Court File and Parties

Court File No.: CV-22-00689865-0000 Date: 2023-08-22 Superior Court of Justice – Ontario (Commercial List)

Re: 2694128 ONTARIO INC., Plaintiff And: MIZRAHI COMMERCIAL (THE ONE) LP, by its general partner MIZRAHI COMMERCIAL (THE ONE) GP INC., SAM MIZRAHI and YE CHEN aka BOSCO CHAN, Defendants

Before: Kimmel J.

Counsel: Junior Sirivar and Trevor Courtis, for the Responding Party/Plaintiff Ewa Krajewska and David Postel, for the Moving Parties/Defendants Mizrahi Commercial (The One) LP, By Its General Partner Mizrahi Commercial (The One) GP Inc. and Sam Mizrahi

Heard: June 12, 2023

Endorsement (Mizrahi Defendants’ Motion to Stay or Dismiss the Action)

The Motion and Summary of its Outcome

[1] The defendants Mizrahi Commercial (The One) LP, by Its General Partner Mizrahi Commercial (The One) GP Inc. (“MCLP”) and Sam Mizrahi (together, the “Mizrahi Defendants”), seek an order staying or dismissing this action under r. 21.01(3)(d) or r. 25.11 of the Rules of Civil Procedure as frivolous, vexatious, or an abuse of process or, alternatively, under s. 106 of the Courts of Justice Act, or pursuant to the court’s inherent jurisdiction. They contend that the plaintiff is precluded from bringing this action because certain contractual preconditions to it doing so have not been satisfied.

[2] This motion was scheduled to be heard by me because of some overlap in the issues raised in it with the issues decided on a motion heard by me in another action on the Commercial List involving some of the same defendants. See Cerieco Canada Corp. v. Mizrahi, 2022 ONSC 6211. Some of the claims asserted in that action were stayed because they were found to violate the standstill provision (the “Standstill Provision”) that forms part of a Priority, Subordination and Standstill Agreement between (among others) MCLP, 102 Canada as agent for CERIECO Canada Corp. (“CERIECO”), and KEB Hana Bank Canada (“KEB”) as agent for the Senior Lenders dated August 30, 2019 (the “KEB Agreement” or the “Subordination Agreement”).

[3] The Subordination Agreement subordinated (in favour of the senior lender, KEB) the loans advanced by CERIECO to or for the benefit of MCLP and Mizrahi Development Group (The One) Inc. Those loans were advanced by CERIECO pursuant to a Supplier Credit Agreement dated July 11, 2019 (the “SCA”) by which CERIECO granted a Supplier Credit Facility with a maximum principal amount of $213 million.

[4] The plaintiff in this action, 2694128 Ontario Inc. (“269”), is not a party to the Subordination Agreement or the SCA. Rather, 269 is a party to a different agreement with MCLP that was documented in a Collateral Supplier Credit Agreement dated July 11, 2019 (the “CSCA”). 269 claims to be owed $2,998,067.79 (that and any other amount accruing being the “Claimed Amount”, as hereinafter further defined) pursuant to the CSCA and certain promissory notes (later defined as the “269 Notes”) that were delivered by MCLP pursuant to that agreement. [1]

[5] The Mizrahi Defendants contend that this action, like the Cerieco action, is premature and should be stayed or dismissed because 269 agreed under the CSCA that it would only make a demand for repayment of the Claimed Amount said to be owing under the 269 Notes if CERIECO had, following a Breach Event under the SCA, made a demand for repayment of amounts owing to it under and in accordance with the provisions of the SCA. The Mizrahi Defendants contend that CERIECO is precluded from making any such demand by virtue of the Standstill Provision and this court’s previous decision holding that the Standstill Provisions bars CERIECO’s action. [2]

[6] At one time, it was thought that CERIECO might seek leave to intervene on this motion, but it has not done so. CERIECO’s counsel appeared on this motion as an observer only.

[7] The determination of this motion depends upon the interpretation of the CSCA, the Subordination Agreement, and the SCA. The Mizrahi Defendants contend that the words of those agreements are clear and unambiguous and that it is plain and obvious that this claim cannot proceed while CERIECO remains restricted from taking any Enforcement Action under the Standstill Provision of the Subordination Agreement. They contend that the making of a demand for repayment by CERIECO comes within the definition of an Enforcement Action for the purposes of the Standstill Provision.

[8] The Mizrahi Defendants acknowledge that if I do not find the terms of these agreements and the interrelationship between them to be clear and unambiguous, and/or it is considered to be necessary to resort to any assessment of the contractual matrix or any other fact-based determinations to decide this motion, then the Mizrahi Defendants cannot succeed on a preliminary motion. I find that to be the situation and, thus, this motion is dismissed.

[9] The individual defendants who are alleged by 269 to have diverted the Claimed Amount for their own benefit and who face claims for oppression, unjust enrichment, inducing breach of contract, and conspiracy would have been the beneficiaries of a stay or dismissal of this action if the contract interpretation arguments had succeeded. Since the action is not being stayed or dismissed as against MCLP, there is no need to consider in depth the alternative arguments that were advanced by 269 for why the claims against the individuals (who were not parties to the CSCA themselves) should not be stayed or dismissed. In oral argument, counsel for 269 confirmed that these alternative arguments only needed to be considered if the court had decided to stay or dismiss the action as against MCLP.

[10] Suffice it to say that if I had decided to stay or dismiss this action against MCLP, any damage or deprivation suffered by 269 that forms the basis of its claims against the individual defendants would depend on its right to demand repayment under the CSCA, regardless of whether the individual defendants were party to that agreement. Thus, they would have been subject to the same outcome of this motion if the court had decided to stay or dismiss the action as against MCLP on the basis that the contractual preconditions for making a demand under the 269 Notes had not been met.

