COURT FILE NO.: CV-20-00634119-00CL

DATE: 20210121

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Aaron Lyon Phillips-Lubimiv, Aleksandra Jurevich, and Sheila Phillips, Applicants

AND:

Creekside Investments Incorporated, Carl Galli and Peter Cicchi, Respondents

BEFORE: C. Gilmore, J.

COUNSEL: John Adair, Counsel, for the Applicants

Ruzbeh Hosseini, Counsel for the Respondents

Alexander Munera and Brent Mendiola, Counsel for Jay Fallah and Samson Kirk-Koffi in Court File No. CV-20-00638393-00CL.

Dennis Touesnard, Counsel for the proposed Receiver in Court File No. CV-20-00647727-00CL

HEARD: January 7, 2021

reasons following oral ruling on application

OVERVIEW

[1] The Applicant, Phillips-Lubimiv (“Phillips”) seeks an Order directing the Respondent Creekside Investments Incorporated (“Creekside”) to sell all of the common shares it holds in AP1 (“the Creekside shares”) to the remaining shareholders at fair market value. Given that the shares of AP1 have been valued at $0, Phillips seek to assume control of AP1, and refinance Creekside’s debt.

[2] Phillips requests this relief on the grounds that Creekside and the other Respondents (“Galli and Cicchi”) have caused the affairs of AP1 to be managed in a way that unfairly prejudices or disregards the rights of the other shareholders.

[3] Creekside seeks to restrain Phillips from taking over AP1. Creekside and Phillips are the majority shareholders of AP1. Creekside owns 60% of the shares and is owed over $5.2M from AP1. Galli as a director and beneficial shareholder of Creekside and a director of AP1 submits that the actions taken against Phillips were reasonable and necessary given his misrepresentations and misappropriations from AP1. Further, there are suppliers and a major client who refuse to deal with Phillips.

[4] This matter was argued on January 7, 2021. On January 8, 2021 I gave an oral ruling finding that oppression had occurred and allowing Phillips’ Application with reasons to follow. I directed that certain terms of the change of the control were to be implemented immediately and invited submissions from counsel on those terms. The Order attached as Exhibit “A” to these reasons was the result of my oral ruling and the further submissions from counsel. The Order is already in effect.

[5] This decision contains the reasons related to the oral ruling given on January 8, 2021.

BACKGROUND FACTS

[6] There are four separate outstanding Applications related to AP1. In addition to this Application, Creekside and Galli have commenced an Application seeking, among other things, leave to commence a derivative action against Phillips for alleged misappropriation of AP1 funds. Creekside subsequently commenced an Application for an Order appointing a Receiver over AP1. Mr. Fallah (“Fallah”) and Mr. Kirk-Koffi (“Kirk-Koffi”) have issued an Application claiming they were both issued 50,000 shares in AP1 representing a 5% equity in AP1. Phillips, Creekside and Galli have taken different positions with respect to whether Fallah and Kirk-Koffi have an interest in AP1. That Application was not heard on January 7, 2021 but will be heard either when Phillips obtains financing (on or before July 9, 2021) or in the course of the Receivership.

[7] Phillips’ original Application first came before the Court in January 2020 but was adjourned when Fallah and Kirk-Koffi advised they wished to participate. The case was adjourned again due to COVID-19. The parties agreed to undertake a valuation in the summer of 2020. The result of the valuation dated July 13, 2020 is that of February 29, 2020 the liquidation value of AP1’s assets was $2,356,680. The outstanding liabilities were $5,000,000.

[8] As I have been case managing this matter since January 2020, I determined that the Phillips’ Application would be heard first. If he was successful, he would be given an opportunity to refinance the Creekside debt which would mean that the Receivership Application would be moot. If he was not successful, it was likely that an Appointment Order would be made for a Receiver and the only remaining issues would be a judicially supervised sale of the IP asset and the claims made by Mr. Fallah and Mr. Kirk-Koffi in their Application.

[9] Phillips was the founder of AP1. Before his suspension, he was also a director and officer of AP1. While he claims to be the inventor of the AP1’s critical and proprietary intellectual property, this fact is in dispute. For the purpose of this Application, that factual dispute need not be resolved.

