COURT FILE NO.: CV-20-00637830-00CL, CV-19-00625673-0000, CV-20-00637831-00CL DATE: 2021-06-16

ONTARIO SUPERIOR COURT OF JUSTICE (Commercial List)

BETWEEN:

VOREON INC. Applicant

– and –

MATAS MANAGEMENT SERVICES INC., HIGHER LIVING DEVELOPMENT INC. AND ROBINS APPLEBY LLP Respondents

AND BETWEEN:

VOREON INC. Applicant

– and –

JEAN-PIERRE MATAS also known as JOHN MATAS and MATAS MANAGEMENT SERVICES INC. Respondents

AND BETWEEN:

VOREON INC. and KAYZAN INC. Applicants

– and –

MATAS-HUETON HOLDINGS INC. and GARDEN DRIVE TOWNES INC. Respondents

Counsel: Saba Ahmad, for the Applicant Ronald Allan, for the Respondents

HEARD: March 10, December 14-18, 2020

REASONS FOR JUDGMENT

Koehnen J.

[1] These reasons deal with three applications. All three applications address disputes that arise out of the breakdown of the business relationship between Stamos Katotakis and John Matas. Messrs. Katotakis and Matas are experienced real estate developers and investors. They invested in a number of ventures together. In each case, they incorporated a project specific corporations into which they invested through corporations they owned or controlled. In each case Katotakis invested through a corporation he personally controlled, the applicant Voreon Inc.

[2] For the reasons set out below, I dismiss all three applications. On my view of events, the issues that the applicants raise in each application were in fact resolved in settlement agreements between the relevant parties. In my view, the applications are an attempt to avoid the settlement because, as things developed, it became clear to the applicant that it would be better off financially without the settlement than with it. That, however, provides no basis for avoiding an agreement.

I. Voreon Inc. v. Matas Management Services Inc., Higher Living Development Inc. and Robins Appleby LLP

CV-20-00637830-00CL formerly CV-19-00625670

Overview

[3] This application concerns a project that the parties called Higher Living. It involved the development of a property at 86-90 Dundas St. West in Mississauga. The project specific corporation for this development is the respondent Higher Living Development Inc.

[4] Voreon’s direct investment into Higher Living was $1,981,958.[^1] In addition, Voreon lent $990,979 to each of the respondent Matas Management Services Inc. (“MatasCo) and to another investor that the parties refer to as ZamanCo in order to fund the investment of these latter two in Higher Living. ZamanCo is owned by a close associate of Katotakis. On this application, Voreon seeks payment of the promissory notes from Matas plus interest under the notes and seeks interest and other financial benefits under the shareholders agreement that applies to Higher Living. Voreon does not sue ZamanCo for its promissory note although it does not appear to have been repaid either.

[5] This application first came before me on December 23, 2019. By that point the underlying property had been sold and approximately $10 million of the sales proceeds were being held in trust. The dispute was about how much of the sales proceeds Voreon was entitled to. Voreon contended it was entitled to all of the proceeds; Matas contended that Voreon was entitled to only $7,471,009.

[6] The difference about the amount owing to Voreon arises because the parties rely on different agreements to justify the Voreon payout. Voreon relies on the terms of a shareholders agreement that governed the project and on the terms of the promissory notes Matas signed in favour of Voreon. Matas relies on the terms of a Settlement Agreement dated January 28, 2016 which he submits supersedes the shareholders agreement and the promissory notes.

[7] Given that there was little time available on December 23, 2019, the parties agreed that Voreon would be paid $7,471,009 in short order and that the parties would argue later about whether Voreon was owed anything more than $7.4 million and whether the $7.4 million was paid under the Settlement Agreement on the one hand or under the shareholders agreement and the promissory notes on the other hand.

[8] A further hearing was scheduled on March 10, 2020 to address those issues. During the hearing it became clear that Voreon argued that the Settlement Agreement was unenforceable as it related to this proceeding but that it would be arguing that the Settlement Agreement was enforceable in other proceedings between the parties.

[9] Given the possibility for conflicting results about the enforceability of the Settlement Agreement, I reserved my decision until all of the related disputes between Messrs. Katotakis and Matas could be argued. That argument was scheduled for April 20, 2020. Unfortunately that date was cancelled because of the outbreak of the Covid 19 pandemic and was not re-scheduled until December 13-18, 2020.

[10] For the reasons that follow, in my view Voreon is limited to a payment of $7,471,009 under the Settlement Agreement and the Settlement Agreement supersedes the shareholders agreement and the promissory notes referred to in the Settlement Agreement.

[11] Before setting out my reasons for why the Settlement Agreement governs the respective payouts of Voreon and Matas, I should add a word about what is and what is not in dispute on this application.

[12] Throughout the proceedings addressed in these reasons, Voreon has complicated what should have been relatively simple questions by raising in argument, a variety of issues that it did not raise in its notice of application and in respect of which it now seeks relief. By way of example, in its factum and argument on this application, Voreon complains about Matas having allegedly diverted $300,000 from Higher Living to a different project; an alleged foreign currency exchange scheme; an additional $400,000 promissory note of which Voreon cannot produce a copy and a further promissory note of $64,000; all to reduce any entitlement Matas may have to the balance of the proceeds of sale from the Higher Living project.