The Statutory Test for the Stay or Dismissal of an Action

[11] Just as in the earlier Cerieco decision, the Mizrahi Defendants must demonstrate that this is one of those clearest of cases in which the action is “inevitably doomed to fail” or has “no realistic prospect” of success because of the terms of the contract that it agreed to, in this case, the CSCA. That test was set out in paragraphs 3–9 of Cerieco and is reproduced below:

[3] Rule 21.01(3)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides that: “[a] defendant may move before a judge to have an action stayed or dismissed on the ground that ... (d) the action is frivolous or vexatious or is otherwise an abuse of process of the court.”

[4] Rule 25.11 provides that: “[t]he court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document ... (b) is scandalous, frivolous or vexatious; or (c) is an abuse of process of the court.”

[5] Section 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”) provides that: “[a] court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding in the court on such terms as are considered just.”

[6] The facts as pleaded in the Statement of Claim are presumed to be true for purposes of this motion brought under Rules 23.01(3)(d), 25.11. See Miguna v. Toronto Police Services Board, 2008 ONCA 799, 301 DLR (4th) 540, at para. 20; Chuvalo v. Worsoff, 2022 ONSC 4079, 75 R.F.L. (8th) 94, at para. 29.

[7] The Court of Appeal has adopted with approval (in Baradaran v. Alexanian, 2016 ONCA 533, 3 CPC (8th) 131, at para. 15) the following approach to the standard to be applied and the permitted use of evidence on motions under these Rules, set out in Miguna, at para. 34:

Evidence is admissible in relation to a rule 25.11 motion or in relation to the “frivolous and vexatious” aspect of a motion under rule 21.01(3)(d). It does not follow, however, that such a motion may be turned into an evidentiary disposition. The test remains: is it plain and obvious that the claim cannot succeed? The test is not whether it is unlikely the claim will succeed. Nor is the process one of weighing and assessing the evidence against the allegations as if the motion were a trial or a request for summary judgment.

[8] The court’s task on a motion under these Rules and statutory provisions is to determine whether, with reference to “extrinsic evidence” as appropriate, the action is “inevitably doomed to fail” or has “no realistic prospect” of success (see Mayer v. Athanasopoulos, 2022 ONSC 5286, paras. 87 and 91). In Mayer, the court explained the difference between Rules 21.01(1)(b) and (d) thusly:

[73] If a legal claim is sufficiently well-crafted to survive a challenge under rule 21.01(1)(b), there will usually be no basis for striking it as frivolous or vexatious on its face. However, extrinsic evidence may reveal that a claim that is not facially deficient is nevertheless frivolous, vexatious or an abuse of process when it is considered in its full context. As Brown J.A. explained in Salasel v. Cuthbertson, 2015 ONCA 115, at para. 8:

Any action for which there is clearly no merit may qualify for classification as frivolous, vexatious or an abuse of process, with a common example being the situation where a plaintiff seeks to relitigate a cause which has already been decided by a court of competent jurisdiction. A court only invokes its authority under rule 21.01(3)(d) or pursuant to its inherent jurisdiction to dismiss or stay an action in the clearest of cases: Currie v. Halton (Region) Police Services Board, [2003] O.J. No. 4516, 233 D.L.R. (4th) 657 (C.A.), at paras. 17 and 18.

[9] Ontario Court of Appeal has cautioned against improperly "converting" motions under Rule 21.01(3)(d) and Rule 25.11 into motions for summary judgment. See Baradaran, at paras. 16 and 17.

[12] In Cerieco, these principals were reviewed (at paras. 51 and 52) in the determination of what evidence about the relevant contracts might be appropriate to consider on a motion such as this:

[51] While evidence may be led as part of a motion pursuant to Rule 21.01(3)(d) or Rule 25.11, evidence is admissible only with respect to the issue of whether the claim is frivolous, vexatious, or an abuse of process. The court is not to weigh evidence going to the merits: See Miguna, at para. 34; Baradaran, at para. 15; and Dosen v. Meloche Monnex Financial Services Inc. (Security National Insurance Company), 2021 ONCA 141, 457 DLR (4th) 530 at para. 28.

[52] This “evidence may reveal that a claim that is not facially deficient is nevertheless frivolous, vexatious or an abuse of process when it is considered in its full context.” Mayer, at para. 73. It also assists the Court in “mak[ing] factual determinations” and fulfilling its task of “tak[ing] ‘a hard look at the factual background, and especially the position and conduct of the parties’”. Salasel v. Cuthbertson, 2015 ONCA 115, 124 OR (3d) 401 at para. 9. See Bobel v. Humecka and Patten, 2019 ONSC 1876, at para. 18. All of this informs the key issue of whether the pleading “lacks ... legal merit” or “would put the administration of justice into disrepute.” Conversely, on a Rule 21.01(1)(b) motion, “[n]o evidence is admissible”, and the Court may not make factual findings. See McDowell at paras. 82-84.

[13] Where a defendant asserts that an action was brought contrary to a contractual provision, such as a release or standstill, the action can only be stayed or dismissed where (i) there is no dispute about the validity or enforceability of the contract, and (ii) the contract clearly and unambiguously bars the commencement of the action. See McDowell v. Fortress Real Capital Inc., 2019 ONCA 71, 91 B.L.R. (5th) 181, at paras. 81–86; Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc., 2011 ONSC 5445, at para. 47.

