Court File and Parties

COURT FILE NO.: 23-00693147-00CL

DATE: 2023-08-25

ONTARIO

SUPERIOR COURT OF JUSTICE (Commercial List)

BETWEEN:

PIYA JITTALAN

Applicant

– and –

ReFLOURISH CAPITAL LIMITED, SALUS INTERNATIONAL MANAGEMENT LTD., JEREMY BUDD, W. SCOTT BOYES, STACEY BOYES, DAVID NAYLOR-LELAND, TIMOTHY SIMOND, TIMOTHY CHILDS and ALASTAIR CRAWFORD

Respondents

Counsel:

Milton A. Davis, Ronald D. Davis, and Teodora Obradovic, for the Applicant

Kenneth Kraft, Chloe Snider, and Camila Maldi, for the Respondents

HEARD: July 6 and 7, 2023

Jana Steele J.

Overview

[1] Was there a binding agreement or simply an agreement to agree? The threshold issue on this application is whether the applicant, Piya Jittalan, and the respondent, ReFlourish Capital Limited, had a binding agreement for the sale of shares of Salus International Management Ltd. (“SIM”).

[2] If there is no binding agreement, the second issue I must consider is whether a rights offering proposed by SIM is oppressive. There is currently an interim order in place prohibiting SIM from proceeding with the proposed rights offering pending the hearing of this application.

[3] The parties in this litigation indirectly hold an interest in a company in Thailand, which is involved in Thailand’s nascent medical cannabis industry. The litigation pertains to shares of SIM, which is an Ontario corporation. SIM’s primary asset, however, is shares in its subsidiary, Salus Bioceutical (Thailand) Co. Ltd. (“SBT”), a Thai corporation that manufactures and distributes cannabis products.

[4] Jittalan holds approximately 12.9% of SIM’s shares. There are other Thai shareholders of SIM with smaller shareholdings.

[5] ReFlourish holds approximately 49% of SIM’s shares. The respondents, Jeremy Budd, William Scott Boyes, Stacey Boyes, David Naylor-Leland and Timothy Simond also hold SIM shares.

[6] The respondents, Alastair Crawford and Timothy Childs hold shares in ReFlourish, not in SIM.

[7] Both Jittalan and Robert Petch (a ReFlourish director, on behalf of the respondent, ReFlourish) agreed that a mutual friend, Hugh Holland, would act as an intermediary to help negotiate the sale of ReFlourish’s shares to Jittalan. Holland has known Jittalan for over 40 years. Petch is Holland’s cousin.

[8] Jittalan’s position is that in and around December 6-8, 2022, an agreement was reached between him and Petch (on behalf of ReFlourish), which included the following key terms:

(i) Jittalan would purchase all the SIM shares held by ReFlourish and the other non-Thai SIM shareholders for $0.60 USD per share ($6 million USD for SIM shares held by ReFlourish); and

(ii) the transaction would close by December 31, 2022.

[9] Jittalan says that the respondents attempted to resile from this agreement.

[10] Jittalan seeks specific performance. He wants to purchase the SIM shares.

[11] ReFlourish’s position is that there was an agreement to agree, which was subject to due diligence and a share purchase agreement.

[12] As this matter was an application, there was no viva voce evidence. ReFlourish’s alternate position is that viva voce evidence is required.

[13] For the reasons set out below, I have determined that there was not an enforceable agreement between Jittalan and ReFlourish for the sale of the SIM shares.

[14] I have also determined that the proposed rights offering is oppressive and shall be permanently enjoined.

Background

[15] The SIM shares that Jittalan asserts are subject to an agreement were obtained by ReFlourish in the proceedings under the Companies’ Creditors Arrangement Act (the “CCAA”) of the SIM shares’ original owner, MPX International Corporation (“MPXI”). MPXI was a public company.

[16] MPXI was involved in the startup of SIM. Certain of the same Canadian parties involved with ReFlourish and/or SIM were also shareholders of MPXI, including the respondents, W. Scott Boyes, Jeremy Budd, Timothy Childs, and Alastair Crawford. Childs and Crawford, shareholders of ReFlourish, were board members of MPXI. When SIM was started MPXI received 49% of the SIM shares. MPXI received 90% of SIM’s profits in exchange for management services pursuant to a management agreement.

[17] The relationship between the Canadian investors and Jittalan and the other Thai investors in SIM soured in early to mid-2022. Jittalan thought that MPXI was not providing effective services or contributing resources to SIM/SBT. Jittalan threatened to withdraw his support.

[18] MPXI became insolvent and filed for protection from its creditors under the CCAA. Pursuant to the December 15, 2022 Order of Penny J., MPXI’s shares of SIM were conveyed to and vested in ReFlourish.

[19] Jittalan’s investment and loans to SBT exceed CAD$5 million. ReFlourish has contributed approximately CAD$651,000.