[13] None of these additional matters was raised in the Notice of Application. In my view, all of this is simply misdirection from the issue that was raised in the notice of application which, as stated in paragraph 1 (a) of the notice of application was an order for

Payment from MatasCo in the principal amount of $990,977.56, in

accordance with terms of the Promissory Notes (the “Notes”), as

described herein;

[14] This has been an unfortunate theme in the applicant’s approach to these proceedings. Rather than starting one proceeding in which all matters between Messrs. Katotakis and Matas are resolved at once, the applicant has commenced a variety of separate proceedings which it then confuses with each other by referring to alleged conduct of Matas in one proceeding to justify relief in other proceedings, in which it claims relief that was not sought in the notice of application.

[15] I decline to grant any relief that is not requested in the notice of application. As a result, the reasons on this application will be limited to what the applicant sought in the notice of application bearing Court file number CV-19-00625670 which was subsequently re-numbered CV-20-00637830-00CL.

[16] In support of its submission that the Settlement Agreement does not govern, Voreon submits that:

(i) There was no meeting of the minds on the settlement.

(ii) The settlement is merely an agreement to agree.

(iii) Matas has breached or repudiated the Settlement Agreement so as to relieve Voreon from its obligations under it.

i. Was there a Meeting of the Minds on the Settlement?

[17] Voreon submits that there was no meeting of the minds about the settlement because Matas asserted at one point in his cross-examination, that the settlement document on which Voreon relies is different from the one to which Matas agreed because it contains an additional clause that was not brought to Matas’ attention.

[18] This does not amount to a failure of the meeting of the minds. While Matas did take that position in his cross-examination, he then disavowed that position through counsel and accepts that the Settlement Agreement that he and Voreon signed, reflects the agreement of the parties.

[19] In addition, Voreon submits there was no meeting of the minds because Katotakis’ subjective understanding of certain clauses of the agreement differed from those of Matas. In his supporting affidavits, Katotakis explained his subjective understanding of certain clauses by reference to Greek words he says he had in mind when he was drafting the Settlement Agreement in English. In its reply factum, Voreon takes Matas to task for his failure to provide evidence about his subjective understanding about the language of the Settlement Agreement.

[20] The subjective intentions or understandings of the parties are irrelevant to the question of whether a contract exists or to its interpretation. It is for the court to determine whether a contract has been created and what it means based on the language used and evidence of the surrounding circumstances, not based on evidence of the subjective intentions of one party or another.[^2]

ii. Is the Settlement Agreement Merely an Agreement to Agree?

[21] I do not accept that the Settlement Agreement was merely an agreement to agree.

[22] For months before the Settlement Agreement was signed, Katotakis had an accountant review financial statements for Higher Living. After that lengthy review, he prepared a Settlement Agreement and presented it to Matas. In his email of January 27, 2016, Katotakis set out the business terms of the settlement and then stated:

If for any reason this is not accepted by tomorrow noon (January 28, 2016) I will have no choice but to sue.

Over and out.

[23] This was not language associated with an agreement to agree. It was language associated with an ultimatum: either Matas would sign the agreement as presented or Voreon would sue.

[24] The Settlement Agreement provides at page 12:

All of the covenants and agreements in this Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall enure to the benefit of and be enforceable by the parties hereto…

[25] There is no conditionality associated with that language. Whatever imperfections there may be in the Settlement Agreement, it says on its face that it is a binding agreement.

[26] Section (2)(A) of the Settlement Agreement addresses the Higher Living project and states:

(c) Voreon has loaned $990,979.36 to MatasCo; and

(2)(B) ZamanCo and MatasCo therefore agree that:

(a)They shall cause the [Cameron Stevens collateral mortgage] and related expenses to be either paid off or to be removed from Higher, all at no costs to Voreon and Kayzan; and

(b) In any event, the first $6,500,000 from the sale or further development of Higher (that is the first clear $6,500,000 from the residual received after payment or removal of the collateral loan CFS Cross) shall be paid to Voreon, in order to repay the loans to MatasCo and ZamanCo made by Voreon together with associated interest, together with Voreon’s own capital recovery and share of the profit.

(2)(D) Voreon agrees that upon receipt of the above $6,500,000 from the sale or further development of Higher, it shall:

(a) Cancel the obligations of … MatasCo in respect of the loans in the above …2(A)(c) so that no repayment or interest is due on those loans; and

(b) Offer its interest in Higher, representing 50% of the issued and outstanding shares of Higher to ZamanCo and MatasCo for $1.

[27] The foregoing section clearly addresses Promissory Notes on which MatasCo is liable. Those notes are to be discharged and Voreon is to surrender its interest in Higher Living in exchange for Voreon receiving the first $6.5 million from the sale or further development of Higher Living. That is what has now occurred. The Higher Living project has been sold and Voreon received the first $6.5 million from the sale. That is sufficient to discharge the three promissory notes referred to in the notice of application.

[28] Voreon’s counsel has not taken me to any evidence that arose before commencement of this application which suggests that Voreon viewed the settlement as nothing but an agreement to agree.

[29] Voreon submits that the Settlement Agreement contemplated the preparation of further agreements such as, for example, security agreements. The Settlement Agreement referred to those further agreements as Definitive Agreements.

[30] No further agreements were ever signed. Voreon submits that the absence of those further agreements demonstrates that the agreement was nothing but an agreement to agree. I do not accept that submission.

