Court File and Parties

COURT FILE NO.: CV-19-00630069-00CL DATE: 20210303 ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

BETWEEN: Scotia Capital Inc. Plaintiff/Defendant by Counterclaim – and – Aphria Inc. Defendant/Plaintiff by Counterclaim

Counsel: Andrew Gray, Emily Sherkey and Henry Federer, for the Plaintiff/Defendant by Counterclaim Tanya Pagliaroli, Jessica Silverman and Bethany McKoy, for the Defendant/Plaintiff by Counterclaim

HEARD: November 23-27, 30, 2020 and February 5, 2021.

C. Gilmore, J.

Overview

[1] The main claim in this case relates to the interpretation of an Engagement Letter (“the Contract”) dated January 21, 2019 between the Plaintiff (“Scotia”) and the Defendant (“Aphria”). The Engagement Letter was entered into for the provision of services by Scotia in defending a hostile take-over bid. In issue is the interpretation of paragraph 2(d) of the Contract, which requires Aphria to pay a $2.5M Independence Fee (“the Fee”). An Opinion Fee of $1M formed part of the Fee. There is no dispute that the work in relation to the Opinion Fee was completed and the Fee was paid. Scotia therefore seeks payment of the balance of the Fee plus HST and expenses for a total of $1.754M.

[2] Aphria defends the claim by asserting that the parties intended that there must be a nexus between the services provided and Aphria’s independence. Aphria claims that there was no causality between the services provided by Scotia and the result obtained. Alternatively, Aphria submits that Scotia repudiated the Contract and that the repudiation was accepted by Aphria.

[3] As will be set out below, Aphria’s defence to the claim fails because it got exactly what it bargained for: a successful defence of the Hostile Take-over bid and its independence going forward.

[4] The Counterclaim by Aphria is a claim for damages at large for defamation. This claim relates to a Director’s Comment (“the Comment”) published in October 2019 announcing the discontinuation of analysts’ coverage of Aphria by Scotia. Both the timing of the Comment and the fact it was announced in combination with the discontinuation of coverage for another cannabis company who had serious regulatory problems, were viewed as intentional by Aphria. It claims that the timing and placement of the Comment was a reaction by Scotia to Aphria’s refusal to pay the Fee and that it seriously impacted Aphria’s share price and its reputation with investors.

[5] Scotia defends the Counterclaim by asserting that Aphria has not met the required test to prove damages for defamation and gave no notice of an intention to pursue a claim for defamation until it served its Counterclaim.

[6] As will be set out below, Aphria is not entitled to damages of any kind for its Counterclaim. Aphria has not met the test for damages for defamation because there is no evidence of any connection between the Comment and any alleged loss in share value or reputation. Even if Aphria was able to prove special damages, the range of such damages is nominal.

Background Facts and Timeline

The Parties

[7] Scotia Capital is an investment bank based in Toronto, Ontario, and is a subsidiary of The Bank of Nova Scotia. Among other things, Scotia Capital provides financial advisory services in connection with takeover bids, mergers and acquisitions, and similar transactions.

[8] Aphria is a cannabis producer, headquartered in Leamington, Ontario. Aphria also has operations in British Columbia, Germany, Columbia, Argentina and Malta. Aphria is a public company, with common shares that trade on the Toronto Stock Exchange and the New York Stock Exchange.

[9] On October 17, 2018, Canada legalized recreational marijuana. On the same day, Scotia initiated research coverage of Aphria. Research coverage was performed by Scotia analyst Oliver Rowe (“Rowe”) who was supervised by Ben Isaacson (“Isaacson”).

The Short-Seller Report

[10] On December 3, 2018, Aphria was the subject of a public short-seller report. The report alleged that Aphria had been involved in an improvident transaction. The short-seller report resulted in a significant drop in Aphria’s share price. The price began to recover after four days but did not recover to the pre short-seller report level until mid-January 2019.

[11] Aphria was concerned about the allegations in the report and, the day after it was published, Aphria’s Board of Directors (“the Board”) moved quickly to appoint a Special Committee of independent directors (the “Special Committee”) to review and report on the allegations in the report.

[12] The allegations in the report were ultimately not borne out. On February 15, 2019, Aphria announced the conclusions from the Special Committee report. The Special Committee’s report contained the advice of a valuation expert who concluded that the impugned transaction was not supported on a value basis. The Special Committee made recommendations including policy changes regarding the disclosure of conflicts and the use of experts going forward.

Scotia is engaged by Aphria

[13] The short-seller report had created some chaos at Aphria. As noted above, one consequence was that Aphria’s share price plummeted. On December 18, 2018, Green Growth Brands (“GGB”) delivered a “bear hug” letter to Aphria in which GGB offered to purchase all of Aphria’s shares. On December 19, 2018, Aphria’s Board convened a meeting to consider the offer and to establish an Independent Committee (“the Committee”).

[14] The Board appointed Michael Serruya (“Serruya”) as Chair, and Renah Persofsky (“Persofsky”) and Shlomo Bibas (“Bibas”) as members-at-large to the Committee. Irwin Simon (“Simon”) was appointed to the Committee in March 2019. The appointments to the Committee were ratified, sanctioned, and confirmed on December 27, 2018.

[15] On December 27, 2018, GGB issued a press release announcing its intention to commence an unsolicited takeover bid (the “GGB bid”) to acquire all of Aphria’s outstanding common shares in an all-stock transaction.

[16] The next day, Aphria published a press release responding to GGB’s announcement stating that the proposal significantly undervalued Aphria. According to Aphria’s Chief Financial Officer (“CFO”), Carl Merton (“Merton”), the GGB bid assumed a share price of $7 for GGB’s shares when in fact its shares had been trading at $3 to $4. As such, the transaction would mean a substantial share reduction for Aphria shareholders which was not reasonable.

[17] On December 30, 2018, the Committee verbally awarded Scotia the mandate as its Financial Advisor in relation to the GGB bid. Scotia sent a first draft of the Contract to Aphria on January 5, 2019. Both Aphria and Scotia had counsel advising them on the terms of the Contract.

[18] The Committee also retained other advisors to assist in relation to the defence of the GGB bid, including their external counsel (“Fasken”), a strategic communications advisor (“Gagnier Communications” or “Gagnier”), and a shareholder communications advisor (“Laurel Hill”).

[19] Scotia prepared “kick off materials” and presented them to the Committee on January 7, 2019. The materials included a generalized list of next steps and work streams, and five potential strategic alternatives to the GGB bid. On January 21, 2019, Scotia and Aphria signed the Contract.

The GGB Bid Fails

[20] On January 22, 2019, GGB launched its formal bid.

[21] The Committee requested that Scotia prepare an opinion regarding the adequacy of the GGB bid (the “Fairness Opinion” or “Opinion”). On February 5, 2019, Scotia delivered its Opinion to the Committee that the GGB bid was inadequate. At that meeting, the Committee, with the assistance of Fasken and Scotia, also reviewed the material terms and conditions of the GGB bid, the contents of the proposed Director’s Circular and the Committee’s fiduciary duties in relation to the GGB bid and the shareholders.

[22] The next day, Aphria published its disclosure materials in response to the GGB bid, including a Directors’ Circular (“the Circular”), Investor Presentation, Shareholder Letter and Press Release. A copy of Scotia’s Opinion regarding the adequacy of the GGB bid was included in the Circular.

[23] On February 27, 2019, Scotia invoiced Aphria for the Opinion Fee in the amount of $1M plus HST for a total of $1.13M. The Opinion Fee was paid.

[24] As of March 31, 2019, only 0.007% of Aphria’s shares had been deposited under the GGB bid.

[25] On April 15, 2019, Aphria issued a press release and announced that it entered a series of transactions that would accelerate the expiry date of the GGB bid from May 9, 2019 to April 25, 2019.

[26] As of the expiry date of April 25, 2019, the GGB bid failed to meet the statutory minimum tender condition. As such, the GGB bid expired and was terminated.

Aphria Disputes the Fee

[27] On July 3, 2019, Scotia sent Aphria an invoice for the Fee and expenses. This included the $1.5M Fee plus HST, as well as expenses of $53,463 for a total invoice of $1,748,463. On July 4, 2019, Merton met with Mr. Sean McIntyre (“McIntyre”) from Scotia to discuss the invoice for the Fee and expenses. At that meeting Merton advised McIntyre that Aphria had no intention of paying the Fee or any expenses claimed by Scotia.

[28] A further invoice dated August 27, 2019, was delivered to Serruya on September 16, 2019. On September 23, 2020, Scotia’s counsel sent a demand letter to Aphria. In response to the demand letter, Aphria sent a letter to Scotia dated October 4, 2019, outlining the reasons for its position that the Fee was not payable.

Scotia Discontinues Its Analyst Coverage of Aphria

[29] On July 24, 2019, Scotia changed its rating of CannTrust stock to “Under Review” following a report by the Globe and Mail that the Chairman and CEO, among others, were aware of unlicensed growing at their Niagara facility. CannTrust is another entity operating in the cannabis market.

[30] On July 29, 2019, Scotia Capital learned that Rowe, the analyst covering Aphria, would be leaving Scotia Capital. On August 6, 2019, Scotia Capital transferred coverage of Aphria from Rowe to Isaacson.

[31] On October 8, 2019, Scotia Capital published the Comment that stated: “We are discontinuing research coverage of CannTrust Holdings Inc. and suspending research coverage of Aphria Inc. due to a reallocation of analyst resources. Our previous ratings, target prices, and estimates may no longer be relied upon.”

[32] The parties have agreed in this case that the documents referred to herein are authentic and were authored, sent, and received by the persons indicated and on the date indicated.

The Issues

[33] There are two main issues in this case. First, is the Fee payable? Second, is Scotia liable for defamation in relation to the Comment? For the sake of clarity, I will deal first with the dispute about the Fee (the “Fee Claim”) and then deal with Aphria’s counterclaim for defamation (the “Counterclaim”).

Fee Claim

[34] Aphria argues that the Fee is not payable. It advances two arguments in this regard. First, Aphria argues that there was no nexus between the services provided by Scotia and Aphria’s independence. Second, Aphria argues that Scotia repudiated the agreement and that this repudiation was accepted by Aphria.

[35] Before moving into the legal analysis, it is helpful to review the facts surrounding the GGB -bid and Scotia’s services in greater detail.

Fee Claim - Facts

The Parties Enter Their Agreement

Scotia Seeks Aphria as a Client

[36] Jason Menard’s (“Menard”) evidence was that, as the head of Scotia’s M&A department, his team actively sought out Aphria’s business. McIntyre, as the head of consumer and industrial retail for Scotia, was also interested in exploring client potential in the cannabis industry. Scotia made a site visit to Aphria’s growth operation in Leamington and began to “pitch” Aphria in the fall of 2018 as Aphria had a bright outlook at that time. Scotia initiated contact with a number of cannabis companies that fall. It was an exploding new area of business and Scotia wanted to be part of it. Merton did not disagree that as early as the fall of 2018 Scotia was asked to quote on a term loan for Aphria Diamond.

[37] After the short-sell report came out on December 3, 2018, there were concerns on the part of Scotia. Scotia suspended research on Aphria and put “pens down” with respect to any credit discussions. Merton was concerned that Aphria had become too “toxic” for Scotia and likely other lenders. However, when the possibility of doing some M&A work for Scotia came about as a result of the bear hug letter, McIntyre’s evidence was that Scotia became interested in doing this work. While there was an element of reputational risk for Scotia, Scotia was interested in the prospect as no capital was being advanced.

[38] Meanwhile, the bear hug letter and the short-sell report had created problems at Aphria. Aphria could not handle the situation on its own. It needed help by way of professional advisors who had experience in dealing with hostile takeover bids and the fallout from the short-sell report.

[39] On December 23, 2018, Scotia was asked to put together a proposal for a mandate as Financial Advisor to the Committee. McIntyre and Menard were the leads of Scotia team. Serruya originally approached McIntyre on December 23, 2018 about a proposal to defend a potential takeover bid. According to McIntyre, Scotia was asked for a proposal that would address the bear hug letter as well as a takeover defence in the event the bid went hostile.

[40] Scotia was pleased to receive this request. This was an opportunity for them to get their “foot in the door” with a TSX and NYSE-listed cannabis company. Menard and McIntyre sought and obtained approval from the President and CEO of Scotia to move forward with a proposal to obtain this work from Aphria. In an email to the Global Head of Investment and Corporate Banking in Canada on December 23, 2018, McIntyre wrote: “This is a big opportunity for us either way – being supportive while the company is down will give us a client for life if they fend off the bidder or we make a good fee if it gets sold.”

The Fees Are Negotiated

[41] McIntyre responded to Serruya on December 28, 2018. His initial negotiating position on fees was as follows. Scotia would receive fees based on a formula. If GGB filed a formal take-over bid, and Scotia was successful in defending that bid, Scotia would earn a fee of $4M (the Independence Fee). If GGB never advanced a bid and no formal process was undertaken, Scotia would receive a minimum fee of $1M. Scotia would receive a $1M fee for any Fairness Opinion which is typically included in the Circular.

