COURT FILE NO.: CV-21-00672381-0000 DATE: 20230421 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: TEGAN ADAMS Plaintiff

• and – RUTH CHUN and CHUN LAW PROFESSIONAL CORPORATION Defendants

Counsel: Jason J. Lee for the Plaintiff Tim Gleason and Rebecca Glass for the Defendants

HEARD: April 20, 2023

PERELL, J.

REASONS FOR DECISION

A. Introduction

[1] Tegan Adams sues Ruth Chun and Chun Law Professional Corporation for breach of fiduciary duty, breach of contract, and professional negligence. Pursuant to Rule 20 of the Rules of Civil Procedure, Ms. Adams brings a motion for partial summary judgment on the allegation of breach of fiduciary duty or in the alternative, she seeks a finding as to the existence of a fiduciary relationship between the parties.” [1]

[2] For the reasons set out below, Ms. Adams’ motion is dismissed.

B. Procedural and Evidentiary Background

[3] On November 22, 2021, this action was commenced by Statement of Claim. In her Statement of Claim, Ms. Adams claims $2.0 million in damages for breach of fiduciary duty, breach of contract, and professional negligence. In the alternative, Ms. Adams claims equitable damages of $2.0 million. She also claims aggravated damages of $1.0 million and punitive damages of $1.0 million.

[4] On February 23, 2022, the Defendants delivered their Statement of Defence.

[5] There was no Reply pleading, and there has yet to be documentary production.

[6] On July 7, 2022, Ms. Adams brought a motion for a partial summary judgment.

[7] On August 9, 2022, there was an attendance in Civil Practice Court and Justice Koehnen scheduled Ms. Adams’ motion for a partial summary judgment for April 3, 2023. Justice Koehnen made the following endorsement:

This is a partial motion for summary judgment. I have warned of the risks of bringing such a motion. If the motion is not granted this may be case for elevated costs.

[8] On December 7, 2022, the Defendants delivered their Responding Motion Record containing the affidavit of Ms. Chun dated December 7, 2022.

[9] On February 17, 2023, Ms. Chun was cross-examined.

[10] On February 21, 2023, Ms. Adams was cross-examined.

C. Facts

[11] Ms. Adams, who has a MSc degree economics with a specialization in finance and the pharmaceutical industry is an entrepreneur and business executive with extensive experience in the cannabis industry, including serving as a Chief Executive Officer.

[12] In 2019 and 2020, Ms. Adams came up with the idea of developing a business to develop drugs from regulated psychedelic substances such as MDMA, LSD, and Psilocybin.

[13] In early 2020, while Ms. Adams was employed as a Vice President at New Maple Holdings Ltd., which is a cannabis company, she met Ms. Chun. The purpose of their meeting is disputed. Ms. Adams’ version is that she was looking for a lawyer in Ontario to develop her new business and she was referred to Ms. Chun. Ms. Adams says that a solicitor and client relationship was established with entailed fiduciary responsibilities.

[14] Ms. Chun’s version is different in so far as she acknowledges only a limited retainer, which was defined in a February 3, 2020 retainer agreement with Ms. Chun’s law firm as “a review of various agreements related to your employment, shareholder issues and general corporate matters”. Ms. Chun’s version is that she initially was retained only to assist Ms. Adams in her departure from New Maple Holdings.

[15] Ms. Adams was departing from New Maple Holdings to develop her plans for her project. In February 2020, Ms. Adams came to agreement with Robert Halpern and Scott Kelly to involve them in her project to develop drugs from psychedelic substances.

[16] Ms. Adams alleges that the Defendants were the lawyers acting for Messrs. Halpern and Kelly in the start of phase of this new business.

[17] Ms. Adams pleads that in the months that followed, the Defendants acted to incorporate 2756407 Ontario Ltd. carrying on business as Wonder Scientific and to issue shares as follows: (a) Ms. Adams 1.5 million shares; (b) Mr. Halpern, 1.0 million shares; (c) Mr. Kelly (Shih Holding Inc.), 1.0 million shares; and (d) Ms. Chun, 0.5 million shares.

[18] On March 31, 2020, Ms. Chun provided Ms. Adams with an opinion letter concerning the employment contract with New Maple and with respect to her rights as a shareholder in that corporation. Ms. Chun pleads that she did not invoice Ms. Adams for this legal work because Ms. Adams was experiencing financial hardship due to the COVID-19 pandemic, and Ms. Chun wrote off her time rather than invoice Ms. Adams.

[19] In her version of the development of the relationship between the parties, Ms. Chun pleads that in the spring of 2020 independent of the New Maple retainer, Ms. Adams invited Ms. Chun, who had experience as a corporate and commercial lawyer advising regulated businesses in the cannabis and psychedelic industries, to collaborate on her project to develop consumer drugs from psychedelic substances.

