Court File and Parties

COURT FILE NO.: CV-20-0013 DATE: 2020/12/ 16 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: The Raymond Henry Chyc Shelley Pring Family Trust, 2199933 Ontario Inc., Chambers Family Trust and Jarrett Chambers, Plaintiffs AND: Concentric Agriculture Inc., Concentric AG Corporation, Claude Vachet, Donald R. Marvin, James A. Blome, Geoff Duyk, Ben Belldegrun and John Elstrott, Defendants

BEFORE: Mr. Justice G. E. Taylor

COUNSEL: Justin Heimpel, Counsel for the Plaintiffs Ian Matthews and Leah Mangano, Counsel for the Defendants

HEARD: October 27, 2020

Endorsement

Introduction

[1] The plaintiffs are the former shareholders of ATP Nutrition Ltd. Concentric Agriculture Inc. is the successor corporation to Inocucor Technologies Inc. Concentric AG Corporation is the successor corporation to Inocucor Corporation. Concentric Agriculture is a subsidiary of Concentric AG. Concentric Agriculture is a corporation governed by the laws of Quebec, and Concentric AG is a corporation governed by the laws of Delaware. Concentric Agriculture purchased all of the shares of ATP Nutrition pursuant to a Share Purchase Agreement dated April 16, 2018.

[2] Approximately fifty percent of the purchase price for the shares of ATP Nutrition was paid in cash on closing. The balance of the purchase price was deferred and payable by way of different methods and at different times. According to the plaintiffs, Concentric Agriculture has failed to pay some of the deferred purchase amounts. The plaintiffs have commenced this action seeking damages for breach of the Share Purchase Agreement. The plaintiffs have added as defendants to this action, the officers and directors of Concentric Agriculture and Concentric AG.

[3] This motion is made by the defendants seeking a dismissal or stay of some of the claims made against Concentric Agriculture and Concentric AG, the setting aside service of the Statement of Claim on the individual defendants and staying all of the claims against them and the striking of certain claims on the basis of improper pleading. I will provide further detail about the basis of each of the grounds for this motion when dealing with each separate issue raised by the defendants.

Claims by the Trust Plaintiffs

[4] During oral submissions counsel for the plaintiffs did not take exception to the submission made by the defendants that trusts are required to act through their trustees (Cannon v. Funds for Canada Foundation, 2010 ONSC 4517 at paragraph 65).

[5] There will therefore be an order that the claims made by the trust plaintiffs be struck with leave to add the trustees of the trusts as plaintiffs to the action.

Unjust Enrichment

[6] In paragraph 56 of the Statement of Claim, the plaintiffs plead and rely on the doctrine of unjust enrichment. In the preceding paragraph it is alleged that Concentric AG received a benefit by breaching the terms of the Share Purchase Agreement. The plaintiffs allege that they suffered a corresponding detriment and there is no juristic reason for the defendants receiving such a benefit and the plaintiffs suffering a corresponding deprivation.

[7] In my view, there must be something more than an allegation that the defendants breached a contract which resulted in the plaintiffs suffering damages for there to be a viable claim for unjust enrichment.

[8] The claim for unjust enrichment pleaded in paragraphs 55 to 57 of the Statement of Claim is struck with leave to amend by pleading facts which are separate and distinct from the allegation that the defendants breached the Share Purchase Agreement thereby causing damage to the plaintiffs.

Breach of Trust

[9] Rule 25.06(1) of the Rules of Civil Procedure requires a pleading to contain a concise statement of the material facts on which the party pleading relies.

[10] Of the total purchase price, $8 million was to be paid on an earn-out basis from the profits of ATP Nutrition over a four-year period as calculated pursuant to a formula contained in the Share Purchase Agreement. The first payment pursuant to the Earn-Out term of the Share Purchase Agreement was due on July 15, 2019. The plaintiffs claim that the Earn-Out payment due on July 15, 2019 was $652,138. The amount actually paid was $208,926 as a result of which the plaintiffs say that the sum of $443,212 remains outstanding for the first Earn-Out payment.

