Court File and Parties

COURT FILE NO.: CV-21-00664676

DATE: 20210709

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: STEPHEN BARBER, Plaintiff

– and –

CANNAPHARMARX, INC., CANNAPHARMA CANADA CORP. (formerly known as HANOVER CPMD ACQUISITION CORP.), ALTERNATIVE MEDICAL SOLUTIONS INC., and JUST IN TIME CAPITAL INC., Defendants

BEFORE: E.M. Morgan J.

COUNSEL: Brendan Clancy, for the Plaintiff Jessica Kuredjian, for the Defendants, CannaPharmaRx, Inc., Cannapharma Canada Corp. (formerly known as Hanove CPMD Acquisition Corp.), alternative Medical Solutions Inc., and Just In Time Capital Inc. Sharoon Gill, for the Defendant, Just In Time Capital Inc.

HEARD: July 8, 2021

ENDORSEMENT

[1] Plaintiff moves, on an urgent basis, for:

(a) summary judgment in respect of an alleged settlement agreement setting out terms of payment of $700,000 owed to him by the Defendant, CannaPharmaRx Inc. (“CPR”), or

(b) an interlocutory injunction to prevent the sale of property located at 95 1st Street, Hanover, Ontario (the “Property”) by the Defendant, Alternative Medical Solutions Inc. (“AMS”) to the Defendant, Just In Time Capital Inc. (“Just In Time”), or

(c) an order that the proceeds of sale of the Property be paid into court pending final determination of the action.

[2] Just In Time is an arm’s length purchaser of the Property for fair market value. The other Defendants are all related companies. AMS is a subsidiary of the Defendant, Cannapharma Canada Corp. (“CCC”), which is, in turn, a subsidiary of CPR (collectively, the “CPR Group”).

[3] AMS purchased the Property in 2014. At that time, the Plaintiff was the directing mind of AMS. In 2018, CCC purchased all of the shares of AMS, thereby acquiring the Property for the CPR Group of companies. The share purchase was financed by a loan from the Plaintiff. It is an unsecured debt, not registered on title to the Property. There is a first mortgage registered against the Property by an unrelated lender, Koze Investments, LLC (“Koze”).

[4] On December 8, 2020, Dominic Lee Colvin, the President and CEO of the CPR Group, entered into a Memorandum of Understanding with Joseph Groleau, the Plaintiff’s business associate, concerning any future sale of the Property (the “MOU”). The MOU set out the way in which proceeds of sale of the Property would be allocated:

(a) payout of the first mortgage registered against the Property by Koze;

(b) payment of property taxes owing on the Property;

(c) payment of the balance of the loan owing to the Plaintiff and Mr. Groleau; and

(d) the balance of any remaining proceeds to be shared equally by the Plaintiff and Mr. Groleau.

[5] The parties have engaged in negotiations to convert the MOU into a settlement agreement, and to that end draft agreements have been exchanged. Counsel for the Plaintiff characterizes the last of these drafts as reflecting a meeting of the minds, making that draft an enforceable contract.

[6] According to the Plaintiff, the draft settlement agreement was premised on representations by the CPR Group that the proceeds of sale of the Property would exceed the amount owing on the Koze mortgage. That said, the Plaintiff also contends that under the final iteration of the draft agreement, he was to receive payment of $181,000 directly from the purchase price prior to the mortgage, taxes, and other expenses being paid. The balance of the money owed to him by the CPR Group would then be paid to him in the form of CPR shares, the value of which was the subject of some further exchanges between the parties.

[7] The draft agreement was never signed, as the CPR Group advised the Plaintiff that, in fact, a sale of the property would just barely cover a payout of the first mortgage. This took the Plaintiff by surprise, as he had been led to believe by the CPR Group that the balance on the Koze mortgage was $1,000,000, which was substantially less than the value of the property. In fact, Koze’s mortgage statement indicated that the balance owing on the mortgage was just over $2,100,000.

[8] On December 22, 2020, AMS entered into an Agreement of Purchase, later amended by an Amendment of Agreement on June 1, 2021, to sell the Property to Just in Time for a purchase price of $2,000,000, closing on June 30, 2021 (the “Agreement”). No one disputes the fact that Just In Time is an arm’s length purchaser and that the purchase price is reflective of current market value.