[14] The cases relied upon by the Mizrahi Defendants and decided under r. 21.01(3)(d) and s. 106 of the Courts of Justice Act holding parties to their contractual promises not to commence actions are consistent with this. See for example OHL Construction Canada v. TTC, 2015 ONSC 2712, 50 C.L.R. (4th) 328, paras. 1, 26, 39, and 41, in which the Court ordered the action stayed “until such time as the final triggering event occurs” because the defendant would otherwise be deprive[d] ... of the benefit of" the “clear and unambiguous” contractual provision at issue. See also David S. LaFlamme Construction Inc. v. Canada (Attorney General), 2014 ONCA 775, 34 C.L.R. (4th) 187, paras. 3, 10–11 and Sinclair-Cockburn Insurance Brokers Ltd. v. Richards (2002), 61 O.R. (3d) 105 (C.A.), paras. 15–16.

[15] The interpretation of a contract can involve a consideration of the factual matrix and other contextual factors. See Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50; Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 16.

[16] The broader principles of contract interpretation have long been recognized by our Court of Appeal, dating back to Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24, to require a commercial contract to be interpreted:

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” that they have intended what they have said;

(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract); and

(d) in a fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity.

See also Bell Canada v. The Plan Group, 2009 ONCA 548, 96 O.R. (3d) 81, at para. 37.

[17] Related contracts should be read together. Where parties conclude multiple agreements pertaining to one complex transaction, the different agreements’ terms inform the overall interpretation exercise: see Salah, at para. 16.

The Factual Context

[18] This motion turns on whether the SCA, the Subordination Agreement, and the CSCA when read together clearly and unambiguously bar the commencement of this action by 269 against the Mizrahi Defendants.

[19] The relevant factual context is derived from the following sources: a) the allegations in the Statement of Claim, taken to be true for purposes of this motion; b) the provisions of the relevant contracts incorporated by reference into the Statement of Claim; c) the prior findings of this court in Cerieco; and d) the uncontested evidence filed on this motion (for the limited purposes for which it is permitted under r. 21.01(3)(d), as indicated above, on the question of whether the action is frivolous, vexatious, or an abuse of the court’s process).

a) The Statement of Claim

[20] This motion is primarily to be decided based upon the allegations pleaded in the Statement of Claim, which include the following:

(a) MCLP is the developer of an 85-storey condominium, hotel, and retail tower in Toronto, Ontario at the intersection of Yonge and Bloor Streets (the “Project”). [para. 4]

(b) Pursuant to the SCA, CERIECO agreed to make advances for the benefit of MCLP pursuant to a Supplier Credit Facility with a maximum principal amount of $213 million to fund the development of the Project. [para. 7]

(c) CERIECO had previously extended certain credit advances for the benefit of MCLP under a Bridge Credit Facility in order to provide interim financing until the Supplier Credit Facility was established under the SCA. The Supplier Credit Facility incorporated the advances that had previously been made under the Bridge Credit Facility. The total aggregate amount owing under the Bridge Credit Facility as of July 11, 2019 was $144.6 million. [para. 8]

(d) MCLP and 269 agreed that MCLP would pay a fee to 269 at a rate of 1.5% per annum on the principal amount outstanding from MCLP to CERIECO under the Bridge Credit Facility and the Supplier Credit Facility, as applicable, calculated monthly and payable on the first business day of the month following any advances by CERIECO to MCLP (the “Agreement”). [para. 9]

(e) On or about July 11, 2019, MCLP entered into the CSCA with 269. The CSCA memorialized the Agreement and provided, among other things, that:

i. MCLP would pay the amount of $2,235,436 to 269 by the first business day of the following month, which represented the fee owing to 269 at a rate of 1.5% per annum on the advances that had previously been made under the Bridge Credit Facility; and

ii. Further fees at a rate of 1.5% per annum on the principal amount outstanding from MCLP to CERIECO under the SCA from time to time would be calculated monthly and payable by MCLP to 269 on the first business day of the month following any subsequent advances under the SCA.

[para. 10]

(f) Between about March 24, 2020 and about December 16, 2020, 269 received fee payments from MCLP pursuant to the CSCA in the aggregate amount of approximately $5,569,450.21. MCLP has not made any further payments to 269 since about December 16, 2020. [para. 11]

(g) Based on information provided by MCLP to 269, the total fees that had accrued pursuant to the CSCA as of November 30, 2021 were approximately $8,567,518. After deducting the fee payments that were made by MCLP to 269, the aggregate amount that was due and payable to 269 as of November 30, 2021 was approximately $2,998,067.79. Fees have continued to accrue under the CSCA at a rate of 1.5% per annum on the principal amounts outstanding under the Supplier Credit Facility since this date. [para. 12]

(h) The entirety of the Claimed Amount [defined to be: the amount of $2,998,067.79, together with all other amounts owing under and pursuant to the Agreement and/or the CSCA] was improperly paid by MCLP to Mr. Chan and/or Mr. Mizrahi or as they directed. [para. 15]

(i) On September 23, 2022, a letter was sent to MCLP demanding that the Claimed Amount be paid by MCLP to 269 by no later than October 7, 2022 at 5:00 p.m. [para. 16]

(j) On October 18, 2022, counsel to 269 again demanded that the Claimed Amount be paid by no later than October 25, 2022. [para. 18]

(k) The Claimed Amount remains outstanding despite multiple demands for payment of same. [para. 19]

b) The Relevant Contracts

[21] The terms of the relevant agreements (referred to in the Statement of Claim and therefore incorporated by reference) are as follows:

(a) Paragraphs 1.1, 1.2 and 1.3 of the CSCA provide that: In connection with advances made under the SCA by CERIECO to MCLP, MCLP was authorized and directed to execute and deliver to 269 the 269 Ontario Fee Note (in respect of amounts that had already been advanced by CERIECO at the time the CSCA was entered into) and the 269 Ontario Interest Notes (in respect of amounts advanced by CERIECO under the SCA after the CSCA was entered into), collectively defined as the “269 Notes”.

