Court File and Parties

COURT FILE NO.: CV-18-00610995-00CL and CV-22-0067938-00CL DATE: 20240313

SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: IN THE MATTER OF THE RECEIVERSHIP OF 2442931 ONTARIO INC. UNITY HEALTH TORONTO -and- 2442931 ONTARIO INC.

AND RE: BANK OF MONTREAL, AS ADMINISTRATIVE AGENT -and- UNITY HEALTH TORONTO

BEFORE: KIMMEL J.

COUNSEL: Sarit Batner and Andrew Kalamut, for the Unity Health Toronto Harvey Chaiton, Stephen Schwartz and Darren Marr, for Bank of Montreal as Administrative Agent

HEARD: September 15 and November 24, 2023

Endorsement (Unity's motions to lift stay and to dismiss THE tic application and lenders' motion for ASSIGNMENT of project agreement rights)

[1] These (and other related) proceedings arise out of the St. Michael’s Hospital (“SMH”, now Unity Health Toronto or “Unity”) redevelopment project (the “Project”).

[2] Bondfield Construction Company Limited (“Bondfield”) was granted a design-build-finance construction contract to build the Project following a public procurement process. Bank of Montreal, as Administrative Agent (the “Agent”) for a syndicate of lenders (the “Lenders”), agreed to finance Bondfield. By April 2018, the Lenders had advanced the $230 million construction loan to Bondfield’s affiliate that was under contract to build the Project, 2442931 Ontario Inc. (“ProjectCo”).

[3] ProjectCo was contractually obligated by both SMH and the Lenders to obtain a Performance Bond and Labour & Materials Payment Bond for the Project (collectively referred to as the “Surety Bonds”) that were obtained from Zurich Insurance Company (“Zurich”).

[4] Bondfield became insolvent in August 2018, after which ProjectCo was unable to fulfill its obligations and went into default. ProjectCo was eventually put into receivership by the Lenders by order dated December 21, 2018 (the “Receivership Order”). Following the Receivership Order, the Receiver called upon the Surety Bonds and Zurich honoured its obligations to fund certain Project costs until March 2020, when it claims to have discovered fraud and collusion between representatives of SMH and Bondfield in the contract procurement process. Upon making this discovery, Zurich stopped funding Project costs under the Surety Bonds and in April 2020 it commenced an application to rescind them (the “Rescission Action”).

The Motions

[5] Three motions in these proceedings were timetabled to be heard together, as follows:

a. Motion by Unity to lift the stay of proceedings (the “Stay”) against ProjectCo put in place by the Receivership Order, so as to enable Unity to exercise its contractual right to terminate the Project Agreement dated January 27, 2015 between SMH and ProjectCo (the “Project Agreement” or “PA”) (the “Lift Stay Motion”);

b. Motion by the Lenders [^1] seeking an order authorizing and directing the Receiver of ProjectCo to assign to the Agent all of ProjectCo’s existing rights under the Project Agreement to enforce payment and recovery from Unity of the “TIC Payment” (a contractually prescribed payment to be made by Unity to ProjectCo upon the achievement of Tower Interim Completion, or “TIC”), and in the alternative, seeking an order joining the Receiver as a co-applicant in the TIC Application and, if necessary, authorizing the Agent to exercise all of ProjectCo’s rights under the Project Agreement to determine whether TIC has been achieved in accordance with the dispute resolution process set out in Schedule 27 of the Project Agreement (the “Assignment Motion”);

c. Motion by Unity to quash and/or dismiss the Application with Court File No. CV-22-00679388-00CL brought by the Agent on behalf of the Lenders, in which the Agent seeks a declaration that TIC has been achieved, or to compel Unity to take all remaining steps to achieve TIC, and for declaratory relief concerning the amount of the TIC Payment to be made under the Project Agreement (the “TIC Application”) or, alternatively, an order directing that the TIC Application be converted into an action and be stayed. [^2] (the “Motion to Dismiss”). Unity also seeks an order dismissing the Lenders' Assignment Motion in this same motion.

[6] There was only enough time for the parties to make their submissions on the Lift Stay Motion when the matter first came before the court on September 15, 2023. The Assignment Motion and the Motion to Dismiss were provisionally adjourned to November 7, 2023 for a further half day. Those motions were subsequently scheduled and heard on November 24, 2023.

[7] The court was asked not to deliberate or consider its decision on the Lift Stay Motion until the other two motions had been argued due to the potential for overlap in the relevant procedural steps, facts and issues across the three motions. Hence, the court’s decision on all three motions is contained in this single endorsement.

[8] As summarized by Unity, by the time the three motions were heard the parties were in agreement that: (i) Unity is contractually entitled to terminate the Project Agreement; (ii) but for the Stay arising from ProjectCo’s defaults under the Project Agreement, Unity could exercise its contractual right without the court’s permission; (iii) if the Stay is lifted and Unity terminates the Project Agreement as it has said it intends to do, the TIC Application, the Assignment Motion and the Motion to Dismiss will be rendered moot; and (iv) TIC has not been achieved in the manner that is specified under the Project Agreement.

The Related Proceedings

[9] By the time the TIC Application was commenced in April 2022, the Tower was occupied and had been in use for approximately three years. The Lenders assert that TIC had been achieved or substantially achieved under the Project Agreement and that they are entitled to the TIC Payment, less permitted set-offs, under the Irrevocable Direction that they received from ProjectCo. They seek, in the alternative, an order directing Unity to take all remaining steps to achieve TIC. To the extent that the amount of the TIC Payment is disputed, they ask for the court to direct a reference for it to be determined.

[10] The Lift Stay Motion was brought on July 20, 2022. In it, Unity asks that the Stay be lifted so that Unity can terminate the Project Agreement due to ProjectCo’s defaults. This would mean that Unity would not make any TIC Payment, but would pay the specified compensation due on termination of the Project Agreement, if any (the “Compensation on Termination”). Unity maintains that TIC has not been achieved and challenges the Lenders' standing to bring the TIC Application.

[11] To address concerns that had been raised by Unity (dating back to April 2022) about the Lenders’ standing to bring the TIC Application, the Lenders brought the Assignment Motion on August 8, 2022, seeking an order, inter alia, authorizing the Receiver:

a. to assign to BMO all of ProjectCo’s rights to enforce payment and recovery of the TIC Payment from Unity under the Project Agreement; or

b. in the alternative, an order joining the Receiver on behalf of ProjectCo, as a co-applicant in the TIC Application.

[12] On October 26, 2022, the Lenders amended the relief sought in their Assignment Motion to add further alternative relief, including;

a. if necessary, an order authorizing BMO in the name of or on behalf of ProjectCo to exercise ProjectCo’s rights under the Project Agreement to have the Independent Certifier (the “IC”) determine whether TIC has been achieved in accordance with the dispute resolution process set out in Schedule 27 of the Project Agreement.

[13] The court’s endorsement of September 12, 2022 determined that the Lift Stay Motion, the Assignment Motion and Unity’s then intended motion to dismiss/quash the TIC Application be heard together. If was further directed that the TIC Application would be heard later if not determined to be moot or quashed.

[14] Unity's Motion to Dismiss both the TIC Application (for lack of standing on the part of the Agent/Lenders, among other grounds) and the Lenders’ Assignment Motion was initiated by Notice of Motion dated December 9, 2022.

The Economics of the Project

[15] All parties recognize that Unity has had, and will continue, to incur costs significantly in excess of the original Project’s Guaranteed Price (defined below) to complete the patient Tower and the remainder of the St. Michael’s Hospital redevelopment. That redevelopment work is still ongoing under a new construction contract that Unity entered into with Ellis Don Construction Services Inc. (“ED” or “Ellis Don”), albeit with a different scope of work and different specifications and milestones than existed under the Project Agreement with ProjectCo. Ellis Don is currently completing the St. Michael’s Hospital redevelopment under a new construction management contract CCDC [^3] 5B Contract entered on February 16, 2022 (the “ED Contract”) at an additional contract cost to Unity of $277 million.

[16] There is no work being done under the Project Agreement. The Project envisioned by that agreement has not been completed. If the TIC Application (or some variation of it) proceeds, the Lenders will be seeking a TIC Payment. If the Lenders' position prevails, the permitted set-offs against the TIC Payment will not fully account for the total amount of additional costs that Unity will have incurred to achieve TIC.

[17] All parties also recognize that, if the Stay is lifted and Unity is permitted to terminate the Project Agreement, there will be no interim TIC Payment and the Lenders will not receive any Compensation on Termination of the Project Agreement because of the contractually permitted set-offs against that payment. Under this scenario, it is anticipated that the Lenders will only be repaid if Zurich Insurance Company does not succeed in its Rescission Action. Even then, the amount that the Lenders will be repaid (out of their original Construction Loan advance of $230 million) will depend on the actual cost to complete the redevelopment of St. Michael’s Hospital and any permitted set-offs upon completion.

[18] Needless to say, both Unity and the Lenders are economically worse off as a result of ProjectCo’s inability to complete the Project and the subsequent positions taken by Zurich.

Summary of Outcome

[19] For the reasons that follow,

a. The Lift Stay Motion is granted; b. The Assignment Motion is dismissed; and c. The Motion to Dismiss the TIC Application is granted.

The Project

[20] The basic chronology of the Project and its background is not disputed and is summarized as follows:

a. In 2012, SMH and the Ontario Infrastructure and Lands Corporation began planning for the Project. The Project included the construction of a new 17-story patient care tower (the “Tower”), the construction of a new Shuter Wing and the renovation of other existing hospital wings.

b. The Project is a Public-Private Partnership (“P3”) project that uses the Design-Build-Finance (“DBF”) model. Under the DBF model, ProjectCo was responsible for the design and construction of the Project, and for obtaining financing from the private sector, which was obtained from the Lenders.

c. On January 27, 2015, ProjectCo and SMH entered into the Project Agreement for the design, build and financing of the Project for a guaranteed fixed price of $301,189,863 (the “Guaranteed Price”). Subject to set-offs, the Guaranteed Price was to be paid by SMH to ProjectCo upon the achievement of two milestones: Tower Interim Completion (or TIC) and Substantial Completion.

d. Construction under the Project Agreement (and the related P3 DBF construction contract) was financed by a syndicate comprised of the Lenders. On January 27, 2015, ProjectCo and the Agent entered into a Credit Agreement (the “Credit Agreement”) pursuant to which the Lenders agreed to advance an approximately $230 million construction loan (the “Construction Loan”) to ProjectCo for the Project.

e. On January 27, 2015, ProjectCo also entered into: i. a Construction Contract with Bondfield, the builder of the Project and an affiliate of ProjectCo; and ii. a Lenders’ Direct Agreement (the “LDA”) with Unity and the Lenders.

f. The Project Agreement and the Credit Agreement both required ProjectCo to obtain and maintain a Performance Bond in the amount of approximately $156 million and a Labour & Material Payment Bond in the amount of approximately $142 million (collectively, the “Surety Bonds”) until the Project was completed. Zurich Insurance Company issued these Surety Bonds.

g. Under the terms of the Credit Agreement, the Construction Loan was to be advanced in stages as construction progressed. By April 2018, the Lenders had fully advanced a $230 million Construction Loan to ProjectCo.