[10] According to Phillips, his friend Aleksandra Jurevich and his mother Sheila Phillips assisted him with the founding of the company and hold a minor shareholding interest.

[11] Creekside is the major shareholder of AP1 and is now owed over $5.2M. Galli and Cicchi are the principals of Creekside. Phillips and Galli were the two directors of AP1 before Phillips’ suspension.

[12] Phillips incorporated AP1 in September 2014. He deposed that he and his family invested approximately $250,000 in AP1 plus thousands of hours of sweat equity which Phillips’ estimates to be worth $450,000.

[13] In early 2015 Phillips was introduced to the principals of Creekside. He had just filed a key patent in relation to his IP Beacon technology and knew he needed capital to reach AP1’s potential. Creekside proposed a structure whereby it would loan money to AP1 and take 50% of its equity in return. Although initially hesitant Phillips realized he had no other option if he wanted to grow AP1.

[14] As a result of Creekside’s investment, the company’s capital was restructured and Phillips entered into a formal Employment Agreement (“the Employment Agreement”) on October 1, 2015 as President and CEO. The company and its shareholders then adopted a Unanimous Shareholders’ Agreement (“the USA”) on November 15, 2015.

[15] The terms of the USA required that the only two directors were Phillips and Galli and that Phillips would only cease being a director upon his disability, death or resignation. As well, Phillips was to remain President until changed by a unanimous vote of the directors and all shareholders were to enjoy rights of first refusal with respect to the disposition of any common shares. Phillips’ evidence was that he insisted on these terms as AP1 was his “baby” and he would remain in control until he chose to leave. He did not want Creekside to be able to buy AP1 without his consent.

[16] The Employment Agreement was dated October 1, 2015 and specified that Phillips would be employed as CEO of AP1 for an indefinite period of time. His gross annual salary was to be $90,000 per annum with a discretionary bonus. Among other provisions, Phillips was entitled to receive reimbursement for all reasonable business-related expenses with receipts to be provided and Board approval obtained before payment. Further, Phillips’ employment could only be terminated by a unanimous vote of the Board of which he was one of the two directors.

[17] Most of the loans advanced by Creekside to AP1 were undocumented, however, Phillips does not deny that as of the time he issued his Application, Creekside was owed $4,754,973.52. This amount has now grown to over $5.2M due to the accumulation of interest. Galli confirmed in his cross-examination that Creekside is an investment and lending corporation. It was not in the business of operating companies.

[18] The main asset of AP1 is its technology known as “Systems and Methods for Addressing Beacons.” A patent for this technology was granted in March 2016. In December 2017 after beta testing of the system, AP1 secured two commercial contracts with a U.S. Corporation, namely RMES. These contracts, known as the Denver contracts, related to the use of AP1 technology at the Denver International Airport. Phillips and Galli were hopeful that the work on the Denver contracts would lead to other contracts with RMES at other major U.S. airports where RMES had contracts.

[19] AP1 staff and Phillips worked throughout 2018 and 2019 to implement the Denver project to ready it for a launch in August 2019. AP1 and its principals were hopeful that the Denver contracts could earn revenue of up to $12M.

[20] By July 2018 Creekside had advanced loans to AP1 and received additional shares such that its ownership interest in AP1 exceeded 50%.

[21] In August 2017 Kamal Singh (“Bobby”) Athwal (“Athwal”) was engaged in the role of General Counsel by AP1 in order to oversee patent continuation filings and day to day operations. He was paid about $5,000 per month as an independent contractor.

[22] On Athwal’s recommendation, AP1 hired Ziad Feghali (“Feghali”) as Vice-President of Sales in August 2017. He was paid $3,000 per month as an independent contractor. Feghali had financial problems when he was first hired by AP1. Phillips offered to allow Feghali to live with him at his condo. Part of Feghali’s employment contract was that AP1 would pay him a housing allowance. Phillips then directed AP1 to pay his landlord 50% of his condo rent or $2,200 per month in compensation for Feghali living with him. Various complaints against Phillips were made about this arrangement by Creekside but those complaints do not form part of the specific allegations raised by Creekside against Phillips in the letter of August 21, 2019 by Sandhu. As such, I do not intend to deal with them in these Reasons.