[20] In and around the end of December 2022, Childs and Crawford were elected to the SIM board of directors. This election was done in writing by a majority of the SIM shareholders.

[21] At the SIM board meeting in January 2023, the SIM board approved a rights offering. When the proposed rights offering was discussed, none of the Thai directors were present. The four Thai directors had left the meeting, as they objected to the election of Childs and Crawford to the SIM board.

[22] Under the proposed rights offering, SIM would issue up to 600,000,000 common shares for $0.01 per share. At the time of the proposed rights offering the current common shareholdings in SIM were 20,000,000.

[23] Jittalan brought an urgent injunction in February 2023 to stop the rights offering from proceeding. I granted an interim order pending the hearing of the application prohibiting the respondents from proceeding with the rights offering.

[24] In or about March 2023, Jittalan was ordered to fortify his undertaking as to damages. Jittalan paid US$6 million to his counsel in trust for this proceeding.

Analysis

Was there a binding agreement for Jittalan to purchase ReFlourish’s SIM shares for $6 million USD?

[25] I find that there is not a binding agreement for Jittalan to buy ReFlourish’s SIM shares for $6 million USD.

[26] For a contract to exist there must be a meeting of the minds, or consensus ad idem. The test for whether there is an agreement is objective. The Court must consider whether an objective, reasonable bystander would determine, in all the circumstances, that the parties intended to contract. More than an intention is needed for an enforceable agreement to exist. The essential terms of the agreement must be sufficiently certain: UBS Securities Canada, Inc. v. Sands Brothers Canada Ltd., 2009 ONCA 328, 95 O.R. (3d) 93, at para. 47.

[27] Jittalan’s position is that the December 6-8, 2022 emails between him and Petch, on behalf of ReFlourish, with Holland acting as the intermediary, concluded the essential terms of the agreement, including:

a. ReFlourish to sell its 10 million SIM shares acquired from the MPXI CCAA proceedings for $0.60 per share ($6 million USD total);

b. Jittalan will repay the MPXI debenture holders’ loans to SBT ;

c. The transaction will close by December 31, 2022;

d. Jittalan will offer to buy the SIM shares of the non-Thai shareholders. (Note that it was acknowledged by the respondents that if the Court found that there was an agreement between Jittalan and ReFlourish, the other non-Thai shareholders would be subject to the same deal.); and

e. All non-Thai directors on the SBT and SIM boards would resign (except Petch).

[28] Jittalan’s position is that the essential terms were agreed upon and the share purchase agreement was simply to paper the deal between the parties.

[29] As discussed further below, drafts of the share purchase agreement setting out the deal were exchanged. As noted in UBS, at para. 47, “an agreement is not incomplete simply because it calls for the execution of further documents.”

[30] The respondents’ position is that the parties did not have a binding agreement, but only an agreement to agree, which was non-binding and conditional. Their position is that it was conditional on due diligence and a completed share purchase agreement. Further, the respondents’ position is that there was an agreement in principle, but that the parties had not yet settled on all the essential provisions.

[31] As noted in Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 1991 CanLII 2734 (ON CA), 79 DLR (4th) 97 (Ont. C.A.), at page 13:

[W]hen the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract. In other words, in such circumstances the “contract to make a contract” is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself.

[32] I determine that the essential provisions intended to govern the contractual relationship were still being negotiated, particularly those regarding sharing of information.

The December 6-8 Emails

[33] There were emails back and forth between Petch and Jittalan between December 6-8, 2022, with Holland as the intermediary, which Jittalan asserts formed the binding agreement between the parties. These emails contemplated certain terms.

[34] Holland’s evidence was that he believed that Jittalan and Petch (on behalf of the debentureholders) agreed that Jittalan would buy ReFlourish’s 10,000,000 common shares in SIM for US$0.60 per share and he understood that the agreement was binding.

[35] Jittalan’s evidence is also that there was an agreement on the principal terms. However, as noted by the respondents, this understanding by Holland and Jittalan was subjective.

[36] Petch confirmed on cross-examination that he and Jittalan had agreed with respect to the principal terms as of December 8, 2022.

[37] On December 7, 2022, the email from Holland to Jittalan set out ReFlourish’s proposed terms and concluded with:

As discussed David [Taylor] would be happy to speak to [Piya] if he [understandably!][^1] would like assurance that this deal is final and can be delivered from the debentureholders’ end. But I can vouch that this is the case.

I can ask Dentons [respondents’ lawyers] to commence work straight away to draft the the [sic] SPA [Share Purchase Agreement] and warrant agreements. I think its clear from our earlier conversations that these warrants would have standard provisions to protect them eg in the event of a subsequent share issue and would, for example, commute into the new holding company in the event of a corporate restructuring.

[38] The final email from Jittalan stated: “In principle we an [sic] accept the terms proposed by the DH [debenture holders].”

[39] Jittalan and ReFlourish reached an agreement in principle based on the December 6-8, 2022 emails.