[11] At paragraph 52 of the Statement of Claim, the plaintiffs plead that the profits of ATP Nutrition were impressed with an express or implied trust in favour of the plaintiffs until the Earn-Out portion of the purchase price is paid. It is also alleged that the defendants caused ATP Nutrition to dissipate its profits and failed to protect its profits in breach of the terms of the trust.

[12] It is possible for a trust to be express or implied. A trust is express if it is created by a settler who clearly identifies the trust property. For an implied trust to be created there must be clear and unambiguous evidence that certain property was to be held by the trustee for the benefit of the beneficiary or there must be a gratuitous transfer of property.

[13] In my view the claim of breach of trust is no more than a conclusion of law. The facts on which the plaintiffs rely to prove that legal entitlement have not been pleaded. The claim for breach of trust contained in paragraph 52 of the Statement of Claim is therefore struck with leave to amend by pleading the facts on which the plaintiffs rely to prove this claim.

The Oppression Claim

[14] Rule 21.01(3)(a) of the Rules of Civil Procedure provides that a claim can be dismissed on the ground that an Ontario court has no jurisdiction of the subject matter.

[15] At paragraphs 49 and 50 of the Statement of Claim, the plaintiffs allege that Concentric Agriculture engaged in oppressive and prejudicial conduct which entitles them to compensation and “other appropriate remedies”. At paragraph 51 of the Statement of Claim the plaintiffs plead and rely upon the oppression remedy sections of the Canada Business Corporations Act and the Ontario Business Corporations Act. In their factum, the plaintiffs limit their claim for an oppression remedy to the OBCA. Neither of the corporate defendants are governed by the provisions of the OBCA.

[16] Paragraph 49 of the Statement of Claim begins as follows:

Concentric [Agriculture] acted in a manner that was unfairly prejudicial, oppressive and that unfairly disregarded the Plaintiffs as creditors and shareholders of Concentric [Agriculture] and Concentric AG, and as former shareholders of ATP [Nutrition]. In particular, Concentric [Agriculture] engaged in the following oppressive and prejudicial conduct: …

[17] The passage quoted above from paragraph 49 of the Statement of Claim makes it clear that the plaintiffs allege that Concentric Agriculture, a Quebec corporation, acted in an oppressive manner which affected the rights of the plaintiffs as shareholders and creditors of Concentric AG, a Delaware corporation, and ATP Nutrition, an Ontario corporation, but which is not a party to the action.

[18] For the purpose of this aspect of the motion, the following sections of the OBCA are relevant:

1(1) In this Act,

“affiliate” means an affiliated body corporate within the meaning of subsection (4);

“corporation” means a body corporate with share capital to which this Act applies;

Affiliated body corporate

1(4) For the purposes of this Act, one body corporate shall be deemed to be affiliated with another body corporate if, but only if, one of them is the subsidiary of the other or both are subsidiaries of the same body corporate or each of them is controlled by the same person.

Application

2 (1) This Act, except where it is otherwise expressly provided, applies to every body corporate with share capital,

(a) incorporated by or under a general or special Act of the Parliament of the former Province of Upper Canada;

(b) incorporated by or under a general or special Act of the Parliament of the former Province of Canada that has its registered office and carries on business in Ontario; or

(c) incorporated by or under a general or special Act of the Legislature,

but this Act does not apply to a corporation within the meaning of the Loan and Trust Corporations Act except as provided by that Act.

245 In this Part,

“complainant” means,

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,

(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.

Oppression remedy

248 (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

[19] According to s. 2(1), the OBCA does not apply to Concentric AG or Concentric Agriculture as neither were incorporated pursuant to an Act of the Ontario Legislature.

[20] It has been held that an oppression remedy claim is statute and jurisdiction specific meaning that a claim for oppression pursuant to a provincial statute such as the OBCA can only be made against a corporation incorporated pursuant to the OBCA: 1523428 Ontario Inc./JB&M Walker Ltd. v. TDL Group, 2018 ONSC 5886; Iron Rod Investments Inc. v. Inquest Energy Services Corp., 2011 ONSC 308; Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp.. Neither of the corporate defendants were incorporated pursuant to, nor are they governed by the OBCA.