The Relationship Between Phillips and Creekside/Galli Breaks Down

[23] According to Galli, in late 2018 he discovered certain financial improprieties related to Phillips. Specifically, Phillips had withdrawn $48,000 from AP1’s account. Phillips’ position is that this amount was for legitimate business expenses for which he had simply not had time to prepare expense reports given his many trips to Denver. Phillips offered to treat these withdrawals as partial repayment of his shareholder loan in order to resolve the issue. Creekside did not accept this offer, but the parties discussed the issue in December 2018 and shortly thereafter, Galli changed AP1’s financial management protocols.

[24] When Creekside first began funding AP1 and money was tight, Phillips shared in the burden of financing as best he could. He agreed to take a $90,000 salary of which 50% would be deferred for almost all of 2016. After 10 months he realized he could not support himself and his salary was raised back up to $90,000. The parties disagree over whether this was done with Creekside’s authority or not.

[25] In February 2019 Phillips’ salary was raised to $120,000. His evidence was that this increase was approved by both Creekside and Athwal. By this time Athwal was in charge of most financial matters related to AP1 given Phillips’ absences to work on the Denver project.

[26] Shortly after his salary was increased, Phillips’ went into AP1’s salary software and found that Feghali’s salary had been increased to $110,000 per year and Mr. Athwal had increased his own salary from $60,000 to $120,000 per year. He assumed these salary increases had been approved by Galli in his bi-weekly meetings with Athwal.

[27] In the spring of 2019 Feghali began referring to himself as the President and CEO of AP1 contrary to the Employment Agreement and the USA. According to Galli, Feghali asked if could call himself the President because Phillips was never in the office. Galli agreed that it was not official, but he allowed Feghali to use the title of President.

[28] In early August 2019 Phillips returned from Denver after the implementation of the Denver project was complete. On August 14, 2019 he was presented with a Memorandum of Understanding (“the MOU”) which was intended to terminate his relationship with AP1. The terms of the MOU were that in consideration of four month’s salary, Phillips was required to

a. Sell his 3,600,000 common shares to Creekside at cost;

b. Resign as Director, CEO and President before August 31, 2019; and

c. Sign a release in favour of AP1 in relation to any claims arising from his employment there.

[29] Not only was Phillips shocked at receiving the MOU, he was concerned about the future of AP1 and the Denver project as Creekside threatened to cut off all funding if Phillips did not sign the MOU. Phillips refused to sign the MOU.

[30] On August 19, 2019 Phillips received three documents from Creekside entitled “Notice of Allegations.” The notices set out Phillips’ alleged breaches of the USA and the Employment Agreement. The notices were signed by Amrit Sandhu (“Sandhu”), an individual whom Creekside purported to appoint as General Counsel without Phillips’ knowledge or authorization.

[31] On August 20, 2019 Phillips received a Notice of Suspension signed by Galli and Sandhu. The Suspension Notice set out that AP1 would be investigating serious allegations against Phillips including allegations that he had breached the USA, his fiduciary duties to AP1 and his Employment Agreement. He was immediately suspended from all matters related to AP1.

[32] On August 21, 2019 Sandhu sent a letter setting out the specific allegations against Phillips. These included alleged breaches of the Employment Agreement by:

a. Failing to keep the Board apprised of information/decisions;

b. Failing to complete listed duties and responsibilities;

c. Failing to use his best efforts to promote the interests of the Company and not working full time for over a year;

d. Failing to abide by Company rules and regulations;

And alleged breaches of the USA as follows;

a. Increasing his compensation from $90,000 to $120,000 without the required 70% shareholder approval;

b. Repaying shareholder loans without Board or company approval;

c. Failing to obtain Board approval with respect to the repayment of business expenses, improperly documenting business expenses and misappropriating Company funds by improperly reimbursing non business-related expenses;

d. Not having personally loaned the Company $100,000 as originally represented; and,

e. Failing to secure $2M in key man life insurance but instead securing $1M in life insurance that was not payable to the Company.