[40] In Canada Square Corporation Ltd. et al. v. VS Services Ltd. et al. (1981), 1981 CanLII 1893 (ON CA), 130 D.L.R. (3d) 205 (Ont. C.A.), the Court of Appeal found that the phrase “this constitutes the general principles of our agreement with you” did not disclose “the firmness of settled legal obligations”: at page 17. I agree with the respondents that Mr. Jittalan’s use of the phrase “in principle” suggests that there are still terms to discuss.

[41] In my view, the acceptance of the agreement “in principle” in the instant case is not dispositive of the issue.

Need for an SPA

[42] The respondents submit that the deal was conditional on the completion of a share purchase agreement.

[43] Although I determine that the deal was not conditional on a finalized SPA, the continuing work on the draft share purchase agreements and other documentation discussed below shows the fluidity of the deal terms.

[44] In Re Dominion Stores Ltd. and United Trust Co. et al. (1974), 1973 CanLII 692 (ON SC), 2 O.R. (2d) 279 (Ont. S.C.) the contract in issue was not expressly stated to be subject to documentation. The Court noted, citing Winn v. Bull (1877), 7 Ch. D. 29, at page 32, that “it therefore becomes a question of construction “whether the parties intended that the terms agreed on should merely be put into form, or whether they should be subject to a new agreement the terms of which are not expressed in detail”.”

[45] The parties had some communications regarding the need for a share purchase agreement. In November 2022 there was an email from Jittalan to David Taylor, a significant investor in ReFlourish, copying Petch, Holland, and others, in which Jittalan states:

• We should enter into an MOU [Memorandum of Understanding] outlining the key terms right away. The Thai group will provide the first draft ASAP.

• SPA to be drafted reflecting the terms and conditions of the MOU. Dentons [respondents’ lawyers] can circulate the first draft.

[46] However, there was no correspondence or document which specifically made the deal contingent on the finalizing of a share purchase agreement.

[47] In the December 8, 2022 email to Petch, Jittalan wrote: “Now that we are in agreement on the financial side, there importantly, remains the required documents which we urgently need.” [Emphasis added.]

[48] There is another email on December 8, 2022, with the subject line “Other Conditions”, which was drafted by another Thai investor and forwarded to Holland (the intermediary) by Jittalan. It read:

I assume that most issues will be covered by the SPA to be drafted by Denton[s] but it would be good if they could include:

• The provision of updated SIM financial statements, at least on what is in the Canadian books.

• The updated corporate records, shareholders list, minutes of board meetings, bank signatories etc.

• Confirmation that regulatory filings are complete or will be completed.

There may be others but the objective is to achieve a clean break as practicable.

The one action that is important is the cancellation of the management agreement between SIM and SBT effective for the year ended September 30, 2022. This would help finalizing the SBT statements and make it ready for audit required by local regulations.

I am hopeful that with cooperation from both sides, any issues can be resolved.

[49] On December 9, 2022, the corporate lawyer from Dentons (respondents’ lawyers) sent an email to the corporate lawyer at Foglers (applicant’s lawyers) setting out her “chicken scratch notes” of her understanding of the deal. There is no reference to the deal being contingent on due diligence or the completion of an SPA. However, the parties were clearly discussing the terms that the SPA would include. For example, the email includes the statement “ensure reps [representations] and warranties survive.” However, at this stage there had not been a discussion on what those representations and warranties would be.

[50] The parties discussed documenting the deal in an SPA and exchanged at least 3 draft SPAs prior to the December 24, 2022 SPA where the price increase was proposed:

• The first draft was sent by Dentons [respondents’ lawyers] on December 12, 2022. There were a few minor items highlighted in the draft for consideration.

• Foglers [applicant’s lawyers] provided an amended version of the draft SPA the next day. The amended version included the following changes:

o The date of payment of the purchase price to Dentons in trust was changed from three business days to one business day prior to closing;

o Three changes to the conditions for closing, including a NTD [Note to Draft] regarding the repayment of the loan owed to MPXI by SBT, which stated: “[NTD: to be confirmed based on documentation, and if we are closing after CCAA order is issued, would this amount be owed to ReFlourish]?”

o Further clarification on the tax representations and warranties to confirm that “the Purchased Shares do not constitute “taxable Canadian property”.

• On December 19, 2022, Dentons [respondents’ lawyers] circulated a revised draft SPA. This turn of the draft agreement contained more changes, including:

o Changes to reflect the fact that ReFlourish would obtain the shares from the MPXI transaction;

o The purchaser would make a deposit of $600,000 upon the execution of the agreement, which deposit would be forfeited to the sellers if the agreement is terminated due to the failure of the buyer to obtain the necessary Thai regulatory approvals;

o The sellers would deliver to the buyers a current balance sheet for SIM;

o The addition of a representation and warranty of the seller that the seller has disclosed to the buyer all material facts and conditions respecting the business of SIM and SBT known to the seller which could have an effect on the valuation of the purchased shares;

o The addition of a representation and warranty of the buyer that the buyer has disclosed to the seller all material facts and conditions respecting the business of SIM and SBT known to the buyer which could have an effect on the valuation of the purchased shares.