h. Pursuant to the terms of the Project Agreement and the Credit Agreement, SMH agreed to make the TIC Payment (of $173,274,150 less permitted set-offs) to ProjectCo upon the achievement of the Tower Interim Completion milestone (or TIC). TIC was originally scheduled to be achieved by November 27, 2017 (the “TIC Date”). The remainder of the Guaranteed Price under the Project Agreement was to be paid upon the achievement of the Substantial Completion.

i. In August 2017, ProjectCo served a notice that TIC would be completed by November 2017.

j. On November 8, 2017, SMH and ProjectCo entered into a new Tower Interim Completion Agreement (“TIC Agreement”) to address certain delays at the Project. The TIC Agreement provided, among other things, for a deferral of certain work from TIC to the next phases of the Project and a revised TIC Date of February 1, 2018. [^4]

k. TIC was not achieved on the November 27, 2017 TIC Date.

l. On November 30, 2017, the Lenders’ technical advisor, Pelican Woodcliff Inc. (“Pelican”) reported that approximately 83% of the work towards TIC had been completed.

m. Work continued at the Tower after November 2017. ProjectCo remained on site and continued to work on the Tower after November 2017 and into 2018, as did various subtrades.

n. TIC was not achieved on the February 1, 2018 revised TIC Date.

o. By August 2018, Bondfield had become insolvent and ProjectCo was unable to continue to perform its obligations under the Project Agreement.

p. Following ProjectCo’s default under the Project Agreement in August 2018, Zurich became involved in the Project as surety and engaged Ellis Don and Perini Management Services Inc. to work with Bondfield.

q. On November 2, 2018, Unity delivered a default notice to ProjectCo and to the Lenders declaring ProjectCo to be in default under the Project Agreement. This also served as the LDA default notice. There had been no certification that TIC was achieved at the time of the delivery of this notice (nor has there been since then).

r. On December 6, 2018, Unity delivered an Indebtedness Notice to the Lenders in the sum of $65,922,936.61. This represented the Direct Losses claimed to be associated with unperformed or underperformed obligations of ProjectCo. The Notice triggered the 90-day Notice Period under the LDA during which time Unity was precluded from terminating the Project Agreement and the Lenders had the right to step-in to cure the defaults (the “Step-in Rights”), which would have required them to pay the amount in the Indebtedness Notice. [^5]

s. On December 21, 2018, the Agent for the Lenders made an application to put ProjectCo into receivership. The Receivership Order was granted that day. Alvarez & Marsal Canada Inc. was appointed as Receiver for among other purposes, to make demand on Zurich for payment under the Performance Bond. Unity supported the Lenders’ request for the Receivership Order.

t. The Receiver did not take possession of any of ProjectCo’s property under the Receivership Order. The Receiver was provided with limited funding from the Agent and was directed to demand performance under the Performance Bond. The Receivership Order expressly states that it did not constitute an exercise of the Lenders’ Step-in Rights, nor did it affect the ability of ProjectCo to perform its obligations under the Project Agreement or its agreement with Bondfield.

u. The Stay was included in the Receivership Order and was not opposed.

v. After the Receivership Order was granted on December 21, 2018, the Receiver called on the Performance Bond and Zurich began performing ProjectCo’s obligations under the Project Agreement.

w. The Lenders’ step-in period ended on January 31, 2019. The Lenders did not exercise their Step-in Rights.

x. Zurich had an election to: remedy the defaults of ProjectCo, make arrangements to complete the contract, or to pay the lesser of the remaining balance of the bond amount or the reasonable estimate to complete the contract. Initially, Zurich elected to work towards completion of the Project.

y. Over approximately the next twelve months, Zurich made payments to trades under the Surety Bonds to continue construction at the Project. In this timeframe, the parties were working towards achieving TIC.

z. However in August 2019, Zurich’s then lawyers wrote to Unity advising that the estimated cost to complete the Project would exceed the outstanding balance of the Performance Bond. On August 22, 2019, Zurich advised it was electing to pay the remaining balance of the Bond Amount and to cease its involvement in the Project.

aa. There had been no certification that TIC had been achieved when Zurich made its election.

bb. The Project was not substantially completed by the Scheduled Substantial Completion Date of September 27, 2019.

cc. Following Zurich’s advice of its intention to terminate its involvement in the Project, SMH elected to exercise its remedial rights pursuant to s. 34.4(d) of the Project Agreement and engaged Ellis Don as construction manager, still with the intention of progressing the Project to achieve TIC.

dd. Ellis Don produced a Design Compliance Audit dated October 15, 2019 (the “ED Compliance Audit”) in which it attempted “to illuminate the design compliance issues to help provide a road map toward final acceptance and certification of the current Phase Completions as well as Tower Interim Completion.” The ED Compliance Audit identified a number of outstanding items in the phase 1 and phase 2 work, including outstanding items to achieve TIC. There were 937 items listed on the PDC July 22, 2019 Compliance Log (the “Compliance Log”) and a further 55 items listed on the Supplemental Compliance Log. These Compliance Logs were not prepared to track compliance with TIC specifically, although they do address some items that were then outstanding and required for TIC Certification.

ee. On December 20, 2019 Conway J. made an order (the “Conway Order”) lifting the Stay to permit Unity to exercise its remedies pursuant to s. 34.4(d) of the Project Agreement to engage and directly make payment to, at ProjectCo’s risk and expense, various contractors and trades to, among other things, achieve TIC. This was without prejudice to Unity’s other remedies, expressly including Unity’s right to apply to the court to exercise its right to terminate the Project Agreement.

ff. On December 21, 2019, Unity and Ellis Don entered into an agreement that included work relating to the Tower. The scope of work did not include all of the Project Agreement’s requirements to achieve TIC. This contract excluded, among other things, certain non-compliant design items identified in the Compliance Log and Supplementary Compliance Log prepared in connection with the ED Compliance Audit.

gg. On January 3, 2020 the Altus Group Limited, in its capacity as the IC, indicated a revised target TIC Date of August 17, 2020 (delayed from a previous target TIC Date of May 11, 2020).

hh. In March 2020, Zurich claimed to have discovered collusion in the procurement process between Vasos Georgiou, who was the executive Vice President and Chief Administration Officer of SMH with primary responsibility for the Project within SMH, and John Aquino, the President of Bondfield.

ii. On April 16, 2020, Zurich announced it was no longer going to pay the balance of the Performance Bond (despite its August 22, 2019 election) and commenced the Rescission Action seeking, amongst other relief, rescission of the Surety Bonds. Zurich has, to date, not paid the full outstanding balance of the Performance Bond to the Lenders.

jj. In the late spring of 2020 when Zurich ceased to provide funding, construction had slowed and construction costs began to escalate with the uncertainty of the COVID-19 pandemic. The Lenders and Unity began to discuss the possibility of an “interim” “good faith” advance payment from Unity (the “Advance Payment”). [^6] These discussions continued until the winter of 2022, but no agreement was reached, due in part to disagreements about how to account for the additional costs that Unity was incurring in connection with the Project.

kk. On February 16, 2022, with input from the Lenders, Unity entered into direct agreements with contractors to progress the hospital redevelopment, including the ED Contract with Ellis Don. Some of the preparatory work covered by this construction contract had begun in June 2021.

ll. Unity says that, notwithstanding Zurich’s Rescission Action and refusal to fund any further Project costs, it continued to rely upon, or seek to preserve reliance upon, insurance coverage tied to the Project Agreement to complete certain scope of work that was nearing completion during this intervening period.

mm. The Lenders commenced the TIC Application in April 2022, shortly after Unity entered into the ED Contract and after the parties had failed to reach an agreement regarding any Advance Payment by Unity to the Lenders.

nn. On May 16, 2022, Unity gave notice that it intended to exercise its right to terminate the Project Agreement and sought the Receiver’s consent to the lifting of the Stay for this purpose.

oo. On May 18, 2022, the Receiver advised that it was the Agent’s position that the termination of the Project Agreement could adversely affect the Lenders’ rights (particularly those asserted in the TIC Application) and that the Agent had requested that the Receiver not consent to lifting the Stay. In light of its limited scope mandate, the Receiver advised that it would defer to the court’s judgment. The Receiver suggested that Unity should bring a motion to lift the Stay, which it did.

pp. The procedural steps that followed (the Lift Stay Motion, the Assignment Motion and the Dismissal Motion) are described earlier in this endorsement.

The Relevant Contracts

[21] ProjectCo was a shell company by design. ProjectCo had the responsibility to perform and complete all of the work to be done under the Project Agreement at its own cost and expense (see s. 10.3 of the Project Agreement). Under this P3 DBF financing model, the Lenders funded the Project and they could only look to the Guaranteed Price payable by SMH (now Unity) under the Project Agreement for repayment.

[22] The Project Agreement and the Credit Agreement both required ProjectCo to obtain and maintain the Surety Bonds until the Project was completed and the Construction Loan was repaid.

[23] The Project Agreement contains provisions relevant to the determination of the present motions.

a. The definition of Tower Interim Completion (or “TIC”) in s. 1.329 of the Project Agreement is as follows:

“Tower Interim Completion” means the point at which (i) the Tower has been completed in accordance with the Project Agreement; (ii) the Tower Occupancy Permit has been issued; and (iii) all requirements for Tower Interim Completion described in the Tower Interim Completion Commissioning Program, other than in respect of Tower Interim Completion Minor Deficiencies, have been satisfied.

b. The definition of Substantial Completion in s. 1.315 of the Project Agreement is tied to the completion of the entire Facility (Project).

c. Pursuant to s. 4.4(a) of the Project Agreement, ProjectCo irrevocably directed SMH to pay to the Agent any TIC Payment that ProjectCo is entitled to under the Project Agreement once the conditions for payment set out in the Project Agreement, if any, have been satisfied (the “Irrevocable Direction”).

d. Section 23B.4 of the Project Agreement sets out the procedure for requesting and obtaining a Tower Interim Completion Certificate from the designated IC and the process for Dispute Resolution if any party disagrees with the Independent Certifier’s report and decision about whether or not to issue the Certificate.

e. Sections 34.3 and 34.4 set out the remedy provisions in the event of a default by ProjectCo, which include termination rights at 34.3(a) and 34.4 (a)–(c). The remedy provisions also include (at s. 34.4(d)), without prejudice to any other rights of SMH under these remedy provisions (which include the right to give notice of default and eventually terminate the Project Agreement), that SMH may, at any time when a ProjectCo Default is continuing “at ProjectCo’s risk and expense, take such steps as SMH considers appropriate, either itself or by engaging others (including a third party) to take such steps, to perform or obtain the performance of ProjectCo’s obligations under this Project Agreement or to remedy such ProjectCo Event of Default.”

f. In the event of a default by ProjectCo, Unity had the right to terminate the Project Agreement under s. 34.3(a). Pursuant to s. 4.9(1)(i) of the Project Agreement, upon any such termination by SMH it is required to pay ProjectCo any applicable Compensation on Termination in accordance with Schedule 23. ProjectCo irrevocably directed SMH to make any such Compensation Payment to the Lenders' Agent under s. 4.9(b) of the Project Agreement.

g. Rights of set-off at law or in equity by SMH are limited under s. 4.12 of the Project Agreement to amounts due to SMH by ProjectCo, which expressly include any indemnity amounts payable to SMH in accordance with Article 44, such as losses incurred as a result of ProjectCo's failure to achieve TIC by the Scheduled TIC Date.

h. Section 37.02 of the Project Agreement stipulates that a failure to exercise a right upon default, including a right of termination, is not a waiver of that right for any continuing or subsequent breach.

i. Section 47.1 of the Project Agreement restricts ProjectCo from assigning all or any part of any interest, whether legal or beneficial, in the Project Agreement without the prior written consent of SMH, which may be withheld in the sole discretion of SMH. However, this section exempts any security for any loan made to ProjectCo covered by the LDA.