(b) Paragraph 1.4 of the CSCA provides:

Notwithstanding anything contained in the 269 Notes, 269 Ontario agrees that it shall only make a demand for repayment under the 269 Notes if:

1.4.1 a Breach Event has occurred and is continuing; and

1.4.2 CERIECO has made a demand for repayment of amounts owing under the SCA in accordance with the provisions of the SCA.

(c) Paragraph 1.5 of the CSCA provides:

MCLP’s failure to repay amounts owing under a 269 Note shall constitute a breach of this Agreement and a Breach Event under the SCA. Consequentially, CERIECO shall be entitled to make Demand under the SCA should MCLP fail to so repay.

(d) Recital C to the CSCA incorporates the definitions in the SCA by reference.

(e) The SCA provides that:

i. Breach Events include the failure by MCLP to pay the principal amount owing to CERIECO or any other amount when due (at ss. 10.1 (a) and (b)).

ii. “Demand” means a written demand for repayment of any credit owing under this Agreement in the form satisfactory to CERIECO, by CERIECO to MCLP (in s. 1.1 of the definitions).

iii. Notwithstanding anything to the contrary contained herein, in the CERIECO Notes and/or the Security, unless a Breach Event occurs and is continuing, the Outstanding Obligations shall be repaid on the Due Date, and CERIECO shall not have the right to make Demand therefor. The Supplier Credit Facility shall be automatically terminated at such time (at s. 4.1).

iv. Upon CERIECO making Demand in accordance with Section 12.1, the entire principal amount outstanding and all unpaid interest under all of the Bridge Notes and CERIECO Promissory Notes shall, become immediately due and payable, without any other notice and without presentment, protest, demand, notice of dishonour or any other demand whatsoever (all of which are hereby expressly waived by MCLP). In such event and if MCLP does not immediately pay all such amounts upon receipt of such notice, CERIECO may, in its discretion, exercise any right or recourse and/or proceed by any action, suit, remedy or proceeding against MCLP authorized or permitted by law for the recovery of all the indebtedness and liabilities of MCLP to CERIECO with respect to the Supplier Credit Facility and proceed to exercise any and all rights hereunder and no such remedy for the enforcement of the rights of CERIECO shall be exclusive of or dependent on any other remedy but any one or more of such remedies may from time to time be exercised independently or in combination (at s. 8.1 (a)).

v. Although the CERIECO Notes are payable on Demand, CERIECO covenants that so long as a Breach Event has not occurred and is continuing, it shall not make a Demand until June 21, 2021 (at s. 12.1).

(f) In the course of MCLP refinancing its existing senior debt on the Project, MCLP, the Senior Lender, CERIECO and the CERIECO Agent entered into the Subordination Agreement, which generally subordinates the amounts owing from MCLP to CERIECO under the SCA to the Senior Lender and prevents CERIECO from taking certain specified enforcement actions. Preamble H to the Subordination Agreement provides:

H. In order to induce the Senior Lender and the Lenders to provide the Senior Loan to the Owner notwithstanding the existence of the Subordinate Indebtedness and the Subordinate Security, the CERIECO Parties have agreed to subordinate and postpone the Subordinate Indebtedness and the Subordinate Security to and in favour of the Senior Indebtedness and the Senior Security. Reference herein to the Senior Indebtedness, Senior Security, Subordinate Indebtedness and Subordinate.

c) The Prior Findings of this Court in Cerieco

[22] In Cerieco, the court found (at paras. 14 and 23) that CERIECO had made demands for repayment under the SCA following the occurrence of Breach Events:

[14] … The first repayment in the principal amount of $53,250,000.00 (plus interest, for total of $61,337,287.67) was due to CERIECO by June 25, 2021. That date passed and various demands were made by or on behalf of CERIECO for payment from MCLP and/or the guarantors, but they were not favourably responded to over the course of the rest of that year.

[23] The only damages particularized in the statement of claim correspond with the outstanding principal debt for which demand was made by CERIECO upon the first default in payment under the PCC that occurred on or about June 25, 2021.

[23] In reaching the determination that that it was plain and obvious that the action in Cerieco was contractually barred, the court made certain findings about the Standstill Provision contained in the Subordination Agreement (at paras. 60–62), as follows:

[60] The Standstill provision is very broad. As already described earlier in this endorsement, s. 13 states:

…no CERIECO Party shall take, direct, initiate, pursue, continue, support or otherwise participate in, either directly or indirectly, any Enforcement Action in connection with or in respect of the Subordinate Indebtedness, CERIECO Agreements or the Subordinate Security against or in respect of any Credit Party or against or in respect of all or any part of the Collateral nor against any party or parties who may be entitled to claim contribution and indemnity against the Owner.

“Enforcement Action” means the exercise of any remedy available to any of the CERIECO Parties (subject always to the standstill provisions contained in Section 13 hereof) or the Senior Lender and shall include the commencement of power of sale, foreclosure or other judicial or private sale proceedings, appointing or applying for, or obtaining or consenting to the appointment of, a receiver, a manager or a receiver and manager or other person having similar powers in respect of the Beneficial Owner or the Registered Owner or all or any part of the Collateral, taking possession or control of all or any part of the Collateral, giving notice of intention to enforce security, or undertaking, commencing, giving notice of or taking any action or proceeding seeking payment or recovery of all or any part of the Subordinate Indebtedness (subject always to the standstill provisions contained in Section 13 hereof) or the Senior Indebtedness, as the case may be, or damages in lieu thereof, or accepting a transfer of any property in lieu of foreclosure, or the exercise of any other rights or remedies available to a creditor under its security or otherwise at law or in equity, including without limitation, any bankruptcy or insolvency proceedings or any participation in or any actions in furtherance of the foregoing. [Emphasis in original.]