[51] The addition of the representations and warranties regarding disclosure of material facts and conditions relating to SIM’s business ties in with the due diligence issue discussed below.

[52] The parties reached an agreement in principle on the share sale and were documenting the agreement. However, the correspondence subsequent to the December 6-8, 2022 emails suggests that there was still fluidity on the terms of the deal. Foglers (applicant’s lawyers) sent an email with some “initial comments on the draft SPA” on December 13, 2022. Dentons (respondents’ lawyers) responded to their points. In response to the second question regarding the fact that the diligence was not completed and the suggestion that either they do an LOI [Letter of Intent] or add a closing condition to the SPA that it is subject to the purchaser’s satisfactory completion of his due diligence, Dentons responded:

We spoke to our client on this point, and they are more comfortable with an LOI at this stage, to allow time for more developments on the due diligence documents and the closing deliverables/conditions, as well as the court process. The suggested timing is an LOI to be signed this week, for which we have prepared a draft that our client is now reviewing, and the SPA to be signed next week.

[53] When Dentons advised that ReFlourish was not in a position to sign an SPA for the sale of the SIM shares, they proposed a non-binding LOI. Jittalan did not respond and say that there was already a binding agreement that was just being “papered.” Instead, Jittalan, who is a sophisticated businessperson, signed the non-binding LOI. The LOI introduced a new closing date: as late as January 31, 2023. Further, the non-binding LOI was signed after the CCAA order in the MPXI proceedings before Penny J., which I discuss below.

[54] I note that the continuing work on the share purchase agreement makes the instant case distinguishable from UBS. In UBS the court determined that there was an enforceable agreement between the parties based on correspondence similar to that between the parties in this case (December 6-8, 2022 emails). In that case, the Court of Appeal noted, at para. 79, that the trial judge had found that a written SPA was not a “condition of the bargain” but was “an indication or expression of a desire as to the manner in which the contract already made will be implemented.” As discussed above, in the instant case when the parties started to draft documents, new terms were added. There was correspondence between counsel and requests for information all suggesting that there was more work to be done before the “deal” was done.

[55] I agree with the respondents that this case is distinguishable from Ruparell v. J.H. Cochrane Investments Inc. et al, 2020 ONSC 7466 at para. 52, and 2730453 Ont. Inc. v. 2380673 Ont. Inc., 2022 ONSC 6660, at para. 37, where the parties acted as though they had reached an agreement. In Ruparell the Court noted, at para. 52, that immediately following the negotiations “the parties behaved as if they had reached an agreement.”

[56] In 2730453 the purchaser tendered on the closing date with a certified cheque for the closing funds. I further note that, unlike the instant case where the parties were negotiating a share sale of a privately held company, 2730453 was a real estate transaction between two arm’s length parties.

[57] Jittalan thought that he would need a signed agreement to get authority from the Thai bankers to forward the funds to close the deal. The respondents were aware of this purported requirement. The parties never concluded a signed SPA.

[58] In the instant case, the parties were behaving as though the SPA was still under negotiation.

Common Business Practice

[59] The respondents sought to adduce an expert report from a lawyer, Carol Hansell, which purports to address common business practices.

[60] I have determined that Ms. Hansell’s evidence is not admissible.

[61] The parties agree that Ms. Hansell is an experienced, sophisticated, knowledgeable corporate lawyer. However, Jittalan argues that her report fails to meet two of the four requirements for expert evidence[^2]: necessity and relevance. I agree.

[62] As indicated by the Court in Veracap Corporate Finance Limited v. Carefoot et al, 2013 ONSC 381, at para. 26, parties are free to contract as they see fit: “Whatever the industry standard may be, it is not germane to the objective meaning of a contract provision that was specifically negotiated.” Although Veracap considered the issue of contractual interpretation of a particular term of an agreement, it does not change the fact that parties may contract as they see fit. Accordingly, in my view expert opinion evidence on common business practice is not relevant.

[63] In any event, expert opinion evidence on common business practice is not necessary. As acknowledged by Ms. Hansell, it is for the Court to form its own opinion as to whether the parties had a contract. This is the role of the Court.

The Parties’ Subsequent Conduct

[64] The respondents submit that the subsequent conduct of the parties, particularly in January 2023, is further support for their position that there was no binding contract.

[65] The applicant’s position is that the respondents had reneged on their agreement to sell the SIM shares for $6 million, but that Jittalan wanted to avoid litigation, so he re-engaged in discussions to determine if the deal was salvageable. Although this is a possible explanation, given the other circumstances suggesting that negotiations were ongoing, in my view the continued negotiations in January, 2023 further supports the respondents’ position that a deal had not yet been reached.

