MediPharm v. Hexo and Hwang, 2022 ONSC 4326

COURT FILE NO.: CV-20-212

DATE: 20220725

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: MediPharm Labs Inc., Plaintiff (Defendant to the Counterclaim), Moving Party

AND

Hexo Operations Inc., Defendant (Plaintiff by Counterclaim), Responding Party

AND

Peter Hwang, Defendant by Counterclaim, Moving Party

BEFORE: Justice Spencer Nicholson

COUNSEL: M. Polvere and J. Leslie for the Plaintiff, MediPharm Labs Inc.

J. Teskey and A. Visvanatha for the Defendant, Hexo Operations Inc.

E. Lederman and S. Hale for the Defendant by Counterclaim, Peter Hwang

HEARD: December 8, 2021

REASONS ON SUMMARY JUDGMENT MOTION

NICHOLSON J.:

[1] In October of 2018, Canada became the first of the G7 countries to legalize cannabis sales, sparking a quickly evolving, mega-million dollar industry.

[2] MediPharm Labs Inc. (“MediPharm”) produces purified pharmaceutical grade cannabis oil and cannabis concentrates to be used in cannabis derivative products.

[3] Hexo Operations Inc. (“Hexo”) produces, markets and sells branded cannabis products to provincial boards and commercial retailers.

[4] UP Cannabis Inc. (“UP Cannabis”) was licensed to cultivate, process and sell cannabis for the recreational market. Newstrike Brands Ltd. (“Newstrike”) was the parent company of UP Cannabis. Peter Hwang was a director of Newstrike.

[5] This case involves a Supply Agreement pursuant to which MediPharm was to supply cannabis resin to UP Cannabis from March 2019 to February 2020. The Supply Agreement is dated February 11, 2019. At the time, it was the biggest supply agreement involving cannabis products.

[6] Hexo purchased Newstrike pursuant to an Arrangement Agreement dated March 12, 2019 with a closing date of May 24, 2019. Hexo therefore acquired UP Cannabis and became responsible for its contractual obligations pursuant to the Supply Agreement.

[7] MediPharm has commenced an action against Hexo for unpaid invoices for the cannabis resin that it supplied to Hexo pursuant to the Supply Agreement. MediPharm alleges that the unpaid amount is $9,802,032.78.

[8] Hexo has counterclaimed against MediPharm and Mr. Hwang for $35,000,000.00. The counterclaim against MediPharm is grounded in breach of contract, breach of its obligation of good faith dealing and unjust enrichment. The counterclaim against Mr. Hwang is based on breach of fiduciary duty and/or breach of his obligation of good faith dealing.

[9] Both MediPharm and Mr. Hwang bring motions for summary judgment. MediPharm asserts that there is no genuine issue requiring a trial with respect to whether Hexo owes MediPharm for the product Hexo requested and MediPharm supplied. Mr. Hwang asserts that there is no genuine issue for trial with respect to the counterclaim against him because he is protected by the business judgment rule which calls for deference to business decisions so long as they fall within a range of reasonable alternatives.

[10] Hexo opposes the motions asserting that the issues in the claim and counterclaim require a trial to resolve.

[11] The issues are whether there is a genuine issue requiring a trial with respect to the unpaid invoices or the counterclaims.

Evidence on the Motions:

Newstrike’s Strategic Business Plan:

[12] Mr. Hwang was a director of Newstrike. In July of 2018, he was appointed Chief Commercial Officer and in January of 2019, he was appointed President, Operations. He was responsible for leading all commercial activities in Sales, Marketing and Operations and was in charge of leading Newstrike’s New Product Development department. As part of its operations, Newstrike entered into various partnerships and agreements in furtherance of its strategic business plan.

[13] It is important to understand that the legalization of cannabis derivative products, for example, vapes, edible, beverages, etc., was expected to occur in late 2019. These derivative products were known as “Cannabis 2.0 products”. According to the evidence of Mr. Hwang, Newstrike was focused from at least March of 2018 on preparing for this legalization of Cannabis 2.0 products. It was anticipated that cannabis derivative products, when legalized, would generate higher margins and greatly expand the target demographic of the cannabis industry. As part of that preparation, Newstrike in late 2018 and early 2019 was:

(a) Acquiring the cannabis oil necessary for the production of these Cannabis 2.0 products;

(b) Developing internal cannabis oil extraction capabilities and expertise to sustain long-term production of Cannabis 2.0 products;

(c) Stockpiling and building an inventory of cannabis oil to satisfy production demands;

(d) Entering into partnerships with food, beverage and other service providers for the creation of several lines of Cannabis 2.0 products;

(e) Securing shelf-space for Cannabis 2.0 products in retail shops across Canada; and

(f) Producing and selling excess cannabis oil to other licenced producers or directly to consumers.

[14] I pause to note that in his affidavit, Mr. Hwang uses the term “oil” to describe the product Newstrike was seeking to further its strategic business plan. Mr. McMillan, Chief Development Officer for Hexo, describes in his affidavit that there is a significant difference between “oil” and “resin”. According to Mr. McMillan, resin could not be used without being further processed. He asserts that UP Cannabis did not have the appropriate facilities to do so. Furthermore, UP Cannabis did not have the proper licence to sell cannabis oil. Moreover, Mr. McMillan asserts that resin has a short shelf-life, making it impractical to store in large quantities. On his cross-examination, Mr. Hwang indicated that he understood the difference between resin and oil but would use the word “oil” loosely in some contexts.

[15] Both Mr. McMillan and Mr. Shehata for MediPharm discuss winterized resin in their affidavits in similar fashion. Mr. Shehata, in MediPharm’s Reply Affidavit, describes that it supplied winterized cannabis resin pursuant to the Supply Agreement. Mr. Shehata states that cannabis resin can be comprised of either CBD or THC cannabinoid components. Further, he describes that winterization is a refinement process used to remove fats, waxes and lipids from extracts. The winterization of oil purifies crude extracts, increasing the quality and flavour of the resultant oil. In the process, cannabis extract is mixed with ethanol and frozen to allow the undesirable compounds to solidify. The solution is then passed through a filter, separating wax, lipids and fats from the oil. In the final step, the ethanol is removed, resulting in a winterized extract. If the extract is then “stripped” of all materials and compounds except one specific cannabinoid, it results in distillate. It is the distillate that is the base ingredient of most edibles and vapes and is a potent cannabis oil. The most common forms of distillate on the market are THC oil and CBD oil or a combination of the two.

[16] Mr. Hwang’s affidavit includes significant detail in respect of Newstrike’s efforts in 2018 to further its plans. In September and December of 2018, Newstrike, through UP Cannabis, entered into two agreements with MediPharm. Pursuant to those agreements, Newstrike sold specific quantities of cannabis flower and shake to MediPharm. MediPharm, in turn, would extract cannabis oil from the flower and shake. Newstrike retained a right of first refusal over the extracted cannabis oil.

[17] In the meantime, Newstrike had made it known that it was interested in being acquired. Hexo was identified as a potential purchaser. Mr. McMillan deposes that it was well known in the fall of 2018 that Newstrike was seeking out a buyer. In any event, the two companies became involved in “talks” in relation to the potential acquisition in late 2018 or early 2019. Mr. Hwang points out that in 2018 Newstrike had been in talks with other potential buyers and that those deals had all fallen through.

[18] Mr. Hwang deposes that Newstrike had to ensure its preparedness for the legalization of Cannabis 2.0 products. Thus, it could not afford to put its plans on hold. Had plans for the acquisition by Hexo not come to fruition, Mr. Hwang deposes that a failure to implement its strategic business plan would have been fatal to the viability of Newstrike. Thus, in early 2019, Newstrike, through Travis Kanellos, its Director of Business Development, was discussing with MediPharm the possibility of a further agreement. MediPharm’s representative for these discussions was Pat McCutcheon, its Chief Executive Officer.

[19] In January of 2019, Newstrike hired Trevor Folk as its Vice President, New Products. Mr. Folk is described as an experienced extraction expert and he was to lead the company’s new product development and develop its internal extraction capabilities. It was hoped that Mr. Folk’s relationships with other licensed producers would result in Newstrike being able to stockpile a large enough oil inventory to sell to other licensed producers at a premium. During his cross-examination, Mr. Hwang makes it clear that Trevor Folk was to play a major role in developing the extraction capabilities from which oil distillates could be obtained from the resin obtained from MediPharm.

[20] Mr. Hwang describes that ultimately Newstrike planned to expand its facility in early 2019 to house additional extraction and production facilities. They would also obtain the necessary licences. These plans were put on hold when the potential acquisition by Hexo was being negotiated.

[21] I return to the distinction between oil and resin. Mr. Hwang deposes in his affidavit as follows (at para. 42):

“42. As mentioned in the Strategic Business Plan above, the production of cannabis derivative products requires cannabis oil and resin, which is extracted from cannabis plants. Until Newstrike hired Trevor Folk, it did not have its own internal extraction capability. However, Newstrike recognized that early access to large quantities of cannabis oil would ensure a head-start in terms of creating, developing and ensuring Newstrike’s Cannabis 2.0 products were ready for market immediately upon legalization. As such, and while it worked on building its own in-house oil production, Newstrike sought to procure cannabis oil from external sources.”

[22] On January 31, 2019, MediPharm sent Mr. Kanellos a Letter of Intent with respect to initiating a wholesale cannabis resin supply agreement. Ultimately, the parties agreed to the Supply Agreement dated February 11, 2019 between UP Cannabis and MediPharm. The Supply Agreement was negotiated and drafted by legal counsel representing both parties. Mr. Hwang testified that in addition to himself, Mr. Kanellos, Mr. Folk and Newstrike’s legal counsel were instrumental in the negotiation on behalf of UP Cannabis. The legal counsel included Ms. Ruth Chun, who the evidence establishes was experienced in large transactions involving cannabis sales.