[20] Ms. Chun accepted the invitation and agreed to be the sole director of the corporation. She denies that she acted as legal counsel for any of the founding shareholders. She denies that her legal work on Ms. Adam’s employment matter entails any fiduciary duties with respect to the legal work performed with respect to Wonder Scientific.

[21] On May 20, 2020, Wonder Scientific was incorporated.

[22] During the summer of 2020, Ms. Adams and the founders of Wonder Scientific recruited new investors who received shares of Wonder Scientific. Ms. Adams did not enhance her own shareholdings in the further capitalization of Wonder Scientific.

[23] Ms. Chun pleads that Ms. Adams participated in and was aware of the business decisions made with respect to Wonder Scientific and approved of the shares issued to new shareholders.

[24] Around this time, Ms. Chun sold her own shares to 257447 Ontario Inc., which was a corporation owned by Ms. Chun’s brother Elliot Chun.

[25] In her Statement of Claim, Ms. Adams alleges that Ms. Chun had numerous conflicts of interest in acting for all of Wonder Scientific, and all of its shareholders. Ms. Chun denies being Ms. Adams’ personal lawyer. Ms. Chun denies standing in a fiduciary relationship with Ms. Adams with respect to the affairs of Wonder Scientific.

[26] Ms. Adams alleges further that: a. Ms. Chun acted for Mr. Kelly and herself in a transfer of shares to 257447 Ontario Inc. b. Between October 21, 2020 and December 6, 2020, Ms. Chun had Wonder Scientific issue additional shares so that Ms. Adams’ ownership interest was diluted from a 37.5% ownership interest to a 11% ownership interest and that the ownership interest of Elliot Chun was increased. c. On December 6, 2020, Ms. Chun negotiated a shareholder sale to Global Health Clinics, which trades on the Canadian Stock Exchange under the symbol “MJRX” for $6.0 million (comprised of $5.5 million for goodwill and 0.5 million for cash on hand). The agreement involved a pooling agreement with respect to the allocation of the proceeds of sale. (The Share Purchase Agreement was signed on December 10, 2020.)

[27] For present purposes, the following paragraphs of Ms. Adams’ allegations of breach of fiduciary duty, breach of contract and negligence are pertinent:

34. Each of these relationships individually carried with them obligations which were incompatible and in conflict with the obligations [Ms. Chun] owed in their other relationships, and it is clear that [Ms. Chun] could not provide effective representation without conflict to everyone and certainly not to the Plaintiff.
35. In particular, [Ms. Chun] failed to provide any or any effective representation to [Ms. Adams]. She failed to advise on or take any or any effective steps to protect [Ms. Adams’] interest as the founder of the company and failed to give any advice on the availability and use of a Unanimous Shareholder’s Agreement, a separate class of founders share or any other means to protect the Plaintiff’s interest as the founder of the business.
36. The entirety of the facts set out herein and each of them show that the First and Second Defendant were at all times in breach of the retainer agreement and their professional and fiduciary obligations to the Plaintiff and failed to act with candour, consent to conflict or loyalty nor did they provide any or any effective representation to [Ms. Adams].
37. It is clear from the outcome of this transaction that [Ms. Chun] has preferred the interests of herself, her brother, Mr. Kelly and his associates in her dealings with “Wonder”, in particular as a result of the work of [Ms. Chun], [$5.5 million] of goodwill was created of which she was left with approximately 11% of the face value of the company with Ms. Chun, Mr. Kelly and other investors who had contributed $450,000 of cash on hand, taking 85% of the value of the company.
38. Further, the result of the “pooling” agreement was that by the time the restrictions on the shares of [Ms. Chun] expired her final interest was work less than $100,000 …. Ms. Adams in effect received little to nothing of the [$6.0 million] of value she created.
39. In the outcome, it is clear that [Ms. Chun] and [Chun Law Professional Corp.] breached their fiduciary duties to [Ms. Adams].
40. It is clear that throughout, [Ms. Chun] and [Chun Law Professional Corp.] had such extensive conflicts of interest that they could never fulfill their obligations to [Ms. Adams] and were obliged to decline to represent her and to withdraw from any involvement in this business project and/or insist that she obtain independent legal advice. The effect of their failure to withdraw and the prejudice that caused [Ms. Adams] is evident in the outcome which is obviously unfair.
41. In conducting the share transaction […] [Ms. Chun] has failed to understand the value of the goodwill created and/or proceeded with share transaction when she had taken no or no reasonable steps to professionally value the business resulting in the transaction proceeding at an obvious under value to the goodwill created in the company as evidenced by the [$5.5 million] paid by Global Health Clinics for the goodwill.