[61] CERIECO commenced this action against the Owner (one of the Credit Parties), in which it I have no difficulty concluding that it is, among other things, exercising remedies for alleged conspiracy, fraud, oppression and breach of contract, including damages in lieu of payment or recovery of the Subordinate Indebtedness. The claims asserted in this action are in respect of CERIECO’s subordinate debt, loan agreements, and security. These claims and remedies fall squarely within the standstill provision and comprise the core allegations in the statement of claim.

[62] CERIECO argues that the oppression remedy claim somehow takes this outside of the standstill provision. The oppression remedy is, as the name suggests, a remedy. It does not change the underlying nature of the actions complained of or the commercial agreements that contextualize the relationship of the parties. CERIECO loaned money to the Owner, took security for that loan and wants to be repaid through enforcement of the loan agreements or underlying security, or wants damages in lieu of those direct enforcement remedies. This is precisely the type of Enforcement Action that it agreed not to take under the standstill provision.

d) The Uncontested and Permissible Evidence

[24] The unchallenged [3] evidence on this motion (from the affidavits delivered on behalf of 269 from Xiaoyan Zhao, Keven Chen, and Richard Yu) establishes that:

(a) The CSCA is an agreement that provides for the payment of a fee by the borrower (MCLP) that is expressly tied to advances actually made to MCLP and advances which MCLP received the benefit of under the subordinated loan facility that is the subject of the SCA and the Subordination Agreement. The fee was based on a percentage of loan advances made by CERIECO to MCLP and was directed to be paid to 269 which is a company owned and controlled by the wife (Xiaoyan Zhao) of Kevin Chen who says he acted as an intermediary in the arrangements for the loan from CERIECO to MCLP.

(b) In the course of negotiating the Subordination Agreement, it was agreed by the parties to that agreement that the payments to 269 would not be expressly referred to or included in the subordinated indebtedness that is the subject of that agreement and that 269 would be removed as a party to the Subordination Agreement.

(c) 269 is not a party to the Subordination Agreement. For purposes of this motion, 269 shall not be considered to be an affiliate of CERIECO (despite the reference in the preamble to the CSCA describing 269 as an affiliate of CERIECO). [4] It had no relationship with any of the parties to the Subordination Agreement. None of the parties to the Subordination Agreement had any authority to bind 269.

Issues to be Decided

[25] Since this motion will be determined by the interpretation of paragraph 1.4 of the CSCA, it is worth repeating it here. Paragraph 1.4 of the CSCA provides:

Notwithstanding anything contained in the 269 Notes, 269 Ontario agrees that it shall only make a demand for repayment under the 269 Notes if:

1.4.1 a Breach Event has occurred and is continuing; and

1.4.2 CERIECO has made a demand for repayment of amounts owing under the SCA in accordance with the provisions of the SCA.

[26] A Breach Event has clearly occurred and is continuing under the SCA. That was a finding made by this court in Cerieco and there can be no serious dispute about it: MCLP has failed to pay the principal amount owing to CERIECO and other amounts when due under the SCA since on or about June 25, 2021.

[27] The issues to be decided based on the arguments raised by the parties and the applicable legal and equitable principles are as follows:

(a) Has 269 made a “demand for repayment” within the meaning of the preamble to paragraph 1.4 of the CSCA prior to or by virtue of the commencement of this action?

(b) Has CERIECO made a “demand for repayment” of amounts owing under the SCA?

i. What is a “demand” for repayment under the SCA?

ii. Has CERIECO made a demand for repayment under the SCA?

iii. Is CERIECO precluded from making a demand for repayment by the Standstill Provision of the Subordination Agreement? In other words: is any purported demand by CERIECO under the SCA an Enforcement Action that is invalid or a nullity by virtue of the Standstill Provision?

iv. If so, can an invalid demand by CERIECO qualify as a demand for repayment within the meaning of paragraph 1.4 of the CSCA?

v. What is the relevance, if any, of the fact that MCLP has already paid $5.6 million to 269 under the CSCA without any demand for repayment having been made by CERIECO?

(c) Are there other equitable considerations that tip the balance on the request for a stay?

Analysis

a) Has 269 made a “demand for repayment”?

[28] For this action to be precluded, 269 must first be shown to have made a demand for repayment. If it has then the court would need to consider whether it was precluded from doing so for not having satisfied the two preconditions under sub-paragraphs 1.4.1 and 1.4.2 of the CSCA.

[29] 269 contends that it has not made a demand for repayment of the 269 Notes, by or prior to this action. I cannot accept this contention on any reasonable interpretation of the plain words of the CSCA.

[30] The 269 Notes were not demand notes. They were payable on specific dates. Thus, a demand for repayment by 269 under paragraph 1.4 of the CSCA, on a plain meaning, would have to be a demand for payments due and owing but not yet paid under the 269 Notes.

[31] In the Statement of Claim, 269 pleads that the amount that was due and payable by MCLP to 269 as of November 30, 2021 was approximately $2,998,067.79 (which is the “Claimed Amount”). 269 further pleads that this Claimed Amount remains outstanding despite “multiple demands for payment,” including “demands” said to have been made on September 23, 2022, and October 18, 2022. This action was commenced on November 7, 2022 and it repeats those same demands.