[33] Shortly thereafter, Ms. Sandhu completed a report on the investigation (without input from Phillips) in which she found that Phillips had breached the USA and the Employment Agreement by unilaterally increasing his salary, repaying $48,000 towards his shareholder loan and using AP1 funds for personal expenses or not receiving proper authorization to reimburse himself for business expenses.

[34] Creekside used the results of this investigation to justify removing Phillips as President, CEO and Director.

[35] After suspending Phillips, they removed him as a bank signing officer, moved AP1’s books and records from its leased premises and opened a new office at another location.

The Parties’ Positions on the Various Disputes

a) Phillips

[36] Phillips submitted that many of the issues raised by Galli on behalf of Creekside are simply recycling of issues that were either resolved or are far from the “shocking improprieties” alleged by Galli.

[37] With respect to the alleged breaches of the Employment Agreement, Phillips submits that Galli has never provided any particulars or evidence of this. There is no evidence of any email exchanges between Galli and Phillips in which Galli sets out any specific complaints. The allegations remain unsupported and bald assertions.

[38] With respect to the alleged breaches of the USA and in terms of the alleged unapproved salary increase from $90,000 to $120,000, Phillips has always maintained this was approved by Athwal who had weekly meetings with Galli to review all financial matters. Phillips submits that Athwal has never put in any evidence in this proceeding confirming or denying the parties’ positions. In any event, Creekside had full access to AP1’s books and tracked all its expenses. An increase in salary could not have been hidden from Creekside.

[39] Regarding the $48,000 Phillips paid to himself from AP1 his response is that in November 2018 Phillips and Galli had a phone conversation about this issue. In his cross-examination, Galli agreed that the phone call was not acrimonious. Galli further agreed that in a follow up email on this issue to Phillips, he did not accuse Phillips of any misconduct or of breaching any agreement. He agreed that he did not initiate an internal investigation or get lawyers involved. Galli agreed that the email simply explained that things would have to change going forward. The solution was to add further financial controls. Athwal was brought in and a countersignature was required on all cheques. According to Phillips, the matter was dealt with to Galli and Phillips’ satisfaction in November 2018.

[40] Galli has raised a further issue concerning $700 of allegedly unauthorized Uber trips charged to AP1. Phillips’ position is that Galli has never sent him an email about this nor was he even aware it was an issue until recently. In any event, the amount at stake would not justify the drastic measures taken by Galli against Phillips.

[41] Phillips has the same response with respect to the key man insurance issue. It would have been easy for Galli to email or meet with Phillips and request that he change the beneficiary and increase the face value. Again, Phillips was not aware this was an issue until it was raised in the August 21, 2019 letter informing him of the allegations against him.

[42] With respect to the allegation that Phillips did not actually invest $100,000 into AP1 as represented, Phillips did not understand why this issue was raised in August 2019 particularly when AP1 was poised to start earning significant profits.

[43] Phillips was advised by Sandhu that an internal investigation would be conducted in which he was invited to participate. Phillips noted that it was to be conducted by AP1’s internal counsel who had been hired without Phillips’ consent. Phillips chose not to participate.

[44] Phillips’ position is that Creekside and Galli acted in bad faith. They acted in a manner which made it clear that they simply wanted to oust Phillips when AP1 was finally in a position to earn significant profits. Phillips had worked very hard to get the Denver project to completion only to meet with the allegations and suspension by Galli on behalf of AP1. Phillips could not be fired because of the terms of the USA, however, Galli and Creekside’s actions had almost the same effect.

b) Galli

[45] Counsel for Galli denies that Phillips was suspended as an Officer, Director and CEO of AP1. In fact, he has never been suspended as a Director and President only as an Officer and CEO. This is disputed by Phillips. In Galli’s cross-examination and in response to being asked if Phillips had been suspended as a Director as well as President and CEO, Galli responded at Q.386, “I just suspended him, period, from any of his duties, until he answered the allegations.”

[46] Phillips adds that he was then removed as a signing officer and the title of President was then “given” to Feghali.