[23] The negotiations leading to the Supply Agreement were the subject of considerable exploration by Hexo during the cross-examinations of Mr. Shehata, affiant for MediPharm and then of Mr. Hwang. They both made it clear that 12 days was not an unusually short time for negotiations to occur, even given the magnitude of the deal. They each indicated that due to their previous arrangements, there was some familiarity with each other. MediPharm had done similar deals in the past with other parties. I find as a fact that there was nothing improper about the negotiations taking only 12 days to unfold.

[24] I will address the key terms of the Supply Agreement in greater detail below. Generally, the Supply Agreement required MediPharm to supply cannabis resin concentrate to UP Cannabis over a 12-month period. It also obligated UP Cannabis to purchase a certain amount of resin. There was to be an initial delivery of 142.7 kg of cannabis resin. Thereafter, MediPharm would deliver 50 kg of resin every month. UP Cannabis had an option to purchase an additional 25 kg of resin per month. In dollar figures, this was approximately $35 million worth of cannabis resin concentrate over a period of 12 months, with the option to purchase an additional $13.5 million worth. All told, there would be 13 mandatory shipments of resin for the months of February 2019 through February 2020.

[25] According to Mr. Hwang, the Supply Agreement was beneficial to Newstrike as, inter alia, it would provide a reliable and predictable supply of the cannabis oil (the word he uses) necessary to achieve its plans in relation to Cannabis 2.0 products. He deposes that the prices set out in the Supply Agreement were fair and in line with market prices at the time. The price per mg of active component was $0.07 in February of 2019 for the first 142.7 kg and thereafter $0.06 per mg.

[26] MediPharm produced other supply agreements entered into in 2018 and 2019 as undertakings on Mr. Shehata’s cross-examination. I have reviewed carefully the prices contained therein. I note that the majority of these contracts are for the sale of cannabis resin, although at least one is for cannabis oil. I had initially included the specifics of the pricing within my decision. However, I have rewritten this paragraph to omit specific pricing so as not to jeopardize what could be considered confidential information. Suffice it to say that the pricing in the contracts produced by MediPharm as part of their undertakings demonstrate that the price agreed to in the Supply Agreement was consistent with the prices negotiated between MediPharm and other parties. These agreements certainly refute the allegation that the Supply Agreement contains inflated prices for cannabis resin.

[27] Furthermore, Mr. Hwang describes that MediPharm’s expertise was specifically important to Newstrike. Unlike other licensed producers, MediPharm was a cannabis extractor specializing in producing cannabis oil and cannabis concentrates for derivative products. That expertise, in short, was worth paying an increased price.

[28] In its material, MediPharm points out that the initial Letter of Intent included prices that were 33% higher. The prices ultimately agreed to by MediPharm and UP Cannabis were negotiated down from MediPharm’s initial offer.

[29] Mr. Hwang’s affidavit details several areas with respect to Cannabis 2.0 products that Newstrike was exploring. This included edibles, vape products, beverages and personal care products. He has included projected revenue from these areas and the entities that Newstrike was attempting to form partnerships with to develop the products. This is corroborated by correspondence. Mr. Hwang explains that these endeavours all required large quantities of cannabis oil.

[30] Mr. Hwang describes that bulk cannabis oil was difficult to obtain in the months leading up to the legalization of Cannabis 2.0 products. He states that only a limited number of licensed producers were producing cannabis oil and very few bulk purchase opportunities existed. He emphasizes that any oil that was not used for production or sold, could be stockpiled for future use or sale.

Specific Terms of the Supply Agreement:

[31] Both Hexo and MediPharm sought to characterize the Supply Agreement. It is helpful to turn to its important provisions.

[32] The Supply Agreement contained a number of “defined terms”. For example,

• “Active Component” meant THC or CBD;

• “Goods” meant the Cannabis Resin to be supplied hereunder by the Supplier to the Purchaser, including the Goods as described in Schedule A;

[33] All parties were in agreement that the Supply Agreement did not specify which of THC or CBD resin MediPharm was required to provide. In his affidavit, Mr. McMillan specifically complains that the Supply Agreement did not provide UP Cannabis with such a protection.

[34] Pursuant to Schedule B to the Supply Agreement, UP Cannabis agreed to purchase, and MediPharm agreed to sell the “total quantities of bulk winterized Cannabis Resin set out in the table below”. Accordingly, there was a minimum quantity of resin that the parties agreed would be sold from MediPharm to UP Cannabis. Under Schedule B, there was also a late penalty in the event that MediPharm provided the goods ordered late.

[35] The Supply Agreement provided that the UP Cannabis shall issue Purchase Orders to MediPharm via email. MediPharm was then to confirm via email receipt of the Purchase Order. MediPharm could then confirm acceptance or rejection of the Purchase Order. If MediPharm did not confirm its acceptance or rejection, it was deemed to have accepted the Purchase Order. The Supply Agreement was silent on what would happen if UP Cannabis did not issue a Purchase Order. However, as noted above regarding Schedule B, UP Cannabis had obligated itself to purchase resin on a monthly basis throughout the term of the Supply Agreement. Thus, I agree with MediPharm that it was not open to Hexo or UP Cannabis to choose not to send Purchase Orders.

[36] Under the Supply Agreement, MediPharm warranted, inter alia, that the Goods would comply with all Applicable Law, be free of any and all pesticides and be free of unwanted contaminants. There was a procedure for lab testing set out in the Supply Agreement.

[37] UP Cannabis agreed that it would pay 50% of the initial Purchase Order it received from MediPharm within five business days of the execution date of the Supply Agreement and the remaining 50% within five business days of the delivery of the Goods. For the balance of the purchases, provided that an invoice was delivered by MediPharm, UP Cannabis would pay 50% on the first business day of each month and the remaining 50% of the amount within five business days of the delivery of the Goods.

[38] UP Cannabis could terminate the Supply Agreement upon ten business days prior written notice if MediPharm was in breach of any material representation, warranty, covenant or obligations in any material respect that causes or is reasonably expected to cause material financial harm to UP Cannabis. However, MediPharm had 30 days in which to cure such breach or default.

[39] Importantly, the Supply Agreement contained an Entire Agreement clause (clause 13.3) and a clause providing that no amendment or waiver of any provision of this Agreement would be binding on either party unless consented to in writing by that party (clause 13.5).

The Acquisition:

[40] As noted, talks in relation to the acquisition by Hexo of Newstrike began in the fall of 2018. There was a non-disclosure agreement between Hexo and Newstrike signed on November 30, 2018. Prior to February 11, 2019, Newstrike provided Hexo with a Confidential Information Memorandum. The Confidential Information Memorandum provided an overview of Newstrike’s operations and its strategic business plan. The memorandum included reference to Newstrike’s need for cannabis oil as it planned for the legalization of Cannabis 2.0 products.

[41] Additionally, management from Hexo, Newstrike and UP Cannabis held in person meetings to discuss the acquisition, Hexo toured Newstrike facilities and Newstrike’s Board of Directors had formed a special committee in relation to the potential acquisition.

[42] Importantly, Hexo was afforded an opportunity to conduct due diligence with respect to the Newstrike acquisition. The due diligence process commenced on March 13, 2019 and lasted until May 24, 2019, the date for closing. Mr. McMillan testified that Hexo had over 20 individuals involved in the overall due diligence concerning the acquisition.

[43] In early 2019, Newstrike and Hexo executives met multiple times, in person and by telephone. On February 25, 2019, Hexo provided Mr. Hwang with a due diligence request list, which included a request for all material agreements. According to Mr. Hwang, all material agreements, including the Supply Agreement, were placed into a data room for Hexo’s review. This was acknowledged by Mr. McMillan during cross-examination.

[44] Of note, Mr. Hwang was not on the Newstrike investment committee that was interacting with the Hexo team for the purpose of the acquisition.

[45] Both Newstrike and Hexo were represented by legal counsel and business advisors throughout the negotiations for the acquisition. On March 12, 2019, the parties executed the Arrangement Agreement. Hexo was to acquire Newstrike’s shares in an all-share transaction valued at approximately $263 million. Effectively, Hexo purchased Newstrike and its subsidiaries, which included UP Cannabis. Hexo would become responsible for all contracts to which Newstrike, or its subsidiaries, were a party. This included the Supply Agreement. The closing date for the acquisition was May 24, 2019.

[46] At the time that the Arrangement Agreement was entered into the parties also executed a Disclosure Letter, stated to be “read and understood as an integrated document”. The Disclosure Letter, among other things, set out the material contracts to which Newstrike was a party at the time of the Arrangement Agreement. This included the various agreements with MediPharm, including the Supply Agreement.

[47] The Arrangement Agreement contained several relevant provisions. Section 3 of the Arrangement Agreement addressed representations and warranties. Except for certain representations and warranties as set out in the contemporaneously delivered Disclosure Letter, Schedule D contained representations and warranties upon which Hexo could rely. However, the representations and warranties were expressly not to survive the consummation of the Arrangement and expired on the date of closing. Clause 9.7 is an “Entire Agreement Clause” indicating that only the Arrangement Agreement, the Disclosure Letter and the Confidentiality Agreement made up the entire agreement. Section 9.12 provided as follows:

“9.12 No Liability

No director or officer of Purchaser shall have any personal liability whatsoever to Company or any third-party beneficiary under this Agreement and the Plan of Arrangement or any other document delivered in connection with the Contemplated Transactions on behalf of Purchaser. No director or officer of Company shall have any personal liability whatsoever to Purchaser under this Agreement and the Plan of Arrangement or any other document delivered in connection with the transactions contemplated hereby on behalf of Company.”

[48] Newstrike and Hexo issued a public announcement on March 13, 2019 advising of Hexo’s intention to acquire Newstrike.