[28] For present purposes the following paragraphs of the Defendants’ Statement of Defence are pertinent:

20. The SPA [Share Purchase Agreement] contained a pooling provision, which precluded Wonder’s vendor shareholders from transferring their consideration shares immediately following the transaction, and which contained two distinct vesting schedules. There was nothing unusual or improper about the pooling provision in the SPA between Wonder and Global Health, and the SPA was not available without such a provision, as there would be no mechanism by which to ensure operational continuity.
21. Because the transaction between Wonder and Global Health Clinics was a share purchase agreement, not an asset purchase agreement, it made no allocation or value attribution to goodwill. As an intangible asset, goodwill was not relevant to the value of the plaintiff’s shares. If the plaintiff contributed goodwill disproportionate to her shares in Wonder, which is denied, it was not relevant to the value of her shares or the shares of any other vendor securityholder.
22. The plaintiff did not generate $6 million in goodwill or value in Wonder. The plaintiff received shares in Wonder, and ultimately, consideration shares in Global Health, proportionate to her investment in the project.
23. Any dilution of the plaintiff’s shareholding in Wonder occurred as a result of transactions approved by the plaintiff and by her own investment choices. At the material times during 2020 Wonder continued to generate investment in order to scale its research and development operations. For each round of investment that Wonder accepted, the plaintiff had the opportunity to purchase additional shares at the appropriate share purchase price. For the most part, she chose not to do so. The plaintiff was at all times aware that if other investors purchased shares while the plaintiff did not, her proportionate ownership in Wonder would decrease.
24. Prior to the closing of the SPA, the plaintiff retained a lawyer and was independently advised on the terms of the SPA. There was no reasonable basis for the plaintiff to believe that Ms. Chun was her lawyer, and she did not rely on the defendants to protect her interests, or otherwise.

[29] Ms. Chun says that she did not act for any of the parties with respect to the Share Purchase Agreement with Global Health Clinics. Ms. Chun says that Ms. Adams retained another lawyer for the purposes of negotiating and implementing the transaction.

D. Discussion and Analysis

[30] Ms. Adams’ motion is for a partial summary judgment. The first issue to determine is whether the case at bar is an appropriate one for any form of summary judgment, let alone a partial summary judgment for which the case law prescribes additional conditions as to appropriateness.

[31] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if: “the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.” With amendments to Rule 20 introduced in 2010, the powers of the court to grant summary judgment have been enhanced. Rule 20.04 (2.1) states:

20.04 (2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.
2. Evaluating the credibility of a deponent.
3. Drawing any reasonable inference from the evidence.

[32] In Hryniak v. Mauldin, 2014 SCC 7 and Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, the Supreme Court of Canada held that on a motion for summary judgment under Rule 20, the court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record, without using the fact-finding powers introduced when Rule 20 was amended in 2010. The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting a summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and a summary judgment would be a timely, affordable, and proportionate procedure.

[33] If, however, there appears to be a genuine issue requiring a trial, then the court should determine if the need for a trial can be avoided by using the powers under rules 20.04 (2.1) and (2.2). As a matter of discretion, the motions judge may use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if their use 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. To grant summary judgment, on a review of the record, the motions judge must be of the view that sufficient evidence has been presented on all relevant points to allow him or her to draw the inferences necessary to make dispositive findings and to fairly and justly adjudicate the issues in the case. [5]

[34] If a judge is going to decide a matter summarily, then he or she must have confidence that he or she can reach a fair and just determination without a trial; this will be the case when the summary judgment process: (a) allows the judge to make the necessary findings of fact; (b) allows the judge to apply the law to the facts; and (c) is a proportionate, more expeditious and less expensive means to achieve a just result. [6] The motion judge is required to assess whether the attributes of the trial process are necessary to enable him or her to make a fair and just determination. [7]

[35] The analytic framework from Hryniak v. Mauldin requires the motions judge, after determining whether the case is appropriate for a summary judgment, to first determine if there is a genuine issue requiring a trial based only on the evidence without using the enhanced fact-finding powers under rule 20.04 (2.1). Second, if there appears to be a genuine issue requiring a trial, the motion judge should determine whether a trial could be avoided by: (a) by using the enhanced powers under rule 20.04 (2.1), which permit weighing the evidence, evaluating the credibility of deponents, and drawing any reasonable inference from the evidence; or (b) by using the power under rule 20.04 (2.2) to order that oral evidence be presented by one or more parties. [8]

[36] Hryniak v. Mauldin does not alter the principle that the court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial. The court is entitled to assume that the parties have advanced their best case and that the record contains all the evidence that the parties will present at trial. [9] Thus, if the moving party meets the evidentiary burden of producing evidence on which the court could conclude that there is no genuine issue of material fact requiring a trial, the responding party must either refute or counter the moving party’s evidence or risk a summary judgment. [10]

[37] Apart from the factors associated with a partial summary judgment, the case at bar is not an appropriate one for a summary judgment.