[47] Galli submits that Phillips relies heavily on the USA with respect to the fact that he could not be removed as a Director without his consent and that he had a right of first refusal with respect to the issuance of common shares. Galli’s counsel submitted that in fact the USA had been signed only by Galli and Phillips and not by the other minority shareholders and is therefore not a “unanimous” shareholders’ agreement.. Phillips’ evidence was that a fully signed copy of the USA was given to his lawyers at the time, Bennett Jones, and the lawyer acting for AP1 left Bennet Jones. Thereafter, the signed copy could not be located.

[48] Phillips’ submission was that even if a fully signed copy of the USA could not be located, that was immaterial. What mattered was the parties’ expectations. Phillips’ reasonable expectation was that he would continue as a Director and Officer of AP1 until he agreed to leave, died, or was incapable of carrying on his duties.

[49] Galli submits that Phillips was fully aware that AP1 intended to move to a smaller location as Phillips was still a Director. There is no evidence that Phillips was not involved in this decision or excluded from the new location.

[50] Galli did not agree that Phillips had the authority to increase his salary to $120,000. Athwal was hired to deal with IP issues and not salary. Phillips agreed that there was nothing in writing with respect to the salary increase but maintains that at the time of the increase, Athwal had the authority to approve it.

[51] Galli denies that there was ever any agreement or understanding that the $48,000 withdrawn by Phillips could be set off against legitimate business expenses. Further, Phillips said this arrangement was an oral agreement reached on the phone. As with all of Phillips’ explanations, there is nothing in writing to corroborate his position.

[52] From Galli’s perspective, the actions taken in August 2019 against Phillips were the result of an accumulation of misappropriation of funds from Creekside including two salary increases without authority and withdrawal of $48,000 without any resolution as to how it would be paid back. As of August 2019, AP1 had still not made any money. The financial abuses which Galli submits were perpetrated on AP1 by Phillips directly affected Creekside since it was financing the entire AP1 operation.

[53] Phillips’ reaction to his suspension was telling. He purported to fire Feghali for holding himself out as President of AP1 and taking unauthorized salary increases. He then sent a letter on September 3, 2019 to AP1’s suppliers and vendors notifying them that Athwal and Feghali were no longer with the company. He announced the appointment of Aleksandra Jurevich as Managing Director and Henry Shiner as COO. Galli called Phillips’ actions dangerous and incorrect. As a result of the conflict with Phillips, their main client RMES advised that they were not willing to work with Phillips.

[54] Finally, Phillips removed the NAS drive from AP1’s premises without permission. This drive contains key documents. While the drive was returned, the documents cannot be accessed, and Phillips will allegedly not cooperate with respect to accessing the documents. Since August 2019 Phillips has been non-responsive and failed to reply to requests for information. This has made it impossible to move forward with the litigation.

[55] Phillips admits that after he was fired, a “tug of war” for company control ensued. He and Galli were trying to take control of various parts of the business. In January 2020 when the Application was first returned to court, Phillips and Galli agreed to jointly run AP1, pending the issuance of the Fallah and Kirk-Koffi Application. That proved impossible and resulted in multiple returns to the Case Management judge for directions.

LEGAL ISSUES AND ANALYSIS

[56] Phillips seeks a remedy for oppression. Such a remedy is available where the claimant can demonstrate that the evidence supports the claimant as shareholder having certain reasonable expectations and that those reasonable expectations were breached by conduct that was oppressive, unfairly prejudicial or that unfairly disregarded the claimant’s interests.

[57] In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, the Court held at paragraph 63 that:

Particular circumstances give rise to particular expectations. Stakeholders enter into relationships, with and within corporations, on the basis of understandings and expectations, upon which they are entitled to rely, provided they are reasonable in the context: see 820099 Ontario; Main v. Delcan Group Inc. (1999), 1999 14946 (ON SC), 47 B.L.R. (2d) 200 (Ont. S.C.J.). These expectations are what the remedy seeks to uphold.

[58] It was Phillips’ reasonable expectation to run AP1, which he described as his “baby”, sell the technology and make a profit. That is why he signed the USA and the Employment Agreement. He certainly recognized that he needed financing from Creekside, but as will be set out below, it was never his expectation that Creekside would suspend him, strip him of his authority and oust him from AP1.