[31] An agreement is not incomplete simply because it calls for the execution of further documents.[^3] Moreover, where sophisticated parties have taken the trouble to prepare a 13 page, single spaced, unconditional agreement, signed by 11 parties, the aim of which was to resolve a series of disputes between them, courts can safely assume that the businesspeople who signed the agreement, intended something by it. Courts should not hurry to set aside such agreements because one party has had a change of thought. Courts have a duty to uphold bargains wherever possible.[^4]

[32] With respect to the absence of the further “Definitive Agreements,” Katotakis admits that he never asked Matas to sign any additional agreements except for a general security agreement. Katotakis presented the general security agreement two years after the Settlement Agreement was signed.

[33] Moreover, Voreon has failed to explain how the absence of any additional agreement has affected performance under the Settlement Agreement or otherwise harmed its interests. The purpose of a general security agreement is to protect a creditor if a debtor defaults on its obligations to make payment. Here, there has been no default. Voreon has received the $6.5 million it agreed to accept to extinguish its rights under the shareholders agreement and the promissory notes.

[34] Voreon argues further that the Settlement Agreement is unenforceable and unreasonable because:

There was no benefit to Voreon to offer to limit its distribution rights (nearly 5 years ago) on an unconditional and interminable basis.

[35] Whether there was or was not a benefit to doing so was a question for Voreon to decide when it presented the Settlement Agreement. Voreon was the one who drafted the Settlement Agreement and insisted that it be signed in short order. Voreon did not include any date in the Settlement Agreement by which the Higher Living property had to be sold. It could easily have done so.

[36] Voreon failed to include a timeline for the sale even though the Settlement Agreement contemplates that a sale might take some time. Section 2(B) speaks of the proceeds of $6.5 million accruing to Voreon on the “sale or further development” of the Higher Living property. Section 2(C) anticipates that additional funds will be required to complete the zoning of the Higher Living property and imposes obligations of the parties to fund those expenses. These provisions clearly contemplate the sale occurring in something other than the immediate future. The difference between the $6.5 million contemplated by the Settlement Agreement and the $7,471,009 paid to Voreon reflects the additional amounts contemplated by s. 2 (C).

[37] When the Settlement Agreement was entered into, Voreon believed the property was worth approximately $8,000,000. Voreon had contributed a total of $3,963,917 to the project comprised of its own equity contribution and loans to Matas and ZamanCo. The Settlement Agreement entitled Voreon to payment of the first $6,500,000 arising out of the project

“in order to repay the loans to MatasCo and ZamanCo made by Voreon together with the associated interest, together with Voreon’s own capital recovery and share of the profit.”

[38] Presumably when the Settlement Agreement was signed in 2016, Voreon believed that receiving $6.5 million on a total investment of $3.963 million amounted to a satisfactory return. The only thing that changed in the interim was that the property was sold in 2019 for $11.4 million. It appears that, with the benefit of hindsight, Voreon has concluded that it would have done better without the Settlement Agreement than with it. While that may be the case, that does not give it the right to walk away from the settlement.

[39] Moreover, to the extent that Voreon was prejudiced by the delay in the sale of the Higher Living property, it has only itself to blame. The respondents wanted to sell the property earlier. Katotakis did not. By way of example, March 22, 2018, Katotakis wrote an email to Matas in which he stated:

Voreon’s position remains the same. 45 Agnes and 86/90 are NOT for sale right now. (Emphasis in original)

[40] In the foregoing circumstances, I am satisfied that the Settlement Agreement is a binding agreement, and is not merely an agreement to agree.

iii. Did Matas Breach or Repudiate the Settlement?

[41] Voreon submits that Matas has acted so as to relieve Voreon of its obligations under the Settlement Agreement with respect to the Higher Living transaction. Voreon alleges that Matas breached the settlement because it did not remove from title to Higher Living a collateral mortgage in favour of Cameron Stevens Financial and that Matas repudiated the settlement. In this latter regard, Voreon relies on a letter from Matas’ lawyer dated May 4, 2018 in which he refers to the settlement as an “alleged settlement agreement,” indicates that Matas will not be executing any of the documents delivered pursuant to the settlement because of comments that Voreon allegedly made, and “questions whether the alleged settlement agreement is binding and enforceable.”

[42] In my view, this conduct does not relieve Voreon of its obligations under the Settlement Agreement either as a matter of fact or law.

[43] The general legal principle is that not every breach of an agreement gives the innocent party the right to repudiate it. A breach that gives the right to repudiate is one that deprives the innocent party of substantially all of the benefit of the contract. Short of that, the innocent party is limited to a claim for damages.[^5]

[44] Varcon Construction Co. v. 1554098 Ontario Inc.[^6] provides a good example of this. In Varcon, the parties had two contracts in respect of which they entered into a Settlement Agreement. After the defendant breached the settlement, the plaintiff brought an action seeking payment on the two original contracts. The court dismissed the plaintiff’s action holding that the original two contracts had merged into the Settlement Agreement which was now the only contract that could be enforced.[^7] The plaintiff’s remedy was to sue for damages for breach of the settlement, not to revert to the original contracts that had been settled.

[45] In the case before me, Matas’ conduct did not deprive Voreon of substantially the benefit of the Settlement Agreement. Moreover, Voreon did not sue for breach of the Settlement Agreement because it suffered no damages from Matas’ conduct.