[24] Section 7 of the LDA provides for what is to happen if SMH terminates the Project Agreement.

[25] Section 8 of the LDA allows the Lenders to step-in and assume all of ProjectCo’s rights under the Project Agreement (the previously referred to “Step-in Rights”) when ProjectCo is in default, and s. 9 of the LDA allows the Lenders to step-out of this role (the “Step-out Rights”). Section 11 deals with transfers and assignments where Step-in and Step-out rights are exercised.

[26] The CCDC 5A Contract that Unity entered into with Ellis Don in December 2019 defines Tower Substantial Completion as follows:

Tower Substantial Completion means August 17, 2020 and completion of the scope of Services set out in Section 4 of Appendix A to the Contract, which for clarity does not include the scope of Services set out at Sections 5 and 6 Appendix A and which may be adjusted in accordance with the Agreement, including GC 5.1.5.

[27] Tower Substantial Completion under this CCDC 5A Contract does not include everything that was required for TIC under the Project Agreement. Further, certain items in Schedule A to the CCDC 5A Contract that are to be completed after Tower Substantial Completion are matters that would have had to be completed for TIC under the Project Agreement. According to Unity, not all of these items have yet been completed. The Lenders say that this would be determined in the TIC Application.

The Receivership

[28] The non-possessory Receivership Order was granted on December 21, 2018 in respect of ProjectCo. The Receiver was appointed with limited powers and authority designed, in particular, to allow ProjectCo to call on Zurich’s Performance Bond.

[29] Specifically, the Receiver was not granted the authority and power to step into ProjectCo's shoes and take over the Project and did not assume ProjectCo’s rights and obligations under the Project Agreements. The Receiver was granted certain limited rights and obligations under specific contracts that permitted the Receiver to take steps in connection with the Surety Bonds. The Lenders did not fund the Receiver for a broader purpose.

[30] If this had been a full blown receivership the Receiver could have stepped in to complete the Project and apply for TIC Certification, but that did not happen.

[31] As is customary in receivership orders, a stay of proceedings and of the exercise of all rights and remedies against ProjectCo (or the Receiver) or affecting its property was granted. This Stay was expressly stated not to prevent SMH from asserting set-off rights against ProjectCo arising under the Project Agreement, if any. However, the Stay does not exempt the exercise of termination rights. Thus, the Stay must be lifted for Unity to now exercise those rights.

[32] On December 20, 2019, Unity, with the support and consent of the Lenders’ Agent, brought a motion and obtained the Conway Order lifting the Stay against ProjectCo for the purpose of allowing Unity to exercise certain of its remedial rights under s. 34.4(d) of the Project Agreement and perform ProjectCo’s obligations under the Project Agreement.

[33] The preamble to the Conway Order states that the motion was for “an Order lifting the stay of proceedings granted pursuant to the Receivership Order, to allow Unity to exercise certain remedial rights under the Project Agreement, on an interim basis, to facilitate the orderly continuation of the St. Michael’s Hospital Redevelopment Project, in circumstances where the Cost to Complete the Bonded Obligations has not yet been determined.”

[34] At that time, Unity believed that TIC was still achievable and sought the lifting of the Stay to facilitate its efforts to continue the progress of the Project. Unity’s goal since ProjectCo defaulted had been to progress the Project to the point where it could be useful clinically to the hospital. In December 2019 when the Conway Order was obtained, Unity acknowledges that goal included carrying out the works required to achieve TIC, the first milestone in the completion of the Project.

[35] In support of the motion before Conway J., SMH filed evidence which stated, inter alia, that “SMH has identified EllisDon as an appropriate entity to take on the role of construction manager through to Tower Interim Completion ...” The parties appear to be in agreement that, if TIC had been achieved, Unity would have been required to make the TIC Payment to the Lenders.

[36] Paragraph 3 of the Conway Order states as follows.

3. THIS COURT ORDERS that the stay of proceedings against ProjectCo, granted pursuant to the Receivership Order, is hereby lifted for the purpose of permitting Unity to exercise the remedy pursuant to Section 34.4(d) of the Project Agreement to engage and directly make payment to, at ProjectCo's risk and expense, and by taking commercially reasonable steps to mitigate such costs: (i) the Construction Manager, pursuant to and in accordance with the Construction Management Contract; (ii) NORR, pursuant to and in accordance with the Payment Certifier Agreement; (iii) NORR and/or an engineering firm pursuant to and in accordance with Design Agreements; and (iv) Trades, pursuant to and in accordance with any Trade Agreement which may be necessary to enter into to achieve Tower Interim Completion and to continue the on- going design, construction, infrastructure improvement and renovation works commenced prior to Tower Interim Completion, and being performed concurrent with works to achieve Tower Interim Completion all in accordance with the Project output specifications and executed change orders.

[37] The Conway Order permitted SMH to take steps towards the achievement of TIC in accordance with the Project Agreement (at ProjectCo’s risk and expense), incorporated certain protections for SMH if it did so, preserved SMH’s rights of set-off and was expressly stated in paragraph 10 to be “without prejudice to the right of any party to apply to the Court for further or other directions or relief, which application may include to exercise any rights or remedies under any of the Redevelopment Project Agreements, and including, without limitation, Unity’s right to apply to the Court to exercise its right to terminate the Project Agreement.”

Issues to be Decided

[38] The following issues are raised for the court’s consideration on the three motions:

The Lift Stay Motion

a. Should the Stay be lifted to permit Unity to exercise its contractual right to terminate the Project Agreement?

The Assignment Motion — the Lenders’ Standing to Bring the TIC Application

b. Have the Lenders already received a legal or equitable assignment of ProjectCo’s right to have TIC determined and enforce its payment, or do they have the right to do so as third party beneficiaries?

c. Should the Receiver be authorized and directed to assign to the Lenders all of ProjectCo's existing rights under the Project Agreement to enforce payment and recovery from Unity of the TIC Payment?

i. Does ProjectCo have any rights under the PA that it can assign to the Lenders? ii. Can there be any such assignment without Unity’s consent?

d. Should the Receiver be added as a co-applicant to the TIC Application to “solve” the Lenders’ lack of standing, or regardless of the standing issue?

e. Should the Agent be authorized to exercise ProjectCo’s right to have the IC determine whether TIC has been achieved in accordance with Schedule 27 of the Project Agreement?

The Motion to Dismiss the TIC Application

f. Should the TIC Application be struck/dismissed for lack of standing and/or as an abuse of process?

Follow-on or Ancillary Relief

g. If the TIC Application is permitted to proceed, should it be converted to an action?

h. If the TIC Application (or TIC Action) is permitted to proceed, should it be stayed pending (i) the process for ascertaining TIC provided for in the Project Agreement, which requires a determination by the IC, as opposed to by the court; and (ii) the disposition of the Zurich Action.

Analysis

[39] Each of the three motions and the issues raised by them will be considered in turn.

A. The Lift Stay Motion

The Test to Lift the Stay

[40] The parties agree on the legal principles applicable on a motion to lift the stay of proceedings in a receivership. As the Court of Appeal articulated in Romspen Investment Corp. v. Courtice Auto Wreckers Ltd., 2017 ONCA 301, at para 30:

[30] In determining whether to lift a stay of proceedings imposed by a receivership order, a court should consider the totality of the circumstances and the relative prejudice to both sides: Peoples Trust Co. v. Rose of Sharon (Ontario) Retirement Community, 2012 ONSC 7319, at para. 5. While not strictly applicable, a court may take guidance from the jurisprudence addressing the lifting of stays under s. 69.4 of the BIA: see Peoples Trust Co., at para. 5; and Lloyd W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra, The 2016-2017 Annotated Bankruptcy and Insolvency Act (Toronto: Carswell, 2016), at p. 1085.

[41] The onus is on Unity to satisfy the court that lifting the Stay is appropriate in this case. The Section 69.4(1) jurisprudence is clear that the granting of a lift stay order is not a routine matter. Under s. 69.4(1), the court must be satisfied that the moving party has established “sound reasons” for the court to exercise its discretion to relieve against the stay. Such reasons include that (a) the creditor is “likely to be materially prejudiced by [its] continued operation; or (b) that it is equitable on other grounds to make such a declaration”. See Ma v. Toronto-Dominion Bank (2001), 143 OAC 52 (Ont. C.A.), at paras. 2 and 3.

[42] The court must also consider the impact of lifting the stay on other stakeholders, especially on other creditors, if doing so would prejudice their interests and risk their recovery. See Hood (Re) (2008), 49 CBR (5th) 209 (Ont. S.C.), at paras. 10–12 and Mondetta Telecommunications Inc., Re (2001), 24 CBR (4th) 222 (Ont. S.C.), at para. 21.

[43] The court has a broad discretion in deciding whether to lift the Stay, part of which is to control its process and prevent an abuse of its process. See Cetin v. Percival et al, 2022 ONSC 2057, at para. 9.

The Positions of the Parties on the Lift Stay Motion – Perspectives on Prejudice and Equities

a) Unity’s Position

[44] Unity asks that the Stay be lifted so that it can exercise its contractual right to terminate the Project Agreement. No work is continuing under the Project Agreement. The St. Michael’s Hospital redevelopment is being completed under the new ED Contract. The Stay is all that is preventing Unity from exercising its termination rights under the Project Agreement.

[45] Unity acknowledges that terminating the Project Agreement will render the TIC Application moot and eliminate any TIC Payment that might be found to be owing if the Lenders were to succeed on the TIC Application. Instead, Unity will be obligated to pay the contractually specified Compensation on Termination, if any. Unity argues that this is precisely what the parties bargained for under their contractual framework: Unity has the right to enter into a new construction contract and terminate the Project Agreement as a result of ProjectCo’s incurable defaults, triggering the payment of any compensation due upon termination instead of the TIC Payment.

[46] Unity maintains that waiting to bring this Lift Stay Motion (which it acknowledges could have been brought as early as January 2019) was not a delay tactic. Rather, it has been consistently pursuing its stated objective of completing the St. Michael’s Hospital redevelopment. At first, it was thought that could be done by keeping the Project Agreement in place, continuing to work with the trades and authorizing the Receiver to call on the Surety Bonds. The Conway Order permitted it to do that. However, circumstances changed after Zurich stopped paying under the Surety Bonds and commenced the Rescission Action. Unity had to pivot and eventually entered into the ED Contract to complete the redevelopment of the hospital. Ellis Don was not prepared to assume responsibility for the full scope of work under the Project Agreement, including all that was required to achieve TIC.

[47] Unity says that it is entitled to exercise its contractual rights and remedies under the Project Agreement and it will be prejudiced if the court does not lift the Stay to allow it to do so. Not lifting the Stay not only deprives Unity of its ability to exercise its contractual remedy to terminate but it will mean that Unity will be required to defend the TIC Application in which the Lenders seek to have the court determine and enforce rights of ProjectCo. The Lenders seek to do so without regard to ProjectCo’s defaults and without assuming any responsibility for ProjectCo's obligations under the Project Agreement. The Lenders seek, by the TIC Application, to achieve what they could have done through the exercise of their own contractual remedy (pursuant to their Step-in Rights to perform and enforce the Project Agreement) while avoiding the burdens of that remedy, since exercising their Step-in Rights would have required them to assume ProjectCo's obligations.