[59] Phillips submits that there were five specific acts of oppression which entitle him to this remedy under s.241(2) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“the CBCA”):

a. Creekside violated the USA by suspending him as President, Director and CEO. They had no authority to make such a suspension without Phillips’ authorization. If they sought to do without his authorization, they required a Court Order.

b. Phillips cannot be removed as President without his consent. Therefore, allowing Feghali to hold himself out as President is a breach of both the USA and the Employment Agreement. The conduct is made more egregious by the fact that Phillips was not informed that Feghali was apparently taking over his role and holding himself out to third parties as President.

c. The entire suspension process was oppressive including the Memorandum, the three Notices of Allegation and the alleged “investigation”, by Sandhu, in house counsel hired by Creekside, without Phillips’ consent.

d. Removal of Phillips as a cheque signing officer without his knowledge or consent.

e. Removal of all company property to a new location without informing Phillips.

[60] I agree with Phillips that the content of the USA and the Employment Agreement make it clear that his reasonable expectation was that he would continue to run AP1 and that his position and involvement in the company would not be unilaterally usurped by Creekside. I do not find the fact that the USA was not signed by all shareholders to be fatal to Phillips’ claim for oppression. Both he and Galli signed it and there can be no doubt it set out their mutual expectations.

[61] Further, there was no authority for Creekside to suspend Phillips. If Galli had a concern about Phillips’ conduct, he and Creekside were obliged to obtain a Court Order if they sought to do anything that was not permitted in the USA or the Employment Agreement.

[62] I find that Galli’s intention on behalf of Creekside was to suspend Phillips from all positions including his position as Director. This is clear from his evidence on cross-examination where he stated that he suspended Phillips from all of his duties until he answered the allegations. It is this Court’s view that this conduct alone would be enough to meet the test for oppression, but the finding is bolstered by Creekside allowing Feghali to hold himself out as President and hiring Sandhu without Phillips consent.

[63] Creekside used its leverage as the sole source of funding for AP1 to attempt to make Phillips agree to certain concessions such as selling his shares to Creekside at cost and resigning as President, CEO and Director as per the Memorandum of Understanding dated August 14, 2019. Not only is this contrary to the USA, but it is a clear example of Creekside’s intention to oust Phillips without regard to the terms of the agreements signed by the parties.

[64] Galli does not deny that Phillips was unilaterally removed as a cheque signing officer which is also contrary to the USA. Although he was reinstated some time later, Phillips was never informed of this.

[65] As for the removal of property to a new location, Phillips’ knowledge about this issue is disputed but frankly it is not of great consequence in the context of the seriousness of the above findings.

[66] Galli’s complaints about Phillips’ behaviour were numerous including allegations that he did not work hard enough, he charged for unapproved business expenses, he raised his own salary and took money out of the company without authorization. Phillips’ approach to these problems tended to be one of negotiating a resolution and, as such, he was blindsided in August of 2019 when he was given documents which purportedly supported a suspension based on events that had happened many months earlier. While denied by Creekside, I infer that much of this had to do with AP1 being on the precipice of earning large profits and Phillips proving to be a nuisance by blocking Creekside’s future plans for AP1. The timing of Creekside’s actions otherwise make little sense.

[67] As the remedy for Creekside’s oppressive conduct, Phillips should have the opportunity to regain control of AP1 under certain terms and conditions. As KPMG has determined that AP1’s shares are worth $0, Phillips must take steps to pay out Creekside or he will forfeit AP1’s assets. If he is unable to raise the financing to pay out Creekside, AP1’s assets will be sold in the course of the Receivership.

[68] Creekside opposes the remedy sought on the grounds that AP1’s main client has stated in writing that it will not work with Phillips, that interest on Creekside’s loan will continue to accumulate at $1,000 per day (approximately) between now and July 9, 2021, and that Phillips will run AP1 into the ground. These are not issues which would dissuade the Court from imposing the remedy sought for the following reasons:

a. The valuation makes it clear that AP1 has never made a profit. If that scenario continues with Phillips over the next six months, nothing will have changed in terms of AP1s profitability;

b. The letter from Mr. Choice on October 8, 2019 with respect to working with Phillips was predicated on information provided by Creekside. I have already found that Creekside’s actions against Phillips were oppressive. That is, Mr. Choice only had one version of events when he wrote his letter to AP1. It will be up to Phillips between now and July 9, 2021 to develop new client relationships or resurrect old ones.

c. The Creekside loan has been accumulating interest since it commenced its Application in October 2019 and before. Creekside has taken no substantive enforcement steps until the Receivership Application in July 2020. If Phillips is able to obtain financing, Creekside will be entirely paid out inclusive of interest. If not, Creekside will be in the same position it is now with respect to enforcement; selling AP1’s IP technology on the open market.