[66] As noted above, certain terms of the share sale were agreed in principle in early December. Following the December 6-8 emails, Dentons (respondents’ lawyers) circulated the first draft of the SPA two business days later. After receipt of the draft SPA, Jittalan’s lawyers prepared and circulated a draft closing agenda for the deal.

[67] The parties were unable to close the deal concurrent with the MPXI CCAA hearing on December 15, 2022, so the proposed closing date was pushed back.

[68] There were subsequent drafts of the SPA before the unilateral price increase (to $8 million USD) was introduced by ReFlourish on December 24, 2022. ReFlourish then refused to complete the agreement at the price that had been agreed in principle of $6 million USD.

[69] In January 2023 the parties had further discussions regarding the potential sale of the SIM shares at the proposed purchase price of $8 million.

[70] The continuing discussions regarding the deal in January 2023 is behaviour of the parties that supports the respondents’ position that a deal had not been finalized.

Due diligence requirements

[71] The respondents’ position is that the agreement was subject to due diligence requirements. Mr. Jittalan disagrees.

[72] In my view, the transaction was subject to ongoing due diligence.

[73] This is a scenario where one of the existing shareholders is buying shares held by another existing shareholder, so generally there would not be the same need for diligence as may be required by an outside purchaser. However, this is a unique situation where SIM was effectively controlled and operated in Canada and SBT was effectively controlled and operated in Thailand. There were concerns by both the Thai contingent and the Canada contingent that information was being withheld by the other contingent. It does not appear as though a formal diligence process was set up (i.e, data rooms, etc.), however there were information and document requests by both contingents (i.e., not just the buyer seeking information).

[74] The earlier drafts of the SPA did not reference due diligence as being a condition to closing. However, the December 24, 2022 draft SPA (which contained the price increase), included the following condition to closing: “Buyer being satisfied with the results of its financial due diligence findings regarding the existing or outstanding liabilities of the Company.” This turn of the SPA also added language to the mutual disclosure representations and warranties regarding the business of SIM having been carried on in the ordinary course since September 1, 2022. As noted above, the December 19, 2022 turn of the SPA also included a mutual representation and warranty regarding disclosure of material facts and conditions regarding SIM’s business

[75] Likely because of the distrust between the two contingents, and the fact that SBT operates in Thailand and SIM is a Canadian company, there was a need for some diligence despite the fact that this was a share sale among existing shareholders. In the exchange between corporate counsel on December 13, 2022, Foglers (applicant’s lawyers) references the due diligence information they had requested. Dentons (respondents’ lawyers) responded that the majority of diligence documents were expected that evening. There is another email from Foglers to Dentons on December 21, 2022 in which due diligence is again addressed. In that email the corporate lawyer from Foglers notes that he is “mindful of not making this a big due diligence exercise.”

[76] The respondents state that they did not have adequate information regarding SBT’s operations, including information regarding SBT’s financial position and the status of the cannabis licenses.

[77] Principals of ReFlourish made numerous attempts to obtain information regarding SBT, which they state was not forthcoming. There is evidence of numerous requests being made including the following:

• WhatsApp conversation between W. Boyes (resp) and Tanadee Pantumkomon, the CEO of SBT, dated July 9, 2022, where W. Boyes requests: number of employees; monthly payroll; copies of all licences; and the most recent combined (SBT plus SIM).

• Letter dated November 17, 2022 from SIM to Pantumkomon requesting times to schedule a virtual tour of the facility in Chiang Mai, as well as the following: Site Master File (document containing information about the site: layout, equipment, utilities, processes, etc.); Validation Master Plan (document that explains the basic requirements and plan to ensure that the site and all processes have been qualified and meet the requirements); List of Standard operating procedures; GMP Inspection (full report) [related to licensing].

• In an email from Taylor (significant ReFlourish shareholder) to Jittalan, dated November 21, 2022, Taylor stated: “In the meantime, we must insist that information previously requested of the management team is provided to the board of SIM in a timely fashion. ... Furthermore, as previously proposed, we would still plan for our head of Malta and Group COO to visit the plant in Chiangmai and to spend time with management to review the licensing status and the business plan going forward.” [As noted below, on November 22, 2022, Pantumkomon wrote to Crawford, copying Jittalan, to “postpone” the virtual tour of the Chiangmai plant.]

• In a WhatsApp conversation between W. Boyes and Pantumkomon, dated December 5, 2022, Pantumkomon indicates that he cannot provide documents without SBT board approval.

[78] Many of the same requests were reiterated in a letter from Dentons (respondents’ lawyers) to Pantumkomon, dated February 28, 2023.

[79] Essentially, the respondents’ position is that the Thai shareholders and directors/officers of SBT, including Pantumkomon, were withholding important information from them. There is evidence supporting the respondents’ contention that SBT was not forthcoming with documents/information, including:

• Email from Pantumkomon to Crawford, copying Jittalan, among others, dated November 22, 2022, stating that the GMP documents, which are the key licensing documents, requested “are developed solely with the help of Thai management and it is the assets of SBT. As such, it should be allowed by SBT management. We therefore would like to postpone the e-meeting [the virtual tour of the Chiang Mai facility that had been requested by SIM] and provision of documents.”