[42] Merton’s evidence was that, from his perspective, the fee negotiation was intended to result in the least cost for Aphria for the most likely result (Aphria defending the bid) but allowing for full fees to Scotia in the event that there was a change of control.

[43] Menard had experience in dealing with hostile takeover bids. He advised they are somewhat rare but that he had been involved in about 12 of them in his career. He testified that independence fees are commonly charged by financial advisors providing services in the course of a hostile takeover bid. Financial advisors play a key role in the defence strategy for a hostile takeover bid along with a number of other professional advisors with different skill sets including legal counsel and communications specialists who work together to develop the reasons to reject and a complete defence to the bid.

[44] After some negotiations with Merton and Serruya with respect to fees, McIntyre sent an email to Serruya with revised terms. These included a reduction of the $4M defence fee to $2.5M. The minimum fee payable if GGB never advanced a bid was reduced to $500,000. The fairness opinion fee remained the same and a cap of $50,000 in expenses was added. McIntyre’s evidence was that both Barclay’s and Moelis were also after the mandate so there was not much room for Scotia to negotiate. Merton’s evidence was that BMO, Cowen and Credit Suisse had also been interested in the mandate. Merton confirmed that the terms of its contract with Scotia was better on all metrics than the U.S. financial advisor it had been considering.

[45] Serruya, as Chair of the Committee, accepted this fee proposal on December 28, 2018. Its terms were incorporated into the Engagement Letter dated January 21, 2019 (referred to as “the Contract” in this judgment) addressed to Serruya as Chair of the Committee.

[46] The Committee retained Scotia as its Financial Advisor in relation to the GGB bid at their meeting on December 29, 2018. The Contract was ultimately signed by Serruya, Merton and McIntyre on January 21, 2019. The amounts in the Contract were fully negotiated with both parties receiving outside legal advice.

Outline of the Fees

[47] The Contract set out three different fees to which Scotia would be entitled, depending on how events unfolded: the Opinion Fee, the Transaction Fee and the Independence Fee. A description of each of these fees is set out below.

[48] The Opinion Fee is not in dispute in this case. The Opinion Fee related to the Opinion prepared by Scotia and delivered to the Committee on February 5, 2020 regarding the inadequacy of the GGB bid. That fee plus HST was paid to Scotia.

[49] The Transaction Fee is also not at issue. It was contingent upon a change of control resulting from the GGB bid or in relation to another party. According to Menard, the Transaction Fee was payable upon the closing of a change of control and represented a percentage of the ultimate transaction value. Menard estimated that the Transaction Fee payable to Scotia could have been between $15M to $20M. As there was no change in control, the Transaction Fee was not payable.

[50] As noted above, the dispute in this case relates solely to the payment of the Independence Fee (referred to as the “Fee” in this judgment). Paragraph 2(d) of the Contract sets out the circumstances under which the Independence Fee is payable:

If GGB or any other third party (i) commences a formal take-over bid for the Company, and the Board of Directors determines that the consideration offered to shareholders pursuant to such take-over bid is inadequate and/or does not recommend that the Company's shareholders tender to the take-over bid or (ii) requisitions a special meeting of the Company's shareholders to propose a related party transaction or business combination (as such terms are used in Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions) and, in either case, no Transaction is completed or no definitive agreement in respect of any Transaction is signed by the Company by June 30, 2019, a fee (the "Independence Fee") of $2,500,000 payable on July 1, 2019, and any Independence Fee paid shall be credited against any Transaction Fee otherwise payable under paragraph 2(c);

[51] It is clear that the Fee is payable upon the occurrence of the events set out in Paragraph 2(d). It should be noted that the Circular disclosed to shareholders that “a substantial portion of Scotia’s fee is contingent upon the non-completion of the GGB bid or the completion of any alternative transaction.”

[52] In terms of the scope of the engagement, Paragraph 1 of the Contract is clear that Scotia “shall act as financial advisor to the Independent Committee.” Paragraph 1 then lists all of the advisory services which Scotia is to provide with respect to defending the GGB bid. The contract specifies that Scotia is to provide “customary financial advisory and independent banking services to the Independent Committee, without limitation” as set out below:

1. Scope of Engagement. Scotia Capital shall act as financial advisor to the Independent Committee and shall provide customary financial advisory and investment banking services to the Independent Committee including, without limitation: (a) Review information related to the business, operations, financial performance and prospects of the Company; (b) Review such financial, market and industry information and conducting such other analyses as are relevant and appropriate in the circumstances; (c) Advise and assist the Independent Committee in considering and responding to the GGB Offer and any variations to the GGB Offer including preparing a director's circular and any other defence materials; (d) Identify potential strategic alternatives to the GGB Offer, or any other Transaction that may be proposed or solicited during the term of the Agreement, and advise the Independent Committee with respect to the related financial implications; (e) If requested by the Independent Committee, solicit alternatives to the GGB Offer or any other Transaction that may be proposed during the term of the Agreement and managing any related market canvass or auction process; (f) Advise and assist the Independent Committee as to the form and structure of any Transaction, taking into account the Company's price, timing, tax and strategic objectives, as disclosed to Scotia Capital by the Independent Committee; (g) Assist in negotiating and structuring the definitive terms of any Transaction; (h) Assist in drafting and review documentation required in relation to the Transaction, including any disclosure documents; (i) If requested by the Independent Committee, provide an opinion (the "Opinion") to the Board or the Independent Committee as to the fairness or inadequacy, from a financial point of view, of the consideration to be received by the Company or its shareholders pursuant to a Transaction; and (j) Such other ancillary financial advisory and investment banking services as the Independent Committee and Scotia Capital agree are appropriate in the circumstances.

[53] It should be noted that the Scope of Engagement does not include a requirement that Scotia find financing or capital for Aphria beyond the potential of alternative transactions.

[54] Paragraph 14 of the Contract confirms that Scotia was retained by and providing advice solely to the Committee and not to Aphria as a whole.

[55] Paragraph 20 is an entire agreement clause, which makes it clear that the Contract is the complete scope of the mandate.

[56] Finally, as mentioned above, Scotia seeks expenses of $53,463. Scotia concedes that it is only entitled to expenses of $50,000 under the Contract. Expenses are dealt with at Paragraph 4 of the Contract as set out below:

4. Expenses. Regardless of whether any Transaction is completed before or following the termination of this Agreement, the Company shall reimburse Scotia Capital for all reasonable out-of-pocket expenses (including, without limiting the generality of the foregoing, all travel expenses) incurred by Scotia Capital in connection with this Engagement, as well as the reasonable fees, disbursement and taxes of Scotia Capital's external counsel, McCarthy Tetrault LLP. Such total expenses not to exceed $50,000 without obtaining the Company's prior approval shall be payable forthwith upon Scotia Capital rendering an invoice therefor to the Company.

What Services Did Scotia Perform?

[57] Given that Aphria disputes the Fee on the basis that there was no nexus between the services performed by Scotia and the result obtained, it is worthwhile to outline, in some detail, the services actually performed by Scotia. As set out below, Aphria also argues that Scotia generally failed to provide the level of leadership reasonably expected under the contract; and furthermore argues that Scotia did not do any work after February 5, 2019. As such, for the sake of clarity, I divide this part of the judgment into two periods: work done before and after February 5, 2019.

Work done from December 30, 2018 to February 5, 2019

Scotia’s Services Leading up to the January 7 Meeting

[58] The Scotia team consisted of nine people. As noted above, the Scotia team was led by Menard and McIntyre. Menard and McIntyre had the most interaction with Aphria and the Committee. Ryan Forwell, the Director of Mergers & Acquisitions, sometimes led communication as well.

[59] Once the Committee was formed to deal with the GGB bid, it was the Committee, and mostly its Chairman, Serruya, who provided instructions to Scotia. Menard did not recall having any communication with or receiving instructions from Committee members Persofsky or Bibas. Menard had occasional communication with Simon.

[60] Menard, an experienced M&A banker and a Managing Director at Scotia, explained what was at stake for Aphria as a result of the GGB bid. His evidence was that the GGB bid was to be taken seriously given that GGB was a U.S. cannabis company. While cannabis is legal in some U.S. states, it remains illegal federally in the U.S. Canadian companies cannot hold shares in U.S. cannabis companies and remain on the TSX or NYSE. Because the GGB bid was an offer of shares instead of cash, a takeover bid by GGB would mean Aphria having to de-list its stock on the TSX and NYSE. This would be an unfavourable result for shareholders.

[61] Menard’s evidence was that Scotia started their work on the New Year’s weekend right after the Contract was awarded on December 30, 2018. Once the Contract was awarded, work started immediately over the New Year’s weekend. Menard knew there was a lot of financial analysis to be done and he did not want to wait.

[62] An initial call between the Scotia team and the Committee was planned for January 3, 2019. According to Menard, the purpose of this call was to lay out work streams and a plan for moving forward.

[63] Following the call of January 3, 2019, the Scotia team prepared a slide presentation for the January 7, 2019 Committee Meeting. The slide presentation was circulated to the Committee in advance of the January 7, 2019 meeting.

[64] The January 7, 2019 Committee Meeting (held via conference call) was often referred to during the trial as the “kick-off meeting” and the materials presented as the “kick-off materials.” Menard, McIntyre, Forwell and Jon Brenzell attended the January 7th meeting from the Scotia team. McGlaughlin and another Fasken partner, Brad Freelan, attended from the Fasken legal team. Serruya, Bibas, Persofsky and Simon attended on behalf of the Committee. Merton and Christelle Gedeon attended on behalf of Aphria.

[65] The kick-off materials consisted of a slide deck of 10 slides plus an Appendix with proposed work streams and an Information Request List. The slide materials were presented to the Committee by Menard and McIntyre. The kick-off materials provided the following information for the Committee:

a. an introduction to the Scotia team members; b. a Situation Overview including market reaction to the GGB bid; c. Some general observations concerning Unsolicited (Take-over) bids in Canada and recommendations for a “clear and unimpeachable” process to deal with the GGB bid. Importantly, Scotia reviewed the revised Take-over bid rules which require bids to remain outstanding for a minimum of 105 days; d. Key Board duties in responding to the GGB bid including fiduciary duties, the Business Judgment Rule and the duty to respond to and evaluate the Offer in the context of Aphria’s business plan and any alternate achievable transaction; e. A detailed framework for an assessment of the GGB bid including various financial analyses and strategic alternatives; f. An outline of five potential strategic alternatives, including “Just Say No” (to the GGB bid), a Joint Venture, a minority/strategic investment, a merger or a White Knight (a transaction with another bidder at a higher price). These alternatives ranged from no change of control (Just Say No) to a complete change of control (White Knight option). All of these alternatives (referred to herein as the “Slide 6 alternatives”) were presented as options to maximize shareholder value; g. A takeover bid timeline; and h. Next steps, including the preparation of a financial model, preparation of the Directors’ Circular and strategic response and shareholder communication.

[66] The Information Request List in Appendix A contained a preliminary list of materials from both the Board and management required by Scotia in order to implement the work set out in its kick-off materials.

[67] Menard was asked about the Minutes from the meeting of January 7, 2019, specifically with respect to the scope of Scotia’s mandate as discussed by the Committee. Although he did not recall specific instructions, Menard did not dispute the accuracy of the Minutes. The Minutes reflect the following discussions:

The Independent Committee discussed at length the scope of the mandate for Scotiabank. It was determined by the Independent Committee that Scotiabank should continue to work on the review of the GGB offer and general Take-over bid preparedness, to review the various strategic alternatives available to the Corporation, consider potential financing sources and review of the financial projections of the Corporation as the next steps to be taken.

Work Done After the January 7, 2019 Meeting

[68] After the January 7 meeting, Scotia began to work on the next steps to be taken in defending the bid.

[69] An important step was preparing the financial forecast model mentioned above. Menard’s evidence was that the financial forecast model was necessary for Aphria’s defence strategy in order to establish a baseline value for the company. It required a significant amount of work.

[70] Menard explained some of the work that was involved in preparing the financial model. The Scotia team worked closely with Merton as they needed information from him on products, facilities, capacities, margins and geography. His ongoing feedback was essential. Menard referred to a detailed Information Request List provided to Merton and a list of detailed notes and questions resulting from Scotia’s initial meetings with Merton as they progressed towards obtaining the key information they needed to prepare the financial model, which was the core analysis of Aphria’s business and standalone value. The financial model would inform both the fairness opinion and other defence materials.

[71] Menard also commented on the proposed Work Streams in Appendix A. Typically, in a hostile takeover bid, there are other advisors involved including in-house and external legal counsel and an internal and external communications team (in this case Laurel Hill) who specialize in crafting messaging to stakeholders. Coordination of the various advisors was key in ensuring that timelines were met.

[72] Scotia also prepared a Historical Exchange Ratio Analysis. Because the GGB bid was an offer of shares as opposed to cash, it was important to understand the value of the shares being offered by GGB in the context of the value of Aphria’s shares. Scotia researched comparables in the cannabis industry to ensure accuracy in their analysis of share value.