[9] As indicated, the outstanding balance owed to Koze under the first mortgage exceeds the funds that AMS will receive under the Agreement. As of June 21, 2021, the balance owing on the Koze mortgage was $2,127,000. As of June 30, 2021, the balance due from the purchaser on closing of the sale of the Property was $1,899,756.84, less outstanding realty taxes of $88,116.01, a holdback to vendor’s lawyers of $15,000, and a holdback to Koze’s lawyers of $1,891.94.

[10] Koze agreed to suffer a small loss on the mortgage loan and to take all of the closing proceeds, net taxes and legal fees, in exchange for discharging the first mortgage. The Statement of Adjustments for closing, which forms an exhibit in the CPR Group’s responding record, shows that the agreed-upon payment to Koze comes to $1,794,748.89 plus $15,000 (U.S.) for unspecified expenses. When added to the realty taxes owing and the holdbacks for legal fees, this consumes the entire balance of the proceeds of sale.

[11] Counsel for the CPR Group submits that the Plaintiff is disentitled to summary judgment as he did not include in his Notice of Motion a statement that he is seeking to enforce either the draft settlement agreement or the MOU or, for that matter, any other agreement. His counsel included in the Notice that the Plaintiff is seeking only interlocutory injunctive relief or payment of the sale proceeds into court. The request for summary judgment appears to be a late add-on that made its first appearance in the Plaintiff’s factum.

[12] This Court has previously indicated to litigants that “[i]t is trite to say that the court can only grant relief to a moving party that is specified in the notice of motion for which notice has been given. The motion must specify the relief requested to comply with Rule 37.06(a)”: 1521141 Ontario Limited v. Upper Oakville Shopping Centre Limited, 2018 ONSC 2808, at para 41.

[13] The moving party’s factum is generally not where one finds new heads of relief. As counsel for the CPR Group commented in their own responding submissions, “[a] factum is a venue for a party to demonstrate why they are entitled to the relief sought, not seek new relief depending on how the wind is blowing at the legal research stage.”

[14] In his written submissions, counsel for the Plaintiff invokes Rule 49.09 of the Rules of Civil Procedure in seeking to enforce the draft settlement agreement, which he characterizes as a finalized settlement agreement. In general, it is the case that settlement agreements need not be included in the pleading or notice with which a procedure is commenced. The Court of Appeal has instructed that the reason for that is that it is assumed that the settlement agreement sought to be enforced came into existence after the commencement of the action or motion: Donaghy v. Scotia Capital Inc./Scotia Capitaux Inc., 2009 ONCA 40, at para 15.

[15] That is not the case here. In oral argument, Plaintiff’s counsel conceded as much. The draft settlement documentation was exchanged before litigation commenced; in fact, the draft agreement, which he says is a finalized settlement agreement, were the very catalyst for the Plaintiff’s claim. If he were going to move for summary enforcement of it, he should have said so in his Notice of Motion. Rule 49.09 does not relieve him of the need to provide that notice.

[16] Even if Plaintiff’s counsel had included summary judgment in the Notice of Motion, the evidence does not support the draft settlement agreement’s terms as being enforceable in the way that the Plaintiff sees it. It was entered into prior to the parties realizing that the sale price of the Property would not exceed the amount due on the first mortgage. Had the price been greater or the mortgage debt been smaller, the settlement agreement would have made sense. But given the way the numbers have come out, it is hard to see any real logic to “enforcing” the terms of the draft settlement agreement, as there are no funds for the Plaintiff to which those terms logically pertain.

[17] As indicated above, counsel for the Plaintiff says that the meaning of the settlement agreement is that the Plaintiff would receive his money out of the gross proceeds of sale, regardless of what ends up being owed to the first mortgagee. But unless some evidence emerges that shows that the amounts owing on the Koze mortgage are less than they appear to be, the Plaintiff’s explanation does not conform with the way mortgage law works.