[49] According to Mr. Hwang, the Supply Agreement was specifically discussed on April 9, 2019. Two representatives of Hexo spoke with Newstrike’s Chief Financial Officer who explained the rationale for the Supply Agreement. The Chief Financial Officer prepared a memo of that meeting in which he indicates that he advised that they were having “speed bumps” in relation to having to accept THC instead of CBD as well as a few lots of the February shipment presenting with a “quality issue”. Importantly, on his cross-examination, Mr. McMillan admitted that he did not speak to either of the two Hexo representatives to determine whether or not this conversation took place, or, if so, the substance of it. Accordingly, this evidence is unrefuted.

[50] On May 15, 2019, Mr. McMillan, followed up with Mr. Kanellos with respect to the Supply Agreement, via email. Mr. McMillan asked for updates on the status of the deliveries from MediPharm and on Newstrike’s efforts to sell its inventory of cannabis oil.

[51] On May 17, 2019, Mr. Hwang deposes that Stephen Burwash, the interim Chief Financial Officer of Hexo, wrote to him and asked to meet to discuss the Supply Agreement. During a conference call on May 21, 2019, the pricing logic and overall reasoning behind the Supply Agreement were discussed. According to Mr. Hwang, at no time during that discussion did Hexo raise any concern about the pricing, volumes or business efficacy of the Supply Agreement.

[52] Hexo takes the position that no such detailed discussion regarding the Supply Agreement occurred at this meeting. Mr. McMillan, on cross-examination, could not recall for sure whether or not he had participated in that meeting. He relies upon Mr. Burwash advising him that no such discussion occurred.

[53] Hexo’s acquisition of Newstrike closed as scheduled on May 24, 2019. Thereafter, Hexo assumed all rights and obligations under any supply agreements, including the Supply Agreement with MediPharm. Mr. Hwang argues that by that time, Hexo had been fully apprised of the details of Newstrike’s relationship with MediPharm, Newstrike’s inventory of cannabis resin and had been informed of the rationale for the Supply Agreement from a business perspective.

[54] On May 31, 2019, Mr. Hwang was terminated from his positions at Newstrike and UP Cannabis effective June 30, 2019. Upon the completion of the Arrangement Agreement, the members of the boards of Newstrike and its subsidiaries were required to resign. Mr. Hwang deposes that he has had no further involvement in the business of either company since that time. Furthermore, Trevor Folk and Mr. Kanellos were also terminated immediately after the merger. This is an important fact given that it was Mr. Folk’s expertise that UP Cannabis had intended to rely upon to extract the oil from the resin acquired from MediPharm and his involvement was instrumental to the strategic business plan.

[55] I should also note that Newstrike was Hexo’s first acquisition.

Performance of the Supply Agreement:

[56] MediPharm began supplying cannabis resin to UP Cannabis pursuant to the Supply Agreement, with the first shipment being made on or about February 22, 2019. That shipment was for 47 kg and was paid for by UP Cannabis. A further 95.7 kg shipment was made on March 1, 2019 and subsequently paid for. The shipments for February, March and April of 2019 were all made prior to Hexo acquiring Newstrike.

[57] Almost immediately, there is evidence that UP Cannabis sought to review the Supply Agreement. Mr. Kanellos emailed Mr. McCutcheon of MediPharm on March 5, 2019 and stated, “If you guys are up for it lets potentially look to lessen terms after we build up over the next few months…?”. Internal emails from UP Cannabis show that as early as March 11, 2019, they were seeking out buyers for the resin that they had just acquired from MediPharm and prepared to sell at a loss. On March 14, 2019, Mr. Hwang wrote that one possible option was “…Discuss with Hexo the option for them to take the product if they want it but also more importantly also discuss the MediPharm agreement with them and see if long term it makes sense…”.

[58] There are also a series of text messages between Mr. Hwang and Pat McCutcheon of MediPharm from March of 2019. The two are clearly discussing a dispute about the Supply Agreement and what has been agreed upon. It is apparent that performance of the Supply Agreement had already gotten off to a rocky start. However, nothing about the texts suggests that there was any collusion between Mr. Hwang and MediPharm. If anything, MediPharm is suggesting UP Cannabis is in breach for non-payment. Of note, Mr. McCutcheon does reference that MediPharm had initial concerns at the time that the Supply Agreement was being negotiated that UP Cannabis did not have the ability to “manage such a process or such robust volumes”.

[59] Hexo complains that the February 2019 shipment was not tested for pesticides. In March of 2019, prior to Hexo’s acquisition, emails between MediPharm and UP Cannabis refer to two issues. The first is that there was a higher content of the pesticide Remesthrin than is permitted by Health Canada and secondly, that there was a “N/A” marking for the pesticide Kinoprene. It became apparent that MediPharm was not testing cannabis concentrates for all pesticides. Pesticide testing was the subject of a telephone conference between the parties. It was resolved that MediPharm would arrange to have the shipments tested for pesticides.

[60] Reference is made to a positive test for the February 2019 shipment for the pesticide Acequinocyl. It appears that this shipment was quarantined. However, as pointed out by MediPharm, this was apparently a false positive. Hexo acknowledges this in their affidavit and has included a copy of the report dated June 12, 2019 confirming that fact. I find that the pesticide issue is a non-issue in this case.

[61] Hexo also raises an alleged issue with the cannabis potency of the initial shipments being below the potency indicated in the original MediPharm invoice. Ultimately, MediPharm gave UP Cannabis a credit in the amount of approximately $150,000 as a result of the deficiency. UP Cannabis accepted the credit and the shipment.

[62] Upon UP Cannabis’ concerns being addressed to UP Cannabis’ satisfaction, the evidence is clear that these invoices were ultimately paid in full. The evidence establishes that MediPharm attempted to work with UP Cannabis to resolve these issues to their mutual satisfaction. In an email dated March 13, 2019, UP Cannabis had stated that they would not pay invoices in relation to those shipments until the product was approved as acceptable. MediPharm points out that they have now done so.

[63] Mr. McMillan deposes that in June of 2019, he met with MediPharm personnel to discuss “traceability”. In Hexo’s view, from a regulatory standpoint, it was important to be able to show a link between the resin and the plant from which it came. Furthermore, at around the same time, Mr. McMillan met with MediPharm’s president, Keith Strachan, to discuss a possible addendum to the Supply Agreement that would require MediPharm to supply Hexo with cannabis concentrate in distillate form. Mr. McMillan specifically uses the phrase “indicated an interest in supplying other products, such as distillate, …at no extra cost to Hexo”. Mr. McMillan deposes that “it was agreed that MediPharm would provide Hexo with a proposal for distillate and that MediPharm would be able to provide the additional processing at no additional cost”. He states that MediPharm agreed to consider taking back the resin that had been supplied to Hexo, to distill it. I emphasize that the operative word used by Mr. McMillan is “consider”. According to Mr. McMillan, ongoing discussions occurred in July 2019 with a view to renegotiating the Supply Agreement.

[64] Notwithstanding these discussions, MediPharm sent delivered product for the months of May and June 2019. Hexo complains that the shipments for May and June 2019 were made by MediPharm without having received the requisite Purchase Orders from UP Cannabis. Hexo states that MediPharm had no way of knowing what product Hexo required.

[65] The July 2019 discussions are confirmed by an email from Mr. Shehata to Mr. McMillan dated July 17, 2019. Therein, Mr. Shehata noted that he would be happy to work with Hexo’s legal team to amend the Supply Agreement to reflect a new arrangement whereby MediPharm would supply distillate instead of resin, with additional fees being charged by MediPharm. He also indicated that MediPharm would be willing to accept the return of the May and June 2019 shipments so that MediPharm could process the resin into distillate at a nominal fee. Importantly, there is no correspondence by return from Hexo indicating that the parties had already agreed to MediPharm providing distillate at no extra cost. I note that pursuant to the terms of the Supply Agreement, any amendment was to be done in writing.

[66] Hexo found MediPharm’s proposal with respect to extra costs for add-on services to be “exorbitant”. Mr. McMillan deposes that these costs would result in no profit margin for Hexo. Despite further discussions with Mr. Shehata, Hexo did not agree to pay the additional fees for the supply of cannabis concentrate in distillate form and the Supply Agreement was not amended.

[67] On August 8, 2019, legal counsel for MediPharm wrote to Hexo seeking payment of $8,138,814.51 purportedly owing under the Supply Agreement.

[68] On August 19, 2019, a new person at Hexo, Mr. Korec, assumed responsibility for the account. Mr. Korec advised MediPharm not to ship any product without a Purchase Order from Hexo and that Hexo wanted only the CSCJ CBD strain of product.

[69] Significantly, Hexo decided to pay the outstanding amounts. Mr. McMillan described this as being in the hopes that Hexo and MediPharm would eventually agree to amend the arrangement so that MediPharm would supply distillate. Thus, the May and June 2019 shipments were paid for on August 21, 2019.

[70] On September 10, 2019, counsel for Hexo wrote to counsel for MediPharm indicating that it was Hexo’s position that MediPharm was in breach of the Supply Agreement by:

(a) delivering products/goods not tested for pesticides;

(b) overcharging Hexo for products containing a lower CBD potency than as expressly contracted for;

(c) failing to supply goods of the character or quality contracted for;

(d) shipping products without Purchase Orders being issued by Hexo;

(e) insisting upon deposits which were not contemplated by the Supply Agreement.

[71] On September 20, 2019, Mr. Korec attended the MediPharm facility and advised MediPharm that Hexo did not require any further THC product. According to Mr. McMillan, MediPharm agreed that it would deliver CBD products for July and August 2019. Therefore, Mr. Korec sent Purchase Orders for 50 kg of CSCJ strain of CBD product for the July, August, September and October 2019 shipments. Despite this apparent agreement, on the same day, MediPharm advised that based on timing, it was not an option for MediPharm to ship CBD for the July and August 2019 shipments. MediPharm indicated that the Supply Agreement did not guarantee the resin type that would be shipped.