[48] Unity argues that preventing it from terminating the Project Agreement and requiring it to continue to bear the burden of funding the excess costs to achieve TIC with uncertainty around its set-off rights materially changes the bargain that the parties struck, which squarely placed the financial risk of completing the Project within the Guaranteed Price on ProjectCo (and, thus, its Lenders who funded ProjectCo’s work) by clearly specifying the circumstances under which the Lenders could exercise their Step-in Rights upon assuming responsibility for ProjectCo’s obligations.

[49] When ProjectCo defaulted, the Lenders made the strategic and financially-based decision not to exercise their Step-in Rights because, among other things, they did not want to take on the indeterminate liability of doing so. This choice meant that Unity had the right, but not the obligation, to move the Project forward itself - at ProjectCo’s risk and expense — while maintaining its termination right. That was the bargain struck between the parties that the Lenders seek to alter and that Unity seeks to uphold. Depriving Unity of its contractual rights and remedies as negotiated and agreed (not only with ProjectCo but the Lenders as well) is a material prejudice that it claims will suffer as a result of the continued operation of the Stay.

[50] Conversely, Unity contends that the economic consequences to the Lenders of lifting the Stay flow from the provisions of the relevant contracts, the Lenders’ election not to exercise their Step-in rights under the LDA and take over the Project (a risk that the Lenders were not prepared to take on and that Unity has had to endure as a result) and their decision not to fund a full-blown receivership and appoint a receiver-manager to complete the Project (at their expense). This is not the sort of “prejudice” to the Lenders’ interests or risk to their recoveries that the court should be concerned with when considering whether to lift the Stay. Unity says that the Lenders' position on these motions, if successful, would put them in the unfair position of preserving ProjectCo's rights under the Project Agreement divorced from its obligations and put the Lenders in a better position than they bargained for under the relevant contracts.

[51] Unity also contends that the Lenders are not prejudiced by not being able to pursue an interim TIC Payment when TIC has not been achieved. Nor is it unfair for them to have to wait until the Rescission Action has been decided and the full extent of the Project cost overruns are known before determining how much money ProjectCo is entitled to receive from Unity (which ProjectCo has, in turn, directed be paid to the Lenders to pay down their loan).

[52] Unity argues that the allegations of its own misconduct and involvement in the alleged fraud underlying the Rescission Action are the subject of separate proceedings in which the Lenders are seeking damages. While these allegations are denied, Unity recognizes that the other proceedings are an avenue of recourse for the Lenders if their allegations can be proven.

[53] Unity asks the court to find that, on balance, it is more prejudiced by the Stay remaining in place than the Lenders will be by the Stay being lifted, having regard to the respective contractual rights and remedies that these sophisticated parties bargained for.

b) The Lenders’ Position

[54] The Lenders argue that Unity has not established that it is suffering any relevant or material prejudice as a result of the continued operation of the Stay. The Lenders say that there is no harm or prejudice to keeping the Project Agreement in place even if it is no longer the construction contract under which the work is being done. Unity has already entered into the ED Contract and the continuing work under that contract is not being impeded by the continued co-existence of the Project Agreement. Further, all of the legitimate set-offs for cost overruns and/or insurance reimbursements in respect of the cost to complete the St. Michael’s Hospital redevelopment will be determined in the TIC Application and/or the Rescission Action.

[55] They argue that the loss of a contractual remedy that is stayed in a receivership is not the type of prejudice that would justify the lifting of the Stay as that prejudice is a “given” and would exist in any stay situation. The loss of this type of contractual remedy should not tip the balance in Unity’s favour.

[56] Conversely, the Lenders say that it is unfair and prejudicial to them to allow the Project Agreement to be terminated by Unity after the Lenders’ funds were used to build much of the patient Tower at St. Michael’s Hospital that has been open and in use for at least three years. They maintain that ProjectCo should be paid the interim TIC Payment, which it has, in turn, irrevocably directed be paid to them.

[57] The Lenders contend that, having now achieved, or substantially achieved, TIC (or putting itself in a position where TIC cannot be achieved by engaging a new contractor under a different contract with different specifications, i.e., the ED Contract), Unity is tactically attempting to terminate the Project Agreement to avoid having to make the TIC Payment. They contend that they will prevail on the TIC Application and that the interim TIC Payment owing will not be subject to set-off of future Project completion costs incurred after, and not yet expended when, that payment came due.

[58] The Lenders further argue that Unity supported the Stay and sought leave of the court to exercise its other remedies to enable it to work towards TIC and eventual Project completion, and Unity should be required to stay on that path. Unity is only now moving to Lift the Stay and terminate the Project Agreement because the Lenders are taking steps to enforce the TIC Payment.

[59] Although not a party to the Project Agreement, the Agent claims to have standing to enforce ProjectCo’s right to seek the TIC Payment under the Project Agreement (assuming it is not terminated) as an assignee. The Agent maintains that it received a legal or equitable assignment from ProjectCo of the TIC Payment as part of the security for the Construction Loan that entitles it to enforce the TIC Payment.

[60] The Lenders also seek to implicate Unity in the fraudulent conduct underlying Zurich’s Rescission Action as a further ground for denying Unity’s Lift Stay Motion and Motion to Dismiss, because Unity is alleged not to be coming to court with clean hands. At this stage, the Lenders argue that Unity should not be entitled to lift the Stay and terminate the Project Agreement so as to benefit from the alleged wrongdoing of one of its senior executives.

[61] The Lenders say that it is fundamentally unfair for the TIC Application to be rendered moot by Unity’s termination of the Project Agreement and that the court should not exercise its equitable discretion in favour of Unity’s request for the Stay to be lifted in circumstances where:

a. One of Unity’s senior executives (Vasos Georgiou, who was the executive Vice President and Chief Administration Officer of SMH with primary responsibility for the Project within SMH) is at the heart of the fraud allegations that are the subject of the Rescission Action and that have resulted in Zurich’s refusal to pay the remaining balance of the Performance Bond. Unity does not have clean hands and should not benefit from the court’s exercise of discretion in the face of this alleged wrongdoing of one of its senior executives that is what led Zurich to change its position and refuse to advance funds under the Surety Bonds that formed part of the Lenders’ security.

b. Unity supported the grant of the Stay originally and represented to the court at the time of the Conway Order that it believed TIC could be achieved and that it was working towards that. It now wants to instead terminate the Project Agreement (and any possibility of achieving TIC if it has not been achieved already) and the court should not exercise its discretion to permit it to do so.

Analysis: The Totality of the Circumstances and the Relative Prejudice to the Parties

a) The Circumstances and Context of the Lift Stay Motion

[62] The economic implications of this dispute (described earlier in this endorsement) come down to the timing and extent of Unity's set-off rights with respect to the amounts it has expended, or will have to expend, to complete the Project as a result of ProjectCo’s defaults. This, in turn, impacts Unity's short and long term obligations regarding any remaining payments to be made under the Project Agreement, which the Lenders will receive pursuant to the Irrevocable Direction.

[63] If the Project Agreement is terminated, there is no real dispute about Unity's set-off rights against the contractual Compensation on Termination payment (that will, in turn, be paid to the Lenders under the Irrevocable Direction). These set-offs will in all likelihood reduce that payment to nil and mean that the Lenders will have to wait until the Project is completed and the Rescission Action has been decided to be repaid anything (from Zurich under the Surety Bonds). Depending on the outcome of the Rescission Action, they face the risk of being repaid nothing.

[64] However, if the Project Agreement cannot be terminated (because the Stay remains in place), there will eventually have to be a determination of the parties' dispute about whether a TIC Payment is owing and the extent to which the total amounts expended by Unity can be set-off against the TIC Payment. Depending on the outcome of the TIC Application, Unity could be required to make a TIC Payment (that will, in turn, be paid to the Lenders under the Irrevocable Direction) in the interim, while Unity is still trying to complete the St. Michael's Hospital redevelopment under the new $277 million ED Contract that it is funding from other sources. Further, it will remain uncertain what, if any, amounts for ProjectCo’s work initially funded by Zurich Unity may have to repay to Zurich (depending on the outcome of the Rescission Action).

[65] This is a somewhat unique situation in that there are only two economic stakeholders in the ProjectCo receivership, Unity and the Lenders, who not only both contracted with ProjectCo but also with each other (and ProjectCo) under the LDA. They both rely on their contracts, for different purposes.

b) Unity's Prejudice

[66] Starting first with whether Unity has established that it will suffer any material prejudice by the continued operation of the Stay, I find that it will.

[67] ProjectCo has been in default of the Project Agreement for years. It is insolvent. It has not taken steps to remedy its defaults. In addition to failing to achieve TIC by the TIC Completion Date, ProjectCo failed to achieve Substantial Completion within 180 days of the Scheduled Substantial Completion Date. ProjectCo is not in a position to cure any of these defaults. The contractual framework, which was formed within the context of the P3 DBF model, intentionally placed all of the risk of construction cost overruns on ProjectCo (and ultimately ProjectCo’s Surety and the Lenders, subject only to their negotiated security and other contractual rights such as their Step-in rights).

[68] The Lenders supported Unity’s efforts to obtain the Conway Order so that Unity could exercise its remedial rights under the Project Agreement, expressly specified to be at ProjectCo’s risk and expense. Through the exercise of its remedial rights, Unity awarded contracts for completion of the Project, including the $277 million ED Contract. But for the Stay, Unity would have the contractual right to terminate the Project Agreement.

[69] The Court of Appeal has held in the labour context that a stay should not be allowed to remain in place to indefinitely suspend the legal rights and remedies enjoyed by unions and employees. See Romspen Investment Corporation, at para. 39. Unity asks for the same consideration to be given to the contractual rights and remedies it enjoys under the Project Agreement and the LDA, now that there is no reason to keep the Project Agreement in place since Unity has had to enter into a new contract with Ellis Don to complete the St. Michael’s Hospital redevelopment. This case is not directly analogous since, unlike in Romspen, the legal rights and remedies Unity seeks to exercise are to terminate, rather than to continue acting under the relevant agreement.

[70] There are other cases, decided under the BIA, in which stays have been lifted to permit a party to exercise its “clear contractual right” where those rights are not subject to the security of the debtors’ creditors. In the fairness analysis, these cases suggest that what the court should be concerned about is allowing the stay to amount to an appropriation of a clear contractual right for the benefit of a creditor. See Bank of Montreal v. Bumper Developments Corporation Ltd., 2016 ABQB 363, at paras. 17–23 and 27.

[71] Here, neither the Irrevocable Direction [^7] nor the Surety Bonds (which comprise the Lenders' security) are affected by the exercise of Unity’s right to terminate the Project Agreement. The Irrevocable Direction applies to any payments made by Unity to ProjectCo, both under the Project Agreement and upon its termination. No party has suggested that the termination of the Project Agreement will have any effect upon the obligation of Zurich under the Surety Bonds, which is dependent upon proof of an alleged fraud that predates all of the contracts. To the contrary, the parties have indicated that there is virtually no overlap in the issues to be decided in the Rescission Action and those to be decided on the TIC Application or these motions.