[46] Under the doctrine of rescission, a party who believes it is entitled to resile from the agreement must advise the other of its intention to do so in a timely manner. Failure to do so is fatal any attempts to rescind the agreement.[^8]

[47] The principal property that was secured by the Cameron Stevens mortgage was another Katotakis-Matas project known as Grandview Living Inc. When that mortgage fell into default, Cameron Stevens commenced power of sale proceedings on the Grandview property. Cameron Stevens valued the property in June 2014 at approximately $6.3 million. In an email dated September 30, 2015 Katotakis confirmed that Voreon was prepared to pay approximately $6.3 million for the property. Katotakis ended up acquiring the property from Cameron Stevens for $4.85 million under the power of sale proceeding before it was exposed to the market.

[48] In that light it is understandable that Voreon did not commence any claim against Matas for breach of the Settlement Agreement by reason of its alleged failure to remove the Cameron Stevens mortgage. The failure to remove the mortgage has not caused Voreon any damages. On the contrary, it allowed Voreon to acquire the property at a discount to what Voreon had been prepared to pay for it.

[49] As noted earlier, Voreon suffered no harm from Matas’ refusal to provide a general security agreement because the Higher Living property was sold for a price that allowed Voreon to receive the $6.5 million it had agreed to. The purpose of the security was to protect Voreon if the property did not sell for a price sufficient to pay Voreon $6.5 million.

[50] Nor does the letter from Matas’ counsel relieve Voreon of its obligations. An innocent party to a purported repudiation, must accept the repudiation in clear language. An attempted repudiation is of no force or effect unless the innocent party accepts it.[^9]

[51] Here, Voreon took no steps to accept the repudiation, either in all Higher Living or the Settlement Agreement as a whole.

[52] Contrary to accepting any alleged repudiation of the Settlement Agreement by Matas, Voreon reiterated the enforceability of the Settlement Agreement on various occasions. By way of example:

(a) On November 3, 2017, Voreon exercised its rights under part four of the Settlement Agreement and required Matas to transfer his shares in another project to Voreon, notwithstanding any alleged breach of the agreement by Matas.

(b) On April 12, 2019 Katotakis wrote an email to Matas reminding Matas that he had agreed to pay $780,000 under the Settlement Agreement.

(c) On July 26, 2019, Katotakis sent Matas a proposed mutual release, one of the recitals of which referred to Matas Management Services Inc. and Voreon being parties to a Settlement Agreement dated the 28th day of January, 2016.

(d) In paragraph 107 of his third affidavit sworn February 19, 2020, Katotakis says in reference to the Settlement Agreement that “some of the transactions contain material terms and are enforceable.”

(e) During his cross-examination on September 21, 2019 Katotakis said that the Settlement Agreement was enforceable by Voreon but not by Matas.

[53] Voreon’s counsel has not taken me to any evidence before the commencement of this application which suggests that Voreon accepted any alleged repudiation by Matas.

Disputes Over Interest

[54] Two additional disputes have arisen over Voreon’s claim to interest on the amounts owing to it in respect of zoning expenses and in respect of the $6.5 million owing under the Settlement Agreement.

i. Interest on Zoning Expenses

[55] Section (2)(C) of the Settlement Agreement contemplates additional funds being required to complete the zoning of the Higher Living property. It calls for contributions to be made by Voreon, MatasCo and ZamanCo. It also authorizes Voreon to contribute funds required from MatasCo and ZamanCo. Finally, the section speaks to interest. The issue is whether Voreon is entitled to interest on only those funds that it has contributed on behalf of MatasCo and ZamanCo or whether it is also entitled to interest on zoning expenses that it has advanced on its own account.

[56] Voreon submits that is entitled to interest on account of all funds that it has advanced for zoning expenses. Matas submits that Voreon is entitled to interest only on those funds that Voreon advanced on behalf of MatasCo and ZamanCo.

[57] In the circumstances of this case, my reading of section 2(C ) leads me to conclude that Voreon is entitled to interest only on zoning expenses that it advanced on account of MatasCo and ZamanCo.

[58] The section reads as follows:

(2)(C ) It is anticipated that additional funds will be required to complete the zoning of Higher. Such funds will be supplied by Voreon (50% of the total), MatasCo (25%) and ZamanCo (25%). Both MatasCo and ZamanCo authorise Voreon to contribute their

share of such funds to Higher, and agree that any such funds advanced by Voreon will be repaid (with interest at 7% per annum) from their share of the proceeds from the sale or further development of Higher that remains after Voreon receives the above $6,500,000. If Voreon does not receive at least $6,500,000M (sic) as stipulated above, any funds advanced by Voreon under this part (plus interest at 7%) will be owed to Voreon by MatasCo and ZamanCo.

[59] The clause contains three concepts. First, further funding is required and will be supplied by Voreon, MatasCo and ZamanCo. Second, if MatasCo and ZamanCo do not pay their contribution, Voreon is authorized to do so. If that occurs, then:

any such funds advanced by Voreon will be repaid (with interest at 7% per annum) from their share of the proceeds from the sale or further development of Higher that remains after Voreon receives the above $6,500,000.

[60] In other words, the funds that are subject to interest are “any such funds”. Any such funds are those that are referred to in the second sentence that is to say, those funds that Voreon is authorized to contribute on behalf of MatasCo and ZamanCo. I am strengthened in this interpretation of the clause by the fact that it makes no provision for interest on the funds paid by MatasCo or Zamanco in any circumstance. It would seem odd to pay Voreon interest on funds that it advanced for zoning expenses but deny interest to the other shareholders if they advanced funds for zoning expenses.