[72] Without receiving confirmation from Hexo to proceed, MediPharm shipped the July, August and September 2019 shipments on September 30, 2019. The July and August 2019 shipments consisted of THC resin, contrary to the Purchase Orders which specifically requested 50 kg of the high CBD potency CSCJ strain.

[73] In his affidavit, Mr. Shehata explains that while he agrees that Mr. Korec attended their facilities in September 2019 and requested CBD product going forward, they advised him that they had already produced THC in good faith for the July and August 2019 shipments based on their earlier shipments. He indicates that MediPharm was afraid to receive a late penalty for failing to ship product, so they shipped THC. He further deposes that they would accommodate the request for CBD provided that Hexo delivered Purchase Orders in advance so that they could prepare the requested product.

[74] On October 8, 2019, Hexo rejected the 100 kg of THC resin for the July and August 2019 shipments on the basis that Hexo did not require that inventory and the shipment did not fulfill Hexo’s issued Purchase Orders. Hexo refused to pay the remaining balances for the July and August 2019 shipments until MediPharm shipped the product that Hexo required and for which Hexo had issued Purchase Orders.

[75] Thus, while the deposits were paid for the July and August 2019 shipments, the balance of $2,500,227.85 remained unpaid.

[76] MediPharm did, in fact, agree to exchange the THC product for CBD product and actually exchanged the product. That exchange occurred in late November or December of 2019. Notwithstanding the exchange, Hexo has continued to refuse to pay the outstanding balance for the July and August 2019 shipment.

[77] Hexo paid the September 2019 shipment in full. The September 2019 shipment was for a CBD strain. The Purchase Order from Hexo for that shipment was received by MediPharm on September 23, 2019.

[78] MediPharm delivered the October 2019 shipment, which was 50 kg of a CBD strain as requested by a Hexo Purchase Order. Hexo paid the deposit, but not the balance in relation to that shipment. Thus, a further $1,287,647.66 went unpaid.

[79] Hexo sent a Purchase Order in relation to the November 2019 shipment on October 31, 2019. Again, this was for a strain of CBD resin. This was followed by an email from Hexo to MediPharm dated November 14, 2019 asking for a quote in the event that Hexo wanted to purchase distillate instead of winterized resin for the remainder of the Supply Agreement. I note that this email is inconsistent with MediPharm’s representatives already having promised to do so at no extra charge. According to Mr. McMillan’s affidavit, the MediPharm representative indicated that he would look into it and asked if Hexo wanted CBD or THC. The response was CBD. Hexo followed up this request with a further email dated November 21, 2019. In response to these emails, MediPharm never sent a quote for distillate.

[80] On November 29, 2019, Hexo sent a further Purchase Order for the December shipment for 50 kg of CBD.

[81] In addition to the exchanged resin, Hexo received the product delivered for the October, November and December 2019 shipments all between November 21 and December 30, 2019. Thus, Hexo complains that it received 250 kg of resin in a 39-day period. From the record before me, there is no dispute that Hexo did receive the cannabis it requested (CBD) by Purchase Order.

[82] Hexo did not pay the deposit for the January 2020 shipment. Given the state of the arrears, MediPharm did not deliver any product for January 2020. Instead, on January 24, 2020, MediPharm issued a Statement of Claim seeking payment of $9,802,032.78, the amount alleged went unpaid by Hexo, including the January 2020 deposit.

[83] On February 20, 2020, Hexo wrote to MediPharm seeking confirmation that MediPharm would accept the return of over 250 kg of THC resin supplied to Hexo, claiming it was supplied in breach of the Supply Agreement. MediPharm has not agreed to accept the return of the THC resin. Hexo did not offer to return the CBD resin. Mr. Shehata on cross-examination indicated it would be “stupid” for MediPharm to accept the return of the THC since the THC had been fully paid for by UP Cannabis/Hexo and since it had been out of MediPharm’s possession for so long, MediPharm could not be assured of its quality.

[84] Mr. McMillan describes that Hexo had to make the “best of a very difficult situation”. In order to avoid storing the resin for so long that it started losing its potency, Hexo attempted to use as much of the resin in its inventory as possible. It had to be processed and Hexo engaged a third party to process some of the resin into distillate. This was done at additional costs to Hexo. Accordingly, Hexo complains that it is losing money on products containing distillate derived from the resin received from MediPharm.

[85] There is evidence that a third party, Teal Valley, offered to purchase some of the cannabis resin from UP Cannabis prior to the closing date of the acquisition. This was mentioned to Hexo on May 30, 2019. However, Hexo did not enter into this opportunity. Hexo says that Teal Valley was not interested in purchasing resin, but only oil.

Positions of the Parties:

MediPharm:

[86] MediPharm takes the position that this is a simple debt collection matter. Hexo asked for and received CBD resin from MediPharm pursuant to the Supply Agreement but has refused to pay for it. This is precisely the type of case amenable to a motion for summary judgment.

[87] In relation to the acquisition by Hexo of Newstrike, MediPharm, argues that it had no indication that the acquisition was going to take place prior to negotiating the Supply Agreement. The Supply Agreement was agreed upon prior to the public announcement on March 13, 2019. In fact, the first large shipment of cannabis resin had been made prior to that announcement.

[88] MediPharm acknowledges that there were issues in respect of implementing the Supply Agreement. However, it acted in good faith to work with UP Cannabis, and later Hexo, in an attempt to work out those issues. Ultimately, each party made concessions with respect to some of the outstanding issues. Those issues were resolved to the satisfaction of UP Cannabis and/or Hexo, and the product was accepted and paid for such that those disputes are now moot.

[89] MediPharm urges me to find that there are no genuine issues requiring a trial with respect to its claim for the amounts owing on its invoices from Hexo, and with respect to the counterclaim asserted against it by Hexo.

Hexo:

[90] Hexo takes the position that MediPharm and Newstrike entered into the Supply Agreement in bad faith. In doing so, Hexo asserts:

(a) that the prices contained therein are inflated;

(b) that the timing of the Supply Agreement is suspicious given that it was formulated on the eve of the Arrangement Agreement;

(c) that the Supply Agreement was for far more product than UP Cannabis needed;

(d) that UP Cannabis, at the time that the Supply Agreement was entered into, was not even licensed to sell the product it received; and

(e) the product shipped by MediPharm was defective.

[91] Shortly after acquiring the product from MediPharm in March, UP Cannabis was trying to sell the resin that it had just purchased. Furthermore, at the time UP Cannabis had no extraction capabilities to process resin into oil, no licence for the laboratory for which it planned to eventually conduct processing and no ability to use the vast quantities within its usable shelf-life.

[92] Hexo has adduced evidence that in August of 2018, the price for resin was in the range of $0.03 to $0.04 per mg.

[93] Hexo takes the position that MediPharm failed to provide the requisite product as requested, failed in its obligation of good faith in contractual dealing by refusing to renegotiate the Supply Agreement to provide for distillate at no extra charge and refused to accept the return of the THC that it had shipped in the early months of the Supply Agreement.

[94] As to Mr. Hwang, Hexo argues that he was in breach of his fiduciary duty by entering into a contract that was so favourable to MediPharm and unfavourable to UP Cannabis.

[95] Hexo thus argues that these issues require a trial to determine.

Mr. Hwang:

[96] Mr. Hwang argues that Hexo has failed to adduce any evidence, or even plead, that Mr. Hwang acted dishonestly, fraudulently, in a conflict of interest or self-dealt. At worst, he entered into a bad contract. Mr. Hwang takes the position that the Supply Agreement was entered into in good faith with MediPharm with a view to Newstrike’s long term strategic business plan and was, in all respects, a legitimate contract. He argues that his decisions in that regard are fully insulated by the business judgment rule.

[97] Mr. Hwang further asserts that Hexo had an ample period of due diligence between the time that the Arrangement Agreement was executed and the closing date. All of the concerns now raised with the Supply Agreement were known or could have been known during the due diligence period.

[98] Mr. Hwang also relies upon the Release contained in s. 9.12 of the Arrangement Agreement.

[99] Mr. Hwang accordingly argues that there is no genuine issue for trial in respect of the counterclaim against him and that the counterclaim should be dismissed.

The Law:

Summary Judgment Motions:

[100] Pursuant to Rule 20.04(2) of the Rules of Civil Procedure, the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. The rule includes fact-finding powers under Rules 20.04(2.1) and (2.2) to weigh evidence, evaluate credibility, and draw inferences, provided that their use is not against the interests of justice.

[101] The seminal case with respect to motions for summary judgment is Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, authored by Karakatsanis J. Therein, the Supreme Court described that summary judgment motions offer a solution to the oft slow and expensive system of civil procedure that culminates in a trial. A trial is not necessary if a summary judgment motion can achieve a fair and just adjudication, allowing the judge to make the necessary findings of fact, apply the law to those facts and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial.

[102] At paragraph 66, Karakatsanis J. described the applicable test on a motion for summary judgment. First, the judge should determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. If there does appear to be a genuine issue requiring a trial, the motions judge should then determine whether a trial can be avoided by using the enhanced powers found in Rules 20.04(2.1) and (2.2). The use of such powers will not be against the interests of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[103] A number of principles have emerged and are frequently referenced in summary judgment motions. A party may not rest on allegations in its pleadings on a motion for summary judgment but instead must “put its best foot forward” or “lead trump or risk losing”. Furthermore, the court is entitled to assume that the record on a motion for summary judgment contains all the evidence the parties would present at trial. It is not open to a party resisting summary judgment to rely on the prospect that additional evidence may be tendered at trial to justify the necessity of proceeding to trial (see: James v. Chedli, 2021 ONCA 593 at para. 31).