[69] The remedy is also consistent with the principles set out in Tracey v. Tracey, 2012 ONSCS 3144 in that:

a. Phillips is the founder of the company and has the knowledge and skill to run AP1.

b. Phillips had operational control of AP1 until August 2019. He ceased operational control because of Creekside’s actions, not because he lost interest in the company.

c. Creekside is a lender. It is not in the business of running technology companies.

d. AP1’s current suppliers and customers should not be negatively affected.

e. Phillips apparently has the means to purchase Creekside’s shares. Creekside disputes that Phillips has any such financial commitment. However, what is clear is that no financial entity will lend to Phillips until he is in operational control of AP1 and its technology.

[70] If I am wrong with respect to the evidence supporting a breach of Phillips’ reasonable expectations and my findings of oppression, I would have ordered a buyout of shares and payout of Creekside based on the principles set out in Jansezian v. Hotoyan (1999), 1 B.L.R. (3d) 56 (Ont.S.C.) at para 4.

[71] Given all of the above I find that Phillips has made out his claim for oppression. As the shares of AP1 have no value, Phillips must arrange to refinance Creekside’s loan or face a Receivership and sale of AP1’s assets. The terms of the change of control are set out in the Order made following my oral ruling on January 8, 2021 which is attached to these Reasons as Schedule “A”.

[72] As indicated in that Order, I have deferred the issue of costs until the earlier of:

a. Phillips is able to refinance the Creekside debt;

b. The deadline of July 9, 2021 has passed and Phillips has been unable to refinance the Creekside debt;

c. An Appointment Order is made in relation to the Receivership Application.

[73] Counsel may arrange an appointment before me to discuss costs once one of the above triggering events has occurred or, alternatively, agree to a schedule for submitting written costs submissions.

C. Gilmore, J.

Date: January 21, 2021

Court File No. CV-20-00634119-00CL

ONTARIO

SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

THE HONOURABLE

FRIDAY, THE 8TH

MADAM JUSTICE GILMORE

DAY OF JANUARY, 2021

B E T W E E N:

(Court Seal)

AARON PHILLIPS-LUBIMIV, SHEILA PHILLIPS and ALEKSANDRA JUREVICH

Applicants

and

CREEKSIDE INVESTMENTS LIMITED, CARL GALLI and PETER CECCHI

Respondents

APPLICATION UNDER s. 241(1) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44

ORDER

THIS APPLICATION, heard January 7, 2020 via videoconference;

ON READING the Applicants’ Application Records (including supplementary records), Factum, Book of Authorities, and Compendium for Oral Argument, the Respondents’ Application Records (including supplementary records), and on hearing the submissions of the lawyer(s) for the parties,

1. THIS COURT DECLARES that the Respondents have caused the business and affairs of AP1 Inc. to be carried on in a manner that is oppressive to the Applicant Aaron Phillips within the meaning of s. 241(1) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44.

2. THIS COURT ORDERS that the Applicant Aaron Phillips shall have six months to arrange for the refinancing of the debt owed by AP1 Inc. to the respondent Creekside. For clarity, the six-month period will end on July 9, 2021. If Mr. Phillips is not able to arrange for the refinancing within the time set out herein, this Court will hear Creekside’s Application for the appointment of a Receiver on June 21, 2021 commencing at 10:00 a.m. This Court will also hear at that time the Application commenced by Mr. Fallah and Mr. Kirk-Koffi, bearing court file no. CV-20-00638393.

3. THIS COURT ORDERS that the terms on which Mr. Phillips is given the opportunity to arrange for refinancing of the debt that AP1 Inc. owes to the respondent Creekside are as follows:

(a) Mr. Galli is forthwith suspended as a director on an interim basis, and Mr.