[73] By January 14, 2019, Scotia had a draft of the financial model ready for internal discussion with the Scotia team. I accept Menard’s evidence that putting together the financial model took a significant amount of work. It was important that this model was done right given its integral part of the overall analysis and because it played a large role in creating the reasons to reject the bid and other defence materials.

[74] On January 16, 2019, Scotia’s draft financial model was sent to Merton in anticipation of a meeting with him on January 17, 2019. Forwell of the Scotia team attached a proposed agenda for the meeting. According to Menard, Merton did not raise any concerns with the financial model at the January 17, 2019 meeting. The financial model continued to be revised throughout the month of January 2019. Revisions were sent to Merton for his comment throughout this time. Merton did not raise any concerns about the financial model during the January work period or at any later date including during his testimony at trial.

[75] Scotia also created daily Trading Updates for Aphria throughout January 2019 and weekly updates in February 2019. These updates were intended to track patterns and provide early warnings of any concerning trends. The updates were never sent to the Committee, they were instead used internally to assist Scotia with its mandate.

[76] Scotia worked with Aphria’s external legal counsel during this period. Fasken prepared a letter to the Ontario Securities Commission (“the OSC”) concerning alleged misrepresentations made by GGB in their press releases related to GGB’s share value. The letter also alleged that the GGB bid is “impermissibly uncertain and coercive to Aphria shareholders.” Fasken requested that the OSC require that GGB publicly withdraw their press releases and refer GGB to the Enforcement Branch. The Scotia team provided comments on the draft letter to the OSC but, since this was a legal securities issue, Fasken took the lead on it. Menard’s evidence is that it is common in hostile takeover bids to raise issues about disclosure from the bidding company.

[77] Scotia also worked with Aphria’s shareholder communication firm, Laurel Hill. Laurel Hill was tasked with contacting shareholders about the bid and dealing with their feedback after the Circular was published. Representatives from Laurel Hill called all shareholders who owned more than 50,000 shares to explain why they should reject the GGB bid. While Scotia was not integrally involved with shareholder communication, they were always involved in ensuring that the messaging to shareholders reiterated the reasons to reject.

[78] Scotia prepared follow-up materials by way of an analysis of trading in GGB shares. The materials, dated January 15, 2019, sought to identify patterns of potential manipulation in GGB shares. Menard’s evidence was that, since GGB and Aphria traded on different exchanges, a substantial amount of work was involved. This work was also intended to assist Fasken with their complaints to the OSC.

Work done after the formal bid was launched

[79] Once GGB launched its formal bid on January 22, 2019, focus turned to the preparation of the Circular. The Circular was due to be published 15 calendar days from the bid launch. The Circular was a very important document which would include the reasons to reject, a press release and the fairness opinion in a presentation that shareholders could understand and absorb. As such, all of Aphria’s resources and advisors collaborated with a view to the publication of the Circular.

[80] There was some disagreement at trial about the role played by Scotia during this period. Much time was spent on critical path documents for the key deliverables leading up to the publication of the Circular. While Gagnier, Laurel Hill, Fasken and Aphria were all noted as having assigned tasks, Scotia was missing from the list. Merton’s evidence was that the expectation was that Scotia would take the lead role in this planning. Menard’s evidence was that it is not usual for the Financial Advisor to take the lead role in the planning and execution of the Circular.

[81] According to Menard, Scotia’s main involvement at this stage was with the extensive research and consultation with Fasken with respect to the preparation of the reasons to reject. Menard testified that members of the Scotia and Fasken teams spoke and sometimes met several times a day during this period. Scotia and Fasken had many discussions leading up to the first draft of the reasons to reject on January 11, 2019. Several emails were referred to in Menard’s evidence related to Scotia’s input into the drafting of the reasons to reject. Merton was integrally involved in the process and provided feedback on the reasons to reject and the financial analysis.

[82] Menard gave evidence about his specific input into the reasons to reject, including highlighting the loss of Aphria’s TSX and NYSE listing on a GGB takeover as being a point that would resonate with retail investors. There was significant email traffic about this issue with Merton, who wanted a more nuanced message given the potential growth for Aphria in U.S. cannabis markets. Scotia consulted with Fasken on this point and both agreed that the de-listing point should remain part of the key messaging but be presented as one of many factors rather than a leading reason. Menard’s evidence was that Merton’s comments in this regard were the only ones he raised with respect to any changes to the draft.

[83] Menard referred to an email sent by him on January 24, 2019 to the advisory team containing detailed feedback on the reasons to reject. Jeff Mathews of Gagnier responded the same day and confirmed that Menard’s comments would be worked into the reasons to reject.

[84] Aphria submitted that it was Fasken who took the lead on drafting the reasons to reject and created the initial two drafts. While this point is not critical since there is no dispute that Scotia was paid for this stage of its work, I do not agree with Aphria. The email traffic evidence clearly shows that drafts were exchanged between Scotia and Fasken. Since no witness was called from Fasken to say otherwise, I accept that Scotia was integrally involved in the drafting of the reasons to reject.

[85] Specifically, Scotia’s contribution to the reasons to reject included an analysis of how the GGB bid undervalued Aphria in terms of future and current worth, the negative repercussions resulting from combination of Aphria and GGB, the problems related to Aphria giving up control, the increased risk for Aphria shareholders and the otherwise bright outlook for Aphria.

[86] During this time, Scotia also prepared the Opinion referred to above. The Opinion would be published in the back of the Circular and would be referred to in the reasons to reject. According to Menard, preparing the Opinion required weeks of work including performing financial analysis, determining a standalone value for Aphria, and assessing how the GGB bid would compare to other options in terms of value. It was a key and important document for the bid defence. Once the Opinion was prepared, it was circulated within the Scotia team and presented to a group of senior Managing Directors at a “beat up” session on January 31, 2019. The Opinion Review Committee approved the Opinion for external publication, being satisfied with the analysis presented and the answers to the questions posed.

[87] At this point, a draft presentation for the contents of the Circular was reviewed by Fasken and Merton. Merton asked that references to the pursuit of potential buyers be removed from the presentation (as discussed below, Scotia was instructed not to solicit interest from third parties). Other than this request, only minor amendments were made, including Fasken’s request that statements concerning Scotia’s independence and the fees they were being paid be included.

[88] The finalized presentation with the approved Opinion was then forwarded to Fasken and Aphria’s in-house counsel in anticipation of the February 5, 2019 presentation to the Committee. At the February 5, 2019 meeting, Scotia gave the Opinion verbally, went through their presentation and then presented a copy of their written Opinion for the Circular to the Committee. After this presentation, the Committee made a recommendation to the Board that the GGB bid be rejected and an independence strategy be adopted. The Committee further recommended to the Board that the Circular be distributed to shareholders.

[89] Menard confirmed that the January 7, 2019 kick-off meeting and the February 5, 2019 meeting were the only times he attended a Committee meeting. These attendances were by invitation. He did not initiate any meetings with the Committee.

[90] Menard testified that Simon wanted to publish the Circular earlier than the 15-day maximum limit. Menard persuaded Simon that this was not a recommended approach and that the full 15 days should be taken in order to ensure there was adequate time to fully reflect upon the draft and ensure that Aphria had put its best foot forward.

[91] As discussed below, less than 1% of the shareholders would end up tendering into the bid. Menard’s conclusion was that the Circular had done its job.

[92] Scotia also spent considerable time working on the investor slide presentation and, according to Menard, received positive feedback on its work product including a “thank you” from McGregor and Aphria’s Chief Legal Officer Christelle Gedeon (“Gedeon”).

Work Performed by Scotia After February 5, 2019

[93] As outlined above, Scotia provided significant input in preparing the reasons to reject. Scotia also played an integral role in preparing the Circular, through delivering its Opinion. While Aphria appears to dispute the level and quality of Scotia’s work in this regard, its main argument is that the above services were compensated through the Opinion Fee. The Opinion Fee was paid shortly after the February 5 meeting.

[94] Aphria complains that, after the Opinion was delivered on February 5, 2019, Scotia did no further work. Specifically, Aphria complains that Scotia did not provide the “customary financial advisory and investment banking services” expected of a financial advisor as per the Scope of Engagement in the Contract.

[95] While it is true that Scotia no longer provided any advice to the Committee about the GGB bid after February 5, 2019 (as the Committee gave them no instructions in this regard), Scotia continued to do work for Aphria. After the report of the Special Committee was delivered to the Board and the Circular had been published, Scotia’s focus merely changed. In particular, Scotia began to investigate and identify potential strategic partners for Aphria. Scotia also assisted Aphria in pursuing financing, and provided assistance and advice on unrelated transactions, which it was not required to do under the Contract.

Identifying Potential Strategic Partners

[96] Scotia began to have discussions regarding potential strategic partners and set up meetings and calls in that respect. While the Committee remained committed to an independence strategy, McIntyre wanted to be ready in the event that the GGB bid drew out other potential bidders. It is conceded by Aphria that the Committee did not request Scotia to solicit alternatives to the GGB bid (as per Paragraph 1(e) of the Contract). However, there is no doubt that Scotia was approached about identifying potential strategic alternatives. I agree with Scotia that the difference between identifying and soliciting strategic alternatives is significant. There is also no doubt that Scotia identified potential strategic alternatives to the GGB bid as early as the kick-off presentation on January 7, 2019.

[97] On February 11, 2019, Scotia circulated internally a list of potential strategic partners. This list was based on the slide which Scotia had originally planned to include in their Opinion presentation until they were told not to include reference to strategic partners in the Circular. This list was then incorporated into a slide deck for the Committee entitled Strategic Partners Considerations and dated February 20, 2019. McIntyre emphasized that Merton was still insistent that Scotia not reach out to anyone with whom they did not already have a business relationship.

[98] By February 20, 2019, Scotia was told they could reach out to companies with whom they already had relationships as potential strategic partners. McIntyre referred in his testimony to a slide presentation containing a list of potential strategic partners he had prepared. These were all potential partners with whom Scotia already had a solid relationship. A copy of the slide presentation was contained in Scotia’s materials; however, the presentation was never made to the Committee and Merton testified he had never seen it until the litigation commenced.

[99] Scotia was advised that Simon had a meeting with a Quebec-based cannabis company called HEXO about a possible merger. Scotia prepared materials for the meeting to assist Simon. Scotia’s view was that a merger with HEXO could be advantageous for Aphria in terms of “leap frogging” into another merger with a bigger player such as Canopy Growth.

[100] Menard was unsure if these materials were ever sent to Simon. He learned from Serruya that a dinner meeting was planned in New York with HEXO representatives and was advised by Serruya that Aphria did not need the materials prepared by Scotia. In the end, the deal with HEXO never came to fruition due to a requirement that HEXO’s CEO take over as the CEO of the newly merged company. Simon’s view was that HEXO’s CEO did not have the experience to run a new company.

[101] Scotia also received inbound interest concerning a potential partnership with MJardin Group, a cannabis company with assets in the U.S. and Canada. After discussing this opportunity with Serruya, it was agreed that this was not a good fit for Aphria because of MJardin’s U.S. asset holdings. Menard explained that the “inbound” interest received from potential strategic partners was always discussed with Serruya as per Aphria’s instructions. As a result, Scotia did not discuss these opportunities with Bibas, Persofsky or Simon.

Potential Strategic Partnerships with BAT and others

[102] As early as January 2019, Scotia began working on an introduction between one of their clients, British American Tobacco (“BAT”), and Aphria. Merton had agreed that Scotia could pursue BAT since Scotia already had a relationship with the company. The introduction was intended to pursue a potential strategic partnership between BAT and possibly an investment by BAT into Aphria to raise capital. A member of the Scotia team sent an internal email on February 11, 2019, setting out that BAT seemed interested in a possible Joint Venture structure as opposed to an equity investment.

[103] Merton testified that an initial call took place between him, Simon, McIntyre and some representatives from BAT on March 7, 2019. After that, the in-person meeting took some time to set up given that NDAs had to be presented, edited and signed. However, McIntyre felt that the real delay resulted from Aphria’s management. McIntyre’s evidence was that “management at Aphria was always in a bit of chaos in terms of getting things done.” He felt the introduction and follow up with BAT should have been a priority for Aphria but it did not seem to be. A face to face meeting between Aphria and BAT did not occur until May 2, 2019.

[104] McIntyre testified that he reached out to BAT by way of follow up after the May meeting. He referred to a follow up email he sent on May 21, 2019 to Renata Machado at BAT. Ms. Machado responded on May 23, 2019, saying that she would get back to McIntyre when BAT had a view of what kind of partnership it wanted to form. McIntyre forwarded Ms. Machado’s email to Merton the same day and indicated that he would follow up. Merton responded a few hours later and said “No need. We are in direct communication with them [BAT]”. McIntyre was frustrated that after all of the work to get the NDAs signed, Scotia was pushed out.