[104] It must be kept in mind that despite Karakatsanis J’s. comments regarding summary judgment motions being used expansively to improve access to justice, there is no imperative for courts to use such motions in every case. The overarching goal remains to have a fair process that results in a just adjudication of disputes (see: Royal Bank of Canada v. 1643937 Ontario Inc., 2021 ONCA 98, at para. 25). As noted by Nordheimer J.A. in Mason v. Perras Mongenais, 2018 ONCA 978, at para. 44, “nothing in Hryniak detracts from the overriding principle that summary judgment is only appropriate where it leads to a ‘fair process and just adjudication’”.

[105] Where there are deficiencies in the record before the court on a summary judgment motion, it may be inappropriate for the motions judge to resolve the issues in dispute (see: FFO Fiberglass v. Distribution Composites, 2019 ONSC 4291, at para. 17).

The Duty of Good Faith Performance of Contracts:

[106] The Supreme Court of Canada discussed whether there was a duty of good faith performance of contracts under Canadian common law in Bhasin v. Hrynew, 2014 SCC 71. Cromwell J., for the court, described the organizing principle as simply being that parties must perform their contractual duties honestly and reasonably, and not capriciously or arbitrarily (at para. 63). This requires that a contracting party have appropriate regard to the legitimate contractual interests of the contracting partner. However, “appropriate regard” for the other party’s interests does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith (see: para. 65).

[107] Cromwell J. expanded upon this at para. 73, as follows:

[73] …I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step. The requirement to act honestly is one of the most widely recognized aspects of the organizing principle of good faith: see Swan and Adamski, at 8.135; O’Byrne, “Good Faith in Contractual Performance: Recent Developments”, at p. 78; Belobaba; Greenberg v. Meffert (1985), 1985 CanLII 1975 (ON CA), 50 O.R. (2d) 755 (C.A.), at p. 764; Gateway Realty, at para. 38, per Kelly J.; Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), at para. 69. For example, the duty of honesty was a key component of the good faith requirements which have been recognized in relation to termination of employment contracts: Wallace, at para. 98; Honda Canada, at para. 58.

[108] The Supreme Court subsequently relied upon Bhasin v. Hrynew in C.M. Callow Inc. v. Zollinger, 2020 SCC 45. In C.M. Callow, Kasirer J., for the majority of the court, reinforced that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.

[109] In 2021, the Supreme Court again examined the duty of good faith in contractual performance in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7. In that case, the waste removal contract provided to the municipal district the absolute discretion to allocate waste to various disposal facilities. Its reallocation resulted in reduction of Wastech’s profit. Wastech claimed that the municipal district had breached its duty to exercise contractual discretion in good faith.

[110] The majority of the Supreme Court held that the duty to exercise contractual discretion in good faith requires the parties to exercise their discretion in a manner consistent with the purposes for which it was granted in the contract, or in other words, reasonably and not arbitrarily or capriciously. The duty is breached only where the discretion is exercised unreasonably, in a manner unconnected to the purposes underlying the discretion. The measure of fairness is what is reasonable according to the parties’ own bargain.

Director Liability:

[111] Directors owe a fiduciary duty to the corporation for whom they act. That duty requires them to act in the best interests of the corporation (see: BCE v. 1976 Debentureholders, [2008] 3 S.C.R., at para. 37).

[112] This fiduciary duty requires a director to represent the interests of the corporation with undivided loyalty and to avoid conflicts of interest. The director must not put his or her self interests ahead of the corporation’s interests. A director or officer must act honestly and in good faith with a view to the best interests of the corporation. A director must avoid abusing their position to gain personal benefit (see: Peoples Department Stores v. Wise, 2004 SCC 68, [2004] 3 S.C.R. 461, at p. 447).

[113] The business judgment rule provides that the court will look to see that directors make reasonable decisions, but not perfect ones. Provided the decision taken is within a range of reasonableness, the court ought not to substitute its opinion for that of the board even though subsequent events may cast doubt on the board’s determination. As long as the directors have selected one of several reasonable alternatives, deference is accorded to the board’s decision (see: Kerr v. Danier Leather Inc., 2007 SCC 44, [2007] 3 S.C.R. 331, quoting with approval from Weiler J.A. in Maple Leaf Foods Inc. v. Schneider Corp. (1998), 1998 CanLII 5121 (ON CA), 42 O.R. (3d) 177 (Ont.C.A.)).

[114] In Peoples Department Stores, supra, Major and Deschamps JJ., stated as follows on pp. 491-492:

…However, even with good corporate governance rules, directors’ decisions can still be open to criticism from outsiders. Canadian courts, like their counterparts in the United States, the United Kingdom, Australia and New Zealand, have tended to take an approach with respect to the enforcement of the duty of care that respects the fact that directors and officers often have business expertise that courts do not. Many decisions made in the course of business, although ultimately unsuccessful, are reasonable and defensible at the time they are made. Business decisions must sometimes be made, with high stakes and under considerable time pressure, in circumstances in which detailed information is not available. It might be tempting for some to see unsuccessful business decisions as unreasonable or imprudent in light of information that becomes available ex post facto. Because of this risk of hindsight bias, Canadian courts have developed a rule of deference to business decisions called the “business judgment rule”, adopting the American name for the rule.

[115] The reasoning behind the business judgment rule was explained by Binnie J. in Kerr, supra, on p. 361:

“The traditional justifications for the rule argue against its application here. It is said, truly enough, that judges are less expert than managers in making business decisions. Moreover, business decisions often involve choosing from amongst a range of alternatives. In order to maximize returns for shareholders, managers should be free to take reasonable risks without having to worry that their business choices will later be second-guessed by judges. …”

[116] However, the business judgment rule is only available if the director satisfies the rule’s preconditions of honesty, prudence, good faith and a reasonable belief that his or her actions were in the best interests of the company. The business judgment rule is just a rebuttable presumption that directors or officers act on an informed basis, in good faith and in the best interests of the corporation: Unique Broadband Systems, Inc. (Re), 2014 ONCA 538 at paras. 71-72.

Set-Off:

[117] Set off can be legal, equitable or contractual.

[118] In legal set-off, as set out in s. 111 of the Courts of Justice Act, R.S.O. 1990, c. C. 43, there are two requirements. First, both obligations must be debts that are liquidated in nature. Second, the debts must be mutual cross-obligations, meaning debts due from either party to the other.

[119] Equitable set-off arises where there is such a relationship between the claims of the parties that it would be unconscionable or inequitable not to permit a set-off. The Supreme Court of Canada in Holt v. Telford, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193 (SCC), set out the relevant principles of equitable set-off, as follows:

• the party claiming set-off must show some equitable ground for being protected from his adversary’s demands;

• that ground must go to the very root of the plaintiff’s claim;

• the counterclaim must be so clearly connected with the plaintiff’s demand that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the counterclaim;

• the claim and counterclaim need not arise out of the same contract; and

unliquidated claims are on the same footing as liquidated claims.

Mitigation:

[120] The primary rule in awarding damages for breach of contract is that a wronged plaintiff is entitled to be placed in as good a position as he would have been in if there had been proper performance by the defendant of its contractual obligations. This is subject to the qualification that the defendant cannot be called upon to pay for avoidable losses resulting in an increase in the quantum of damages payable to the plaintiff. The plaintiff must take reasonable steps to avoid the unreasonable accumulation of damages (see: Red Deer College v. Michaels, 1975 CanLII 15 (SCC), [1976] 2 SCR 324, at pp. 330-1).

[121] The burden is on the defendant to establish that a plaintiff has failed to mitigate: Thompsons Limited v. 617987 Ontario Inc., 2012 ONCA 178, at para. 45.

Application of the Law to the Evidence:

Hexo vs. MediPharm:

[122] Hexo is attempting on this motion to paint a picture of conspiracy in which Mr. Hwang and MediPharm, knowing that Hexo’s acquisition of Newstrike was imminent, negotiated a secret Supply Agreement that was vastly over-inflated to the advantage of MediPharm and to the detriment of Hexo. Indeed, during argument, counsel for Hexo described that MediPharm and UP Cannabis “began to hatch a plan” culminating in the Supply Agreement.

[123] However, what is missing is any evidence whatsoever that Mr. Hwang personally benefitted from the Supply Agreement, thereby placing his personal interests in conflict with those of UP Cannabis/Newstrike, to whom he owed a fiduciary duty. There is no evidence of collusion between Mr. Hwang and MediPharm. In fact, Hexo has not even made that allegation, other than perhaps by innuendo. Importantly, Mr. Hwang was not confronted with any such allegation when he was cross-examined. Hexo had Mr. Hwang “in the witness box” and did not pursue any line of questioning that elicited evidence of self-dealing.

[124] Hexo’s arguments demonstrate, in my view, a fundamental misunderstanding of contract law in Canada and seek to take the doctrine of good faith further than Canadian courts have been prepared to go. This is obvious from the following statement from Hexo’s factum:

“46. In essence, MediPharm utterly failed to behave appropriately in the negotiation and formation of the Supply Agreement, creating obligations for UP Cannabis and then Hexo that were completely out of step with the market in terms of cost, volume and utility. Its bad faith behaviour pervaded the negotiations, execution and contract formation and resulting performance under the Supply Agreement. …”

[125] Quite simply, Hexo is asking this court to require MediPharm to ensure that the Supply Agreement was a good deal for UP Cannabis. But the duty of good faith in contractual dealings does not go that far. MediPharm was under no such obligation at law. Imposing so strict an obligation would unduly restrain free market enterprise. In Bhasin, it was recognized that the common law of contract generally places great weight on the freedom of contracting parties to pursue their individual self-interest. In commerce, a party may sometimes cause loss to another—even intentionally—in the legitimate pursuit of economic self-interest (see: para. 70).