[18] I have no doubt that Koze, as mortgagee, would have refused to discharge its mortgage if the mortgage debt were not being paid out to its satisfaction. And if the mortgage were not discharged, the sale would not have closed and there would be no proceeds to distribute under the settlement agreement’s terms regardless of whether the draft can be characterized as a concluded agreement.

[19] Moreover, it is fundamental to debtor-creditor law that a secured lender like a registered mortgagee takes priority over an unsecured lender like the Plaintiff. Nothing in any agreement between the Plaintiff and the CPR Group, in which Koze was not included, could have dislodged the first mortgagee’s right of priority.

[20] The Plaintiff alleges that the CPR Group told him that less money was owing to Koze than it would appear is owing, and thereby misrepresented to him that he could be paid out of the purchase price. That allegation may well be the subject of the Plaintiff’s ongoing claim against the CPR Group, but it cannot change Koze’s position. The only evidence in the record about the mortgage balance owing to Koze is the mortgage statement contained in the responding record. That statement shows that the proceeds of sale will be depleted after Koze is paid. The Plaintiff has produced nothing to suggest that Koze is in fact owed less than its own mortgage statement says it is owed.

[21] In any case, I certainly would not grant an Order effectively displacing Koze’s rights without, at the very least, Koze being put on notice and having an opportunity to make submissions. Plaintiff’s counsel complains that the Defendants have not produced a witness from Koze, but that is hardly their obligation; a more serious problem is that the Plaintiff, as moving party, did not think to give Koze notice of its claim or of this motion. I see no indication that Koze was delivered a copy of the Plaintiff’s motion materials; and, in any case, the Notice of Motion would not have put Koze on notice that judgment was being sought in this way, as the summary judgment request was not one of the stated heads of relief in that Notice.

[22] An Order that the proceeds of sale of the Property be paid into court is also not possible here, for the very same reasons. The closing funds, according to all evidence in the record, will be owing to Koze. And again, if Koze is not paid the mortgage will not be discharged. I do not see how anyone can lay claim to those funds and expect them to be preserved by court order, without putting on notice the self-evidently competing claimant on those funds.

[23] Here, as noted above, Koze, the competing claimant, is not a party to the action and is not before me. As first mortgagee it has not been afforded any opportunity to respond to the Plaintiff’s claim that he has somehow jumped to the front of the priority queue on sale of the Property. One cannot expect the first mortgagee to somehow intuit that an unsecured lender will think that it has a right to what seems so self-evidently to be the first mortgagee’s funds.

[24] I note that the Plaintiff has attempted to upgrade the debt owed to him by the CPR Group by saying that he is not just owed repayment of a loan, but has an unregistered equitable mortgage on the Property as a result. In support of this argument, he cites the Court of Appeal’s decision in Re Elias Markets Ltd., 2006 31904, at para 64, where the Court explained that this concept is based on the common intention of the parties and embodies the principle that “equity looks on that as done what ought to be done”.

[25] Whether or not the Plaintiff has an equitable mortgage, as opposed to a contractual right against the CPR Group, is a moot point under the circumstances. Again, the evidence shows that the purchase price will just cover the first mortgage. The Court of Appeal was clear in Re Elias Markets that an equitable mortgage can only rank ahead of another mortgage that was granted with notice of the equitable mortgage. It would not rank ahead of Koze’s previously registered first mortgage. If there are insufficient funds to pay the Plaintiff from the proceeds of sale, then it does not matter if the debt to him creates an equitable interest or not.

[26] As for the Plaintiff’s request for an injunction, I likewise see no grounds for granting interlocutory relief of that nature. In RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 SCR 311, the Supreme Court set out three criteria for an injunction that a moving party must demonstrate:

(a) a strong prima facie case;

(b) irreparable harm if the injunction is not granted; and

(c) the balance of convenience favouring the moving party.

[27] For all of the reasons set out above, the Plaintiff may have a strong damages claim against the CPR Group, but I am not convinced that the Plaintiff has anything near a strong prima facie case in respect of his claim for funds from the sale of the Property. His interpretation of the arrangement is so contrary to elementary concepts of mortgage law that it cannot be characterized in the way that RJR-MacDonald would require.

