.

[38] I was also invited by NSR to consider whether there is evidence before me that a judgment, if obtained by the Moving Parties in Canada, would not be enforceable against the NSR parent or other affiliates in receipt of the sale proceeds. It was suggested that, in the absence of such, I could assume that they might have similar recourses for piercing the corporate veil as are available in Ontario, for example if the transfer of funds is demonstrated to be a fraudulent preference or conveyance, or through the oppression remedy.

[39] I do not agree that the Moving Parties should have to demonstrate an inability to trace and recover their damages from a foreign parent in order to obtain an injunction. It is enough that I am satisfied that it is the intention of NSR to remove the funds from Canada and to (even lawfully) make distributions to its foreign parent company and that it is unlikely that NSR itself will have the ability to satisfy a future judgment against it in favour of the Moving Parties. As the Moving Parties have pointed out: “It is important to note that clear proof of irreparable harm is not required. Doubt as to the adequacy of damages as a remedy may support an injunction.” See British Columbia (Attorney General) v. Wale, 1986 CanLII 171 (BC CA), 1986 CarswellBC 413, 9 B.C.L.R. (2d) 333 (C.A.), at para. 51, citing American Cyanamid Co. v. Ethicon Ltd., 1975 CanLII 2598 (FC), [1975] A.C. 396. That doubt exists here.

[40] I find that the CIM Parties may suffer irreparable harm if the injunction is not granted, if the alternative relief and request that the sale proceeds be frozen is denied (as it will be later in these reasons).

(iii) Does the Balance of Convenience Favour Granting an Injunction?

[41] This part of the injunction test requires me to consider which party will suffer greater harm from the granting or refusal of the interlocutory injunction. This is really an assessment of the relative inconvenience to the parties. (see RJR-MacDonald at paras. 48 and 67.)

[42] The inconvenience or harm to the Moving Parties has already been considered in the previous section and arises from the concern that the sale proceeds will be distributed to entities outside of Canada and there may leave them unable to recover from NSR if successful in their eventual claims for damages.

[43] The inconvenience or harm to NSR is the frustration of its contractual rights under the Option Agreement. NSR has followed the prescribed steps under the Option Agreement impeccably, but for indulgences that it has granted to the CIM Parties to allow them extra time to come up with financing to buy the Subject Securities. If the CIM Parties had done so, they could have protected their investment and that is what the Option Agreement specifically provided for. More than a year has elapsed since the Put Option was triggered and NSR has been trying to realize upon its investment, as it is contractually entitled to do.

[44] The Moving Parties suggest that there is no real harm because there is no evidence that NSR needs the money from the sale proceeds and all the injunction will do is result in a brief delay before proceeds are realized from some “superior” offer that is expected to come in. They do not suggest that it will be the Lanhao Offer, which is itself conditional, but rather propose that will be used as a stalking horse bid to achieve some even higher offer. However, there is no guarantee that there will be a superior or any other offer.

[45] The sales process that the Moving Parties have suggested may be well-intentioned but it has not been fully conceived and I do not accept the suggestion they make that it can be completed by the end of November, especially when it is dependent upon the court appointment of a professional (MNP) to conduct a sales process that has not yet even been outlined or presented. A sales process such as this should have been invoked much earlier if it was expected by the CIM Parties to be a viable alternative.

[46] If the CIM Parties had wanted to shift the balance of convenience in their favour in the face of the Option Agreement that does not require a value maximization process on the sale of the Mackenzie Creek Securities, they should have embarked upon this sale process many months ago after they failed to close on their own purchase, or at least when they learned (as Feng admits) that NSR was attempting to market and sell the Property in March of 2019. They have been on notice since June of 2018 that they were at risk of losing their investment.

[47] To come to court now, more than fifteen months after the Put Option was exercised, and argue, as the CIM Parties do, that there is no inconvenience or harm to NSR to await the outcome of an open-ended stalking horse sale process that is still in its infancy is misconceived. Further, I am not persuaded that this will be just a mere short postponement or delay. The proposed “sales process” is ill-defined and completely open ended. There is a mortgage coming due on December 1, 2019 and the balance of convenience favours a transaction that can be completed before then, not one that will require the parties to renegotiate a $71 million line of credit that has an estimated $27 million already drawn down on it.