[72] In this case, the only clear contractual right that is being appropriated is Unity’s right to terminate the Project Agreement (that the Stay is preventing). It is Lenders that seek to benefit from the Stay granted under the Receivership Order to prevent Unity from exercising its clear contractual right to terminate the Project Agreement so that the Lenders can try to extract an interim TIC Payment from Unity, while Unity continues to incur the additional expense of completing the hospital redevelopment under its new ED Contract.

[73] The Lenders rely on other cases involving the lifting a stay of proceedings in the bankruptcy context to support their contention that the mere fact that the existence of the stay results in a denial to one party of its right to exercise a particular contractual remedy which would otherwise be available does not necessarily constitute a material prejudice such as is necessary for a lift stay order. See Alignvest Private Debt Ltd. v. Surefire Industries Ltd., 2015 ABQB 148, at para. 44, and Alberta Treasury Branches v. COGI Limited Partnership, 2018 ABQB 356, at paras. 52–53. The Lenders argue that Unity’s loss of the contractual right to terminate the Project Agreement should not be the deciding factor on this motion.

[74] In the two BIA cases the Lenders cite, the court declined to lift a stay to allow a creditor to exercise a contractual right where doing so would give that creditor a “leg up” on another creditor, or to permit a creditor to satisfy its own claims at the expense of other creditors’ claims. See Alberta Treasury Branches, at paras. 50 and 55, and Alignvest, at para. 47. The circumstances and potential outcomes that were of concern in these other cases in which the court declined to lift a BIA stay of proceedings do not arise in the context of Unity’s Lift Stay Motion. If anything, the opposite is true in this case where: not lifting the Stay will put the Lenders in a better position than they bargained for if Unity cannot terminate the Project Agreement for ProjectCo’s defaults and the Lenders are permitted to pursue the TIC Application, in which they seek to determine and enforce ProjectCo’s rights and remedies under the Project Agreement without assuming responsibility for ProjectCo’s obligations.

[75] Nor has it been suggested that the continued existence of the Project Agreement (that Unity seeks to terminate once the Stay is lifted) itself represents any value for ProjectCo or its body of creditors. See Alberta Treasury Branches, at para. 56.

[76] While a loss of a contractual right is not determinative in every case, Unity’s contractual right to terminate under the Project Agreement in this case is a fundamental right that is intertwined with the remedies that Unity had no choice but to pursue when the Lenders elected not exercise their Step-in Rights and Zurich stopped paying under the Performance Bond. Unity is not seeking to lift the Stay here to interfere with the Lenders’ security or other rights. Lifting the Stay in this case puts these parties in the positions that they contracted for, both with ProjectCo and as between themselves under the LDA.

[77] As summarized above, the court must be satisfied that the moving party has established “sound reasons” for the court to exercise its discretion to relieve against the stay. Such reasons include that (a) the creditor is “likely to be materially prejudiced by [its] continued operation; or (b) that it is equitable on other grounds to make such a declaration.” See Ma, at paras. 2 and 3.

[78] Even if this deprivation of a contractual remedy was not on its own found to constitute “material prejudice”, the court must still consider whether it would be equitable on other grounds to make such a declaration. The fact that the contractual right of termination was negotiated among sophisticated parties, the fact that the contractual regime was designed to put the entire risk of the cost of the Project onto ProjectCo (and its Surety Bonds), and the fact that this was all known to the Lenders and factored into the risk assessment around their decision not to exercise their Step-in Rights, is itself another ground upon which the court could (and I would) exercise its discretion to lift the Stay. It is significant to this decision (and perhaps somewhat unique to this case) that the only two parties affected by the Stay (Unity and the Lenders) were both not only aware of, but integral parties to, this contractual regime, including having contracted with each other. The overall context of the contractual arrangements supports the lifting of the stay.

c) The Lenders’ Prejudice

[79] The Lenders will suffer an economic consequence as a result of the lifting of the Stay. The TIC Payment that the Lenders seek to pursue in their TIC Application will be replaced by the Compensation on Termination Payment that would be owing by Unity to ProjectCo (and by its irrevocable direction, payable to the Lenders) upon the termination of the Project Agreement, subject to set-off of the past and continuing costs that Unity has been and will continue to incur to remedy ProjectCo’s defaults.

[80] That consequence is the result of the terms of the contracts that the Lenders agreed into. But for the Stay, Unity would have a contractual right to terminate the Project Agreement. This is not disputed by the Lenders. That right arises from not only ProjectCo’s pre- and post-receivership defaults and Zurich’s election not to take-on ProjectCo’s obligations, but also the Lenders’ election not to exercise their Step-in Rights, which would have precluded Unity from exercising its right to terminate. They chose not to. They did not want to pay the $65,922,936.61 Indebtedness Notice amount, nor take on the financial risk of attempting to remedy ProjectCo’s defaults (which would come from Lenders’ funds, not Project funds).

[81] The Lenders’ affiant explained that because the scope of the liability of a lender who has exercised step-in right had never been tested in a Canadian court, the Agent and Lenders were unwilling to assume indeterminate liability by taking over ProjectCo’s obligations under the Project Agreement. He acknowledged that the Lenders understood that if they did step-in they could have fulfilled ProjectCo’s obligations under the Project Agreement, and exercised its rights, and eventually applied for TIC Certification. In that case, Unity would not be in a position to terminate the Project Agreement. He also acknowledged that, among the various factors that were considered when the Lenders decided not to exercise their step-in rights was that, if they did not step-in, Unity could terminate the Project Agreement. These considerations were all factored into their risk assessment.

[82] The negative economic effects upon the Lenders have been compounded by Zurich’s decision not to fund any further Project costs under the Performance Bond and its Rescission Action which have eroded the Lenders’ security. However, lifting the Stay will have no impact on Zurich’s Rescission Action, which is proceeding, or upon Zurich’s unwillingness to fund further construction costs. Nor will the Lenders suffer any loss or diminishment of their security due to the lifting of the Stay. Their security was comprised of the Irrevocable Direction, which is not dependent upon the Stay remaining in place. It is dependent upon conditions for payment having been satisfied, such as those that will trigger the compensation due upon Unity’s termination of the Project Agreement.

[83] The only direct prejudice that the Lenders will suffer if the Stay is lifted is the loss of their ability to pursue the TIC Application to require Unity to complete what is required and apply for TIC Certification and then, if TIC is certified, to require Unity to make the TIC Payment under the Project Agreement that ProjectCo has not been operating under, and has been in default of, for years.

[84] The Lenders say that the very fact that the TIC Application is outstanding and remains to be determined (subject to the court’s determination of the Dismissal Motion and the Assignment Motion, including the alternative relief sought to have the IC decide if TIC has been achieved or what would be required for it to be achieved, and an order that those items be completed), is sufficient to defeat the Lift Stay Motion.

[85] For reasons discussed in the next sections of this endorsement dealing with the Assignment Motion and the Motion to Dismiss, this prejudice is diminished by the court’s findings that: (i) the Lenders do not have standing to bring the TIC Application, (ii) ProjectCo’s entitlement and right to enforce any TIC Payment has not been previously assigned (legally or equitably) to the Lenders, and (iii) an assignment of ProjectCo's rights under the Project Agreement without the corresponding burdens of ProjectCo’s obligations will not be ordered over Unity's objections when the contract requires its consent to any such assignment.

[86] The identified prejudice to the Lenders that will arise if the court lifts the Stay is contractually prescribed and circumscribed.

d) Relative Prejudice and Equitable Considerations

[87] For reasons indicated earlier in this endorsement, I am satisfied that Unity is likely to be materially prejudiced by the continued operation of the Stay, which is preventing it from exercising its contractual right to terminate the Project Agreement as part of its bundle of remedies for ProjectCo’s persisting defaults, now that it has engaged another contractor under the ED Contract, at its expense, to complete the St. Michael’s Hospital redevelopment.

[88] In the balancing of relative prejudices, I find that the prejudice that Unity will suffer if the Stay is not lifted is more direct and material than the contractually prescribed economic consequences for the Lenders and the loss of their theoretical ability to pursue the TIC Application (that they had no standing to bring in the first place, for reasons indicated later in this endorsement) if the Stay is lifted.

[89] The Lenders have raised various other arguments in equity as part of their opposition to the court exercising its discretion to lift the Stay.

[90] First, the Lenders argue that Unity has strategically brought the Lift Stay Motion and seeks to terminate the Project Agreement to avoid having to make the TIC Payment.

[91] The Lenders contend that Unity delayed bringing the Stay Motion while it exercised other contractual remedies under the Project Agreement under the pretext of working towards TIC, and now seeks to terminate the Project Agreement to strategically avoid having to make the TIC Payment.

[92] The delay in Unity’s decision to seek to lift the Stay to exercise its right to terminate the Project Agreement (as well as the Lenders’ delay in commencing the TIC Application and various other legal positioning that the parties have engaged in over the past year) is explained in part by their initial common interest in having ProjectCo pursue payment under the Surety Bonds and by their negotiations that ultimately failed to result in an agreement on any Advance Payment (precisely because of their divergent views about Unity’s set-off rights).

[93] The Receivership Order in which the Stay was granted had a narrow objective that both Unity and the Lenders had a common interest in achieving, which was to call on the Performance Bond and require Zurich to fund the Project with a view to achieving TIC and the eventual completion of the Project. That objective was achieved initially, but later undermined by Zurich’s refusal to continue to fund the Surety Bonds and its Rescission Action.

[94] By late Spring 2020, some months after the Conway Order, the Project landscape had materially changed. First, Unity had better visibility into the extent of the deficiencies in the construction of the Tower, some of which were so significant that they would prevent Unity from ever obtaining what it bargained for under the Project Agreement. Second, Zurich refused to make the payment under the Performance Bond and commenced the Rescission Action seeking, among other things, reimbursement of amounts previously funded under the Surety Bonds and putting at risk the Surety Bonds as a source to fund the Project. Third, the COVID-19 pandemic began, resulting in materially increased Project costs and delays.

[95] Unity has explained how the timing of its decision to terminate the Project Agreement was driven by the evolving circumstances, and I accept that explanation. The Project Agreement contains a non-waiver provision in any event.

[96] The Lenders go a step further in their assertion that the Conway Order obligated Unity to complete the Project and apply for TIC Certification. A plain reading of the Conway Order does not support that interpretation. It simply permitted Unity to do so. It is expressly stated to be without prejudice to Unity’s right to terminate the Project Agreement (and its right to exercise other contractual remedies). The Lenders response to the without prejudice language is to say that the Conway Order is not determinative of the issues on the Lift Stay Motion, which must be adjudicated by applying the governing principles. That is, for all intents and purposes, a concession that the Conway Order is not material to the court’s decision on the Lift Stay Motion.

[97] In a related argument, the Lenders suggested that the Project Agreement remedy provisions under s. 34.4 require Unity to complete all of the requirements to achieve TIC once they have elected to take on ProjectCo’s work (at its expense). This is not consistent with the clear wording of this section of the Project Agreement that expressly states that Unity can both issue termination notices and exercise its other remedies. The remedies are not mutually exclusive.

[98] The Lenders argue that, even if the Conway Order did not require Unity to achieve TIC Certification, they relied on Unity’s representation at the time of that order that it was working towards TIC Certification. They say that Unity should be estopped from terminating the Project Agreement to avoid having to do so.