[105] Merton’s explanation for this turn of events was that Simon, at this point, was increasingly frustrated with Scotia and McIntyre. Simon was apparently concerned that Scotia simply would not follow up as promised and that they might lose BAT. As such, he had decided to reach out to Ms. Machado himself. In the end, nothing came of the BAT opportunity.

[106] McIntyre also reached out to the CEO of Whole Foods with Merton’s permission. That connection did not work out because the CEO of Whole Foods knew Simon personally, thereby creating a conflict.

[107] Menard testified that Scotia also approached Fairfax about financing after obtaining permission from Merton to do so. McIntyre’s evidence was that after “pitching” Aphria to Fairfax, they determined that they were not interested in the cannabis space.

[108] Merton’s evidence was that Scotia really only presented two potential partners to Aphria; Whole Foods and BAT. Fairfax was more a financing opportunity than a potential strategic partner. Merton testified that, other than Fairfax, it was Aphria who took the lead on financing opportunities. It is not clear from Paragraph 1(d) of the Contract just how many potential strategic alternatives Scotia was required to identify. In any event, there was no complaint from Scotia that opportunities presented were insufficient in number or inadequate in scope.

The Bid Expires, Aphria Seeks Financing and Other Services from Scotia

[109] Aphria needed capital in order to pursue its strategic business plan. Menard testified that financing options were discussed by the Committee on January 7, 2019. He agreed that such options could have included a bank loan, the issuance of debentures, liquidation of non-core assets and investment by a strategic partner. Menard further agreed that he had discussions with Merton about a week later concerning the possible liquidation of Aphria’s Liberty Health Science shares, but this was an idea initiated by Aphria and not Scotia. Menard was also aware that there had been discussions between Scotia and Aphria about a term loan. However, that was not pursued because, according to Menard, Merton thought BMO was more aggressive in its term loan pricing than Scotia.

[110] Scotia also had discussions with Aphria in late January about the possibility of raising capital through bond financing. A presentation was prepared dated January 23, 2019 entitled “Institutional Debt Markets Discussion.” According to McIntyre, this presentation was made to Merton but the high yield bond market had not yet embraced the cannabis space and, given the cloud which still existed over Aphria because of the short-sell report, Scotia was not instructed to pursue high yield bonds as a source of raising capital.

[111] Menard became aware that Aphria, and specifically Serruya and Simon, met with the principals of GGB in Miami, Florida on January 31, 2019 to discuss a settlement between Aphria and GGB. Scotia was not invited to this meeting nor were they informed of it by Aphria after it had taken place. Instead, Scotia found out from third parties that Simon had brought representatives from Moelis & Company (a New York based investment bank) with them to the GGB meeting in Miami to provide advice. Scotia also found out from third parties that Aphria retained Jefferies Group (a New York based multinational investment bank) to provide a fairness opinion in relation to the debt call settlement agreement made between GGB and Aphria.

[112] On April 15, 2019, Aphria published a Press Release indicating it would accelerate the expiry date of the GGB bid to April 25, 2019. It terminated its arrangements with GA Opportunities Inc. (“GAOC) for consideration of $89M. Scotia was not involved in this. Jefferies was retained to provide a fairness opinion in relation to this transaction. McIntyre’s evidence was that it was not part of Scotia’s mandate to monetize GGB assets owned by Aphria as GGB was a U.S. based cannabis company. Aphria was well aware that Canadian regulations would not permit Scotia to become involved in this transaction.

[113] During this period, Scotia did a variety of miscellaneous work that was unrelated to the GGB bid. At the end of January 2019, Merton asked McIntyre for assistance in opening a bank account in Jamaica. In February 2019, Merton asked Scotia to prepare a Discounted Cash Flow analysis with respect to its business in Columbia. This analysis was prepared for the Special Committee.

[114] After the GGB bid expired in mid-April 2019, Aphria went to the market for a capital raise. Aphria needed capital at that point or, according to Simon, it would run out of money by the summer of 2019. Scotia participated in convertible debenture financing with Aphria that raised $350M.

[115] The parties had already been discussing the prospect of a convertible debenture financing. McIntyre’s evidence was that Scotia prepared a presentation for the Board in early February 2019 on convert financing on a quick turnaround and in consultation with their capital markets team. Scotia did so on the understanding from Merton that Scotia would be receiving the lead 30% position on this financing. Merton’s evidence was that he asked for a similar presentation from another party.

[116] Shortly after the expiration of the GGB bid, Merton contacted McIntyre and told him that the convert financing would go ahead but would be led by Jefferies. Scotia’s participation would be only 5%. McIntyre’s evidence was that he was shocked. He told Merton he did not understand why Jefferies was leading the financing as they did not provide any research to their clients. Merton told him that he really fought to have Scotia lead this financing but was not successful.

[117] Merton testified that he crafted the syndicate for convert financing the way he wanted it. He included BMO and Cowan because they had demonstrated success in raising capital under converts and knew the pool of lenders willing to invest in the cannabis space. Jefferies was included to give credibility in the U.S. market, Scotia for Canadian markets, and Heywood provided research. The total fee on the deal was $6M USD from which Scotia was paid its fee of $517,000 USD net of expenses.

[118] Merton was asked why Scotia’s participation in the convert financing was reduced from 30% to 5%. He explained that he and Simon thought Scotia’s approach was too passive and even talked of excluding them altogether. However, it was thought best to give them a “carrot” to continue working together because Aphria still needed a term loan facility from Scotia.

[119] In his evidence, McIntyre referred to an email which he sent to himself on April 13, 2019, in which he speculated that after the snub on the convert financing it would be hard to get approval for the type of credit Aphria was seeking from Scotia. As well, he vented his frustration in dealing with Aphria and listed the things Scotia had done to help Aphria such as stepping up to make up for the “useless” PR team Simon had brought from New York, setting up meetings with BAT, retaining counsel in South America and Jamaica, helping them get funds into the U.S. and pushing internally for credit for Aphria.

[120] McIntyre’s evidence was that he wrote this email just before a planned call with Serruya on the convert financing. Scotia was concerned that the 5% participation it had been given in this syndicate was indicative of Aphria not valuing Scotia. McIntyre’s view was that financing is a long-term commitment which, from the bank’s point of view, will contain ancillary opportunities. McIntyre testified that Scotia did not really see any of those opportunities with Aphria and questioned why Scotia should enter into a long-term commitment with Aphria given their actions in relation to this financing and the BAT issue. Discussions about loan financing between Scotia and Aphria basically died after the convert financing deal went through. In the end, Aphria obtained a term loan for $80M from BMO on November 30, 2019.

The Fee Dispute

[121] McIntyre’s evidence was that the Contract contemplated a two-step payment arrangement. The first step was the Opinion Fee which, as outlined above, was paid shortly after Scotia provided their Opinion on February 5, 2019. The next step depended on whether Aphria would remain independent or whether there would be a change of control. When it was clear that Aphria would remain independent, Scotia billed for its Independence Fee. Shortly after June 30, 2019, Scotia rendered its invoice for the Fee less what it had already been paid for the Opinion Fee. There is no dispute that the Fee is net of any amounts already paid for the Opinion Fee.

[122] Scotia delivered its invoice for the Fee in early July 2019. McIntyre’s evidence was that he did not think that payment of the Independence Fee was in any way controversial until he met Merton for lunch on July 4, 2019. Menard noted, prior to this, there had been no negative comments from Fasken or Aphria about Scotia’s contributions to the Circular, the shareholder letter or the investor presentation brief. McIntyre’s evidence was that he was never told that Scotia’s work was substandard, that the Contract had been terminated or that Aphria viewed its Contract with Scotia as having been abandoned. In fact, according to Menard and McIntyre, Scotia had no knowledge of Aphria’s dissatisfaction with its work until Merton’s lunch announcement and no particulars of any complaint until receiving Aphria’s Statement of Defence and Counterclaim.

[123] At that lunch, Merton told McIntyre that Aphria did not intend to pay the Independence Fee because it was Simon who did the work to defend the GGB bid and not Scotia. Merton told McIntyre he was well aware of the terms of the Contract, but that Aphria would “catch” Scotia on the next transaction. No “next” transaction has ever occurred.

[124] At trial, Merton’s evidence was that Scotia did not take a leadership role as Financial Advisor by bringing opportunities and information to Aphria.

[125] After Merton told McIntyre that Aphria had no intention of paying their account, McIntyre followed up with Merton a few times. Merton never returned his calls. Scotia eventually sent a demand letter. A response to the demand letter was sent by Gedeon on October 4, 2019.

[126] The letter from Gedeon provides a good summary of Aphria’s complaints concerning Scotia’s services, including the following:

At best, Scotia Capital provided the services enumerated in items (ii) and (iv) above and failed in all other aspects. Simply put, Scotia provided a fairness opinion to Aphria's Board of Directors (the "Board") and a few pictoral graphs that were added to Aphria's director's circular in response to the GGB bid (the "Director's Circular"), and then ceased providing services altogether. Scotia Capital failed to devote itself to the provision of services that would warrant the payment of fees in excess of 2.5 million dollars.

With respect to the Director's Circular, management with the help of its external counsel at the time, drafted the entire Director's Circular with little input from Scotia Capital. Scotia Capital attended only a few of the planning calls and rarely if ever provided comments on the content of the Director's Circular. The graphs and materials provided were inadequate and of poor quality and required significant revisions and refinement. Aphria is prepared to produce affidavits from management and emails between the parties that substantiate the deficiencies in the quality and the nature of the work delivered by Scotia Capital in support of the company's defense of the GGB bid.

Finally, the Engagement was terminated because management, with the support of Fasken Martineau Dumoulin LLP and Moelis Company, negotiated the early termination of the GGB bid in exchange for the buy-back by GGB of its own shares held by Aphria ("Share Buy-Back"). Scotia Capital neither supported the negotiations nor was it present in any aspect related to the termination of the GGB bid. In fact, as a consequence of Scotia Capital's complete neglect of its obligations under the Agreement, Aphria was required to retain Jeffreys LLC, a U.S. bank, to deliver the fairness opinion to the Board with respect to the Share Buy-Back, which ultimately ended the GGB bid.

Despite Aphria's express disappointment in the services that were rendered by Scotia Capital throughout the Engagement, in an effort to preserve the relationship between the parties, Aphria's Chief Financial Officer Carl Merton agreed to allow the participation of Scotia Capital in a syndicate of the U.S. banks in respect of the convertible note raise completed by Aphria in April 2019. For its participation, Scotia Capital received fees in the amount of $450,000 (the "Additional Fees").

Aphria is respectfully of the view that the Additional Fees should be deemed to be an offset for any outstanding sums Scotia Capital believes it is owed. Aphria considers the Opinion Fee and the Additional Fees received by Scotia Capital appropriately reflective of the effort and time Scotia Capital devoted to the Engagement. Accordingly, Aphria is of the view that the Independence Fee, as defined in the Agreement, is not owed.

[127] Menard noted that there was nothing in Gedeon’s letter about a concern that Scotia had not provided services in relation to potential strategic alternatives. That issue was only raised after the litigation commenced.

[128] The letter from Gedeon indicates that Aphria was required to obtain the services of Moelis to assist with the buy-back of the GGB shares. The letter specifies that Scotia did not support the transaction nor was it present for the negotiations (the inference in the letter being that Scotia should have done both). As indicated above, Scotia had no idea that Aphria had engaged Moelis. In any event, Moelis was not involved in the defence of the GGB bid. The Share Buy-Back was a completely different transaction.

[129] McIntyre took issue with Gedeon’s position that the fee paid to Scotia on the convertible debenture transaction formed a set-off against any amounts Scotia felt it was owed. McIntyre’s evidence was that this was a different transaction (different from the GGB buy back and different from the hostile takeover bid) with different payment terms. Further, McIntyre disputes Gedeon’s characterization that Aphria terminated the Contract. If it did so, Scotia never received any notice of the alleged termination.

[130] Menard’s evidence was that the Fee in this case is payable as no transaction was completed by June 30, 2019, nor was any definitive agreement signed in respect of any Transaction. As such, Scotia submits it is entitled to the Fee because Aphria retained its independence. In summary, Scotia’s position is that it is entitled to the Fee because it successfully defended Aphria against the GGB bid and less than 1% of Aphria’s shareholders tendered their shares as a result of the bid.

[131] Aphria views the Fee as a windfall for Scotia. It claims that after Scotia delivered its Fairness Opinion on February 5, 2019, it did no further work. Therefore, the additional $1.5M sought by Scotia is a Fee for work already completed.

Fee Claim - Expert Evidence

[132] The expertise of both Aphria’s expert, Mr. Gula, and Scotia’s responding expert, Mr. Alan Hibben were not contested. It was agreed that Mr. Gula and Mr. Hibben were experts in financial advisory and investment banking services as well as M&A transactions including hostile take-over bids.