[126] What the duty of good faith does impose is that a party not mislead or lie to the other. In this case, there is simply no evidence that MediPharm lied to or misled anyone at UP Cannabis in respect of the Supply Agreement.

[127] Mr. Shehata, on behalf of MediPharm was asked during cross-examination whether anyone raised any concerns about why UP Cannabis needed so much resin. Respectfully, the doctrine of good faith that applies to contractual law in Canada does not require MediPharm to inquire why UP Cannabis needed so much resin. It was sufficient that UP Cannabis expressed an interest in acquiring that much resin from MediPharm resin and that MediPharm had the ability to supply that amount. There was no obligation on the part of MediPharm to advise UP Cannabis that the Supply Agreement would likely oversupply them with cannabis resin. Such a duty would impose an obligation on a contracting party to make inquiries into the inner working of their counterparts. I do not accept that such a duty exists at law.

[128] Similarly, MediPharm did not need to concern itself with whether UP Cannabis had the requisite licensing to use the cannabis resin, or whether UP Cannabis had the ability to pay for so much resin. MediPharm was under no legal duty to ensure that the Supply Agreement was beneficial to UP Cannabis. To the contrary, MediPharm was entitled to assume that their counterparts were quite capable of looking out for their own interests.

[129] In any event, Mr. Shehata’s answer on cross-examination was that with the legalization of Cannabis 2.0 products in the fourth quarter of 2019 many companies were attempting to stockpile cannabis resin and oil. This is entirely consistent with the strategic business plan laid out by Mr. Hwang in his affidavits. I note that on his cross-examination, Mr. Hwang indicated that he had no concerns with the amount of resin that UP Cannabis was acquiring under the Supply Agreement. If Mr. Hwang had no concerns, why should MediPharm?

[130] More importantly, Hexo has adduced not even a hint of evidence of any deception on the part of MediPharm in the formation of the Supply Agreement that might trigger the duty of good faith.

[131] On the evidence before the court, the Supply Agreement was fully disclosed to Hexo during the due diligence period. It was placed in the data room, it was listed in the Confidential Information Memo and it was discussed between personnel for Newstrike and Hexo prior to the closing date. If Hexo had issues with the Supply Agreement, the time to raise its concerns was prior to closing, not afterwards and certainly not in litigation as against MediPharm.

[132] Hexo has provided sundry reasons why the Supply Agreement was a poor contract from UP Cannabis’ perspective. Even if I were to accept that to be true, it is not the role of the court to unburden parties from unfavourable contracts. There is an obligation to not deceive or mislead, and in those circumstances, the court can intervene. But determining whether a contract is favourable or unfavourable ought not to be the purview of the court. In other words, even if this were a bad contract for UP Cannabis, and therefore Hexo, it does not mean that MediPharm was in breach of any duty of good faith.

[133] Establishing a fair price depends on several variables. The other contracts produced in this litigation, however, make it clear that the prices established within the Supply Agreement were within a reasonable range as negotiated between two arm’s length companies. UP Cannabis obtained a better price than MediPharm’s initial offer. I therefore reject the assertion that the prices under the Supply Agreement were “inflated”. There certainly is a dearth of evidence to show that the prices contained within the Supply Agreement are so unreasonable as to warrant the court concluding that there was some form of collusion or bad faith at the expense of UP Cannabis and/or ultimately Hexo. It is not within the purview of the court to fix prices agreed upon between two sophisticated parties. The market has that function.

[134] There is no evidence, despite the allegations advanced by Hexo, that the Supply Agreement was not merely the product of an arm’s length negotiation, conducted by several representatives of both parties. Although Mr. Hwang signed off on the Supply Agreement for UP Cannabis, he was not the only individual ostensibly looking out for UP Cannabis’ best interests.

[135] I conclude that there is no genuine issue requiring a trial that the Supply Agreement is void ab initio. It is not.

[136] Hexo takes issue with MediPharm sending THC products without receiving any Purchase Orders from Hexo asking for THC products. First of all, Hexo was under a positive obligation pursuant to the Schedule B of the Supply Agreement to send monthly Purchase Orders. It was Hexo that failed to do so. Secondly, pursuant to the Supply Agreement, there was no obligation to send either THC or CBD. In the absence of a timely Purchase Order, I agree with MediPharm that it would be a matter of MediPharm’s discretion.

[137] The duty of good faith in exercising one’s discretion in fulfilling contracts requires that a party not exercise that discretion capriciously or arbitrarily, or unreasonably. There is nothing in the evidence that would suggest that MediPharm did so. I agree that MediPharm would have been at risk of triggering penalty clauses had they not delivered any product. This is not a situation where Hexo sent a Purchase Order requesting CBD and was given THC. Hexo sent no Purchase Order on time. Furthermore, once Hexo made it known that they did not want the THC, MediPharm made the exchange, rendering this argument moot. I find that there is no basis to complain that MediPharm was acting in bad faith with respect to providing THC rather than CBD in the circumstances.

[138] Hexo further complains that MediPharm had agreed to provide distillates for free and failed to do so and that this is a breach of the duty of good faith dealing. There is a difference in the evidence as Mr. McMillan deposes that such a promise was made and Mr. Shehata refutes that it was made. As pointed out earlier in my reasons, even Mr. McMillan’s evidence is equivocal. The MediPharm president “expressed an interest” and indicated that they would “consider” it. In an email dated July 17, 2019 from Mr. Shehata to Hexo personnel, including Mr. McMillan, Mr. Shehata points out that Hexo is in arrears. He further states as follows:

“We understand that you desire to change the deal such that the product delivered would be distillate instead of resin. We would be happy to accommodate your desire but note that this would require further processing on our end which would result in additional fees. Our President, Keith Strachan, discussed this with James MacMillan. Keith subsequently sent a proposal to James and is awaiting his response. When a deal is reached, I would be happy to work with your legal team to paper an amendment reflecting the new arrangement.

In terms of the bulk resin shipped in May and June, we would be happy to further process the resin already delivered pursuant to the agreement into distillate for you for a nominal fee to accommodate your request as our valued partner. This could be done pursuant to a processing agreement whereby we you (sic) send us the resin and we process it into distillate. Again, I would be happy to work with your legal team to paper this processing arrangement following our receipt of payment for the above-noted overdue amounts.

If you connect me with your legal team, I can commence working with them on your desired amendment to the existing supply agreement as well as on a processing agreement to accommodate your request regarding processing the resin into distillate.”

[139] Furthermore, an email dated July 22, 2019 from Mr. Shehata to Mr. McMillan at Hexo states as follows:

“To summarize three points from our discussion:

1. Payment—Hexo will be making payment for May and June shipments soon and you will confirm exact timing for the payment to me by end of day tomorrow.

2. May and June product—You will be sending draft terms and conditions as well as distillate product specifications for your review so that we can paper the specifics for the further processing of the May and June into distillate to accommodate your request. You will let me know timing as to when we can expect to receive these draft items on Wednesday. I’ll then work to finalize these items with you and your legal team.

3. July and go forward—You will send a response to Keith’s proposal to me so that we can try to reach a meeting of the mind in terms of a go-forward arrangement. You will let me know timing of your response to Keith’s proposal on Wednesday. Once we finalize the arrangement, I will work with you and our legal team on an amendment to our existing agreement.

If I misunderstood any of the above-noted items then please let me know. Otherwise, I look forward to hearing from you tomorrow and Wednesday and to working with you on items 2 and 3 above.”

[140] It is Hexo that relies on this email chain to show that MediPharm was willing to produce distillate but did not do so. Respectfully, the email chain clearly shows that MediPharm was open to amending the agreement in that respect, so long as Hexo paid for that service. The parties were subsequently unable to reach a deal.

[141] I have scoured the documents in evidence. Importantly, there is nothing in writing from Hexo in response to the suggestion that Hexo pay a fee for the distillate indicating that there had been a verbal agreement otherwise. This includes the letter from Hexo’s counsel dated September 10, 2019 asserting that MediPharm is in breach of the Supply Agreement. That would have been an opportune time to raise with MediPharm that it had agreed to provide distillate at no extra costs. In fact, on November 14, 2019, Simon Barton of Hexo emailed MediPharm and inquired:

“If I wanted to purchase distillate vs winterized resin for the remainder of our contract—would you be able to provide a quote for this?” (emphasis added)

[142] On November 18, 2019, Mr. Barton wrote:

“In this instance I am looking at only our current contract obligations. I can consider taking distillate instead of resin but only for the remainder of the contract and for the established quantities. We could technically start this as soon as you could accommodate it, if the pricing makes sense.” (emphasis added)

[143] Hexo’s own correspondence leads strongly to the inference that there was no oral agreement that MediPharm would provide distillate at no extra charge. Even if there was such evidence, the Supply Agreement could only be amended in writing.

[144] Parties are clearly free to amend an existing contract. Thus, when Hexo approached MediPharm in the hopes that MediPharm would alter the agreement and provide distillate instead of resin, Hexo was well within its rights to make that request. However, MediPharm was not legally obligated, in my opinion, under the guise of a duty of good faith, to amend the Supply Agreement unless the terms of the proposed amendment were acceptable to MediPharm. In my view, MediPharm was entitled to hold Hexo to the Supply Agreement that had been negotiated at arm’s length with UP Cannabis.

[145] Contrary to the assertions of Hexo, there were indicia of MediPharm attempting to work with Hexo in good faith. MediPharm did, in fact, exchange CBD product for THC product when asked to do so. When the pesticide and potency issues arose, MediPharm worked with UP Cannabis to ultimately resolve that issue to the satisfaction of UP Cannabis, including providing a credit of $150,000.