[61] The third concept contained in section 2 (C ) extends the interest payable to Voreon to “any funds advanced by Voreon” under section 2 (C ). That concept, however, only applies if Voreon does not receive at least $6.5 million as stipulated in s. 2(B) (b) of the Settlement Agreement. Voreon has however received at least $6.5 million, as a result of which this third concept does not apply.

ii. Interest on the $6.5 million Owing Under the Settlement Agreement

[62] Voreon submits that it should earn interest on the $6.5 million that it is owed under the Settlement Agreement. It submits that s. 10.2 the shareholders agreement contemplated interest at prime +4% on amounts owing on account of the sale of shares. I disagree with that interpretation. Section 10 of the shareholders agreement applies only to the sale of shares under the shareholders agreement. The sale of the Higher Living shares did not occur under the shareholders agreement but under the Settlement Agreement. In addition, the provisions of section 10.2 apply to loans that the shareholder has extended to the Corporation. The $6.5 million payment under the Settlement Agreement has never, to my knowledge, been characterized as a loan that Voreon advanced to Higher Living nor has anyone taken me to any corporate records that treat the amount as a loan owing to Voreon.

[63] Finally, page 13 of the Settlement Agreement contains an entire agreement which provides that the Settlement Agreement “supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written”. That clause alone would have the Settlement Agreement supersede the shareholders agreement to the extent that it deals with the same subject matter. No one has suggested that the issues to which Voreon would have the shareholders agreement apply on the issues in dispute before me constitutes subject matter that differs from the matters addressed in the Settlement Agreement.

II. Voreon v. John Matas and Matas Management Services Inc.

CV-19-00625673

[64] This application raises issues is substantially similar to those raised in the Higher Living application. Its disposition is substantially similar to that of the Higher Living application for the reasons articulated above.

[65] This second application concerns a project that the parties referred to as Eminence Living. It involved the development of a property at 44 Agnes St. in Mississauga in which Messrs. Katotakis and Matas held beneficial interests through various corporations.

[66] The project specific corporation for this development is the Eminence Living Inc. .

[67] Voreon’s direct investment into Eminence Living was $2,172,882.[^10] In addition, Voreon lent $1,086,441 to each of the respondent MatasCo and to ZamanCo in order to fund the investment of these latter two in Eminence Living. On this application, Voreon seeks payment of the promissory notes from Matas plus interest under the notes and seeks interest and other financial benefits under the shareholders agreement that applies to Eminence Living. Voreon does not sue ZamanCo for its promissory note although it does not appear to have been repaid either.

[68] Section 1 of the Settlement Agreement applies to the Eminence Living project.

[69] As I did in my reasons relating to the Higher Living project, I take a moment to add a word about what is and what is not in dispute in the Eminence Living application. As with the Higher Living application, the notice of application in the Eminence Living application seeks judgement against Matas and his companies for amounts owing on promissory Notes plus interest. Katotakis has complicated this application by bringing into it, at a late stage, allegations about foreign currency trading and about an additional promissory note in the amount of $215,000 that was not referred to in the notice of application. The application record does not refer to the additional $215,000 promissory note. Voreon originally delivered a factum in March 2010 in which it did not refer to the $215,000 promissory note. Reference to the note appears to have arisen for the first time in Voreon’s expert report in an attempt to increase the amount owing to Voreon. Voreon referred to the note for the first time in a factum delivered October 30, 2020.

[70] As I did with the Higher Living application, I am limiting the Eminence Living application to the relief claimed in the notice of application which, as stated in paragraph 1(a) of the notice of application was an order for:

Payment from the respondent Jean-Pierre Matas (“Matas” or “Guarantor” or “Respondent”) in the principal amount of $1,086,442.00, in accordance with terms of the Promissory Notes (the “Notes”), as described herein, pursuant to guarantees in writing, dated June 18, 2012 and October 30, 2012 (“Guarantee Agreement”);

[71] These are the same promissory Notes as are referred to in section 1(A) (c) of the Settlement Agreement which indicates that Voreon has loaned Matas $1,086,441.21 for the Evidence Living project.

[72] The provisions of section 1 of the Settlement Agreement dealing with Eminence Living substantially mirror those contained in section 2 of the Settlement Agreement which refer to the Higher Living project.

[73] Section 1(A)(f) notes that Kayzan and MatasCo have caused a mortgage of $2,000,000 to be placed on the Eminence property in favour of Vector Capital without informing Voreon. Section 1(B) (a) and (b) require Kayzan and MatasCo to remove the Vector mortgage at no expense to Voreon.

[74] In this application, Matas argued that Voreon in fact knew about the Vector mortgage because Voreon owned 66% of Kayzan and had given Sharief Zaman, a close business associate of Katotakis, with whom Katotakis continued to do business, authority over the Eminence Living project. I decline to entertain those submissions. It is undisputed that Matas signed the Settlement Agreement. The Settlement Agreement acknowledges that the Vector mortgage was placed on the property without informing Voreon.

[75] The Settlement Agreement goes on to provide in section 1(B)(c) that:

(c) In any event, the first $6,500,000 from the sale or further development of Eminence (that is the first clear $6,500,000 from the residual received after interest payments and repayments to mortgages and/or collateral loans) shall be paid to Voreon, in order to repay the loans to MatasCo and ZamanCo made by Voreon

together with the associated interest, together with Voreon's own capital recovery and share of the profit.