Phillips reinstated as sole Director and as President and CEO, with full and sole authority over AP1’s operations for the six-month period commencing this date and ending no later than July 9, 2021;

(b) The respondents shall, by no later than 5pm on Monday January 11, 2021, provide full cooperation to Mr. Phillips in delivering all of AP1’s Property to

him (“Property” includes but is not limited to physical and intellectual property, including all passwords, pass cards, books, records, computer systems and access to AP1’s current premises). Mr. Phillips shall, by no later than 5pm on January 8, 2021, send to the respondents (through counsel) a list setting out what Property ought to be delivered by them on January 11, 2021, and the address to which any physical property must be delivered;

(c) The respondents may not interfere with Mr. Phillips’ management and control of AP1 during the six -month period referenced herein;

(d) Mr. Philips shall provide monthly financial statements and updates on re-financing efforts to the Respondents and Mr. Fallah and Mr. Kirk-Koffi, commencing March 1, 2021 and thereafter during the six-month period;

(e) Mr. Phillips is at liberty to negotiate and enter into any agreement necessary for refinancing the debt owed to Creekside, provided that such agreement is expressly subject to the approval of this Court, and said approval is to be requested from this court on notice to the Respondents and Mr. Fallah and Mr. Kirk-Koffi. Mr. Phillips shall not otherwise incur any debt in relation to AP1, issue any shares of AP1, or encumber or sell any asset of AP1;

(f) Creekside shall, by no later than 5pm on January 11, 2021, deliver letters to such third parties as Mr. Phillips shall identify by no later than 5pm on January 8, 2021, confirming for the said third parties that Mr. Phillips is the

sole Director of AP1 Inc., and President and CEO with sole operational control, until July 9, 2021, pursuant to this Order;

(g) Mr. Phillips shall at all times be responsible for maintaining AP1 Inc.’s intellectual property (including, without limitation, all necessary filings); and,

(h) If Mr. Phillips is able to buy out Creekside at any time prior to July 9, 2021 he shall immediately notify counsel for Creekside and Mr. Fallah and Mr. Kirk-Koffi. Upon completion of the refinancing and payment in full of the outstanding debt owed to Creekside, Mr. Phillips’ reporting requirements to Creekside shall end and any other restrictions herein with respect to the sale, encumbrance or preservation of AP1’s assets shall remain in place until a final order has been rendered in respect to the Kirk-Koffi/Fallah application.

4. In the event that Mr. Phillips is able to raise the required financing to pay out Creekside, the Application of Mr. Fallah and Mr.Kirk-Koffi shall remain returnable to this Court on June 21, 2021 at 10:00 a.m. In the event that an Appointment Order is made for a Receiver, Mr. Fallah and Mr. Kirk-Koffi’s Application shall be dealt with in the course of the Receivership.

5. The parties hereto shall return for a case conference before this Court on February 2, 2021 at 10:30 a.m. for 30 minutes to address the status of this matter and monitor

compliance with the terms of this Order. If any urgent matter arises prior to that date, counsel may arrange for an urgent attendance.

6. Costs of this Application and the Kirk-Koffi/Fallah Application will be dealt with by this Court in writing at the conclusion of the six-month period, upon completion of the re-financing or at such time that is reasonable given the unfolding of events.

Gilmore J.

AARON PHILLIPS-LUBIMIV et al.

-and-

CREEKSIDE INVESTMENTS LIMITED et al.

Applicants

Respondents

Court File No. CV-19-00628582-00CL

ONTARIO

SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

PROCEEDING COMMENCED AT TORONTO

ORDER

ADAIR GOLDBLATT BIEBER LLP

95 Wellington Street West

Suite 1830, P.O. Box 14

Toronto ON M5J 2N7

John J. Adair (52169V)

Tel: 416.941.5858

Email: jadair@agbllp.com

Iris Graham (69986C)

Tel: 416.351.2793

Email: igraham@agbllp.com

Tel: 416.499.9940

Fax: 647.689.2059

Lawyers for the Applicants

RCP-E 4C (May 1, 2016)