[48] Given the conduct of NSR, and the fact that it has fully complied with the Option Agreement, and has been waiting for over a year to be bought out which has put the parties on the precipice of having to renegotiate the Project financing, there is a serious prejudice and harm to it from the loss of commercial and contractual certainty if the SDH Offer is enjoined.

[49] A concern was also raised about potential implications for the homebuyers in Phase I of the Project who have provided $21 million in deposits (now estimated to be approximately $18 million because of refunds that some have demanded). There is a condition in the SDH Offer in favour of SDH (s. 6.2(iii)) concerning its ability to obtain the consent of Tarion Warranty Corporation to the new registration or re-instatement of the registration of the nominee holder of the Property as a registered vendor/builder with Tarion and under the Ontario New Home Warranties Plan Act, which I am told is an important protection for the homeowners and their deposit monies in this Project.[^5] This identical condition appears in the Lanhao Offer, and I think it is reasonable to infer that it will be in any other offers that are made. The concern is that, if this condition in favour of the purchaser is waived, that could have negative implications for the homeowners.

[50] While it may be relevant to consider potential implications to the homeowners under the balance of convenience, in the balancing exercise and considering the alternatives being proposed by each side, this is equally inconvenient under each of the SDH Offer and the Lanhao Offer and their inclusion of this condition suggests that it is likely to be in other “superior” offers as well. I consider this to be neutral to my determination of this question.

[51] In this case, I find that the relative inconveniences, while of different qualities, are roughly equivalent in terms of the potential harm to each side. They both face significant commercial risks associated with their investments in the Project. The CIM Parties will lose their investment and NSR will be deprived of its bargained for contractual right to protect and realize upon its investment and avoid having to renegotiate the Project financing and sink more money into the Project to fund the carrying costs. The prospect that the CIM Parties hold out of a superior offer is too amorphous to offset this harm, which was contractually designed to be alleviated for NSR through the exercise of its rights under the Option Agreement. The CIM Parties also had contractual means by which to avoid the risk they now face but failed to execute on the Put Option.

[52] In these circumstances, the weakness of the position of the CIM Parties on the merits tips the balance of convenience in favour of NSR. I have expressed my doubts about whether there is a serious issue to be tried on the question of the lack of bona fides of the SDH Offer. The court in American Cyanamid (at pp. 408-9) indicated that, where irreparable harm is established and the balance of inconvenience is about equal, the court may return to consider the relative strength of the parties’ cases to determine which side the balance tips in favour of.

(iv) Undertaking as to Damages

[53] Under Rule 40.03, the Moving Parties are required to undertake to abide by any order concerning damages that the court may make if it later appears that the granting of the order has caused damage to NSR for which it should be compensated. An issue was raised during the hearing that one of the Moving Parties, Mr. Feng, had not provided this required undertaking. Upon his counsel’s representation that the undertaking will be provided within 48 hours of any injunction being granted, and accepting that any injunction would be made conditional upon the provision of his undertaking, I have decided this motion on the basis that the requirement for the provision of this undertaking as to damages has or will be satisfied by each of the Moving Parties.

(v) Do the Sale Proceeds Constitute a Specific Fund Within the Meaning of Rule 45.02?

[54] To obtain the alternative relief they seek under Rule 45.02, to freeze the sale proceeds if the SDH Offer is not enjoined, the Moving Parties would have to satisfy me that:

a. Those sale proceeds constitute a specific fund;

b. There is a serious issue to be tried regarding their claim to that fund; and

c. The balance of convenience favours the requested order preventing the use or distribution of those sale proceeds by NSR.

(Sadie Moranis, at para. 18)

[55] My conclusions on the balance of convenience make the consideration of the other aspects of this test moot, since I have found it does not favour the Moving Parties. My analysis of whether there is a serious issue to be tried regarding the claim of the CIM Parties to the sale proceeds also remains the same in the context of this Rule 45.02 analysis.

[56] The only question I have not already considered under the Rule 45.02 test is whether the sale proceeds from a successful completion of the SDH Offer constitute a specific fund. NSR argues that the Moving Parties are not making a claim to a specific fund but are only claiming damages in their counterclaim.