[38] The evidentiary record is incomplete and grossly inadequate to decide fairly and justly the numerous issues associated with a breach of fiduciary duty claim most of which issues appear to be candidates for classification as genuine issues requiring a trial.

[39] There has been no documentary discovery and the documentary evidence from the cross-examinations is seriously deficient to provide the foundation for a fair hearing of Ms. Adams’ serious claims, which include allegations of fraud and breach of fiduciary duty, and Ms. Chun’s defence to those very serious claims would appear to raise genuine issues requiring a trial.

[40] The testimony from the cross-examinations is wholly inadequate to determine the merits of Ms. Adams’ claim and Ms. Chun’s defence. Ms. Adams relies on corporate documents, but she has taken no steps to proffer them into evidence. She refused to confirm the authenticity of her own emails and other documentary evidence relevant to the claim and the defence.

[41] Further, the current evidentiary record is bereft of evidence from witnesses whose testimony is necessary to fairly determine the claim and the defence. One or the other or both sides will need to summons Messrs. Halpern, Kelly, and Elliot Chun. Evidence from the lawyers who acted on the Global Health transaction would also appear to be necessary for a fair determination of the issues.

[42] There is a firestorm of serious issues of credibility and the transcripts of the cross-examination of Ms. Adams and Ms. Chun threw rocket fuel on that forensic fire.

[43] The cross-examinations revealed that a critical component of Ms. Adams’ claim is the unpleaded material fact that she was entitled to an additional one million shares in Wonder Scientific, in exchange for her consulting services. The current evidentiary record is critically deficient to make a finding on this issue.

[44] Ms. Adams would have it that the issue of the existence of a fiduciary duty can be readily bifurcated from the other issues and can be dealt with expeditiously and in a cost-effective manner and therefore can be the subject of a partial summary judgment. [11]

[45] However, in the immediate case, the existence of a fiduciary duty cannot be bifurcated from the other issues. And more to the point, the existence of a fiduciary duty, which can but does not necessarily arise from some particular relationships such as trustee and beneficiary of a trust, lawyer and client, and principal and agent and can also arise from ad hoc relationships of vulnerability and trust, is itself just an aspect of the larger more complex issue of whether there has been a breach of fiduciary duty.

[46] The existence of fiduciary duties requires a case-by-case analysis, and the court will analyze any contract terms as well as the circumstances and nature of the relationship. [12] The scope of a fiduciary’s duty arises within the scope of the engagement and the functions assumed by the trustee or fiduciary in a given case. [13] Fiduciary duties are not fixed or immutable.

[47] In Canadian Aero Services Ltd. v. O’Malley, which is the leading case about the cause of action for breach of fiduciary duty, Justice Laskin, as he then was, said that cases about alleged breaches of fiduciary duty involved four issues: (1) the determination of whether the relationship is fiduciary; (2) the determination of the duties that arise from the particular relationship; (3) the determination of whether a particular duty has been breached; and (4) the determination of the extent of liability for the breach of the particular fiduciary duty. The extent or scope of a fiduciary’s duty is not fixed or immutable but rather must be determined on a case-by-case basis.

[48] The nature or character of fiduciary duties is malleable, and the nature of the fiduciary duty must be analyzed on a case-by-case basis because it involves a particular quality that differentiates fiduciary duties from a fiduciary’s concurrent other duties. Not every duty of a fiduciary is a fiduciary duty. [15] In Girardet v. Crease & Co., the plaintiff sued her lawyer for negligence in advising her to settle a personal injury claim. In Girardet, Justice Southin said that it was a perversion of words to say that simple carelessness in giving advice was a breach of fiduciary duty and that fiduciary misconduct must involve the particular quality of duties that the law imposes on fiduciaries.

[49] This is not to say that a fiduciary relationship did not arise in the circumstances of the immediate case. The point is that the current evidentiary record is abysmally deficient to decide the issue one way or the other.

[50] To be clear, I am deciding this motion for a partial summary judgment purely on procedural grounds. Particularly at this juncture where there has not been documentary discovery, examination for discovery, and evidence from important witnesses to the events, the evidentiary record is inadequate to come to any summary judgment let alone a partial summary judgment.

E. Conclusion

[51] For the above reasons, Ms. Adams’ motion is dismissed.

[52] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the Defendants’ submissions within twenty days from the release of these Reasons for Decision followed by Ms. Adams’ submissions within a further twenty days.

Perell, J. Released: April 21, 2023