[76] Section 1 (D) of the Settlement Agreement then provides:

(1 )(D) Voreon agrees that upon receipt of the above $6,500,000 from the sale or further development of Eminence, it shall:

(a) Cancel the obligations of ZamanCo and MatasCo in respect of the loans in the above 1A(b) and 1A(c), so that no repayment or interest is due on those loans; and

(b) Offer its interest in Eminence, representing 50% of the issued and outstanding shares of Eminence, to ZamanCo and MatasCo for $1.

[77] Voreon tries to avoid the Settlement Agreement for the same reasons that it tried to avoid the settlement in respect of Higher Living. Namely that there was no meeting of the minds, the settlement is merely an agreement to agree and that Matas breached or repudiated the Settlement Agreement. I reject those arguments in respect of Eminence Living for the same reasons that I did with respect to Higher Living. I will not repeat those arguments here and incorporate those reasons by reference here. There are, however, several nuances which I will address.

[78] With respect to Eminence Living, section 1(A) (e ) notes that Voreon has invested a total of $4,345,764.84 into Eminence.

[79] Presumably when the Settlement Agreement was signed in 2016, Voreon believed that receiving a further $6.5 million on a total investment of $4,345,764.84 into Eminence amounted to a satisfactory return. The only thing that changed in the interim was that the property was sold in February 2020 for approximately $12 million. As with, Higher Living, Voreon appears to come to the conclusion that its return will be better under the notes and the shareholders agreement than under the Settlement Agreement.

[80] There are a few arguments that are slightly nuanced with respect to Eminence Living that Voreon raises to support its argument that the Settlement Agreement should not apply.

[81] Contrary to the provisions of the Settlement Agreement, ZamanCo and MatasCo failed to remove the Vector mortgage from the Eminence property. The Vector mortgage then fell into default. To prevent a power of sale from occurring, Voreon made payments on the Vector mortgage beginning in May 2017.

[82] In December 2017 Voreon purchased the Vector mortgage. Voreon ultimately sold the Eminence property under power of sale in February 2020. On that sale, Voreon recovered the total amount it paid to acquire the Vector mortgage. In addition, Voreon earned interest of $600,000 during the 21 months that is acted as mortgagee. That is a significant return on a mortgage principal of approximately $2 million. As mortgagee, Voreon, could control when the property was sold. As noted earlier, in March, 2018 after Voreon had become mortgagee, it refused to sell the property.

[83] In the foregoing circumstances, the only additional damage to which Voreon is entitled is the amount of any mortgage payments that it paid on account of the Vector mortgage before it took an assignment of the mortgage, provided that Voreon has not already been compensated for those payments out of the power of sale.

[84] For the reasons articulated earlier, the failure by MatasCo to remove the Vector mortgage, does not amount to a breach of its obligations under the Settlement Agreement of the sort that would entitle Voreon to rescission. Voreon continued to obtain the benefit of the Settlement Agreement and never took the position that the Settlement Agreement was at an end until it commenced this application.

[85] Voreon raises a further nuance in the Eminence application with respect to the delay in selling the property. Voreon underscores that the promissory notes matured on September 30, 2018, that demand was made August 16, 2019 and that the property was not sold until February 2020. Voreon submits that it is unreasonable to interpret the Settlement Agreement as continuing to govern Voreon’s rights even after the notes had matured.

[86] I do not accept Voreon’s submission in this regard. As noted earlier, Voreon drafted the agreement. It could easily have included a date by which the $6.5 million payment had to be made, failing which the terms of the notes and the shareholders agreement would govern.

[87] As with the Higher Living property, the provisions of the Eminence settlement contemplated that the Eminence project required re-zoning to be developed. As a result, any sale or development would be expected to take some time.

[88] Moreover, after Voreon became the mortgagee in Vector’s place, it controlled any power of sale the property. As already noted, it refused to sell the property before the notes matured.

[89] The provisions of the Settlement Agreement dealing with the Eminence project contain a similar interest provision in section 1(C) as that found in section 2(C). For the reasons set out earlier when dealing with section 2(C), Voreon’s ability to claim interest on funds that it advanced for zoning expenses is limited to those funds that it advanced on behalf of MatasCo and ZamanCo.

III. Voreon and Kayzan v. Matas-Hueton Holdings

CV-20-00637831-00CL

[90] This proceeding involves two core issues:

i. Is a mortgage in the amount of $220,000 registered against title to 114 Maurice Dr. in Oakville valid?

ii. Should the transfer of a parking unit and a storage unit in Halton Standard Condominium Corporation No. 627 to 2534887 Ontario Inc. be set aside?

i. The Mortgage on 114 Maurice Dr.

[91] In this proceeding, the applicants Voreon and Kayzan seek an order setting aside a mortgage registered against 114 Maurice Dr. in Oakville, Ontario in favour of the respondent Matas-Hueton Holdings Inc. (“MHH”). The property was another one of the properties that Messrs. Katotakis and Matas developed together through various corporations in which they held beneficial interests.

[92] The applicants say they are not satisfied that the mortgage is valid because they have not seen satisfactory proof that funds were actually advanced in consideration for the mortgage. The applicants advance a variety of allegations to support their argument that Matas and his companies acted improperly in registering the mortgage.