The Evidence of William Gula

[133] Mr. Gula is currently a Senior Advisor at Morrison Park Advisors in Toronto. He is both an investment banker and lawyer with over 40 years’ experience in senior investment banking and legal roles. He practiced law for 25 years in a leading Canadian law firm specializing in M&A transactions, securities and corporate governance. He headed the M&A Group at a major Canadian investment bank for seven years and has advised clients on over $130 billion worth of M&A transactions.

[134] Mr. Gula has significant experience providing expert testimony and has provided experts’ reports to courts, regulatory bodies and arbitration panels on M&A matters. He also has experience on Special Committees, having been on the Board of both public and private companies.

[135] Mr. Gula has acted as lead or co-lead financial or legal advisor on at least 60 transactions which included the drafting of fairness opinions and a review of strategic alternatives. He has been involved in over 20 Hostile Takeover bids acting for both the target and bidding companies.

[136] Mr. Gula wrote two reports for this trial, one dated August 28, 2020, and the other report, in response to Mr. Hibben’s report, dated October 9, 2020. Mr. Gula was not asked to comment on the facts of this case including the Contract or the services performed by Scotia. Rather, he was asked to opine on the following:

What are the customary financial advisory and investment banking services provided by a financial advisor to a company that is the subject of an unsolicited offer for its shares?

[137] Mr. Gula’s evidence was that a Hostile Take-over Bid is - usually the most important event in the life of a corporation. It tends to be a chaotic time during which things can change daily. His evidence was that in 2016 the time frame for a Hostile Take-over Bid changed from 35-75 days to 105 day. This is still a short time frame but longer than before.

[138] The Financial Advisor plays a key role in bringing order to the chaos surrounding a Hostile Take-over Bid. It is usually the case that a company’s Board and management does not have any experience in such matters and therefore relies on the advice and expertise of the Financial Advisor.

[139] During the course of a Hostile Take-over Bid, and in Mr. Gula’s experience, the Financial Advisor would deal day to day with the company’s CEO, CFO, Chair of the Independent Committee and any legal, accounting or communications advisors. Contact with the Independent Committee would usually be weekly. Mr. Gula’s view was that the Financial Advisor was like the quarterback of the Hostile Take-over Bid team, organizing meetings, setting agendas and directing the strategy. He agreed that while there are certain customary roles of a Financial Advisor in a Hostile Take-over Bid, the details of each Take-over Bid situation will be different and to some extent will depend on the terms of the Agreement entered into by the Financial Advisor and the Target Company and the instructions given by the Independent Committee.

[140] Mr. Gula testified that the Financial Advisor must fully understand the Target Company so that it can provide advice and opinions to the Independent Committee and the Board regarding the fairness of the Bid or other alternatives that emerge. Mr. Gula summarized the various tasks of the Financial Advisor as follows:

a. Reviewing the business operations and financial performance of the Target Company through meetings with the CEO, CFO, Chief Legal Officers and other heads of business divisions; b. Reviewing financial and industry market information and do any other required analysis in order to be able to opine on the fairness of the Bid or alternatives that emerge. This includes an analysis of the current and prospective value of the Target Company; c. Providing fairness and advice and opinions as requested by the Independent Committee; d. Advising with respect to a general defence strategy; e. Advising and assisting to formulate a communications strategy including assisting with drafting of key documents such as the Director’s Circular, press releases and investor presentations. While the Financial Advisor may not write every press release it is involved in developing the messaging, tactics and timing. f. Assisting and advising the Company in contacting the shareholder base especially important shareholder influencers. This is particularly important with a retail shareholder base as it may be hard to identify all of them. Blogs and other social media forms of information may need to be developed. g. Advising with respect to the motivations, operations and other matters in relation to the Hostile Bidder including developing a strategy to deal with Hostile Bidder including inducing it to increase its offer; h. Identifying and advising with respect to potential strategic alternatives and the financial implications of those alternatives; i. If the strategy is to remain independent, advising the Target Company with respect to raising capital from strategic investors including identifying and potentially contacting potential counterparties and analysing their financial capacity, or exploring a sale of assets, corporate reorganization or Joint Ventures. j. If the strategy is to sell the Target Company, advising with respect to sale or merger with another company or the Hostile Bidder. k. Assisting in the execution of any required transaction including time and tax implications, drafting related documentation, negotiating terms, providing an opinion (if requested) on the adequacy of the consideration to be received. Further Fairness Opinions may be required. l. Other general advisory services including updates to the Independent Committee, market and trading developments, assisting with a “data room” and liaising (often daily) with the Chair of the Independent Committee and management.

[141] Mr. Gula explained that there were two types of strategies used when defending a Hostile Bid: an independence strategy or a competing bid strategy. If the Target Company wants to retain its independence, it must convince shareholders not to tender their bids. It may also include presenting possible modifications to shareholders in order to retain value. These could include new capital investment, sale of assets, corporate reorganization or a Joint Venture. The idea is to convince shareholders to hold on to their existing investment.

[142] The competitive bid strategy is one which could include a merger or a White Knight. The two strategies may involve different counterparties. The Financial Advisor acts as a form of broker for the Target Company, providing intelligence about those counterparties based on their expertise and contacts in the market.

[143] Mr. Gula estimated that in a Hostile Take-Over bid scenario, the Target Company remains independent only 30% of the time. This means that the Financial Advisor would be expected to form a plan of action very early on in the process in order to prepare for every eventuality given the tight time frame of 105 days. This often includes the preparation of multiple defence strategies.

The Evidence of Alan Hibben

[144] Mr. Hibben has a Bachelor of Commerce degree and is a trained Chartered Public Accountant and Chartered Financial Analyst. He has extensive experience in the capital markets as an investment banker, advisor to Canadian public companies, Board member and analyst. He is currently with Shakerhill Partners where he provides strategic advice including to the Ontario government and does expert witness work.

[145] In his career, Mr. Hibben was the Managing Director of Mergers & Acquisitions for RBC Capital Markets and CEO of RBC Capital Partners. He has also been a partner at Blair Franklin Capital Partners and Shakerhill Partners. He was the President of North American Trust Company and the Senior Vice-President of Corporate Finance for BMO in London, England.

[146] Mr. Hibben has extensive Board experience on private, public and non-profit Boards. He has experience in dealing with Hostile Take-over bids, particularly on the aggressor side. He has also been involved in many proxy battles which have similar elements to Hostile Take-over bids.

[147] Mr. Hibben was asked by Scotia to provide a responding expert’s report to the report of Mr. Gula. He was asked to provide an opinion on the following matters:

QUESTION 1: To review and comment upon the Expert Report of William Gula dated August 28, 2020, particularly the areas on which I agree with his opinion, disagree with his opinion, and whether further context or clarification is required.

QUESTION 2: To review Aphria Inc.’s (“Aphria” or the “Company”) disclosure in response to the GGB Hostile Take-Over Bid (including its responding material published on SEDAR and interviews by management) and address the following question: in my opinion, what would the market have understood to have been Aphria’s defence?

[148] In response to Question One, Mr. Hibben agreed that Mr. Gula had provided a good overview of what a Financial Advisor might do in a Hostile Take-over bid situation; however, he disagreed with Mr. Gula’s characterization of the Financial Advisor’s role as a quarterback or orchestra conductor.

[149] Mr. Hibben likened the role of the Financial Advisor more to that of a plumber who is asked to do specific things based on his or her expertise. His view was that everything in a Hostile Take-over bid does not revolve around the Financial Advisor. The view of the Financial Advisor can always be accepted or rejected by the Independent Committee. Further, it is very much a team effort in terms of “selling your story to the street.” The team includes management and deal counsel as well. A Hostile Take-over bid is a communications game in which the sales pitch to shareholders is extremely important.

[150] Mr. Hibben’s view was that it was often the Chair of the Independent Committee who could be more easily compared to an orchestra conductor in the Hostile Take-over bid process because he or she will direct activity including whether the Company will be sold (often referred to as “in play”). The Financial Advisor must take direction from the Independent Committee.

[151] Mr. Gula, in his Reply Report, confirmed his view of the Financial Advisor’s role. He added that they are paid significant fees and must earn them. He maintained his view that things change daily in a Hostile Take-over bid environment and are never black or white. The strategies developed by the Financial Advisory team must be able to respond to the ever-changing landscape. Hostile Take-over bids are almost always made when the Target Company is vulnerable and the strategies developed by the Financial Advisory team must adapt to this and prepare a comprehensive and flexible defence.

[152] The context of each Hostile Take-over bid cannot be ignored and will determine what services are required. For example, whether or not the Company is in play is a determinant of what services will be needed and when.

[153] With respect to Question Two, Mr. Hibben’s evidence was that the market would have understood Aphria’s approach to be a “just say no” defence because of the lack of acceptance within the shareholder base and the fact that no other strategies were reflected in the public disclosure. Mr. Hibben testified that based on the documents he had reviewed for the preparation of his report, Aphria took the position from the start that it wanted to remain independent. This position firmed up over time to the point where the Director’s Circular made it clear to shareholders that Aphria was not considering other options.

[154] Mr. Hibben opined that the Hostile Take-over bid period is usually not the time to raise capital. It is difficult to execute a good strategic alternative while the Target Company is under attack and its share price depressed. Further, caution must be exercised in terms of strategic alternatives. If you open the Company up to other bidders when that is not necessary, there is a risk that confidential information and intellectual property could be unnecessarily exposed. Mr. Hibben qualified this opinion by saying that urgency would prevail. That is, if capital was needed to meet payroll, that was one thing but if capital was needed to exercise a business plan, his view would be to wait until the Hostile Take-over bid circumstances were well in the past.

[155] Mr. Gula, in his Reply Report evidence, did not agree with Mr. Hibben’s view. His evidence was that the process of identifying potential strategic alternatives has many stages. At the initial stages, the disclosure of confidential information is not required. With respect to the issue of when to raise capital, Mr. Gula’s view was that the Target Company is not in control of the outcome and all options must be pursued. He warned that public disclosure (such as the Director’s Circular) can be tactical and does not always exactly reflect the intentions of the Target Company.

[156] Mr. Hibben did not disagree with Mr. Gula that there were a range of options which the Board could choose in the face of a Hostile Take-over bid but in his experience an asset sale and a Joint Venture may not be best options because market dynamics may not be in your favour.

Fee Claim - Analysis

[157] As set out above, Aprhia’s two main defence arguments are (1) the lack of causality between Scotia’s work and the defence of the GGB bid and (2) repudiation. I will deal with both arguments in turn.

Alleged lack of causality between Scotia’s work and the defence of the GGB Bid

[158] Dealing first with the causality argument, I find that Scotia’s work resulted in a complete defence of the GGB bid and Aphria maintaining its independence. Achieving those results entitled Scotia to the Opinion Fee and the Independence Fee (net of the Opinion Fee).

[159] Aphria attempts to conflate its complaints about the quality of Scotia’s work with an entitlement to ignore the basis on which Scotia is entitled to be paid, that is, the results achieved.

[160] In Cannacord Genuity Corp. v. Reservoir Minerals, 2019 BCCA 278, the court considered a fee dispute under a contract related to a financial services agreement in a takeover offer. Justice Groberman, writing for the court, held that:

If the main object of a takeover bid is to acquire a majority position in a company, it may be perfectly reasonable to make the fee payable for financial advice dependent only on the achievement of that goal (para. 27).

[161] While the facts of that case related to a transaction fee (which was not payable in the case at bar), the underlying principle can be adopted here: a fee payable solely on the result is not commercially unreasonable.

[162] Aphria relies on RBC Dominion Securities v. Crew Gold Corporation, 2017 ONCA 648, 73 B.L.R. (5th) 173 (“RBC”). RBC was a contractual interpretation case in which RBC sued Crew Gold for a success fee under an Engagement Letter for Investment Banking Services. RBC was to provide services in relation to developing and implementing strategic alternatives and was entitled to a success fee based on the completion of a specific transaction as defined by the Agreement. Before this specific transaction took place, a third-party takeover intervened. RBC sued for the success fee on the basis that it provided services in relation to an unanticipated transaction, namely, a takeover.

[163] The court declined to find in favour of RBC, holding that the intervening takeover precluded RBC from providing the agreed-upon services. As the court noted (at para. 38):

RBC was unable to provide most of the anticipated advisory services because of the intervention of the takeover and the way it took place. Indeed, the Agreement was terminated only a few months after it had been concluded and, at that point, RBC was only on the cusp of providing services with respect to the RBC alternatives.

[164] I agree with Scotia that the RBC case is not applicable here. In that case, the anticipated transaction never happened due to the intervention of a third-party takeover. As such, the court found that there was no nexus between the additional Fee claimed and the services provided. In contrast, in the case at bar, matters unfolded exactly as anticipated. The hostile takeover bid was successfully defended and Aphria maintained its independence. There was no intervention of any unanticipated event that would have changed the course of events such that Scotia may have been disentitled to its Fee.

[165] I also agree with Scotia that the Mandeville et al. v. Manufacturers Life Insurance Company, 2012 ONSC 4316, 6 B.L.R. (5th) 175 case is applicable here. That is, much of Aprhia’s defence of the Fee claim relates to complaints made after the fact. For example, and using Ms. Gedeon’s letter as an example, Aphria claims that the Contract was terminated. There is no termination provision in the Contract. Aphria raised the issue of repudiation for the first time in its pleadings.