[57] The case involving share sale proceeds that the Moving Parties rely upon (Conn v. Twenty Two Degree Energy Corp., 2010 ONSC 4598, 192 A.C.W.S. (3d) 91, at paras. 6, 10, and 11) only addresses this first part of the determination of whether there is a specific fund. That was a case of dissenting shareholders having exercised their rights under s. 185 of the Business Corporations Act, R.S.O. 1990, c. B.16, which gave them the right to the determination of the fair value of their shares. In a situation where it was clear that sale proceeds coming in would be the only funds available to satisfy their entitlement to fair value if they were successful, the court concluded that these funds were the only asset available to underwrite that payment. They were seeking to be bought out under their s. 185 dissent rights which is different from a damages claim.

[58] In the Sadie Moranis case, the Court of Appeal expressed the view (at para. 21) that the test for an order under Rule 45.02 “…will not be met where the plaintiff’s claim is for damages…even if a specific fund is identifiable in the factual matrix of the litigation, because a claim for damages is not a claim to a legal right to that fund.”

[59] While it may be arguable that, in the factual matrix of this litigation, the sale proceeds from the sale of the Mackenzie Creek Securities, 49% of which are beneficially owned by the CIM Parties, constitute a specific fund (the transformation of the aggregate securities into a liquidated sum), that is not enough according to the Court of Appeal, whose directives I am obliged to follow.

[60] As Belobaba J. explained in his reasons denying a Rule 45.02 order in the more recent case of 3Genius Corporation v. Locationary Inc., 2016 ONSC 4092, 268 A.C.W.S. (3d) 191 (at paras. 2-4), there are two parts to the question of “specific fund”: (i) is there a reasonably identifiable fund, and (ii) is the plaintiff claiming a legal right to the fund or just making a claim for damages? He concluded that even though there was an identifiable fund, the plaintiff’s claim was in essence only for damages. The Moving Parties’ claims are similarly in essence only for damages.

[61] In any event, because I am satisfied that the rationale applied on the balance of convenience for the injunction applies equally here, the question of whether this could be characterized as a specific fund is not determinative of my finding that the test under Rule 45.02 has not been met.

[62] Rule 45.02 is an extreme remedy. It could appreciably tilt the scales in favour of the CIM Parties based on unproven allegations if it is granted. I am mindful of the need for the very careful exercise of my discretion when considering granting such an order. See Stearns v. Scocchia, 2002 CanLII 7745, [2002] O.T.C. 855 (Ont. S.C.), at para. 22.

[63] The Option Agreement provided a mechanism by which NSR was entitled to liquidate its investment in the Project. To freeze the proceeds of the transaction by which that is to be achieved pending the outcome of litigation that could take years to resolve would again completely undermine the commercial bargain that the parties made, in a situation where I have considerable doubt about whether the Moving Parties have even raised a serious issue to be tried.

Disposition and Terms

[64] The relief sought by the Moving Parties on this motion[^6], to effectively enjoin any agreement, transfer or sale of the Mackenzie Creek Securities pursuant to the Option Agreement, whether to SDH or any other purchaser, could indefinitely deprive NSR of the rights that it negotiated and contracted for when it made its investment in the Project. I am not prepared to grant an injunction with that effect when NSR has in hand an agreement that presents a viable transaction that would allow it to realize upon its investment before the Morrison Mortgage has to be refinanced.[^7]

[65] My decision on both the primary and alternative relief sought by the CIM Parties ultimately turns on the balance of convenience which favours commercial certainty in the circumstances of this case, the Put Option having been exercised fifteen months ago and the parties now up against the expiry of the mortgage financing for the Project with $27 million outstanding. The CIM Parties were given more than one chance to come up with the funds needed to buy the Subject Securities from NSR to protect their investment. In that time, they could have also done, or at least tried to do, what they now want the court to give them more time to do, namely engage a professional to attempt to market and sell the Mackenzie Creek Securities under a sales process.

[66] The balance of convenience favours the completion of the sale to SDH pursuant to the SDH Offer if it can be completed and closed in advance of December 1, 2019 (when the Morrison Mortgage expires[^8]). The balance of convenience favours the completion of that transaction if it truly is a “bird in the hand” as NSR has described it to be.