[32] In the face of its own pleading and the plain words of the CSCA, I find it to be plain and obvious that 269 has, by its Statement of Claim in this action and prior to it, made demands for repayment of the 269 Notes. While I need not resort to it to reach the conclusion I have, this interpretation is consistent with the Black’s Law Dictionary definitions of:

(a) Demand: “The assertion of a legal right; a legal obligation asserted in the courts.”

(b) Claim: “To demand as one’s own or as one’s right; to assert;…”

(c) Action: “…the legal and formal demand of one’s right from another person or party made and insisted on in a court of justice.”

[33] Whether 269 can pursue this demand for repayment by this action depends upon whether the Mizrahi Defendants have satisfied their onus to show that it is plain and obvious that the preconditions to a demand for repayment of the 269 Notes by 269 have not be met.

[34] The first precondition under sub-paragraph 1.4.1 of the CSCA is that a Breach Event must have occurred and be continuing. For reasons previously outlined in this endorsement, that precondition has been satisfied.

b) Has CERIECO made a “demand for repayment”?

[35] The second precondition under sub-paragraph 1.4.2 of the CSCA is that CERIECO must have made a demand for repayment of amounts owing under the SCA in accordance with the provisions of the SCA. This precondition is the focus of the analysis.

i) What is a “demand for repayment” in this context?

[36] Unlike the 269 Notes, the Subordinated Indebtedness under the SCA was payable on demand. “Demand” is a defined term under the SCA. The SCA provides that a Demand (in a particular form) may be made by CERIECO under certain circumstances, including but not necessarily dependent upon a Breach Event having occurred and continuing depending on the timing: see sections 4.1 and 12.1.

[37] Section 8.2(1)(a) of the SCA provides that the exercise of CERIECO’s rights and recourses, including the commencement of any actions or suits, shall follow the making of a Demand. The SCA contemplates that after a Demand is made and if payment is not received in accordance with the Demand various recourse and rights may be exercised by CERIECO. In this context, it is clear on the plain wording of the SCA that a Demand and failure to meet it is what triggers CERIECO’s enforcement rights and remedies. These sections, when read together, suggest that a Demand under the SCA is a distinct step that must be taken prior to enforcement of rights, remedies, or recourses.

[38] Although the CSCA provides for the incorporation by reference of defined terms from the SCA, paragraph 1.4 of the CSCA does not use the capitalized defined term “Demand” but rather refers to a “demand for repayment”. These two agreements are dated the same day, July 11, 2019.

[39] Without going too deeply into the weeds on this point, even if there is a theoretical possibility that a ”demand for repayment of amounts owing under the SCA in accordance with the provisions of the SCA” under sub-paragraph 1.4.2 could be intended to include other circumstances than those in which a “Demand” is made under the SCA, that theoretical distinction has not been tied to any meaningful practical distinction in the types of demands that might be made and consequences that might flow from it, particularly where, as here, a Breach Event has occurred and is continuing.

[40] If indeed a distinction was intended, the plain reading and the logical and commercial interpretation of the words in the CSCA are that they would, at the very least, include a formal “Demand” under the SCA.

ii) Has CERIECO made a demand for repayment of amounts owing under the SCA?

[41] In Cerieco, the Court found (at paras. 14 and 23) that CERIECO had made demands for repayment under the SCA following the occurrence of Breach Events, after the first default in repayment of principal amounts due on June 25, 2021. I see no reason to revisit or change that determination.

[42] These findings establish that CERIECO made “a demand for repayment of amounts owing under the SCA in accordance with the provisions of the SCA.”

iii) Is any purported demand by CERIECO under the SCA an Enforcement Action that is invalid or a nullity by virtue of the Standstill Provision?

[43] 269 is correct when it states that this court did not make any finding in Cerieco that CERIECO’s demands for repayment were precluded by the Subordination Agreement. That decision was concerned with whether CERIECO’s action to recover amounts it loaned to MCLP was an “Enforcement Action” that was precluded by the Standstill Provision in the Subordination Agreement. The court concluded that it was.

[44] The Mizrahi Defendants contend that the court should now find that CERIECO’s demands for repayment under the SCA that preceded CERIECO’s action are also precluded by the Standstill Provision. The issue to be decided on this motion is whether it is plain and obvious that CERIECO was precluded by the Standstill Agreement from making the type of demand for repayment that is the precondition to any demand for repayment by 269 under the CSCA.

[45] The court has already made findings in Cerieco about the breadth of the Standstill Provision that precludes CERIECO from taking any Enforcement Action. Enforcement Action is broadly defined and includes:

(a) the exercise of any remedy available to any of the CERIECO Parties (subject always to the standstill provisions contained in Section 13 hereof) or the Senior Lender and

(b) shall include the commencement of power of sale, foreclosure or other judicial or private sale proceedings, appointing or applying for, or obtaining or consenting to the appointment of, a receiver, a manager or a receiver and manager or other person having similar powers in respect of the Beneficial Owner or the Registered Owner or all or any part of the Collateral, taking possession or control of all or any part of the Collateral, giving notice of intention to enforce security,

(c) or undertaking, commencing, giving notice of or taking any action or proceeding seeking payment or recovery of all or any part of the Subordinate Indebtedness (subject always to the standstill provisions contained in Section 13 hereof) or the Senior Indebtedness, as the case may be, or damages in lieu thereof, or accepting a transfer of any property in lieu of foreclosure,

(d) or the exercise of any other rights or remedies available to a creditor under its security or otherwise at law or in equity, including without limitation, any bankruptcy or insolvency proceedings or any participation in or any actions in furtherance of the foregoing.