[99] Unity counters that there is no evidence from the Lenders that they detrimentally relied upon any indication at the time of the Conway Order that TIC was achievable and that it was being worked towards. The entire Construction Loan was advanced long before the ProjectCo defaults. The Lenders have never said that they would have exercised their Step-in Rights or done anything differently if they had known that the Project Agreement would be terminated by Unity before any TIC Payment was made. In the meantime, the landscape changed and Unity has been bearing the entire responsibility for the continued work on the St. Michael’s Hospital redevelopment.

[100] These questions (whether Unity can be compelled to complete the Project and apply for TIC Certification, even if the Conway Order does not require that, and whether Unity should be estopped from opposing the Lenders’ efforts to have TIC certified) are matters that the Lenders say will all have to be determined on the TIC Application. This is part of the prejudice that they say they will suffer if the Stay is lifted to allow Unity to terminate the Project Agreement before those determinations can be made in their TIC Application.

[101] The relative prejudice has already been determined to weigh in Unity’s favour (above). The delay and estoppel arguments have been sufficiently answered by Unity and do not present an impediment to the court’s exercise of discretion in favour of Unity to lift the Stay.

[102] In terms of strategy, for their part, the Lenders say that they are simply trying to preserve the status quo by keeping the Stay in place (including the continued work on the Project under the ED Contract which is not impeded by the Stay) pending the determination of the TIC Application on its merits. The Lenders suggest it would be more equitable to defer Unity’s ability to terminate the Project Agreement until Zurich’s obligations are known so that the full extent of the uncovered cost overruns for the Project are known.

[103] However, the Lenders do not simply want to defer this risk allocation, they want to pursue the TIC Application and, if successful, require an interim TIC Payment from Unity (subject only to any permitted set-offs that are currently in dispute but to be determined at the same time). The ability of the Lenders to pursue the TIC Application is itself in dispute (the subject of the Motion to Dismiss addressed later in this endorsement). In other words, they are not simply looking to protect their position; they too want to be able to exercise contractual rights (belonging to ProjectCo) in the interim.

[104] The Lenders want the court-imposed Stay to remain in place as a means of altering the pre-receivership contractual rights as between these two sophisticated creditors, not to protect the debtor which is a shell company with no continuing purpose irrespective of whether the Project Agreement is terminated. They are using the Stay as a sword in an attempt to achieve an outcome in the TIC Application (which they commenced when the negotiations towards an Advance Payment failed) that they could have achieved by exercising their contractual Step-in Rights. Through this mechanism, they seek to avoid the burdens of their contractual remedy (at the time the cost would have been $65 million according to Unity’s Indebtedness Notice) while enjoying the same benefits that the contract required them to pay for.

[105] The Lenders should not be permitted to use the stay, and equity, to shift the financial risk of the Project from ProjectCo and the Lenders to Unity. A court-imposed stay was lifted in similar circumstances in Canadian Sahara Energy Inc. v. Sonde Resources Corp., 2010 ABQB 730, at para. 12:

I must balance the benefits to Sahara in allowing it time to finalize its agreement with Petroceltic with the benefits to Sonde in allowing it to terminate its relationship with Sahara so that it can pursue other partners. I begin with the obvious: these parties agreed to the contractual provisions in the various agreements. While one party to a contract may, in certain circumstances, be entitled to relief from the harshness of contractual provisions, in most cases the need for contractual certainty must prevail and the contract must be enforced. Both Sahara and Sonde knew what their respective rights and obligations were.

[106] I find similarly here that the Stay should be lifted so that the contracts can be played out as the parties provided for. Unity’s decision to exercise its right to terminate the Project Agreement provides greater certainty and immediacy to its rights regarding the set-off of cost overruns and losses associated with the rising cost of construction and construction delays. Lifting the Stay (and allowing Unity to terminate the Project Agreement) will result in negative economic consequences that were known to and factored into the Lenders’ risk assessments both at the time their Agent entered into the relevant agreements in 2015 and when they decided not to exercise their Step-in Rights that were available upon ProjectCo’s default in late 2018 and early 2019.

[107] The fact that the Lenders will not be able to pursue the TIC Application if the Stay is lifted, in circumstances where they chose not to exercise their contractual remedy of exercising their Step-in Rights that could have prevented Unity from terminating the Project Agreement, is not an unjust or inequitable outcome.

[108] All else being equal, the balancing of prejudices favours lifting the Stay. However, the Lenders have raised one further equitable argument against the exercise of the court’s discretion in favour of Unity's request to lift the Stay.

[109] The court must still consider whether Unity has come to court with clean hands when asking for a discretionary order in its favour to lift the Stay. The Lenders urge the court to focus on the alleged fraudulent actions of Unity’s senior executive in charge of the Project at the time of its procurement. It is these fraud allegations, first raised by Zurich, which led Zurich to refuse to fund under the Surety Bonds and to bring the Rescission Action, thereby defeating the primary goal of the Receivership Order (which was to demand satisfaction of the Surety Bonds).

[110] The Surety Bonds were part of the Lenders’ security for the Construction Loan. That security will be lost if the Rescission Action is successful and the actions of Unity’s former executive are implicated. The Surety Bonds were undisputedly part of the consideration for the Construction Loan. Had the Surety Bonds been available, their proceeds would have been used to satisfy amounts that Unity seeks to set-off against amounts payable by it under the Project Agreement, thereby increasing the amounts available to be used to repay the Construction Loan (pursuant to the Irrevocable Direction). Indeed, paragraph 6 of the Conway Order expressly contemplates that the proceeds of the Performance Bond would be used to reimburse Unity or pay amounts to achieve TIC.

[111] The Lenders used the Surety Bonds to transfer their risks under the P3 DBF model Project Agreement to a third party insurer. The alleged fraud by Unity’s then senior executive has, at least for the time being and until the Rescission Action has been determined, deprived the Lenders of their contractual safeguards, and they argue that Unity should not be permitted to take advantage of its contractual remedies when Unity is implicated in the fraud that has interfered with the Lenders’ protection. If Unity is responsible for the loss of this security and source of funding, the Lenders maintain that its “bad conduct” taints its entitlement to the discretionary remedy it seeks.

[112] “The conduct of the party which seeks the exercise of an equitable discretion by the court on its behalf is relevant.” See Hood (Re), at para. 5.

[113] Unity argues that its conduct and the question of whether it has clean hands must be measured in relation to its conduct after the Receivership Order, not in relation to the prior conduct of a former executive. In Hood, the court was concerned with the requesting party’s actions taken in breach of the s. 69 (1) BIA stay of proceedings. In contrast, the alleged misconduct here is nothing more than unproven allegations of fraud. Lastly, the unavailability of the Surety Bonds is equally as prejudicial to Unity as it is to the Lenders. It is not the case that Unity acted badly and has gained some advantage as a result.

[114] The Lenders have commenced a claim against Zurich seeking enforcement of Zurich’s payment obligations under the Performance Bond. Subject to the funding needs of the Project, any amounts Zurich is obligated to pay will flow to the Lenders. They have also commenced a claim against Unity seeking damages in the sum of $230,563,776, the amount of the entire Construction Loan advanced by the Lenders.

[115] The Lenders have recourse in other proceedings and through the pursuit of other claims against Unity if the fraud allegations are eventually proven and Unity is found to be responsible for the alleged fraud of its senior executive. However, the as-of-yet unproven fraud allegations relating to historic activities of a former executive of Unity that long pre-dated the receivership do not “sully” Unity’s hands so as to deprive it of the benefit of the court’s discretion to lift the Stay in circumstances where, as here, the court is otherwise satisfied that it is appropriate to do so.

Decision on the Lift Stay Motion

[116] The Stay is ordered to be lifted to permit Unity to exercise its remedy under s. 34.3(a) to terminate the Project Agreement.

B. The Assignment Motion

The Lenders' Standing: Existing Rights

[117] Unity argues that the Lenders have no standing to bring the TIC Application, by which they seek to first establish and then enforce a TIC Payment they say is owing to ProjectCo under the Project Agreement. Unity’s position regarding the Lenders’ standing is simple: they are not party to the Project Agreement; they have not assumed responsibility for ProjectCo’s defaults under the Project Agreement and have no standing to enforce any right that ProjectCo may have to insist that its (disputed) entitlement to the TIC Payment determined.

[118] The contractual mechanism by which the Lenders could have exercised ProjectCo’s rights and remedies under the Project Agreement (including with respect to the determination of any entitlement to and the amount and enforcement of the TIC Payment) was to exercise their Step-in Rights. That would have required them to assume ProjectCo’s obligations and responsibilities under the Project Agreement in order to take the benefits of that agreement. They elected not to exercise those rights.

[119] The Lenders say that their decision not to exercise their Step-in Rights does not detract from the distinct and separate security that they were granted by the Irrevocable Direction. The Step-in Rights were granted under s. 8 of the LDA without prejudice to their rights to enforce their security.

a) The Irrevocable Direction

[120] Relying upon the Irrevocable Direction, the Lenders argue that their Agent received a legal or equitable assignment of ProjectCo’s rights in respect of the TIC Payment under the Project Agreement, which gives them the right to enforce ProjectCo’s entitlement to a TIC Payment.

[121] Section 4.4(a) of the Project Agreement contains the Irrevocable Direction pertaining to the TIC Payment:

ProjectCo hereby irrevocably directs SMH to make any Tower Interim Completion Payment, together with applicable HST, to the Lenders’ Agent or as the Lenders' Agent may direct, as security for the Financing. SMH shall pay the Tower Interim Completion Payment as directed by Project Co and shall not accept any redirection without the consent of the Lenders’ Agent. SMH will pay the amounts that Project Co is entitled to hereunder once the conditions for payment set out in this Project Agreement, if any, have been satisfied…

b) Legal or Equitable Assignment or as Third Party Beneficiaries

[122] The Irrevocable Direction is not an absolute assignment of a debt or chose in action such as is required to constitute a legal assignment under s. 53(1) of the Conveyancing and Law of Property Act, R.S.O. 1990, c C.34 (“CLPA”). See 1124980 Ontario Inc. v. Liberty Mutual Insurance Company and Inco Ltd. (2003), 33 B.L.R. (3d) 206 (Ont. S.C.), at paras. 43–44.

[123] Future rights may the subject of an assignment, provided that those future rights must themselves be choses in action, such as the unfunded portion of the holdback portion under a mortgage, which is a chose in action or a right to property. See Gateway Mortgage Investment Corp v. 1384125 Alberta Ltd., 2014 ABQB 45, at paras. 28 and 29.

[124] However, to be considered a legal or equitable assignment, there must be a clear intention to transfer a right. First v. Fillion, 2020 ONCA 451, at para. 20. See also Nadeau v. Caparelli, 2016 ONCA 730, at para. 19. In Gateway Mortgage, such intention was not in dispute. The mortgagor in that case assigned its right to the holdback payment under the first mortgagee as security to a second mortgagee. It executed documents that purported to “irrevocably assign” future mortgage proceeds from the first mortgagee to the second mortgagee.

[125] The Irrevocable Direction in the immediate case, in contrast, is simply a direction about to whom the TIC Payment should be remitted if and when the conditions for its payment have been satisfied such that the TIC Payment would otherwise be payable to ProjectCo. The text of 4.4(a) does not use the word “assign” and there is no other assignment language upon which to ground a finding of the required intent.