[166] Ms. Gedeon states, on behalf of Aphria, that the GGB bid was accelerated and the buyback deal completed solely as a result of Aphria’s efforts through negotiations by Moelis and Fasken and that Aphria had to retain Jefferies to provide a Fairness Opinion. The retention of Moelis and Jeffries is somehow characterized as being as a result of Scotia’s neglect. However, the evidence was clear that Scotia could never have been involved in the share buy back because of the indirect holdings of GGB being in a U.S. Cannabis company and further that Scotia was completely left out of these negotiations presumably because of the very reason stated above.

[167] I furthermore reject the position taken in Gedeon’s letter, as well as by Merton and Simon, that Simon was the one who defended the GGB bid. In making this argument, Aphria suggests that Simon’s negotiations with respect to the acceleration of the bid to April 25, 2019 were integral to the defence. This is inaccurate. In fact, the bid was only accelerated when it was already clear that it would fail. Aphria made representations to the OSC that this arrangement was only reached once it was already known that the bid would fail. The failure of the bid cannot be attributed solely to Mr. Simon, but was clearly also due to the background work provided by Scotia, Fasken and the outreach to shareholders by the communications team.

[168] The GGB deal was a commercial transaction and not a settlement of the GGB bid. Aphria has attempted to conflate the two in an effort to justify its position that in fact it was Simon who negotiated the GGB bid rejection and that his success was not due to any efforts on the part of Scotia. This is untenable and completely rejected by the court. If that was the case, Aphria should also have refused to pay Fasken, Laurel Hill and Gagnier. There is no evidence that this was the case.

[169] Most important, however, is Gedeon’s reference to Aphria’s disappointment in Scotia’s services throughout the term of the Contract. This came as complete surprise to Scotia who had no indication of disappointment in its work either verbally or in writing until the meeting between McIntyre and Merton on July 4, 2019. In fact, Scotia had received praise from Gedeon and Ms. Macgregor by way of emails on February 6, 2019. As such, I accept that this is a case similar to Mandeville, in which the Court’s reliance on contemporaneous documents (or a lack thereof) become of critical importance.

[170] Ms. Gedeon’s letter makes no mention of any issue with respect to identifying or soliciting alternatives, a complaint which was front and centre at trial and a complaint which was never made to Scotia except when this litigation arose.

[171] Aphria also argues that there is no causal connection between the Fee claimed by Scotia and Aphria’s independence because there is no evidence that the Circular filed on February 6, 2019 had any impact on shareholders’ decision to tender their bid. Aphria claims that the shareholders’ reaction was related more to Aphria’s increased share price than what was contained in the Circular.

[172] I reject this argument as nothing more than speculation. As both experts agreed, the defence of a takeover bid is a collaboration of effort between various professionals each lending their expertise to achieve a result. The precise role that these combined efforts play in shaping a given outcome is difficult to quantify. Without further expert evidence, it is not possible to ascertain exactly why shareholders decided not to tender their bid. One may infer it was a constellation of factors including the Circular, the increased share price and efforts on behalf of Laurel Hill and Gagnier to persuade shareholders using various direct marketing methods.

[173] Aphria complained that Scotia failed to provide financing opportunities as part of their mandate. During argument, Aphria submitted that this was an obvious part of Scotia’s mandate as they were hired as Investment Bankers and Investment Bankers do exactly that: provide financing opportunities.

[174] I do not agree with Aphria. First, it is not clearly set out in the Contract that Scotia was to provide financing opportunities. Further, and once again, this is a complaint by Aphria that only came up during the trial. I find that Scotia did provide financing opportunities albeit in a limited way given that it was not specifically part of their mandate. After the snub on the convert financing, Scotia was less inclined to push internally for a term loan for obvious reasons. None of this can be used to bolster an argument that Scotia failed to provide the services bargained for in the Contract.

[175] Finally, there is an issue as to the authority to decline payment to Scotia. According to Merton, the decision not to pay Scotia was made by him and Simon jointly. However, when Simon became interim CEO of Aphria on March 1, 2019 he was no longer an independent director and could not be part of the Committee. Merton on his own did not have the authority to decline payment to Scotia as he admitted during his testimony that he did not have the authority to negotiate the Contract on behalf of Aphria. If that was the case, where was the authority to decline payment to Scotia in the face of no Board approval, a lack of authority on the part of Merton, and Simon’s conflict? I find that there was none.

Alleged Repudiation of the Contract

[176] The defence of repudiation in this case is more difficult to grasp. The question to be asked is whether Scotia’s conduct would lead a reasonable person to believe that Scotia had no intention to be bound by the contract. The short answer is no.

[177] As the Ontario Court of Appeal articulated in Place Concorde East Limited Partnership v. Shelter Corporation of Canada (2006), 270 D.L.R. (4th) 181 (Ont. C.A.), repudiation is an exceptional remedy “available only in circumstances where the entire foundation of the contract has been undermined” (para. 51).

[178] First, I accept the evidence from the Scotia witnesses, as corroborated by the relevant documents, that no repudiation took place. Scotia continued to provide services to Aphria even after the rejection of the GGB bid had crystallized. Scotia was taken by surprise when Merton advised that Aphria would not be paying the Fee. Up to that point, Scotia had no indication of any dissatisfaction on the part of Aphria nor any intention to take any steps that could be considered as a repudiation of the contract.

[179] With respect to acceptance of the alleged repudiation by Scotia, and as per Fram Elgin Mills 90 v. Romandale Farms Limited et al., 2019 ONSC 5322, the burden to establish acceptance of the repudiation is on the party asserting acceptance and such acceptance must be clearly and unequivocally communicated to the repudiating party within a reasonable time (para 337). Aphria submits that its acceptance of repudiation was by way of conduct. While Fram does not discount conduct as a possible means of acceptance, I reject that this manner of repudiation exists in the case at bar.

[180] It is impossible to understand how Scotia could have ascertained that Aphria’s conduct was in the nature of repudiation. As late as April 2015 Aphria issued a Press Release identifying Scotia as its Financial Advisor. Scotia had set up meetings with BAT in May 2019. There is no documentary evidence contained in the hundreds of emails and other documents filed that would support Aphria’s position that it had accepted an alleged repudiation of the contract by Scotia.

[181] Aphria argues that Scotia failed in every aspect with respect to the performance of the Contract, leaving Aphria’s management and Board to fend off the Hostile Take-over bid without any advice or assistance from its Financial Advisor. Aphria’s argument can be further broken down into three main categories: (1) Scotia’s general failure to provide the expected leadership and quality services of an experienced financial advisor, (2) Scotia’s failure to provide any services after February 5, 2019, and (3) Scotia’s failure to present potential strategic opportunities for Aphria.

[182] I shall go through each of these categories in turn.

(1) Scotia’s Alleged Failure to Provide Leadership and Quality Services

[183] Merton and Simon repeated throughout the trial that Scotia was far too passive in this process. They claim that Scotia did not step forward but only volunteered information when asked. They further claim that on a number of occasions there were meetings about work distribution, but Scotia never volunteered to take on tasks. Merton’s view was that the effort to defend the GGB bid was actually led by Fasken, Gagnier, and McGregor

[184] The lack of complaints from Aphria while the GGB bid was outstanding belies this argument. As noted above, Menard testified that there was no complaint from either Fasken or Merton as to the amount or quality of input from Scotia on the reasons to reject. Menard testified that Merton is a very direct person. Merton concurred during his evidence. Scotia urges me to accept that if Merton had had a complaint with Scotia he would have voiced it. I agree.

[185] Menard also told the Court that he never received any comments from Simon or Persofsky during this process. In fact, he never actually met Persofsky during the time he worked with Aphria. Menard testified that he did not meet Simon until May 2019, as Simon was usually in New York. Menard never initiated contact with Simon, although McIntyre told him he had tried to reach out to Simon several times but never received a response. McIntyre confirmed this in his evidence. McIntyre’s evidence was that he had very little communication with Simon. Simon was usually on the Committee calls but McIntyre dealt almost exclusively with Serruya.

[186] Serruya was not called as a witness by Aphria. I do not agree with Aphria’s submission that this was because Serruya’s evidence would not have been different from that of Merton, Persofsky or Simon. It is clear from the hundreds of emails filed in this case that Serruya was in constant contact with both Scotia and Fasken. I infer that Serruya’s evidence would have supported Scotia’s position with respect to both the quality and extent of their work. I note there was no evidence tendered by way of email exchanges from any of Aphria’s witnesses in which they record complaints about Scotia’s work or alleged lack of initiative.

[187] Aphria further complains that Scotia did not take a leadership role with respect to planning and workflow. Leaving aside that the majority of work and planning done by Scotia related to the financial modeling leading up to the reasons to reject, it was clear from the many emails in evidence that Scotia was in constant contact with Fasken with respect to the drafting of the reasons to reject and other issues related to the Circular.

[188] The issue of exactly what type of “leadership” was expected of Scotia is a matter that was discussed by the experts. While Mr. Gula insisted that the Financial Advisor should be the quarterback or the orchestra leader in a hostile takeover bid, the view taken by Mr. Hibben makes more practical sense; that is, that everything done during such a bid does not revolve around the Financial Advisor. Much depends on whether the company is “in play” which Aphria was not. Multiple experts are retained who must all work together at the direction of the Chair of the Independent Committee (to whom Scotia was directly responsible).

[189] Simon and Merton complained that they expected Scotia to step up and bring them ideas and opportunities rather than Aphria having to ask them to do so. Scotia’s work from late-December until February 5, 2019 makes it clear that it was focused on financial modeling sufficient to prepare meaningful reasons to reject. I find that Scotia attempting to take a leadership role in other areas such as legal or communications issues would not have been helpful or even appropriate.

[190] Aphria complained that Scotia was nowhere to be found when it came to negotiations with GGB in mid-January. Simon’s evidence was that, since Scotia was not present, he hired Moelis for assistance. His evidence was that Scotia should have provided this advice. The problem with this argument is that Scotia was kept out of the loop on this negotiation and in fact did not find out about the January 31, 2019 meeting between Simon and GGB principals in Miami until after the fact. Further, if Simon was so unhappy with Scotia in mid-January 2019, one wonders why the Contract was signed on January 21, 2019.

[191] Aphria also maintains that, because Simon negotiated an early termination of the GGB bid on April 25, 2019, that this meant that Scotia had not fulfilled its mandate. Again, Scotia was left out of these negotiations and Simon hired Jefferies to prepare a Fairness Opinion for that transaction. Scotia was never approached nor was it asked to become involved in those negotiations. Aphria’s retainer of Moelis and Jefferies for the GAOC transaction is not indicative of any failure on the part of Scotia. Scotia was never asked to provide a Fairness Opinion or in fact asked to do any work in relation to that transaction as described above.

(2) Scotia’s Alleged Failure to Provide Any Services After February 5, 2019

[192] As set out above, Aphria complains that Scotia did not provide any services after delivering its Opinion on February 5, 2019. I reject this proposition. As set out above, there was significant evidence of services provided by Scotia after February 5, 2019, which can be summarized as follows:

a. Scotia continued to work on a term loan for Aphria and presented financing terms on March 29, 2019. The fact that Simon has no knowledge of this is irrelevant. There is no reason not to accept Scotia’s evidence on this point. b. The DCF analysis prepared by Scotia regarding Aphria’s assets. c. Merton’s request and Scotia’s compliance with respect to payments to a Scotia account in Columbia, an F/X trader. d. Merton requested that Scotia provide a Fairness Opinion on the Liberty Health Sciences monetization. Scotia gave some advice but turned down the assignment for conflict reasons. e. A presentation to the Board on convertible debenture financing on February 5, 2019. f. Scotia continued to work on strategic opportunities for Aphria. It should be kept in mind that the Committee did not meet again after February 5, 2019. Scotia’s instructions on pursuing these opportunities mostly came from Merton. More discussion on this aspect of Scotia’s work is set out below. g. Scotia provided financing opportunities (such as its own term loan, the convert and Fairfax) despite this not being part of their mandate.

[193] It must be kept in mind that Scotia’s mandate was related solely to work for the Committee and in relation to the GGB bid. The Committee never met again after February 5, 2019. Any steps taken after the point when it became clear that only a nominal number of shareholders would tender their bids became, arguably, gratuitous on the part of Scotia. In any event, I find that Scotia did in fact continue to provide services after February 5, 2019, but many of those services were either rejected by or not followed up on by Aphria. This includes the many miscellaneous tasks outlined above, as well as Scotia’s work in assessing strategic opportunities for Aphria, as discussed in fuller detail below.