(e) during the Standstill Period, in order to be assured that in the event that the Senior Credit Agreement or the Senior Security is hereafter in default, then no actions, steps or proceedings shall or will be taken by or on behalf of the CERIECO Parties or permitted by the CERIECO Parties (whether culminating in any document or instrument hereafter registered against or otherwise affecting the Property (or any portion thereof), or otherwise) which might negatively or detrimentally impact upon the Senior Lender's ability to expeditiously complete the development, construction and management of the Project, including the severance of the Commercial Project and the registration of one or more condominiums on the Property, and/or which might restrict, inhibit, hinder or delay the sale and closing of all or any portion of the Commercial Property or the individual condominium unit sale transactions in respect of the Condominium Project by or on behalf of the Senior Lender.

[ italics delineate points emphasized by the parties in their submissions on this motion ]

[46] Despite the breadth of the highlighted language that appears in the definition of “Enforcement Action” it is not plain and obvious to me that the prohibition in the Standstill Provision against the exercise of rights and remedies (such as the commencement of an action to enforce an unanswered Demand for payment) also prohibits the making of the demand for payment itself. A demand for payment may also include the commencement of an action or other proceeding, but it is broader than that and may too, as it would appear to me in this case, include a distinct step that is a precondition to the commencement of an action or other proceeding.

[47] This interpretation would also be consistent with a harmonious reading of the SCA, the Subordination Agreement, and the CSCA together, having regard to the factual matrix and 269’s contention that it was intentionally not made a party to the Subordination Agreement and that the amounts owing to it under the 269 Notes were not subordinated to the Senior Lender’s debt and therefore should not be subject to the Standstill Provision.

[48] The Mizrahi Defendants insist that a demand for repayment is the most basic exercise of a right or remedy by a creditor in the enforcement of its debt.

(a) This contention is based on the broadest language contained in the Standstill Provision, including “the exercise of any remedy available to any of the CERIECO Parties” and “the exercise of any other rights or remedies available to a creditor under its security or otherwise at law or in equity.”

(b) They further contend that, at the very least, it is “a step which might negatively or detrimentally impact upon the Senior Lender’s ability to expeditiously complete the development, construction and management of the Project.”

[49] In the latter respect, there is no evidence or context from which such a determination can be made on a motion at this stage that a demand for payment by CERIECO, as a distinct step prior to the exercise of any right, remedy, or recourse available to CERIECO, might negatively or detrimentally impact the Senior Lender’s ability to expeditiously complete the Project.

[50] In terms of the first point, at best it is an alternative interpretation to the interpretation suggested above, which is that the demand is not itself the exercise of the remedy but rather a distinct earlier step. If these were to be considered plausible competing interpretations of the interrelated provisions of the SCA, CSCA, and Subordination Agreement, then it cannot be said that the interpretation propounded by the Mizrahi Defendants is so plain and obvious as to lead to the conclusion that 269’s claim is inevitably doomed to fail or has no realistic prospect of success (per Mayer, at paras. 87 and 91). [5]

[51] I am left wondering why, if it was intended to cover a demand for repayment, the Standstill Provision makes no mention of a “Demand” or “demand” of any sort, in any of the listed types of “Enforcement Action”. Rather, it focusses on what would be commonly viewed as creditor enforcement remedies, many of which are predicated on a demand having been made and an opportunity afforded for the demand to be met (or default to be cured). Considered in that context, which is consistent with the specific examples indicated in the definition of Enforcement Action, it is not plain and obvious to me that a demand (or Demand) for repayment by CERIECO under the SCA is a prohibited Enforcement Action. The very title of the term “Enforcement Action” implies some step beyond a demand.

[52] In trying to give commercial meaning to the provisions,

(a) On the one hand, it might be objectively commercially reasonable to infer that the purpose of this section and the restrictions on 269’s ability to demand repayment of its promissory notes is that it should not be seeking to recover its fees if CERIECO is not permitted to seek to recover the underlying loan amounts. This gives some meaning and purpose to the precondition that there be a demand for repayment by CERIECO;

(b) On the other hand, it might be objectively commercially reasonable to infer that the purpose of this section and the restrictions on 269’s ability to demand repayment of its promissory notes should not be tied to the ability of CERIECO to take enforcement steps for the recovery of its subordinated debt when the fees that are payable under the 269 Notes are expressly tied to advances made by CERIECO (and not amounts repaid to CERIECO) in circumstances where 269 did not agree, and was not asked, to subordinate the repayment of its fees to the senior lenders).

[53] These considerations would require analysis of the factual matrix and the objective purpose of the related agreements and their provisions. The Mizrahi Defendants acknowledge that the court needs to be satisfied that there is no ambiguity and no need to consider and make findings based on evidence about the factual matrix and/or the subsequent conduct of the parties in order for them to succeed on this motion. However, having worked my way through the relevant contractual provisions, I am led to the conclusion that the interpretation that they propound requires such considerations.

[54] On the record for this motion and having regard to the constraints that the court operates under on a r. 21 or 25.11 motion of this nature, it is not plain and obvious that this action by 269 is premature based upon the interpretation propounded by the Mizrahi Defendants.

iv) If a demand by CERIECO under the SCA is invalid due to the Standstill Provision, can it qualify as a demand for repayment within the meaning of s. 1.4 of the CSCA?

[55] Given my findings in the previous section, this question does not need to be answered, since I have concluded that it is not plain and obvious that the demands for repayment by CERIECO were invalid as a result of the Standstill Provision in the Subordination Agreement.