[126] Nor does the Irrevocable Direction express a clear intention that any contractual right, other than the right to receive any TIC Payment that may be owing, was to become the property of the Agent (alleged assignee). Fillion, at para. 20. See also Nadeau v. Caparelli, 2016 ONCA 730, at para. 19.

[127] While there are no magic words required to effect an assignment, the context of this Irrevocable Direction falls short of demonstrating an intention to transfer ProjectCo's right to enforce the TIC Payment to the Lenders. All three parties, ProjectCo, Unity and the Lenders, participated in the same contractual regime together. Each of the Lenders (through their Agent) and Unity signed their own agreements with ProjectCo (in the case of the Lenders, the Credit Agreement and in the case of Unity the Project Agreement), and they all signed one agreement together, the LDA. It is that agreement, signed by all three parties, which provides the mechanism for the Lenders to enforce ProjectCo’s rights and remedies, by exercising their Step-in Rights.

[128] Unlike in Gateway Mortgage where the two mortgagees contracted separately with the mortgagor/assignor for separate rights, in this case, the parties contracted for rights and obligations that arise under various agreements entered into at the same time that must be read together and with the overarching purpose of a P3 DBF Contract in mind. If the parties had intended the Irrevocable Direction to be an assignment of the TIC Payment and corresponding right to enforce it, as an alternative to the Lenders exercising their full Step-in Rights and allowing them to do so without having to undertake the obligations associated with stepping in, they could (and I venture to say, would) have said so. These sophisticated parties chose not to use the language of assignment and they contracted for another remedy that would afford the Lenders enforcement rights. They should be taken to have chosen their words intentionally. These textual or contextual clues detract from, rather than support, any finding of a clear intention for the Irrevocable Direction to be interpreted or construed as an assignment.

[129] The same considerations arise to the Lenders' assertion that there was an equitable assignment. It is only where “the intention of the assignor clearly is that the contractual right shall become the property of the assignee, then equity requires him to do all that is necessary to implement his intention. The only essential and the only difficulty is to ascertain that such is the intention.” See Michael Furmston, Cheshire, Fifoot & Furmston’s Law of Contract, 16th ed. (Oxford: Oxford University Press, 2012), at p. 636. The intention to assign ProjectCo's right to receive and enforce the TIC Payment, and cause its requirements to be satisfied, is equally lacking for purposes of an equitable assignment as it is for a legal assignment under the CLPA.

[130] The Irrevocable Direction does not constitute either a legal or equitable assignment of ProjectCo’s right to seek TIC Certification or to invoke the provisions of the Project Agreement by which any dispute about TIC Certification is to be determined.

[131] In the further alternative, the Lenders ask the court to conclude that the Lenders’ Agent has standing to commence the TIC Application as a third-party beneficiary to the Project Agreement under the “principled exception” to the common law doctrine of privity of contract. If the principled exception applies, a third party has standing to enforce the contractual agreement including the right to commence a claim seeking enforcement of the agreement to which they claim rights under and to seek a remedy for the breach of said agreement. Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108, at pp. 122–25; Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561, at paras. 95–100, and Seelster Farms et al. v. Her Majesty the Queen and OLG, 2020 ONSC 4013, 8 B.L.R. (6th) 266, at para. 91.

[132] The principled exception does not apply here, for the same reasons as the court has found that there was no legal or equitable assignment. It cannot be said that there was a clear intention of the parties to extend the benefit in question (e.g. the right to determine the entitlement to, and demand payment of, the TIC Payment) to the Lenders who seek to rely upon it, by virtue of the Irrevocable Direction or otherwise. Quite to the contrary, these sophisticated parties expressly specified in the LDA the circumstances under which the Lenders would have the ability to enforce those rights, upon exercising their Step-in Rights.

The Lenders' Standing: Requested Court Ordered Assignment

[133] The Assignment Motion is the Lenders’ answer (in the alternative) to Unity’s argument that the Lenders have no standing to bring the TIC Application. They ask the court to authorize the Receiver to assign to the Agent all of ProjectCo’s rights to enforce payment and recovery of the TIC Payment from Unity under the Project Agreement. They further ask, if necessary and in the alternative, that the Receiver be joined as a co-applicant to the TIC Application as a necessary party. [^8]

a) The Receiver's Rights to be Assigned: Scope and Limitations

[134] The first problem with the requested court ordered and authorized assignment by the Receiver to the Agent of ProjectCo's rights to determine TIC and enforce payment and recovery of the TIC Payment is that the Receiver’s mandate is narrow. This is a non-possessory receivership. Neither the Receiver nor the Lenders have asked that the scope of the receivership be expanded. In these circumstances, the court was not directed to the provisions of the original Receivership Order said to grant the Receiver the rights that the court is now being asked to authorize be assigned to the Agent. However, this was not a ground of opposition raised by Unity; so, while it is not clear exactly where or how the Receiver possesses ProjectCo’s rights and remedies under the Project Agreement relating to the TIC Payment, I have not decided the Assignment Motion on this basis.

[135] Even if the Receivership Order could be read broadly such that the Receiver possesses all of ProjectCo’s rights and remedies under the Project Agreement relating to the TIC Payment, the Receiver’s ability to deal with those rights and remedies is subject to all of the same constraints as would apply to their exercise by ProjectCo. ProjectCo itself is precluded from assigning its contractual rights and remedies under the Project Agreement without Unity’s consent, which can be withheld in Unity’s sole discretion under s. 47.1(a) of the Project Agreement. Unity has expressly stated that it will not consent to any assignment of ProjectCo’s rights and remedies under the Project Agreement to the Lenders.

[136] The Lenders ask the court to override this contractual restriction upon assignments without Unity’s consent. I am not prepared to authorize or direct an assignment of a contractual remedy, disassociated from the corollary obligations, in these circumstances. In Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, at para. 106, the Supreme Court of Canada stated:

... It is a “fundamental” and “universal commercial legal principle” that an assignor may not assign contractual rights in such a way as to “convey the benefits and nullify the burdens”. Stated differently, a party seeking to enforce assigned rights under an agreement “can only do so subject to the terms and conditions therein”…

[137] The Lenders are asking the court to grant them rights that are greater than what the applicable contractual regime provides for. ProjectCo remains in default with no ability to cure. Since the Lenders have not assumed those obligations themselves it is unclear how ProjectCo’s defaults under the Project Agreement would be factored into any consideration of an assigned right to enforce payment and recovery of the TIC Payment from Unity under the Project Agreement.

b) Alternative Relief: Authorizing the Agent to Act on Behalf of the Receiver

[138] Fundamentally, ProjectCo would not have the ability to come to court for the relief that the Agent seeks on the TIC Application. The Lenders effectively conceded this and, on October 26, 2022, amended the relief sought in their Assignment Motion to add further alternative relief, including:

a. if necessary, an order authorizing BMO [the Agent] in the name of or on behalf of ProjectCo to exercise ProjectCo’s rights under the Project Agreement to have the IC determine whether TIC has been achieved in accordance with the dispute resolution process set out in Schedule 27 of the Project Agreement.

[139] The Lenders advised the court that, if necessary, they would be prepared to agree to follow the Dispute Resolution Procedure provided in Schedule 27 of the Project Agreement for the determination of ProjectCo’s entitlement to, and the amount of, any TIC Payment, although they point out that at present there is no IC to adjudicate and oversee the dispute resolution procedure as required by Section 4 of Schedule 27. The Lenders submit that, by this alternative relief, they are not seeking an assignment of ProjectCo’s rights under the Project Agreement. They characterize this alternative relief to be for the court to grant permission to the Agent to enforce Unity’s payment obligations on behalf of ProjectCo.

[140] The contractually specified mechanism requires that the TIC Certificate be applied for, followed by a determination by the IC under the Project Agreement as to whether TIC has been achieved and, if it has, the IC would grant a TIC Certificate. Should a dispute arise in that application, an extra-judicial dispute resolution procedure is provided for under the Project Agreement.

[141] The very existence of this process demonstrates the futility of the TIC Application as presently constituted (discussed in the next section of this endorsement). It exemplifies the problem with what the Lenders are asking the court to do: namely assign their Agent the right to pursue the TIC Payment through a court process where the Project Agreement has set out a different mechanism for them to ultimately receive any TIC Payment that becomes payable to ProjectCo.

[142] Unity’s position is that none of ProjectCo (because of its defaults), the Receiver (because of its mandate and/or ProjectCo's defaults) or the Agent (because of its lack of standing) can enforce the TIC Payment without addressing ProjectCo's defaults.

[143] The Lenders argue that it cannot be the case that no one has the ability to enforce ProjectCo’s rights and remedies under the Project Agreement as that would render the Irrevocable Direction a nullity and would result in a windfall to Unity if the TIC Payment was owing, which the Lenders say remains to be determined on the TIC Application. They say they must have some recourse to establish that TIC has been achieved and, if so, to enforce the TIC Payment owing to ProjectCo (and directed to be paid to them). They contend: Where there is a right there must be a remedy. See Black’s Law Dictionary, 6th ed, Letter U, p. 1520.

[144] The Lenders put forward the further alternative relief sought in their Assignment Motion as the appropriate solution to this problem: The court should issue directions to allow the Agent to exercise ProjectCo’s right to have the IC determine whether TIC has been achieved in accordance with Schedule 27 of the Project Agreement.

[145] However, in asking the court for this remedy, the Lenders do not address the fact that they negotiated for specific rights and security that are provided for in the contracts that they entered into, specifically under their Loan Agreement with ProjectCo and under the LDA. If they had exercised their Step-in Rights, they would have been able to enforce all of ProjectCo’s rights and remedies under the Project Agreement. The court is not inclined to exercise its equitable discretion to allow the Agent to step in to exercise ProjectCo’s rights and remedies under the Project Agreement without any accountability for ProjectCo’s obligations under and breaches of the Project Agreement and the implications thereof, the full extent of which remains unknown at this time and will remain unknown until the Project has been completed and Zurich's Rescission Action has been resolved.

Decision on the Assignment Motion

[146] For the foregoing reasons, I find that the Lenders have no legal or equitable right to seek a determination of the entitlement of ProjectCo to any TIC Payment, whether by the court or the IC (and an arbitrator, if necessary), and they have no standing to bring the TIC Application. Their lack of standing cannot be not cured by the relief sought on the Assignment Motion or by the request to add the Receiver as a co-applicant. The Assignment Motion is dismissed.

C. The Motion to Dismiss the TIC Application

[147] Since the Lift Stay Motion is granted, the TIC Application will become moot once Unity terminates the Project Agreement. I will nonetheless briefly explain why the Motion to Dismiss is also granted, in the interests of completeness.

Rules 21.01(1)(b) and 21.01(3)(b)

a) Lack of Standing:

[148] The Lenders’ lack of standing to bring the TIC Application is sufficient grounds for it to be stayed or dismissed under rr. 21.01(1)(b) and 21.01(3)(b). To resist a motion to strike for lack of standing:

a. The applicant must have either a public interest or private interest standing;

b. In cases where private interest standing is asserted, the applicant must have a “personal and direct” legal interest in the litigation; and

c. The applicant has the burden of establishing their standing by pleading facts that would support such standing.

See Carroll v. Toronto-Dominion Bank, 2021 ONCA 38, 153 O.R. (3d) 385, at paras. 31 and 33, leave to appeal ref’d.