[93] The applicants demand proof of actual funds being advanced on the mortgage because, as, Katotakis stated during his cross-examination, it was “conceivable” that the amounts withdrawn from the bank account that allegedly contained the mortgage proceeds were used for improper purposes. When questioned about his review of bank records, Katotakis pushed responsibility of that onto one of his business partners, Mr. Zaman, the person with operational control over Kayzan and with whom Katotakis continues to do business. The fact that it is “conceivable” that money was used for improper purposes does not amount to an enforceable claim.

[94] There is also ample evidence in the record to support legitimate advances in favour of the first Matas mortgage. The applicants or their representatives were given access to bank documents which demonstrated advances to support the mortgage.

[95] That said, whether there were advances under the mortgage or whether they were misused is irrelevant to my disposition of this application. On my view of the evidence, as with the earlier proceedings addressed above, Katotakis settled the mortgage issue but now seeks to avoid the settlement he freely entered into.

[96] MHH originally registered a mortgage against 114 Maurice Dr. in the amount of $300,000. A number of complications and disputes arose with respect to the property and the registrations against it. During the course of those disputes, the applicants somehow managed to unilaterally discharge the MHH mortgage from title. That only exacerbated matters and led Matas to threaten litigation.

[97] In November, 2017 Katotakis wrote an email to Matas in which he proposed a settlement. On November 22, 2017 Katotakis sent a further email to Matas and to Robbins Appleby confirming that he and Matas had resolved their disputes. Robbins Appleby were solicitors who acted for either Katotakis and his companies or for both sides, depending on whose version of events one adopts. Which is the correct version is irrelevant here. The point is that Katotakis instructed lawyers to implement the settlement.

[98] Among other things, Katotakis’ email provided:

3. The mortgages on 114 Maurice will be modified as follows:

(a) Voreon is to discharge the existing $1.49 VTB to GDHI

(b) Voreon’s new (replacement for above) first mortgage will be $615,635 (bearing interest at Royal Bank prime +5.5%)

(c) Matas new second mortgage will be $220,983 (bearing interest at 7% effective as of December 1, 2017)

(d) Voreon new third mortgage will be $1,246,877 (bearing interest at 7% effective as of December 1, 2017)

[99] In other words, whatever dispute about the $300,000 MHH mortgage may have existed, it was resolved by discharging the $300,000 mortgage and replacing it with a $220,000 mortgage.

[100] The settlement was implemented. As part of the settlement, the parties signed a document entitled “Acknowledgement of Debt re 2nd Mortgage.” The second mortgage is defined as a new second mortgage in favour of MHH. The Acknowledgement of Debt makes it clear that the applicants were recognizing and accepting a mortgage in favour of MHH in the amount of $220,983.

[101] Among other things, the Acknowledgement of Debt contained the following provisions:

AND WHEREAS at the time of the Power of Sale, MHHI had registered against the Maurice Property a certain mortgage instrument as Instrument No. HR1139825 (the “Matas Mortgage”);

AND WHEREAS the Matas Mortgage was discharged pursuant to the Power of Sale, and the amount owing to MHHI pursuant to its indebtedness under the discharged Matas Mortgage constitutes, as of the completion of the sale of the Garden Properties, the amount of Two Hundred Twenty Thousand Nine Hundred Eighty Three Dollars ($220,983), and the Borrower is registering a new second mortgage (“New MMHI Second Mortgage”) to secure such outstanding amount…

NOW THEREFORE IN CONSIDERATION OF the closing of the sale of the Garden Properties, the granting of new security as hereinbefore set out, the mutual covenants hereinafter set out, …the undersigned:

1. Confirm that the above recitals are true and correct in substance and in fact, including the amounts set out as owing thereunder.

2. Acknowledge that as of the completion of sale of the Garden Properties on November 28, 2017, the amount owing under to (sic) MHHI with respect to its new second mortgage is Two Hundred Twenty Thousand Nine Hundred Eighty Three Dollars ($220,983)…

[102] The applicants claim they are nevertheless entitled to challenge the second MHH mortgage because, MHH represented in the Acknowledgement Debt that the amount of the mortgage was $220,983 and that the applicants are entitled to demand proof of that representation. I disagree. The Acknowledgement of Debt contains no representations. Rather, it contains acknowledgements by all parties that the statements in the recitals are true. In other words, the applicants acknowledged that the amount of the MHH mortgage was $220,983.

[103] Katotakis made that acknowledgement in circumstances where his doubts about the mortgage were so serious that it led him to unilaterally have it discharged from title. If the applicants had doubts about the amount owing under the mortgage, the time to have raised and explored those doubts was before they acknowledged the amount owing, not years after the fact.

[104] The applicants completed the settlement and obtained benefits under it in favour of themselves. Having obtained all the benefits for themselves, they now seek to deprive MHH of the benefits the applicants had agreed to afford MHH.

[105] In doing so, the applicants allege that the respondents registered a “sham mortgage”, that they never advanced funds they seek to enforce under the mortgage that the mortgage was not authorized in accordance with the shareholders agreement, that the mortgage was a “fictitious obligation” to defeat the priorities reflected in the shareholders agreement. In doing so, the applicants have turned this proceeding into a complex forensic exercise in which they have obliged the respondents to demonstrate that they advanced funds on mortgages many years ago. That has led to needless complication, expense and delay.