[194] Some of Aphria’s specific complaints merit discussion. Aphria argues that Scotia was required to provide financing solutions for Aphria, which it failed to do. I reject Aphria’s argument that this disentitles Scotia to the Fee. First, this did not form part of its mandate under the Contract. Simon insisted during cross-examination that Scotia was hired in part to provide a “lifeline” for financing. However, such an obligation is not found in the Contract. Second, complaints about Scotia’s failure to address those issues only arose in Aphria’s evidence at trial, where, for the first time, the issue of Aphria being on the brink of insolvency was raised. Of interest is that Board Minutes in evidence contain no discussions of any internal financial crisis. Further, Simon agreed in cross-examination that there was nothing in Aphria’s financial statements that would have indicated a going concern nor were any documents produced by Aphria to verify this alleged cash crisis.

[195] Aphria also submits that Scotia did not provide any services in relation to its internal efforts to raise capital including Aphria’s divestiture of assets in Liberty Health Sciences and selling the GGB shares. However, Scotia’s evidence was that it could not be involved in the GGB transaction because of its U.S. cannabis share holdings and it could not become involved in the Liberty Health Sciences transaction due to a conflict. Indeed, I accept that Scotia was kept out of these transactions for reasons which had nothing to do with their competence or performance expectations. As such, Aphria cannot now take the position that Scotia should have somehow formulated and executed on these transactions.

[196] Finally, while Scotia did provide some financing solutions as set out above, neither Simon nor Persofsky knew of them. This lack of information on the part of key Committee members about Scotia’s work makes it more difficult to accept their complaints about Scotia’s performance.

[197] I agree with Scotia’s submission that the Contract stipulated that if Scotia was requested to perform services other than as set out in Paragraph 1, such services would be subject to a separate agreement and fees. This would lead to the conclusion that if Aphria’s position is correct on the issue of Scotia being obliged to provide financing options as part of the Contract it should not have been paid separately for its work on the convertible debenture, that work being part of the Contract based on Aphria’s interpretation.

[198] It was clear from Simon’s evidence that he did not understand Scotia’s mandate. First, his evidence was that Scotia’s mandate related to Aphria and not the Committee. Second, he agreed that there was no contractual obligation requiring Scotia to raise capital for Aphria but “there was a mandate out there that knew that the company needed financing.” It is unclear what this evidence means exactly other than Simon attempting to read obligations into the Contract that he conceded were not already there.

[199] Aphria’s overarching argument that Scotia simply became absent after the February 5 meeting is disingenuous. Scotia remained available at all times. The evidence clearly showed that Merton continued to contact Scotia for various tasks, as he himself referenced in his email of March 17, 2019 to McIntyre in which he adverts to his emails being an “recurring theme.” Again, many of these tasks fell outside of the Contract’s mandate.

[200] There is also Merton’s clear evidence that he wanted Scotia to remain in the picture because he wanted a term loan from them. He needed Scotia as they were one of the few large banks who would lend to cannabis companies. His ongoing communication with Scotia and assignment of various tasks to them is consistent with this attitude.

(3) Scotia’s Alleged Failure to Provide Strategic Opportunities

[201] The majority of evidence presented by Aphria related to its contention that Scotia was bound but failed to provide services with respect to strategic alternatives to the GGB offer. Paragraph 1(d) of the Contract sets out that the Scope of Engagement required that Scotia:

(d) Identify potential strategic alternatives to the GGB Offer, or any other Transaction that may be proposed or solicited during the term of the Agreement, and advise the Independent Committee with respect to the related financial implications;

[202] Paragraph 1(e) of the Contract further requires that Scotia:

If requested by the Independent Committee, solicit alternatives to the GGB Offer or any other Transaction that may be proposed during the term of the Agreement and managing any related market canvass or auction process.

[203] Menard’s evidence was that there is a difference between identifying potential strategic alternatives and actually soliciting them from third parties. With respect to identifying potential strategic alternatives, as required under Paragraph 1(d), Scotia pursued this mandate and their work is set out below.

[204] The real contention between the parties is whether Scotia fulfilled its mandate under Paragraph 1(e). Menard testified that the Committee specifically instructed Scotia not to pursue alternatives as set out in 1(e). Otherwise, Scotia would have prepared marketing materials, set up a data room with management, prepared a sales presentation and done the relevant due diligence. Menard’s evidence was that this instruction was given to him through McIntyre around the third week of January 2019. McIntyre testified that it was Merton who gave him those instructions, which he passed on to Menard. For his part, Merton denied limiting any Committee instructions in this manner.

[205] It is worth outlining the discussions held by the parties about pursuing strategic alternatives.

[206] As noted above, Scotia presented some strategic alternatives to Aphria at the kick-off meeting on January 7, 2020. Menard was challenged in relation to the strategic alternatives (“the Slide 6 alternatives”) presented to the Committee in the materials at that meeting. It was suggested to him that Scotia’s position was that the presentation of these alternatives to the Committee was sufficient to fulfill its mandate in 1(d) of the Contract. Menard disagreed. He testified that alternatives were identified and discussed. He conceded that the Scotia team could not comment on the financial implications of the Slide 6 alternatives at that time because the financial analysis had not yet been completed.

[207] Merton’s evidence was that as of January 7, 2020, Aphria was unwilling to negotiate with GGB and, as such, the potential strategic alternatives presented at the kick-off meeting were important and the Committee was open to all of them. He conceded that the White Knight alternative might not have been the best one because Aphria did not want to be seen as having a “for sale” sign on its front lawn at that point due to a possible effect on share price.

[208] Discussions about strategic alternatives continued throughout January. Menard testified that he met with Merton on January 14, 2019 to discuss conversations that Aphria had held with potential partners before the short-sell report came out, while Aphria had been using RBC’s services in the fall of 2018. Scotia wanted to understand the feedback from those discussions, the model RBC had developed to solicit strategic partnerships and at what stage the discussions had been left. Scotia’s team felt it would be wise to prepare a potential buyer’s list that everyone agreed upon in the event that the Committee instructed Scotia to pursue alternatives to the GGB bid. At this meeting, there were also discussions about how Aphria could obtain cash, including monetizing its shares in Liberty Health Sciences and GGB.

[209] Persofsky and Simon both gave evidence that the Committee decided to conduct a strategic review. That evidence is not supported by any materials in the evidentiary record including a reference in the Minutes or a resolution put before the Board.

[210] Merton referred to notes produced by Scotia which set out a detailed list of all potential strategic partners as well as investment criteria. Merton agreed that this was a strategic idea-generating meeting to discuss who should be approached as new partners and which companies who had been approached in the past by RBC should be approached again.

[211] McIntyre’s evidence was that he met with Merton in January 2019 to come up with a list of potential strategic partners. McIntyre’s view was that informal reach-outs rarely work. He recommended a formal process including a data room and sales presentations as described above. Merton did not want Scotia to implement any formal process and, according to McIntyre, only wanted Scotia to reach out to clients with whom they already had a relationship. McIntyre said he did not disagree with this strategy. With the overhang of the short-seller report and the resulting management turnover, Aphria would really only have one chance to impress strategic partners. McIntyre understood that a more subtle approach was needed.

[212] Menard was asked for his view as to why Scotia was not initially instructed to pursue potential strategic partners. His response was that the overhang from the short-sell report had a negative effect on Aphria’s share price and it was rebuilding. As such, it did not have a management team in place that could have the necessary discussions with strategic partners. Menard thought that Aphria’s decision not to pursue strategic partners at that point in time was appropriate.

[213] Merton’s evidence on this point was different. He testified that Aphria was open to all opportunities other than a White Knight and the GGB bid. His view was that it was part of Scotia’s mandate to pursue those opportunities, although admittedly permission would have to be sought from him or the Committee before approaching potential strategic partners.

[214] By January 20, 2019, McIntyre said he had received instructions directly from Merton, Serruya and the Committee that Scotia was not to approach strategic partners at that time. McIntyre said that there was nothing in writing from the Committee documenting those instructions because everything was done by phone or in-person meetings.

[215] By way of proof of these instructions, McIntyre relied on an email he sent on January 20, 2019 to Grant McGlaughlin, a partner at Fasken with whom Scotia worked closely on defending the GGB bid. In this email, he emphasized that Aphria’s preference was to remain independent in the context of the GGB bid but to pursue Altria-type investors in the event that the GGB bid attracted other potential bidders. The instructions were confirmed by Grant McGlaughlin (“McGlaughlin”). As well, McIntyre relied on the instruction to remove the reference to potential investors from the Circular.

[216] Throughout this time, Scotia had been considering and identifying potential strategic partners for Aphria pursuant to its mandate under Paragraph 1(d). As mentioned above, in February, Scotia had prepared a list of potential strategic partners based on the slide which Scotia had originally planned to include in their Opinion (before being told not to include references to strategic partners in the Circular). It was around this time, while Merton was still insistent that Scotia not reach out to anyone with whom they did not already have a business relationship, that he gave permission for Scotia to pursue a potential strategic partnership with BAT. Scotia was also given permission to reach out to Whole Foods.

[217] Given all of the above, I make the following findings.

[218] First, I accept that Aphria instructed Scotia not to solicit strategic partners. Aphria made it clear to Scotia that it wanted to pursue a bid defence that would allow them to remain independent and grow. They did not want a messaging that could be interpreted to mean that Aphria was up for sale. Aphria had clearly adopted a “just say no” strategy early on in the process of defending the bid.

[219] While Persofsky and Simon testified that the Committee chose to initiate and conduct a strategic review, this was not supported by the evidence. I agree with Scotia’s position on this point that such a decision is not reflected in either the Committee’s Minutes or the Circular. If a decision to conduct a strategic review had been made by the Committee, it would have been reported to the Board. The Board Minutes do not reflect any such report. Further, while it is uncontested that Scotia presented opportunities from both HEXO and MJardin, they were not instructed by the Committee to follow up.

[220] The “just say no” strategy was made clear in Aphria’s communication to shareholders. In this regard, I note the evidence of instructions being given to Fasken and Scotia to remove any reference to a “strategic review process” from the Circular. Mr. Hibben was clear that if the Board was open to pursuing alternatives, it is bound by securities law requirements to disclose that in its reasons to reject. Simon was clear in an interview with BNN on February 6, 2019 that the best thing for shareholders was to “focus on Aphria business.”

[221] Second, it is clear that Scotia identified potential strategic alternatives and presented them to Aphria. Scotia went so far as to facilitate introductions with BAT and Whole Foods, with Aphria’s permission. Whole Foods did not work out because of a conflict. The BAT connection was taken over by Aphria after Scotia had done all of the groundwork. Simon’s evidence that he did not want to Scotia to be involved with BAT because of a concern that they would not follow up is not borne out.

[222] I accept Scotia’s evidence with respect to what unfolded with BAT. That is, Scotia made the connection and followed up but in fact it was Aphria who was slow in getting back to Scotia. Indeed, it was by way of a follow up from McIntyre after the May 2, 2019 meeting that he was informed that Aphria no longer needed Scotia with respect to any connection with BAT.

[223] Third, the messaging from Merton and Simon was contradictory in terms of the approach to strategic alternatives. Merton was clear that he did not want Aphria to be seen as “up for sale”, yet Simon’s evidence was that he was prepared to look at a sale if someone offered. I conclude that the Committee never instructed Scotia to pursue strategic alternatives. Scotia was merely expected to present them, which it did on several occasions.

[224] The mixed messaging from Aphria was blamed on Scotia yet the witnesses who could have resolved exactly what Scotia was instructed were never called, i.e. Serruya or McGlaughlin. Instead, Aphria called Persofsky and Simon as witnesses, individuals who were limited in their involvement with the GGB bid defence strategy.

[225] Some of the expert evidence bears mentioning at this point. Aphria relied on Gula’s view that “customary services” would include identifying potential counterparties, analysing each one, developing an outreach strategy and, if instructed, contacting them. Hibben did not agree. His view was that the Financial Advisor must first take instruction from the Committee and be open to alternatives but advance with some caution while the company is vulnerable. He was against opening the company “kimono” to outside bidders unless necessary or part of the strategic plan.

[226] I do not find that Mr. Gula’s testimony assists the court in this case. While his expertise is not in any questioned by this Court, his testimony was generalized and was not specific to a situation in which the Target Company had adopted a stay independent strategy.

[227] Finally, a common-sense approach must be taken on this point. Scotia stood to make a transaction fee of between $15M and $20M if there was a change of control. It was therefore in Scotia’s interest to identify strategic partnerships that would lead to such a transaction. I find that Scotia did identify strategic partnerships, but was instructed by Aphria not to pursue them or that Aphria pursued them on its own without involving Scotia.

[228] In summary, I find that Scotia did provide certain services after February 5, 2020, some of which were not even required by their mandate but were provided in any event. Other services were requested by Merton without the knowledge of Board members who were left with the impression that Scotia was not doing any work after February 5, 2019. In any event, the Contract did not require Scotia to provide any further services once the GGB bid expired and Aphria’s independence was crystallized. Aphria’s after the fact complaints about Scotia’s performance, lack of leadership and failure to provide customary financial and advisory services are baseless and transparently devised to avoid payment on a clear obligation in the Contract.