[149] At most, the Lenders have an indirect or contingent financial interest in the TIC Payment as a result of the Irrevocable Direction, which is insufficient to establish standing. See Carroll and Morris v. Nicolaidis, 2021 ONSC 2957, at paras. 33–34.

[150] The Irrevocable Direction has been found not to be a legal or equitable assignment of the TIC Payment or of ProjectCo's rights and remedies in respect of the TIC Payment (for reasons outlined earlier in this endorsement). The Irrevocable Direction only comes into operation once the conditions for the TIC Payment under the Project Agreement have been satisfied.

b) The TIC Application Cannot Succeed as Constituted

[151] The premise of the TIC Application is misguided and it should be stayed or dismissed on that basis as well. It originally sought a declaration that TIC has been achieved or "substantially achieved". However, the Lenders now acknowledge that it has not been as there has been no TIC certification. The TIC Application alternatively seeks an order requiring Unity to take steps to achieve TIC, which can only be found to have been satisfied by the IC making that determination under Schedule 27 of the Project Agreement. The Lenders assert that Unity has an obligation to do so under either the Project Agreement or the order of Conway Order. I disagree. Neither the Project Agreement nor the Conway Order impose that obligation on Unity.

[152] The Lenders then seek, by way of alternative relief on the Assignment Motion, for the court to authorize the Agent to enforce ProjectCo’s right to ask the IC to determine whether TIC was achieved and provide the necessary certification (in accordance with the certification mechanism prescribed under the Project Agreement). However, that relief is not part of the TIC Application. The alternative relief sought by the Assignment Motion (that the court has declined to grant for other reasons) brings into focus the problems with the TIC Application as presently constituted.

c) Decision on the Motion to Dismiss Under Rules 21.01(1)(b) and 21.01(3)(b)

[153] This is a classic circumstance in which a r. 21 motion should be granted as there is no point to the TIC Application continuing as it is presently constituted when it is plain and obvious that it cannot succeed. See e.g. R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, 21 BCLR (5th) 215, at para. 17.

[154] Based on the lack of standing of the Agent/Lenders and futility of the TIC Application as currently constituted, I might ordinarily order that the TIC Application be stayed rather than dismissed. However, since it is going to become moot as a result of the termination of the Project Agreement following the lifting of the Stay, I am granting the requested order that the TIC Application be dismissed.

Abuse of Process: Rules 21.01(3)(d) and 25.11(c)

[155] Unity asserts that the TIC Application is strategic and should also be stayed because it is an abuse of the court’s process, under rr. 21.01(3)(d) and 25.11(c).

[156] Earlier in this endorsement, the strategic nature of all of the ongoing proceedings was considered. The TIC Application is no more or less strategic than the Lift Stay Motion; both are to be expected and neither rise to the level that would constitute grounds for denying equitable relief if the court was otherwise inclined to do so. In this instance, the court has concluded that the TIC Application should be dismissed on other grounds, not on the basis of it being an abuse of process.

The Merits of the TIC Application

[157] Despite the fact that neither side was asking the court to decide the merits of the TIC Application, some considerable time and effort was devoted to submissions from both sides on the merits of that application. The merits of that application are not directly relevant to the outcome of the motions presently under consideration. They do provide some context, and will be reviewed briefly.

[158] Under the direction and management of Ellis Don, construction of the Project, including work on the Tower, continued after the Receivership Order. Various subtrades were retained to complete their scope of work including remedying deficiencies. However, the reduced scope of work under the CCDC 5A Contract included only some but not all of the items required for TIC under the Project Agreement. Some of the excluded TIC items are not to be completed until after Substantial Completion, and some not at all.

[159] The Lenders acknowledge that TIC Payment Certification requires that the Tower be completed in accordance with the Project Specific Output Specifications (“PSOS”). The Lenders ask the court to draw adverse inferences from refusals by Unity to answer questions about the specific requirements for TIC during the cross-examinations on these motions.

[160] Unity says it is not appropriate for the court to draw inferences about the merits of the TIC Application when the court is not deciding it. This is also because Mr. Afonso of Pelican Woodcliff, the Lenders’ Technical Advisor for the Project, conceded in cross-examination that (i) the Tower has not been completed in accordance with the PSOS; (ii) TIC has not been achieved; and (iii) TIC could only be achieved if Unity voluntarily issued variations to the requirements necessary to achieve TIC.

[161] Unity contends that, without the issuance of a variation under s. 29 of the Project Agreement to change the scope of TIC, or its agreement to accept non-compliances which it is not prepared to do, there is no basis for concluding that TIC has been achieved. Substantial compliance with the TIC requirements, while asserted by the Lenders, is not provided for in the Project Agreement. Unity points out that the concept of Tower Substantial Completion that was achieved in August 2020 under the ED Contract is not the same as TIC.

[162] The alternative relief sought by the Amended TIC Application directing Unity to achieve TIC (also supplemented by relief it has added to the Assignment Motion to permit to require the IC to determine whether it has been achieved in accordance with the dispute resolution process set out in Schedule 27 of the Project Agreement) is how the Lenders would propose to get around these obstacles to the TIC Application.

[163] Even if TIC is achieved, s. 4.12(a)(i) of the Project Agreement requires that the parties apply set-offs to the TIC Payment to determine the quantum of that payment. Unity maintains that paragraph 6 of the Conway Order, consented to by the Lenders, is consistent with this. It requires that all payments made by Unity under the “Supplemental Agreements” to achieve TIC and advance the Project “shall first be reimbursed from the Performance Bond Option 2.4 Payment Amount, failing which it shall be set off by Unity against the Tower Interim Completion Payment ...” Under Section 2(x) of the Conway Order, “Supplemental Agreements” includes all the direct contracts Unity entered into through the exercise of its Remedy Rights to advance the Project, including the CCDC 5A contract with Ellis Don and the ED Contract. Unity argues that even if TIC was achieved at some point, or is determined to have been achieved at some point in the future, it would be entitled to set off the extensive additional costs that it has incurred. The Lenders dispute this.

[164] These merits-based arguments on both sides need not be resolved. While the Lenders argue that the very existence of these disputes is reason not to dismiss or stay the TIC Application before these issues can be adjudicated on their merits, that has been overtaken by the court's decisions on the Lift Stay Motion and the Motion to Dismiss for the reasons previously indicated.

[165] While the court is generally cautious about summarily dismissing proceedings before the issues raised can be adjudicated on their merits, there are circumstances in which it is appropriate to do so, and this is one such circumstance, having regard to the other determinations made in the context of the three motions.

Unity's Alternative Relief

[166] If the Stay Motion had not been granted and the TIC Application had not been dismissed, then Unity sought, in the alternative, that the TIC Application be converted to an action and that it be stayed pending the outcome of the Rescission Action. This alternative relief does not arise because the Stay Motion and the Motion to Dismiss are both granted.

[167] The rationale for this request by Unity was that, even if there was a finding that TIC has been achieved, the set-offs to be applied pursuant to s. 4.12(a)(i) of the Project Agreement include amounts that Unity may be found to owe to Zurich in the Zurich Action. Unity argued that it would be prejudicial to Unity for the court to order that the TIC Payment be paid before the full extent of Unity’s set-offs can be determined. For that reason, Unity asked that the TIC Application at the very least be stayed until after the determination of the Rescission Action.

[168] If I had not dismissed the TIC Application I would not have held it in abeyance pending the determination of the Rescission Action. There are a sufficient amount of known expenses to allow a preliminary determination of any entitlement of ProjectCo to a TIC Payment that any further adjustments could have been dealt with subsequently. There is little risk that the Lenders would not be good for the money if that later resulted in a downward adjustment to any TIC Payment made by Unity.

[169] The parties are in agreement, and the court concurs, that if the TIC Application were to proceed, it ought to be converted to an action given that: (i) there are material facts in dispute, and (ii) there are complex issues requiring expert evidence. Further, there are significant factual disputes between the parties as to the status of the Project, whether TIC can ever be achieved, the scope of remaining work to complete the Project and the applicability and quantum of set-offs available to the TIC Payment. See G.F. Machining Solutions LLC v. Technicut Tool Inc., 2019 ONSC 2259, at paras. 9–10, 18–19, 21; and Przysuski v. City Optical Holdings Inc., 2013 ONSC 5709, at para. 10.

Costs

[170] Given the complexity of the interrelated issues on these motions and the uncertainty of the outcome, the parties agreed to exchange their Costs Outlines before the end of 2023.

[171] After the release of this endorsement, the parties shall first confer to determine whether they can reach an agreement on the costs of these motions. They shall advise the court by March 29, 2024 whether or not such an agreement has been reached. If not, a case conference may be scheduled before me in the normal course through the Commercial List Scheduling Office to discuss a timetable for the exchange of written cost submissions and to consider whether the matter should be decided based on written submissions alone or a combination of in writing and oral submissions on costs.

Final Order and Disposition

[172] I did not hear any objections to the form of order sought by Unity on the Lift Stay Motion that was included as part of the Motion Record. The draft form of order will require the addition of my name and a date as well as adjustments to the preamble to reflect the hearing dates, before it can be signed. For this, and any other orders that the parties wish to have signed arising out of this endorsement, the procedure under r. 59 for settling orders should be followed. Once settled, they may be submitted to me for signature through the Commercial List office together with the approvals as to form and content of all parties. If the forms of order cannot be settled to the satisfaction of the parties, a case conference may be requested before me through the Commercial List office.

[173] This endorsement shall have the immediate effect of a court order without the necessity of a formal order being taken out.

KIMMEL J. Date: March 13, 2024

Footnotes

[^1]: The Lenders act through their Agent. References throughout this endorsement to the “Lenders” also include positions taken or asserted on behalf of the Lenders by their Agent. [^2]: This alternative relief for the conversion of the TIC Application to an action is agreed to by the Lenders, if the TIC Application is not otherwise rendered moot or dismissed. [^3]: Standardized by the Canadian Construction Documents Committee [^4]: The parties confirmed that this revised TIC Date and TIC Agreement are not relevant to any of the issues on the present motions. [^5]: According to Unity, the amount of that indebtedness would now be in excess of $100 million. [^6]: In those negotiations, this payment was not referred to as the TIC Payment. While the parties each suggest that the court can draw certain inferences from the fact of these negotiations and what they were each willing, and not willing, to agree to, in the absence of any agreement having been reached, the court places no reliance upon the evidence about the back and forth in these negotiations. [^7]: The Lenders' characterization of the Irrevocable Direction as a legal or equitable assignment of ProjectCo's right to TIC determined and enforcement the TIC Payment and the implications of that are considered later in this endorsement. [^8]: Adding the Receiver as a necessary party to the TIC Application under r. 5.03 of the Rules of Civil Procedure, R.S.O. 1990, c. C.43, would not solve the Lenders’ standing issue on the TIC Application. It might have assisted the Lenders if there had been a finding of an equitable assignment, since an equitable assignment would have left the legal chose in action with ProjectCo (see Gateway, at paras. 32 and 34). Since the requested court ordered assignment by the Receiver to the Agent of ProjectCo's rights to enforce payment and recovery of the TIC Payment is not being granted, there is no other reason to add the Receiver as a party. Adding the Receiver as a party does not change the outcome of the court's determinations regarding the Lenders' standing to pursue the TIC Application. It is a distraction in the context of these otherwise complicated series of alternative arguments, hence the choice to address it in a footnote rather than in the body of this endorsement.