[21] The plaintiffs submit that the OBCA provides that oppressive conduct can be that of a corporation “or any of its affiliates”. The plaintiffs submit that ATP Nutrition is an affiliate of Concentric Agriculture because Concentric Agriculture purchased all the issued and outstanding shares of ATP Nutrition.

[22] In PMSM Investments Ltd. v. Bureau, [1995] O.J. No. 2611, Farley J. made the following observation at paragraph 10:

It would seem to me that the meaning of this section is clear in that while the activities of affiliates (O.B.C.A. or non-O.B.C.A. companies) of the corporation (an O.B.C.A. company) may be taken into account to see if there has been inappropriate behaviour, it must be such behaviour as affects (is oppressive or unfairly prejudicial to or that unfairly disregards) "the interests of any security holder, creditor, director or officer of the corporation [O.B.C.A. company]". That is, what is affected inappropriately must be the interests of those persons qua their interests specifically in the O.B.C.A. company in question. This may take into account the indirect interest which may be derived through that O.B.C.A. company which that O.B.C.A. company may have in an affiliate.

[23] In Casurina Ltd. Partnership v. Rio Algom Ltd., [2002] O.J. No. 3229, Spence J. stated at paragraph 106:

The oppression remedy may be used by complainants to seek redress for the oppressive acts of a corporation's affiliate, so long as the oppressive conduct complained of affects the interests of the complainant in the OBCA company.

[24] Although ATP Nutrition and Concentric Agriculture are affiliates pursuant to s. 1(4) of the OBCA, the plaintiffs do not allege that the conduct of Concentric Agriculture was oppressive to their interests as stakeholders in ATP Nutrition. That is because the plaintiffs ceased to have any interest in ATP Nutrition as shareholders or creditors of ATP Nutrition when they sold their shares to Concentric Agriculture.

[25] In my view this court lacks the jurisdiction to adjudicate an oppression remedy claim against a corporation which is not subject to the governance of the OBCA. The oppression remedy claim against Concentric Agriculture and Concentric AG is struck out because of a lack of jurisdiction.

Claims Against the Directors

[26] It is not entirely clear to me that claims are made against the directors of Concentric Agriculture and Concentric AG in the Statement of Claim include claims of oppression. At paragraph 21(a) of the Responding Parties’ Factum, one of the issues on the motion is stated to be:

Does an Ontario court have jurisdiction simpliciter to adjudicate the oppression claim against all defendants.

It therefore appears that the plaintiffs intend to make a claim of oppression against the individual defendants.

[27] For the same reasons that this court has no jurisdiction over the claims of oppression against the corporate defendants, there is no jurisdiction over the individual defendants.

[28] None of the individual defendants reside in Ontario.

[29] Paragraph 59 of the Statement of Claim states that it is being served “in accordance with rule 17.02(f) of the Rules of Civil Procedure”. Rule 17.02(f) allows for service outside of Ontario in respect of contracts made in Ontario, breached in Ontario or that are to be governed by the laws of Ontario. All of those requirements are met with respect to the alleged breaches of the Share Purchase Agreement, but the individual defendants are not parties to the Share Purchase Agreement. For that reason, service of the Statement of Claim on the individual defendants on the basis of rule 17.02(f) is set aside.

Pleading of Pre-Contractual Representations

[30] The plaintiffs plead at paragraphs 36 and 37 of the Statement of Claim:

36. The Plaintiffs’ agreement to allocate $6,250,000 of the Purchase Price towards the issuance of the Preferred Shares (as outlined in paragraph 13(b) above) was a concession by the Plaintiffs made at the request of Concentric. In this regard, the terms that the parties had originally agreed to called for this amount to be paid as cash on closing. Concentric requested that the Plaintiffs accept the Preferred Shares in lieu of cash on closing, and, based on the representations of Concentric and the terms agreed to, the Plaintiffs agreed to that request.