[56] If it had been found to be plain and obvious, then the cases cited by the Mizrahi Defendants would have led to the conclusion that an invalid or prohibited demand for repayment by CERIECO could not be relied upon by 269 to trigger its right to demand repayment: see Robertson v. Graham, 2017 ONSC 2177, paras. 28–37 (finding purported transfer of property invalid when made “contrary to the terms” of an agreement prohibiting attempted transfer); Wainman v. Barrie Leasing Services Inc., 2018 ONSC 5717, para. 35 (finding notice of sale invalid when “issued in breach of the forbearance agreement”).

v) What is the relevance, if any, of the fact that MCLP has already paid $5.6 million to 269 under the CSCA without any demand for repayment having been made by CERIECO?

[57] 269 argues that the fact that some amounts were paid under the 269 Notes without any demand having been made (by 269 or by CERIECO) prior to the June 25, 2021 Breach Event under the SCA suggests that the amounts that accrued due prior to that date can still be pursued. This seems to be predicated on the point that the Standstill Provision did not and was not treated as preventing the normal course payments of amounts accruing due and payable under the 269 Notes.

[58] I must confess I do not completely follow the logic of this argument or its relevance to the contract interpretation point that I have decided.

[59] While subsequent conduct can inform the interpretation of contracts, the fact that payments were made under the 269 Notes when they were due and payable in accordance with the CSCA without any demand or other action on the part of 269 or CERIECO:

(a) Does not meaningfully inform the question of whether demands could have been made (by 269 or by CERIECO arising from this Breach Event) if the amounts accruing due and payable had not been paid.

(b) Does not meaningfully inform the question of whether demands for repayment were in fact made (by 269 or by CERIECO).

(c) Does not meaningfully inform the question of whether the Standstill Provision prevented CERIECO from making any demands for repayment.

[60] Since these are the questions that the court is concerned with in deciding this motion, fortunately, the subsequent conduct point need not be further considered given my earlier findings.

c) Are there other equitable considerations that tip the balance on the request for a stay?

[61] In Cerieco (at para. 71) the court recognized that the granting of a temporary stay under s. 106 of the Courts of Justice Act, which the moving parties seek as an alternative to dismissal here, can depend on “the equities of the situation”. Catalyst Fund Limited Partnership Il v. Imax Corporation, 92 OR (3d) 430, at paras. 21–23 and 27; see also Resolute Forest Products Inc. v. 2471256 Canada Inc. DBA Greenpeace, 2017 ONSC 5383, at para. 23 (noting there is a “lower threshold” for a temporary stay).

[62] This was not a focal point of the arguments by either side, although s. 106 of the Courts of Justice Act is relied upon among the stated grounds for this motion. It can be a relevant consideration under s. 106 of the Courts of Justice Act. In this case, I have determined that it is not plain and obvious that 269’s action will fail and therefore have determined that it is not appropriate to grant a stay at this time. It cannot be clearly said that the Mizrahi Defendants will be deprived of their clear and unambiguous contractual entitlements. No other equitable considerations were identified that would suggest that a stay should be granted in these circumstances.

Costs and Order

[63] The parties were asked to exchange cost outlines and try to reach an agreement regarding the costs of this motion. Following the hearing, the court was advised that the parties had reached an agreement that the costs of this motion be fixed at $35,000 for 269 if it is successful and that the costs of this motion be fixed at $18,000 for the Mizrahi Defendants if they are successful, assuming that the motion is dismissed or granted in full. Different considerations might have applied if the motion was only partially granted.

[64] Since the motion has been dismissed in full, the Mizrahi Defendants shall pay to 269 its all-inclusive costs of this motion in the amount of $35,000. I would expect that, if a formal order is needed, counsel should be able to settle upon that without the need for any further directions from the court, but they may seek a case conference before me if anything further is required.

Kimmel J. Date: August 22, 2023

[1] The 269 Notes were not themselves part of the record before the court on this motion. No party suggested that it could not be decided in their absence and the motion proceeded without regard to them or their specific terms, although the Mizrahi Defendants did point out that they had asked for copies of them and they were not produced on the basis that they were in the possession of MCLP. If considered to be relevant, they could have been produced by either side.

[2] The Mizrahi Defendants abandoned the other ground upon which this motion was originally predicated, namely the assertion that 269 is directly bound to the Standstill Provision because it is an “Affiliate” of CERIECO, and thus itself directly precluded from taking any Enforcement Action (such as commencing an action such as this). The issue that remains to be decided is whether a demand for repayment by CERIECO is a prohibited Enforcement Action and thus invalid and ineligible to satisfy the precondition under the CSCA of CERIECO having made a demand for repayment of amounts owing to it under and in accordance with the provisions of the SCA.

[3] The Mizrahi Defendants contend that there are various inherent inconsistencies on the face of the CSCA and in the explanations proffered by the responding witnesses about them and that their requests to cross-examine the witnesses were refused. Those criticisms primarily go to other issues that have not been relied upon for purposes of this motion. The one point of controversy that the Mizrahi Defendants have backed down on, for purposes of this motion, has to do with the question of whether 269 is an Affiliate of CERIECO (see notes 2 and 4). On one level, the existence of points of controversy about the “factual matrix” of the relevant agreements is all that is relevant to this motion where the Mizrahi Defendants have to establish that the interpretation they propound is “plain and obvious”.

[4] The parties agree that the court does not need to determine whether 269 is an affiliate of CERIECO for purposes of this motion. The motion has been decided on the basis that they are not affiliates, and 269 is not an affiliate of any of the parties to the Subordination Agreement and is not directly bound by that agreement.

[5] Although CERIECO was on notice of this motion and at one time considered seeking leave to intervene, it did not do so. That said, it might have been of some concern for the court that the issue of whether its “demand for repayment under the SCA” was a prohibited Enforcement Action under the Subordination Agreement would be decided without CERIECO’s participation. That concern did not materialize in light of the outcome of this motion.