[28] The Plaintiff’s claim is for repayment of a debt by the CPR Group, not for an interest in funds otherwise owing to the first mortgagee. In order to justify an injunction on the sale of the Property, the Plaintiff would have to either claim priority over the first mortgagee or demonstrate that less is owing on the mortgage than Koze says is owing. There is nothing in the record to suggest that he has a strong prima facie case in either of those respects.

[29] It is Plaintiff’s counsel’s view that even accepting the figures in the Statement of Adjustments, the result of the sale is unfair to his client as there were two $50,000 deposits earlier sale in the transaction that were credited to the purchase price for the Property. It is the Plaintiff’s position that the CPR Group, as vendor, should not be able to keep those funds and that they should be paid over to the Plaintiff on closing.

[30] That may or may not be a valid claim or a fruitful source of funds against which the Plaintiff can enforce a judgment debt one day. However, it does not change the fact that the Plaintiff has no basis to claim any of the closing funds; they are all going to taxes and the first mortgagee (with small amounts to the solicitors making the closing possible). The Plaintiff is owed money by the CPR Group – no one, including the CPR Group itself, disputes that; but there is no basis in any of the evidence before me on which the Plaintiff can assert a claim to enjoin or seize any of the closing funds for sale of the Property.

[31] Even if it were debatable that there is a strong prima facia case, there is no evidence anywhere in the record that would support the injunction requirement of irreparable harm. The Plaintiff’s claim is not a claim to the Property, but a claim for repayment of a loan. In this respect, the harm of non-payment is not irreparable for the Plaintiff. There is nothing more compensable in damages than the loss of money. The Supreme Court explained this point in RJR-MacDonald itself:

‘Irreparable’ harm refers to…harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court's decision (R.L. Crain Inc. v. Hendry (1988), 1988 5042 (SK QB), 48 D.L.R. (4th) 228 (Sask. Q.B.)); where one party will suffer permanent market loss or irrevocable damage to its business reputation (American Cyanamid, supra); or where a permanent loss of natural resources will be the result when a challenged activity is not enjoined (MacMillan Bloedel Ltd. v. Mullin, 1985 154 (BC CA), [1985] 3 W.W.R. 577 (B.C.C.A.)).

[32] There is no sense in which the nature of the Plaintiff’s underlying claim – repayment of a loan – suggests that “irreparable harm” is at stake. Likewise, there is nothing about the financial status of the CPR Group in the record. Plaintiff’s counsel contends that the difficulty his client has experienced in getting paid, combined with the fact that the CPR Group has apparently not made payments on the Koze mortgage thus allowing the money owing thereunder to increase, suggests that damages would not be a credible remedy.

[33] With respect, I do not see those facts as being evidence that would support an irreparable harm argument. The fact that a debtor has not yet paid a creditor is a feature of all such claims, and does not in itself demonstrate that the debtor will not be able to pay if there is a judgment requiring it to do so. The Plaintiff has no right to a pre-judgment seizure of funds, and on the record before me has not demonstrated that there is any reason to stop the CPR Group from closing the sale that it has negotiated with Just In Time.

[34] Just as payment into court would interfere with the rights of Koze as first mortgagee, an injunction preventing the sale of the Property from closing would interfere with the rights of Just In Time as purchaser. The Plaintiff makes no claim against this purchaser, and puts forward no argument as to why his claim should take precedence over the purchaser’s right to complete the transaction to which he and the vendor have agreed.

[35] The position of Just In Time may well be irreparable if I grant an injunction, as it will lose the Property it bargained for. But I have seen nothing in the record that demonstrates that the position of the Plaintiff will be irreparably harmed if I do not grant an injunction. The Plaintiff will be left with a money claim, just like everyone else in his position who sues for repayment of an unsecured loan.

[36] The Plaintiff’s motion is dismissed.

[37] The parties may make written submissions on costs. I would ask both sets of Defendants’ counsel to send to my assistant by email short submissions (3 pages maximum) within two weeks of today, and for Plaintiff’s counsel to send to my assistant equally short submissions within two weeks thereafter. There is no need to deliver copies of authorities cited in these submissions, provided that any cases are cited with full citations so that they can be found online.

Date: July 9, 2021 Morgan J.