• In a WhatsApp conversation between Crawford and Pantumkomon, dated December 1, 2022, Crawford states that he has still not received any of the documents that the board requested.

[80] However, Jittalan points to an email from Crawford (resp) to David Taylor and others, dated December 26, 2022. Jittalan’s position is that Crawford knew what was happening in Thailand, even though SBT and Jittalan had not provided the requested information. It is clear from that email that Crawford has some information regarding the status of operations in Thailand, which he obtained from third parties. In that email, Crawford noted that “[o]bviously that tour [the virtual tour of the Chiang Mai facility planned for November 21, 2022] was cancelled because they don’t want us to know how advanced it is.” Crawford had obtained information regarding the cannabis industry in Thailand and was concerned that SBT’s operations were significantly further along than the Canadian investors were aware, which would impact the value of SBT.

[81] The lack of information between the two contingents and the distrust between them again distinguishes the instant case from UBS. In UBS, UBS held shares of Bourse de Montreal Inc. and was seeking to increase its shareholdings. Bourse was a private company, which operated the Montreal Stock Exchange. The Bourse shares were not publicly traded at the time, but the sale of Bourse shares “were controlled by various rules set out in the Bourse by-laws.” As noted by the Court of Appeal, at para. 8, only employees of Bourse or registered broker-dealers could own Bourse shares. UBS, through a portfolio manager, sought to purchase shares owned by Sands Canada, which was controlled by Mr. Sands. With regard to information about Bourse, the Court of Appeal noted, at para. 14, that when the offer was made to purchase the Sands’ shares for $50 per share both parties would have had access to the same “publicly traded information about Bourse.” The Bourse transaction was negotiated by a portfolio manager in the securities industry for UBS and Mr. Sands who had been in the securities industry for many years. The trial judge noted, at para. 45, that “[i]t is customary in the securities industry, in both proprietary trading and trading as an agent for third parties, to consummate trades by verbal agreement”: UBS Securities Canada Inc. v. Sands Brothers Canada Ltd., 2008 CanLII 19507. Although both UBS and the instant case involve share purchases, the nature of the UBS transaction is different. First, the custom of consummating trades verbally that was noted in UBS does not apply. In the instant case, both parties did not have access to the same information, and it was not a transaction negotiated by persons in the securities industry. In addition, the distrust between the parties based on their tumultuous history in the instant case differs from the parties’ relations in UBS.

Objective Test

[82] I am not satisfied that an objective, reasonable bystander would conclude in all the circumstances, that the parties had an agreement.

[83] The parties exchanged their December 6-8, 2022 emails setting out certain deal terms, which were agreed upon in principle. However, based on the subsequent conduct of the parties, including adding important terms to the draft SPA related to disclosure, it seems that the parties were continuing to negotiate the terms of their agreement.

[84] As noted by the applicant, certain deal terms were agreed “in principle”. However, there was still critical missing information that could impact the deal terms.

[85] Two business days following the December 6-8 emails, Dentons (respondents’ lawyers) circulated a draft SPA reflecting the initial deal terms. Shortly thereafter, Foglers (applicant’s lawyers) circulated the draft closing agenda. The parties were working together toward a fast closing concurrent with the MPXI CCAA hearing on December 15, 2022. The plan was that ReFlourish would acquire the SIM shares in the MPXI CCAA proceeding and there would be a transfer of the shares on the same day to Jittalan. It became clear that this timeline was not tenable, so the closing date was pushed back.

[86] When it became clear that the deal would not be finalized in time to close concurrent with the MPXI CCAA proceeding, Foglers (applicant’s lawyers) provided Dentons (respondents’ lawyers) with a draft Letter of Intent. In an email from Dentons to Foglers on December 15, 2022, Dentons provided Foglers with a revised version of the draft Letter of Intent that Foglers had drafted. Dentons told Foglers that ReFlourish was willing to sign the revised version, which made the LOI non-binding. Dentons indicated in the email that the Letter of Intent was made non-binding “as ReFlourish is not in a position to sign onto any binding agreement for the sale of the SIM shares at the moment nor was it the intent of putting this document together.”

[87] There was correspondence between counsel regarding the approval and vesting order in the MPXI CCAA proceedings. Counsel for the respondents suggested reservation of rights language. However, Jittalan’s counsel requested that the approval and vesting order (AVO) contain express language reflecting the respondents’ obligation to convey the SIM shares. Penny J.’s December 15 Approval and Vesting Order contained the following provision:

13. THIS COURT DECLARES that the conveyance to [ReFlourish] of the right, title, and interest in and to the part of the Purchased Securities representing the 10,000,000 common shares of Salus International Management Ltd. [...] (the “SIM Shares”), is done without prejudice to the rights of Piya Jittalan as against the DIP Lenders and [ReFlourish] in relation to [ReFlourish]’s obligation to convey the SIM Shares and all such rights are reserved and preserved. [Emphasis added.]