[229] Again, repudiation is an exceptional remedy available only in circumstances where the entire foundation of the contract has been undermined. In this case, I have outlined above in detail the work that Scotia continued to perform after February 5, 2019, despite Aphria’s snubs on the convert and the BAT follow up. However, one really need go no further than Aphria’s April 15, 2019 press release in which shareholders were advised that Scotia was the Financial Advisor for the takeover defence. If Scotia had repudiated the Contract following delivery of its Opinion on February 5, 2019 Aphria was clearly not aware of that as they continued to list Scotia as their Financial Advisor as late as April 2019.

[230] Further, the Committee never met after February 5, 2019. Unlike the Special Committee, which had a final meeting in which they passed resolutions to pay their professional advisors and clearly end their mandate, the Committee did not take any such steps. There is no evidence that Scotia took any action that could be interpreted as a repudiation of the Contract, nor any evidence that had they taken such steps that Aphria accepted that repudiation.

[231] Given all of the above, Scotia’s claim is allowed including the Fee and expenses.

Counterclaim - Facts

[232] When marijuana was legalized in Canada in October 2018, Scotia began analyst coverage of Aphria. Analyst coverage is provided as a service to corporate clients and to generate revenue. Scotia’s research department was well-regarded according to McIntyre and Aphria’s share price increased 4% on the day that research coverage by Scotia was announced. Simon viewed analyst coverage as providing credibility to Aphria. It meant that a bank was devoting resources to the company which would become available to its retail shareholder base.

[233] According to Scotia’s Equity Research Compliance Policy, research analysts must “maintain independence and objectivity in conducting research, rendering opinions and making recommendations.” This includes “being independent of issuers being covered.” Scotia analyst Rowe was the analyst assigned by Scotia to cover Aphria. Rowe was supervised by analyst Isaacson. Both Rowe and Isaacson worked in the Research department at Scotia. The head of Scotia research is John Henderson.

[234] On July 29, 2019, Rowe announced he was leaving Scotia and in early August 2019 Isaacson took over the Aphria coverage and coverage of a number of other cannabis companies.

[235] On August 1, 2019, Scotia published its last analyst report on Aphria before the Director’s Comment (“the Comment”) that is the subject of this Counterclaim. Henderson agreed that this report was glowing and it was clear that Aphria had moved well-beyond the short-sell report and the takeover bid.

[236] In September 2019, a new analyst, Adam Buckham, was hired by Scotia. It was intended that he would take over Aphria coverage in January 2020 once he was up to speed. In the fall of 2019, Isaacson continued to provide coverage for Aphria, other cannabis companies and several chemical companies. His workload was significant.

[237] On September 30, 2019, McIntyre was requested by the Scotia Legal Department to set up a call with Henderson. The head of compliance at Scotia, as well as someone from the legal department, also participated in the call. McIntyre told the court that communications between Research and Investment Banking take place only when there is a compliance person present. This is to ensure compliance with the “Chinese Wall” between the two departments in accordance with Scotia’s Ethical Policy. Henderson’s evidence was that there is an inherent conflict of interest between investment bankers who are trying to raise funds for an issuer and the analyst who is working to assess the merits of investing in a company. As such, Investment Banking and Equity Research must be kept separate.

[238] The intention of the call was so that McIntyre could inform Research of the status of the litigation between Scotia and Aphria. This was important because by October 3, 2019, counsel for Scotia had already booked a scheduling appointment with the Commercial List in Toronto to move forward with the litigation.

[239] No views on suspending research coverage of Aphria were ever expressed during the call. According to Henderson, the decision reached on that call was to do nothing until there was a need to publish. Henderson was aware of the litigation between Scotia and Aphria and was concerned about possible repercussions and conflict of interest issues if Scotia was put in a position where it had to publish negative analyst’s coverage of Aphria. His evidence is that Scotia would likely not have taken any steps to suspend coverage had Aphria not failed to pay a supplier thereby impacting their share price.

[240] In an email from Henderson to McIntyre and Menard dated October 8, 2019, Henderson explained that there had been a market event which formed the basis of his decision to suspend analyst coverage of Aphria. Henderson described the market event as Alefia cancelling a supply contract with Aphria allegedly for non-payment. Isaacson felt this was material and needed to be published.

[241] Henderson felt it best to suspend coverage entirely, thereby avoiding a negative situation for both Aphria and Scotia.

[242] His rationale for publishing the Comment on Aphria and CannTrust at the same time was “efficiency.” Henderson’s evidence was that the suspension of coverage had nothing to do with the fee dispute nor would he suspend coverage for such a reason. In short, it would have been necessary to publish something regarding the Alefia issue but rather than do so, and to avoid a situation in which Scotia was put in a conflict of interest, Scotia suspended coverage. The suspension of coverage was indeed due to a reallocation of resources but was also reflective of the conflict looming large in the background.

[243] On October 8, 2019, Scotia published the Comment in which it announced that it was suspending/discontinuing coverage of Aphria and CannTrust. The reason given for the suspension in the Comment was a “reallocation of analyst resources.” No advance notice was given to Aphria about the suspension. According to Henderson, regulations prohibit such notice. The Comment was sent to 270 institutional investors and 166 corporate clients. It was not distributed to any third party aggregators or any retail investors.

[244] A spreadsheet provided by Scotia showed that the email with the Comment was opened a total of 356 times. 70 of those times were by Aphria. Only six of the entities who opened the email (other than Aphria) clicked on the link to see the full report.

[245] CannTrust’s stock rating had been changed to “under review” by Scotia in July 2019. CannTrust had been the subject of both regulatory and criminal investigations and its regulatory scandal was widely published. On July 24, 2019 Scotia published a research report placing CannTrust under review following a report in the Globe & Mail that that CannTrusts’ CEO and others were aware of unlicensed growing in one of their facilities.

[246] Menard received a copy of the Comment but had no input into it. Because of the ethical wall within the bank between investment banking and research, such input would not be possible. He explained that the Research Department at Scotia makes its own independent decision about the companies for which it will provide analyst coverage. Neither Menard nor McIntyre were aware that the suspension of coverage of Aphria and CannTrust would occur on the same day.

[247] The day the Comment was published, Menard sent an email to McIntyre about the Comment which simply read “same time/note as CannTrust.” McIntyre responded about 20 minutes later with an email that said “Yup. Love it.” It was suggested to Menard that he knew that the suspension of coverage of Aphria and CannTrust on the same day would have a negative impact on Aphria. Menard’s evidence was that he was not sure this was true. He did not see why anyone would connect the two companies given that CannTrust had had endured serious regulatory problems which Aphria had not.

[248] McIntyre’s evidence was that his commentary in the email is not important as he had no input into when analyst’s coverage is suspended. He was responding to Menard’s comment about the timing.

Law and Analysis

[249] Aphria seeks $500,000 in general damages for defamation. In order to succeed, Aphria must prove that that the words in the Comment would tend to lower its reputation in the eyes of a reasonable person, that the words referred to Aphria and that the words were communicated to someone other than Aphria. It is clear that Comment referred to Aphria and was widely published in the investment community and therefore the focus of the analysis must be on the first part of the test.

[250] Any award of damages must reflect the size and the nature of the audience and whether such an audience would give credence to the remarks.

[251] Aphria’s position is that by publishing the Comment with Aphria and CannTrust together, Scotia created the impression that Aphria, like CannTrust, was involved in illegal activity. This was further emphasized by the same reason being given for both suspensions, that is, that the suspension was due to a reallocation of resources. Specifically, Aphria alleges that the defamation arises by “legal innuendo” based on extrinsic facts related to CannTrust.

[252] Aphria submits that the reaction of Menard and McIntyre in their exchange of emails on October 8, 2019 underlines the likely reaction of those that received the Comment. The negativity surrounding CannTrust’s scandals would be imputed to Aphria thereby lowering their reputation in the eyes of the investment world.

[253] There is no basis for this argument. McIntyre’s evidence that he surmised that the Comment would get “under the skin” of management cannot be interpreted as evidence that a reasonable investor would believe there was some link between CannTrust’s illegal activities and Aphria. McIntyre’s comment goes no further than being a personal observation which even on its own is speculation.

[254] Aphria argues that the resulting drop in Aphria’s share price also illustrates the impact of the Comment. According to Aphria its share price dropped a total of 2.9%, representing market capitalization of approximately $50M.

[255] The difficulty with Aphria’s argument is that it fails to consider two important points: first, the fact that there actually had been a reallocation of resources at Scotia which Henderson explained happens from time to time and was factually based on Isaacson’s overburdened workload; second, the market event required analyst coverage and Scotia was put in a conflict of interest. If Scotia published a negative comment about Aphria there would no doubt be claims that it was related to the litigation. If it did not publish in relation to the market event, it would not be providing a proper service to its clients. The only real option according to Henderson was to discontinue coverage thereby removing Scotia from any possible conflict.

[256] The email exchange between Menard and McIntyre on October 8, 2019 cannot be used by Aphria to substantiate its argument of what a reasonable person would conclude. In fact, no independent evidence of the impact of the Comment was presented by Aphria. There is no way of determining if the drop in share price or alleged damage to reputation was as a result of the market event or the inclusion of CannTrust in the Comment. More importantly, there was no evidence as to the specifics of any damages caused by Aphria’s discontinuance of coverage where other institutions continued their coverage.

[257] What is clear is that Scotia had published other Comments suspending analysts’ coverage on more than one company. As well, I accept Henderson’s evidence that the decision to suspend coverage and publish a Comment with both companies was his alone in accordance with Scotia’s Compliance Policy. While he was aware of the litigation, he was not involved in it and his evidence was clear that he would not suspend coverage because of a fee dispute.

[258] In terms of damages, without proof of economic loss Aphria is limited to general damages between $10,000 to $75,000. In Ironside v. Delazzari, 2014 ONSC 999, where the Defendant’s conduct was described by the court as “reprehensible” and calling for “condemnation” (at para. 54), the court awarded $50,000 in general damages.

[259] Aphria is claiming damages five times the range set out above. Yet, Aphria did not present any expert evidence of economic loss at trial. I therefore find that the cases relied upon by Aphria are of little assistance. In WeGo Kayaking Ltd. v. Sewid, 2007 BCSC 49, the court had specific evidence of a decline in bookings following the defamation. In Farallon Mining Ltd. v. Arnold, 2011 BCSC 1532, the court found motive on the part of defendants to cause economic damage and drive down the share price. In the case at bar, there is no evidence of either motive or actual economic damage. Without expert evidence of economic loss, the court is left with the real possibility that the drop in share price could have resulted from any number of factors including general market factors or the Alefia issue. Further, there was no expert evidence as to what impact a change in research coverage has on a business’ share price.

[260] Even where an expert’s report on losses was available to the court such as in Focus Graphite v. Douglas, 2015 ONSC 1104, the court awarded only $25,000 in general damages because it was not persuaded that the Defendant’s postings were a cause of the Plaintiff’s loss (para. 86).

[261] In any event, by way of an Earnings Call on October 15, 2019, Aphria was reporting a strong balance sheet, cash position and positive EBITDA for staying on track in fiscal 2020. In a further Earnings Call on January 14, 2020, positive results were reported for the final quarter of 2019. The Comment was not mentioned in either of the Earnings Calls.

[262] I am satisfied that the “wall” between Henderson’s decision and the Fee dispute was in place and clearly meant that concerns from Investment Banking about Aphria’s non-payment was not part of Henderson’s decision process. As for the email exchange between Menard and McIntyre on October 8, 2019, the most that might be said of it is that it was in bad taste. Fortunately for most us, bad taste does not attract general damages.

[263] As well, I accept Scotia’s argument that there is no basis to accept the inference which Aphria asks the court to make regarding any legal innuendo. There was no evidence at trial to support the contention that any reasonable investor would have believed that Aphria was involved in illegal dealings because of the Comment and there was no secondary sources in evidence which contained any views or comments on the Comment to that effect.

[264] Scotia complained of the tactical nature of Aphria’s Counterclaim because it was for $50M and no notice of a claim for defamation was given until the Counterclaim was served on December 20, 2019. These arguments are best dealt with when determining costs.

[265] The Counterclaim is therefore dismissed. If I am wrong and defamation has been made out, I would have awarded nominal damages of $1.00 given the impossibility of determining how to quantify damages in the face of the facts described above.

Orders

[266] Scotia’s claim is allowed. Aphria shall pay to Scotia the Independence Fee of $1.5M plus expenses of $50,000 forthwith. HST to be added to such amounts where applicable.

[267] Aphria’s Counterclaim is dismissed in its entirety.

Costs

[268] The parties shall provide written submissions on costs on a seven-day turnaround starting with Scotia seven days from the date of release of this judgment. Costs submissions shall be no more than seven pages in length (double spaced) exclusive of any Bill of Costs or Offers to Settle. References to case law must be hyperlinked. If no costs submissions are received within 35 days, costs will be deemed to be settled. Costs submissions are to be sent directly to my assistant at Therese.Navrotski@ontario.ca.

C. Gilmore, J. Released: March 3, 2021