[146] I conclude that there is no genuine issue requiring a trial with respect to whether MediPharm breached its duty of good faith in contractual performance. I find that it did not.

[147] Finally, I agree with the position of MediPharm that Hexo cannot revisit shipments that were accepted and paid for. All of the THC that Hexo wants to return is from shipments made prior to June 2019. I accept that there were issues with potency, but ultimately UP Cannabis was satisfied with the arrangement the parties struck. Similarly, the pesticide issue was resolved in a manner that was clearly satisfactory to both parties. Hexo also inherited that decision from UP Cannabis.

Hexo vs. Mr. Hwang:

[148] It is fatal to Hexo’s claim as against Mr. Hwang that they have not provided a scintilla of evidence indicating that he was self-dealing or acting in conflict to the best interests of UP Cannabis/Newstrike. There is no evidence of deceit on Mr. Hwang’s part vis-à-vis either of UP Cannabis or Newstrike. I reiterate that Mr. Hwang was cross-examined extensively and no evidence on these issues emerged.

[149] Hexo takes the position that it was not advised in advance of the May 24, 2019 closing date about issues arising under the Supply Agreement with MediPharm pertaining to pesticide testing, potency, efforts to amend the Supply Agreement and UP Cannabis’ inability to sell resin. Respectfully, they have not advanced a cause of action as against Mr. Hwang that would bring any of those issues to the forefront. They have not sued Mr. Hwang for misrepresentation. Mr. Hwang, during that period of time, was not a fiduciary in respect of Hexo. Mr. Hwang was not contracting with Hexo so would not owe Hexo any duty of good faith. I agree that any duty of good faith that Mr. Hwang owed during the negotiation of the Supply Agreement would be to MediPharm.

[150] It is clear that Hexo is dissatisfied with the Supply Agreement that UP Cannabis entered into with MediPharm. Hexo clearly believes that it was a bad deal from UP Cannabis’ perspective. However, Hexo had a significant opportunity to undertake due diligence before the Arrangement Agreement closed. The Supply Agreement was available to them to review and inquire about.

[151] On his cross-examination, Mr. McMillan confirmed the following about the due diligence period:

• Hexo knew that there was a difference between resin and distillate prior to acquiring Newstrike;

• After reviewing the Supply Agreement, Hexo knew that it was for the supply of resin;

• Hexo knew and understood that UP Cannabis had limitations with their extraction capabilities;

• Hexo had access to UP Cannabis’ licences in the data room and could review those licences;

• After reviewing the Supply Agreement, Hexo knew that the Supply Agreement did not provide UP Cannabis with the ability to alter or delay the delivery schedule;

• After reviewing the Supply Agreement, Hexo knew that it did not provide UP Cannabis with a provision for market pricing adjustments; and

• Hexo was aware of the quantities of resin being purchased under the Supply Agreement and knew that resin had a “shelf-life”.

[152] In short, I find that Hexo had every opportunity during the due diligence period to investigate the Supply Agreement and determine whether or not it was so onerous that the terms of the acquisition should be altered, or the acquisition foregone. Despite this opportunity, Hexo chose to close the transaction. It does not now lie in its mouth to complain about the transaction.

[153] I have considered the text messages uncovered by Hexo in this litigation from March of 2019, as well as the internal emails from the same period. There is no question that concerns from UP Cannabis’ perspective with the Supply Agreement came to light quickly, in that the Supply Agreement did not assure UP Cannabis of receiving CBD. They were clearly looking to resell the resin and having no success. However, the texts and emails fall far short in suggesting any self-dealing on the part of Mr. Hwang. They simply reinforce that UP Cannabis entered into an unfavourable deal. The text messages do refute that MediPharm and Mr. Hwang were somehow in collusion.

[154] Mr. McMillan indicated that there were concerns raised with Newstrike during the due diligence period and assurances were provided in response to those concerns. First of all, there is evidence that Newstrike’s team disclosed “speed bumps”. Secondly, the counterclaim does not advance misrepresentation as a cause of action. Thirdly, the entire agreement clause provided that no representations or warranties would survive past the date of closing and would be a barrier to that claim in any event.

[155] Hexo does not have a remedy as against Mr. Hwang. In my view, the business judgment rule applies. There is not a trace of evidence presented that Mr. Hwang was self-dealing. He has laid out in his affidavits that Newstrike had a strategic business plan that required a large quantity of cannabis oil and that with Trevor Folk on board, UP Cannabis was positioned to begin extracting oil from the resin in the future. I also accept Mr. Hwang’s evidence that the necessary licence would be easily obtained.

[156] It must be remembered the prevailing context in which the Supply Agreement was entered into. The cannabis industry was nascent and companies were scrambling to prepare themselves for the legalization of Cannabis 2.0 products. Decisions had to be made quickly and without a substantial historical basis for comparison. This is precisely the type of context where it is inappropriate for the court to second guess directors who are exercising their judgment, even if their judgment turns out to have been poor.

[157] The Supply Agreement may have been a bad deal for UP Cannabis, in hindsight. However, the business judgment rule prevents the court from assuming the role of Monday morning quarterback in respect of a bona fide decision where the decision-maker believed that the transaction would be to the company’s benefit. There is no evidence before this court that Mr. Hwang is in breach of his fiduciary duty to Newstrike. Mr. Hwang was cross-examined on his affidavit and was not asked any questions about self-dealing. He should have been. There is simply no evidence that he placed his own interests in conflict with the corporate interests of Newstrike, or UP Cannabis.

[158] Hexo was obligated to respond to this summary judgment motion by putting its best foot forward. A summary judgment motion judge is entitled to expect that all of the evidence that will be available at trial is presented on the motion. There has been ample time to develop evidence showing some form of self-interested behaviour on the part of Mr. Hwang. No such evidence has been presented.

[159] 969625 Ontario Ltd. v. Goldstone Resources Inc., 2017 ONSC 879, which Hexo relies upon, is distinguishable on the facts. The contract that was the subject matter of that case was entered into between the plaintiff director and the corporation to which he owed a fiduciary duty. Thus, he acted in a conflict of interest when he negotiated a “lopsided” termination provision in his favour and the business judgment rule was not available to him. That was the same issue that confronted the Court of Appeal in Unique Broadband Systems, supra, relied upon heavily in Goldstone. Again, the board of directors breached their fiduciary duties when they awarded themselves certain benefits to the detriment of the corporation. In such cases, the business judgment rule does not apply.

[160] In the within case, I reiterate that there is zero evidence that Mr. Hwang derived any personal benefit from the Supply Agreement at the expense of UP Cannabis and/or Newstrike. Furthermore, I disagree with Hexo that the court does not have evidence as to Mr. Hwang’s decision-making process. To the contrary, he has taken great pains to explain the companies’ strategic business plan. It is particularly noteworthy that Mr. Folk was central to that strategic business plan and left the company.

[161] While I think it sufficient that I rely upon the business judgment rule to exonerate Mr. Hwang in respect of the counterclaim, I will address the “No Liability” clause at s. 9.12 of the Arrangement Agreement. For ease of reference, I reiterate that the clause provides:

9.12 No Liability

No director or officer of Purchaser shall have any personal liability whatsoever to Company or any third-party beneficiary under this Agreement and the Plan of Arrangement or any other document delivered in connection with the Contemplated Transactions on behalf of Purchaser. No director or officer of Company shall have any personal liability whatsoever to Purchaser under this Agreement and the Plan of Arrangement or any other document delivered in connection with the transactions contemplated hereby on behalf of Company.

[162] I agree with Mr. Hwang that this clause bars any claim as against Mr. Hwang personally in respect of any representations or omissions that he may be alleged to have made about the Supply Agreement to Hexo. Those would properly fall “under this Agreement”. However, on a proper interpretation of s.9.12 of the Arrangement Agreement, I question whether it would protect Mr. Hwang from causes of action asserted against him if he was found to have breached his fiduciary duty vis-à-vis UP Cannabis/Newstrike. In my view, such a breach would not properly fall “under this Agreement”.

[163] Thus, in my view, the “No Liability” clause prevents Hexo from suing Mr. Hwang, a director of Newstrike (“the Company”) for the alleged failure to provide particulars of the Supply Agreement to Hexo during the acquisition. It would not shield him in relation to a claim brought by Newstrike, and perhaps Hexo as successor, complaining that he engaged in self-dealing. In any event, I have already found that the evidence of self-dealing is non-existent. I also note that fraud, for example, is not pleaded. I also note that many of the misrepresentations raised in the evidence, although not pleaded, were not made by Mr. Hwang to Hexo in any event, but by other persons on behalf of Newstrike/UP Cannabis.

Set-Off:

[164] Hexo raises equitable set-off in its factum. However, it has provided no evidentiary basis by which MediPharm could owe Hexo any money pursuant to the Supply Agreement. Any basis for a claim of equitable set-off would arise from issues that were fully resolved by MediPharm and either UP Cannabis or Hexo during the course of their dealings. Quite simply, the requisite debt has not been established to be owing from MediPharm to Hexo for set-off to apply, either as a defence or as a counterclaim.

[165] Furthermore, I do not conclude that fairness in this case somehow entitles Hexo to any right of set-off as against MediPharm.

Mitigation:

[166] I have considered the duty to mitigate.

[167] In contract law, the non-breaching party is entitled to be placed in the same position that it would have been in had the contract been performed. MediPharm has not sought the full amount that Hexo would have paid to it had the Supply Agreement been honoured through to the end of its term in February of 2020. Instead, MediPharm has sought the actual amount that remains unpaid for the cannabis resin that was actually supplied to Hexo, plus the deposit that was to have been paid in January 2020. Importantly, MediPharm did not supply any product in January of 2020.