[88] The language in the Court Order was added at the request of the parties. Jittalan agreed to not attend at the MPXI CCAA proceedings, as he understood this language would be included in the order.

[89] However, Jittalan signed the non-binding LOI on December 16, 2022. If Jittalan believed that the parties had a firm agreement, it would be inconsistent with him signing a non-binding LOI. There would be no purpose to a non-binding LOI if there was already an agreement. A non-binding LOI was consistent with the agreement “in principle” that had been discussed. The SPA had not been finalized at this point and the parties had been exchanging comments on the draft version. Requests for key pieces of information were still outstanding.

[90] The AVO language was agreed upon by the parties. Jittalan argues that this language was included because the parties had concluded a binding agreement. I disagree. The language is equally consistent with Jittalan thinking that the parties would reach a binding agreement soon and him wanting to reserve the rights arising from that. The fact that he signed the non-binding LOI following the AVO is perfectly consistent with this interpretation.

[91] Further, as noted above, the parties’ business dealings had broken down and there was distrust on both sides. Starting in early to mid-2022, there was tension between the parties, Jittalan was unhappy with the arrangement and the services provided by MPXI and SIM, and the parties were looking for a way to move forward. W. Boyes stated that he wanted “the “infighting” to be over so you can move Salus forward” in a WhatsApp conversation between W. Boyes and Panttumkomon, dated December 5, 2022.

[92] There were threats or intimations made. In a WhatsApp exchange between W. Boyes and Pantumkomon, on June 19, 2022, Pantumkomon wrote:

Piya [Jittalan] called and warned me that if this restructure takes too long (longer than end of June), he will use his power to suspend all licenses of Salus including GMP/PICs and that the value of Salus will be reduced to zero.

He can also revoke the deal with GPO, Kanchanaburi and Heineken. Even GPO will not help us on GMP.

I think this is going crazy and too far. However, Piya is much bigger than Anutin and even Prime Minister.

[93] Crawford and Petch’s evidence was that in November 2022, Jittalan told them that if they did not hand over half of their stake in SIM, Jittalan would “destroy the business” and with a phone call he could have SBT’s licenses rescinded. On cross examination, Jittalan agreed that he made these intimations or warnings on various occasions. His answer was: “I said we would withdraw the financial, political, and local assistance and whatever assistance that was -- was done by the locals, basically myself, and that was it.” However, Jittalan indicated that the statements were made by him, not as part of their share sale discussions, but because “the company was so badly run.” Essentially, he was trying to get the respondents to take action with regard to the running of SIM.

[94] In this context, it is difficult to conceive of the parties agreeing to a multi-million dollar, multi-jurisdictional share sale over a series of informal and difficult to follow emails.

[95] On balance, taking into account the facts and circumstances of this case, I am not satisfied that an objective, reasonable bystander would determine, in all the circumstances, that the parties formed a binding contract through the December 6-8, 2022 emails. The parties were certainly working toward a share sale, but there was critical information that the sellers had repeatedly requested, which was not provided. The parties were negotiating the SPA terms, and they signed a non-binding LOI. Having reached an agreement in principle they were working toward a deal. However, the deal was never concluded.

Was the Rights Offering Oppressive?

[96] As I have found that there was no binding agreement for the share sale, I must determine whether SIM’s proposed rights offering is oppressive and ought to be permanently enjoined.

[97] I find that SIM’s proposed rights offering is oppressive.

[98] Following the election of Childs and Crawford to the SIM board, a meeting of the SIM board was held to, among other things, approve a proposed rights offering. When then the proposed rights offering was discussed, none of the Thai directors were present. They had left the meeting because they objected to the election of Childs and Crawford to the SIM board.

[99] The board proposed to raise $6 million of debt at 12% interest. The debentures would be convertible at the end of the two-year maturity period at a price of $0.01 per share (potential issuance of 600,000,000 SIM shares).

[100] Jittalan argues that the proposed rights offering would significantly dilute his interest in SIM. Jittalan further argues that the rights offering unfairly prejudices and disregards his and others’ interests and it is contrary to their reasonable expectations that they be treated fairly considering their investment in SIM. Jittalan’s position is that the rights offering was a deliberate strategy by the respondents, designed to “dilute the daylights” out of the minority shareholders.

[101] Section 248 of the Business Corporations Act (Ontario), R.S.O. 1990, c. B. 16 sets out the oppression remedy. The applicable test is set out in s. 248(2):

248(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) Any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) The business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) The powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

[102] In Toole v. Acres Incorporated, 2007 CanLII 11326 (Ont. S.C.), the Court set out the circumstances where a proposed cash call would be oppressive, at para. 65:

A court will find oppression in the dilution of a minority shareholder’s interest when the minority shareholder has not been given the opportunity to participate in the issuance of the new shares; there is not any bona fide purpose for the issuance of the new shares; and the shares have been issued at below market price.