[106] The applicants submit that MHH is obliged to prove that it advanced funds under the mortgage and that it cannot enforce its mortgage without proof of an advance of funds. In the circumstances of this case, that argument is entirely untenable. The settlement supersedes any obligation of the mortgagee to prove its debt. The settlement and the acknowledgement of debt are proof of the debt.

ii. Transfer of the Storage and Parking Units

[107] The applicants seek to set aside the transfer of a parking unit and a storage unit in Halton Standard Condominium Corporation No. 627 to 2534887 Ontario Inc.(“253 Co.”).

[108] The applicants say that the transfer violated a shareholders agreement to which the applicants and the respondents were parties.

[109] In addition, the condominium corporation sought and obtained leave to intervene on the basis that its Declaration provides that no transfer of a storage or parking unit is valid unless it is to an owner of a unit the in condominium. 253 Co. does not own a unit in the condominium.

[110] 253 Co. has not, however, been named as a respondent in this proceeding. The applicants submit that this is of no moment because the shareholders of 253 Co. are the wife and sister in law of Matas and that the latter in effect controlled 253 Co. The applicants then advance arguments to the effect that I ought to pierce the corporate veil between MMH and 253 Co.

[111] The notice of application did not seek any relief against 253 Co. and did not otherwise seek any relief concerning the transfers of the parking or storage units.

[112] In these circumstances it does not strike me as appropriate to grant the relief sought. While the applicants and the condominium corporation may well have good claims against 253 Co. to set aside the transfers, that relief should be sought in a proceeding that names the affected parties as respondents and sets out the basis for the relief in the originating pleading. The dismissal of this portion of the application is without prejudice to the applicants or the condominium corporation commencing a claim in relation to the transfers.

[113] Without in any was passing judgment on the issue, given the at fairly clear wording of the Declaration, 253 Co. may wish to give serious consideration to settling that dispute.

IV. 2399862 Ontario Inc. v. Erindale Village Living Inc.

CV-20-00637730-00CL

[114] Since the hearing in December 2020, the parties have advised that they are either very close to or have settled this matter. As a result, I do not propose to address it. Should the parties require assistance if the settlement is not completed they can advise me directly and I will issue reasons on the issue(s) surrounding this project.

Disposition and Costs

[115] For the reasons set out above, Voreon’s entitlement to amounts owing in respect of the Higher Living and Eminence Living applications is limited to: (i) the $6,500,000 settlement amount in respect of each application; (ii) amounts advanced on account of zoning expenses under sections 1(C) and 2 (C) of the Settlement Agreement; (iii) interest on account of any zoning expenses that Voreon has advanced on behalf of MatasCo, Zamanco and Kayzan at the rate of 7% per year; and (iv) any amounts that Voreon paid on account of the Vector mortgage before taking an assignment of the mortgage provided that it has not yet been paid such amounts. The applications are otherwise dismissed.

[116] With respect to the 114 Maurice Dr. mortgage and the transfer of the parking and storage units, Voreon’s application is dismissed.

[117] Given the parties’ inability to agree on matters, I remain seized of the matter to address any disputes arising out of the calculation of the precise amounts payable. If the parties cannot reach agreement on the precise amounts payable under the various applications by July 9, 2021, each side should provide me with a short written statement of the issue(s) and the reasons for which their position should prevail. After reviewing those written submissions, I will advise the parties if I require oral submissions. Such written submissions should be exchanged simultaneously by July 16.

[118] Any party seeking costs of these applications may make written submissions by July 2, 2021. Responding submissions should follow by July 12, 2021 with reply due by July 16, 2021.

Koehnen J.

Released: 2021-06-16

COURT FILE NO.: CV-20-00637830-00CL, CV-19-00625673-0000, CV-20-00637831-00CL DATE: 2021-06-14

ONTARIO SUPERIOR COURT OF JUSTICE (Commercial List)

BETWEEN:

VOREON INC. Applicant

– and –

MATAS MANAGEMENT SERVICES INC., HIGHER LIVING DEVELOPMENT INC. AND ROBINS APPLEBY LLP Respondent

AND BETWEEN:

VOREON INC. Applicant

– and –

JEAN-PIERRE MATAS also known as JOHN MATAS and MATAS MANAGEMENT SERVICES INC. Respondent

AND BETWEEN:

VOREON INC. and KAYZAN INC. Applicants

– and –

MATAS-HUETON HOLDINGS INC. and GARDEN DRIVE TOWNES INC.

REASONS FOR JUDGMENT

KOEHNEN J.

Released: 2021-06-16

[^1]: Albeit through another corporation in which Katotakis had a beneficial interest, Kayzan Inc.

[^2]: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633 at para. 59.

[^3]: UBS Securities Canada Inc. v. Sands Brothers Canada Ltd., 2009 ONCA 328 at para. 47; Ward v. Ward, 2011 ONCA 178 at paras. 53 to 56.

[^4]: Brown v. 08219696 B.C. Ltd, 2010 BCSC 989 at para. 47.

[^5]: Clark v. 189557 Ontario Inc., 2016 ONSC 3241 at para. 41.

[^6]: Varcon Construction Co. v. 1554098 Ontario Inc. 2011 ONSC 1649.

[^7]: Varcon at paras. 5-12.

[^8]: Perry v. D’Souza, 2017 ONSC 7073, at para. 64.

[^9]: Clark v. 189557 Ontario Inc., 2016 ONSC 3241 at paras. 48-50; Malatinszky v. Miri, 2020 ONSC 16 at paras. 73-74.

[^10]: Once again, invested through Kayzan.