[168] MediPharm has not included the balance of the amount that would have been paid in January 2020 after the cannabis resin was shipped. MediPharm has not included either the deposit owing at the beginning of February 2020 or the amount it would have received after shipping the February 2020 resin. In my view, MediPharm could have done so and I suspect might have had they not issued the Statement of Claim on January 24, 2020, prior to those three later payments being considered overdue.

[169] A party is required to take reasonable steps to mitigate its own losses, not the losses of the other party. Hexo is asking this court to find that MediPharm, after having had its product accepted and paid for, should have its damages reduced because it would not accept the product back and resell it. But doing so would mitigate Hexo’s loss, not MediPharm’s loss. What MediPharm was required to do was mitigate its own losses, presumably by re-selling the cannabis products that it would have sold to Hexo in January and February 2020 to another purchaser.

[170] I was tempted to exercise the power provided under Rule 20.04 (2.2) and conduct a mini-trial with respect to whether MediPharm should have been able to re-sell the cannabis resin destined for Hexo to someone else. Had I been inclined to do so, I would have ordered that Hexo pay the outstanding amount to MediPharm less the January 2020 deposit pending my decision on the mini-trial.

[171] However, I have concluded that it is not in the interests of justice to do engage the power to hold a mini-trial. Mitigation should not have been an unanticipated issue on this motion for summary judgment. It is for Hexo to prove a failure on the part of MediPharm to mitigate. It was incumbent upon Hexo to adduce the evidence necessary for the court to adjudicate on this issue. This could have easily been accomplished during the cross-examination of Mr. Shehata but was not.

[172] In large measure, MediPharm has recognized its duty to mitigate by not pursuing the remainder of the payments for the balance of the term of the Supply Agreement.

[173] Having failed to adduce the necessary evidence to establish that MediPharm has failed to mitigate, Hexo has not met its onus and I am not prepared to reduce the quantum of damages owing on the basis of a failure to mitigate.

Application of Hyrniak:

[174] I will explain why I believe that it is appropriate to grant summary judgment in this case.

[175] The first question I must ask myself is whether, only on the evidence before me, without using the enhanced fact-finding power, there is a genuine issue for trial. This is satisfied if the summary judgment process provides me with the evidence required to fairly and justly adjudicate the dispute and provides a timely, affordable and proportionate procedure to do so.

[176] This is an appropriate case for summary judgment, in my opinion. There are no factual issues that need to be determined through a trial that have any bearing on the outcome of MediPharm’s claim against Hexo or Hexo’s counterclaim against Mr. Hwang. Those claims rest upon whether there is sufficient evidence of bad faith by MediPharm and/or Mr. Hwang, or a breach of fiduciary duty with respect to Mr. Hwang. The evidence that was adduced on the motion does not even provide a thread that could be pulled that leads me to believe that better evidence would emerge at trial on these issues.

[177] There is a robust evidentiary record before me, including fulsome cross-examinations. I have sifted through and pored over an incredible amount of evidence. I am satisfied that the vast quantity of evidence provides an abundant record to resolve the case on its merits. To the extent that there is any deficiency in the evidence, it was the complete lack of any evidence of bad faith and self-dealing. But I do not find any deficiency. I find only that Hexo failed to provide any evidence of bad faith or self-dealing.

[178] Furthermore, while Hexo argues that the court requires viva voce evidence from many key individuals involved in the negotiation and implementation of the Supply Agreement, I entirely disagree. That evidence cannot establish a breach of the duty of good faith because Hexo is, quite simply, asking for the duty of good faith to be stretched too far.

[179] I agree with the submissions of MediPharm that I ought not to be dissuaded by the magnitude of the claim. In some cases it may be appropriate to consider the quantum of the amount in issue in the dispute when considering proportionality. But in this case, the principles are, I find, straight forward. MediPharm contracted with UP Cannabis, and ultimately Hexo to supply cannabis resin. Hexo eventually received the product for which it contracted for but refuses without legal justification to pay for it. The fact that the amount unpaid is approximately $10 million as opposed to $50,000 does not make summary judgment disproportionate in this case.

[180] Further, given the extensive record before me, this is a case where the timely resolution of the case takes on importance. There is no question that our civil system is facing backlog and a scarcity of judicial resources and there would be more delay than usual in having this case reach a trial—a trial which in my view will add little in furtherance of resolving the dispute.

[181] Hexo raises the spectre of calling 20 witnesses to provide context to the negotiations with respect to the Supply Agreement and what was imparted to Hexo during the period of due diligence. That exercise, in my view, would be disproportionately time consuming and excessively expensive, with little to no value added with respect to the issues that are determinative of this dispute.

[182] As already mentioned, Hexo was required to put its best foot forward. It is not open to Hexo to state that further evidence will be available at trial. MediPharm’s motion was returnable 18 months in advance of the hearing date. Mr. Hwang’s motion was returnable 15 months in advance of the hearing date. Hexo had ample opportunity and did conduct thorough cross-examinations of Mr. Shehata and Mr. Hwang. If any of the 20 witnesses were going to adduce evidence of self-dealing, for example, on the part of Mr. Hwang, the time to adduce at least some of that evidence was during this motion.

[183] To summarize then, with respect to MediPharm’s claim against Hexo and Hexo’s counterclaim against Mr. Hwang, I conclude that I am able to reach a fair and just determination on the merits and that there is no genuine issue requiring a trial. I do so without engaging the enhanced fact-finding powers.

[184] With respect to the counterclaim by Hexo against MediPharm for breach of the Supply Agreement, I do find that it is necessary to rely upon the enhanced fact-finding powers, namely weighing the evidence and drawing inferences. I have done so where appropriate in my discussion above.

[185] Although there are some issues of credibility that perhaps should not be resolved on motion, credibility issues need not be resolved at all to determine this case. Even if resolved entirely in Hexo’s favour, the evidence would not engage the duty of good faith in this context, or a breach of fiduciary duty by Mr. Hwang. Quite simply, it is not a breach of any duty of good faith on MediPharm’s part not to renegotiate the Supply Agreement even if I accept Hexo’s evidence on that issue. There was still no amendment in writing as required. Mr. Hwang was not a fiduciary in respect of Hexo in the event that he failed to provide details about the pricing logic or how Hexo would be able to use the resin to Hexo. He is also shielded by the “No Liability” clause in that respect.

[186] In my view, it is wholly appropriate for me to weigh the evidence and draw reasonable inferences and it is not in the interests of justice for these powers only to be exercised at trial. First of all, I have engaged these enhanced fact-finding powers sparingly. For the most part, I am able to conclude that there was no breach of the duty of good faith in contractual dealings by MediPharm without relying on those powers. However, I did draw inferences with respect to the lack of anything in writing from Hexo suggesting that MediPharm had agreed to provide distillate at no extra charge.

[187] It is my view that my limited reliance upon the enhanced fact-finding powers enabled me to fairly and justly adjudicate the claim and spared all parties unnecessary time and expenses. On the record before me, I am able to make the necessary findings of fact and apply the law to those facts.

Conclusion:

[188] I am prepared to accept that the Supply Agreement has been a bad contract from Hexo’s perspective. It may have turned out to be a good contract had UP Cannabis maintained its course with Trevor Folk in the mix, as Mr. Hwang believed. It is not the role of the court to relieve Hexo from a bad contract, absent some evidence of patent unfairness in the manner in which the contract was negotiated or performed. That evidence does not exist in this case.

[189] Ultimately, there is no evidence to suggest that Mr. Hwang did not legitimately believe that the Supply Agreement would assist UP Cannabis and Newstrike in furthering their corporate goals. The Supply Agreement was negotiated between arm’s length parties. There is absolutely no evidence adduced that Mr. Hwang derived any personal benefit from this transaction that the court could find untoward.

[190] Additionally, Hexo had ample opportunity to examine the merits of the Supply Agreement during its two months long due diligence period. It had the ability to evaluate the strengths and weaknesses of the Supply Agreement and it proceeded to complete the acquisition of Newstrike.

[191] MediPharm supplied cannabis resin in accordance with the Supply Agreement. There were wrinkles and those wrinkles were ironed out to the satisfaction of UP Cannabis and then later Hexo, at least enough that they continued to order more resin. When satisfied, UP Cannabis and/or Hexo accepted the shipments and made payments to MediPharm, until Hexo stopped paying, without legal justification.

[192] There is no evidence that MediPharm acted in bad faith during the performance of its contractual obligations. To the contrary, MediPharm took active steps to credit UP Cannabis and exchange product already shipped. They also indicated a willingness, despite no obligation to do so, to renegotiate the Supply Agreement but the parties were unable to come to an agreement.

[193] To be blunt, I find that the positions taken by Hexo in its defence of the claim, and with respect to its counterclaims, to be legally untenable on the evidence.

[194] Accordingly, I grant summary judgment in favour of MediPharm for the sum of $9,802,032.78 plus interest. If there is any issue with respect to the calculation of interest, the parties may contact me through the London trial coordinator. MediPharm is also entitled to the costs of the action and this motion.

[195] I grant summary judgment in favour of MediPharm in respect of the counterclaim and dismiss the counterclaim as against MediPharm with costs.

[196] I grant the summary judgment motion in favour of Mr. Hwang in respect of the counterclaim and dismiss the counterclaim as against Mr. Hwang with costs.

[197] If the parties are unable to agree on the costs of the action, including the counterclaim, and the motions, MediPharm and Mr. Hwang may each provide written submissions no longer than 4 pages in length no later than September 2, 2022 through the London trial coordinator. These should be accompanied by any applicable offers and a Bill of Costs.

[198] Responding costs submissions, also no longer than 4 pages in length, to be submitted no later than September 16, 2022. There shall be no reply submissions unless subsequently asked for by me.

[199] Motions for summary judgment granted.

“Justice S. Nicholson”

Justice Spencer Nicholson

Date: July 25, 2022