[103] The respondents argue that when determining whether there has been oppressive conduct, directors are not held to a standard of perfection: Vlasblom v. NetPCS Networks Inc., 2003 CanLII 48077, at paras. 189 and 190. The respondents rely on the “business judgment” rule, which affords deference to a business decision made by the board as long as the decision is within a range of reasonable alternatives: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008]3 S.C.R. 560, at para. 40.

[104] In BCE the Supreme Court of Canada set out the following inquiries in an oppression claim, at para. 68:

a. Does the evidence support the reasonable expectation asserted by the claimant?

b. Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?

[105] The respondents submit that there was no other viable way to raise financing for SIM. Further, the respondents state that it was fair to all of the shareholders because every SIM shareholder could participate on a pro rata basis to their current shareholdings.

[106] Jittalan argues that it is difficult, if not impossible, to rationalize the proposed share price given the history of the pricing of SIM shares, including Mr. Jittalan’s offer of $0.60 per share and the $0.80 per share that was proposed by the respondents on December 24, 2022 to match an offer that had been made by Crawford. Then in January 2023, the SIM board approves a rights offering at $0.01 per share. The respondents’ position is that due to the lack of information provided about SBT, including information regarding its licences and its financial position, the SIM board cannot properly assess a fair offering price for its shares. Given that the negotiations regarding the share sale were in December 2022, and the prices discussed were $0.60 or $0.80 per share, it is difficult to conceive of a $0.01 price per share being anywhere close to the right price (even without all the information about SBT). I understand that pricing may be different when a party is seeking to obtain control of a company versus pricing shares on a conversion price in a debenture offering.

[107] Crawford, on cross-examination, stated that really the rights offering was done to protect the company from Jittalan’s threats to destroy the company.

[108] I understand that SIM needs financing. In late 2022 Infinite demanded repayment of its loan to SBT. In January 2023 Jittalan demanded repayment of his loans. (I note that in my February 20, 2023 endorsement I prohibited Jittalan from enforcing his loan to SBT pending the hearing of this application.)

[109] The proposed rights offering also must be considered through the lens of what was happening between the Canadian shareholders and the Thai shareholders. As discussed above, there was incredible distrust between the parties and negotiations had just broken down regarding the proposed sale of ReFlourish’s shares to Jittalan. On the heels of this, the constitution of the SIM board is changed, and the proposed rights offering is rushed through.

[110] No attempts were made by the board to obtain conventional financing. In any event, the proposed rights offering appears to have been designed to dilute Jittalan. Although all shareholders were permitted to participate on a pro rata basis, the evidence is that ReFlourish did not respond to inquiries with regard to the proposed rights offering from other Thai minority shareholders. ReFlourish had appointed one of its employees, Mr. Grewall, to respond to the subscriptions and inquiries. The fact that inquiries from minority shareholders were not addressed is important, because if they did not participate, the other SIM shareholders would have the right to take up any part of the rights offering not taken up by the minority shareholders. Further, it is clear that the shares would be issued at below market price. Based on the record before me, I am satisfied that the proposed rights offering was oppressive.

[111] The proposed rights offering is permanently enjoined.

Disposition and Costs

[112] Jittalan’s application is dismissed.

[113] The respondents are enjoined, restrained, and prohibited from proceeding with the proposed issuance of up to 600,000,000 common shares in the capital of SIM for $0.01 per share.

[114] The USD$6,000,000 currently held at Foglers in trust, as fortification for Jittalan’s undertaking as to damages, shall remain with Foglers in trust pending further Court Order.

[115] The parties shall schedule a case conference through the Commercial Court office (60 minutes duration).

[116] Jittalan is enjoined, restrained, and prohibited from enforcing his loan to SBT/SIM for 60 days.

[117] The parties are encouraged to settle the issue of costs. If the parties are unable to do so prior to the case conference addressed above, the Court will set out the procedure for costs submissions.

J. Steele J.

Released: 2023-08-25

COURT FILE NO.: 23-00693147-00CL

DATE: 2023-08-25

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

PIYA JITTALAN

– and –

ReFLOURISH CAPITAL LIMITED, SALUS INTERNATIONAL MANAGEMENT LTD., JEREMY BUDD, W. SCOTT BOYES, STACEY BOYES, DAVID NAYLOR-LELAND, TIMOTHY SIMOND, TIMOTHY CHILDS and ALASTAIR CRAWFORD

REASONS FOR JUDGMENT

JANA STEELE J.

Released: 2023-08-25

[^1]: Brackets in original. [^2]: R. v. Mohan, 1994 CanLII 80 (SCC), [1994] 2 SCR 9; White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 SCR 182, at para. 19.