37. In order for the Preferred Shares to have any value to the Plaintiffs, it was necessary for there to be a mechanism through which the Plaintiffs could sell them on a future liquidity event. In this regard, Concentric had represented to the Plaintiffs that the private equity firms that had controlling interest of Concentric and Concentric AG would be making a significant injection of further capital in the near future and that this would be a liquidity event through which the Plaintiffs’ [sic] could divest themselves of the Preferred Shares and monetize this portion of the Purchase Price. The Plaintiffs agreed to accept the Preferred Shares in lieu of cash on closing based on these representations and the agreement for appropriate terms to permit their sale of shares in a timely and effective manner.

[31] The Share Purchase Agreement contained an Entire Agreement clause providing as follows:

Entire Agreement. This Agreement and the schedules referred to herein constitute the entire agreement between the parties hereto and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter hereof. None of the parties hereto shall be bound or charged with any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings not specifically set forth in this Agreement or in the schedules, documents and instruments to be delivered on or before the Closing Date pursuant to this Agreement. The parties hereto further acknowledge and agree that, in entering into this Agreement and in delivering the schedules, documents and instruments to be delivered on or before the Closing Date, they have not in any way relied, and will not in any way rely, upon any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings, express of implied, not specifically set forth in this Agreement or in such schedules, documents or instruments.

[32] The defendants submit that paragraphs 36 and 37 of the Statement of Claim ought to be struck pursuant to rule 25.11 (b) on the basis that it is a scandalous pleading. The defendants say that because of the Entire Agreement clause contained in the Share Purchase Agreement, the pleading of representations allegedly made before the Share Purchase Agreement was signed cannot possibly influence the outcome of the case and therefore are scandalous.

[33] In my view, paragraphs 36 and 37 of the Statement of Claim fall under the category of scandalous and accordingly they will be struck. The plaintiffs rely on the Share Purchase Agreement. There is no suggestion that the Entire Agreement clause is not a provision contained in the Share Purchase Agreement. It would appear to me the plaintiffs are attempting to rely on precontract representations to support a claim for damages without addressing the Entire Agreement clause.

[34] In Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, majority and dissenting opinions agreed on the proper approach when dealing with the validity and enforcement of Entire Agreement clauses in commercial contracts.

[35] The court held that the first issue is whether, as a matter of interpretation, the clause even applies to the circumstances established in evidence. This will depend on the court's interpretation of the intention of the parties as expressed in the contract. If the clause applies, the second issue is whether the clause was unconscionable and thus invalid at the time the contract was made. If the clause is held to be valid at the time of contract formation and applicable to the facts of the case, a third enquiry may be raised as to whether the court should nevertheless refuse to enforce the clause because of an overriding public policy. The burden of persuasion lies on the party seeking to avoid enforcement of the clause (paragraphs 62, 122 and 123).

[36] In my view it is appropriate to allow the plaintiffs an opportunity to plead facts to bring into question the validity and enforceability of the Entire Agreement clause in the Share Purchase Agreement. Therefore, paragraphs 36 and 37 of the Statement of Claim are struck with leave to amend.

Summary

[37] The claims asserted by the trust plaintiffs are struck with leave to add the trustees as plaintiffs.

[38] The pleading of unjust enrichment in paragraphs 55 to 57 of the Statement of Claim is struck with leave to amend.

[39] The pleading of breach of trust in paragraph 52 of the Statement of Claim is struck with leave to amend.

[40] This court lacks jurisdiction over the oppression remedy claims which are therefore struck as against all defendants without leave to amend. Furthermore, service of the Statement of Claim on the individual defendants, none of whom reside in Ontario, is set aside.

[41] The pleading based on pre-contractual representations in paragraphs 36 and 37 of the Statement of Claim is struck with leave to amend.

[42] The plaintiffs shall have 30 days to amend the Statement of Claim.

Costs

[43] If the parties are unable to agree on the costs of this motion, they may make submissions in writing. Cost submissions are not to exceed three pages exclusive of a Costs Outline and Bill of Costs. Cost submissions of the defendants are to be submitted within 30 days of the release of this Endorsement. Cost submissions of the plaintiffs are to be submitted within 60 days of the release of this Endorsement.

G.E. Taylor, J. Date: December 16, 2020