[67] However, if the SDH Offer has not been completed by then (meaning, the “bird in the hand” is gone) and the Moving Parties have, in the interim, developed a proposed sales process that is in a form ready for consideration by the court, then they may proceed with their planned motion for approval of that sales process, under the changed circumstances of: (i) a defined sales process proposal, (ii) where the certainty of a transaction with SDH has diminished, and (iii) the parties would likely have had to refinance the Project, and, in that context, the Moving Parties may renew for reconsideration by the court their request for an injunction to prevent the completion of the SDH Offer or any other transaction for the sale of the Mackenzie Creek Securities under the Option Agreement pending such sales process, if approved.

[68] I am not seized of this follow-on motion if it proceeds but given my familiarity with the issues it should be scheduled before me if the timing and my schedule allows for it to be.

Costs

[69] The parties agreed to exchange costs outlines by October 31, 2019, and I expect that they have now done so. While NSR has successfully resisted this motion, it might be relevant to the determination of costs to know whether the SDH Offer is completed. If not, there remains the prospect that the injunction request may be revisited.

[70] If costs of this motion need to be decided by me, and if no agreement is reached on costs, then I will allow the parties to make their submissions on costs after November 30, with the caveat that if there is going to be a further motion for the approval of a sales process and to enjoin the SDH Offer if it has not been completed by then, I will likely be inclined to defer the costs of this motion to be decided in conjunction with that later motion unless I am persuaded otherwise by one of the parties. If there is going to be a further motion, and if either side disagrees with my inclination to defer the costs of this motion, I will allow for brief (no more than 1.5 pages double spaced) submissions from each side on this threshold costs consideration, to be provided to me by December 6, 2019.

[71] If the transaction contemplated by the SDH Offer closes on or before November 30, 2019, NSR may make brief written submissions of no longer than 3 pages double spaced (to be accompanied by a costs outline) within 7 days thereafter. The Moving Parties may make brief written responding submissions of no longer than 3 pages double spaced (to be accompanied by a costs outline) within 7 days thereafter. NSR may make brief written reply submissions of no longer than 1.5 pages double spaced, if so advised, within 3 days thereafter. The same schedule of costs submissions applies if the SDH Offer does not close on or before November 30, 2019 but no further motion is served within a week thereafter, although the schedule for exchange of submissions may be adjusted by the parties to avoid any submissions having to be prepared and delivered over the holidays.

[72] Counsel are asked to advise me, through my assistant, as to which costs process they are engaged in once that is known.

[73] All submissions should be served on the opposing parties and delivered to my attention at Judges’ Reception, Superior Court of Justice at 361 University Avenue (Room 140), Toronto, Ontario M5G 1T3.

Kimmel J.

Date: November 1, 2019

[^1]: The Moving Parties seek to characterize this letter as a “cultural” overture that should not be taken literally. I do not see any other way to read it than literally, although for the purposes of this motion, the most significant aspect of it is that it was communicated that the CIM Parties would be unable to complete the buy-back transaction scheduled for October 15, 2018.

[^2]: For purposes of this motion, the Moving Parties advised that they do not take the position that the exercise of the Put Option was in any way inappropriate or improper.

[^3]: It was noted by NSR that the counterclaim does not allege the lack of bona fides of the SDH Offer as one of the grounds for the claims of the Moving Parties. The Moving Parties indicated that the counterclaim was delivered before the SDH Offer was disclosed and that they intend to amend their counterclaim to add that allegation. NSR confirmed that its opposition to this motion does not rely upon the irregularity that this allegation has not been pleaded and the motion was argued on the basis that it has been raised.

[^4]: $31.7 million for the original investment plus the prescribed interest under the Option Agreement.

[^5]: Although not referred to in any submissions, it appears from the cross-examination of Mr. Ng that the current Tarion warranty for the Project may have expired, which suggests that the importance of this being in place right now may be less than indicated.

[^6]: The relief south in sub-paragraphs 1 (d) and (e) of the Notice of Motion for a partial sealing order were abandoned at the outset of the hearing.

[^7]: The Project financing is a liability to be assumed by SDH.

[^8]: The NSR Offer allowed for the parties to agree to another closing date after October 30, 2019 and specifically allowed SDH to extend its due diligence period for up to 15 days. Some extension must have been implemented since I was advised that the closing was not going to occur on October 30, 2019.